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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________
FORM
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(Mark One)
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
-OR-
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from _________ to _________
Commission file number
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(Exact name of Registrant as specified in its Charter)
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(State or other jurisdiction of incorporation or organization) |
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(Former Address) (Zip Code)
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(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
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Securities registered pursuant to Section 12(b) of the Act: | ||
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No ¨
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). Yes No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
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Large accelerated filer |
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| Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of November 21, 2022 there were
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MELI KASZEK PIONERR CORP
FORM 10-Q
TABLE OF CONTENTS
PART I – FINANCIAL INFORMATION
ITEM 1. Condensed Financial Statements (unaudited)
MELI KASZEK PIONEER CORP
Condensed Balance Sheets
As of September 30, 2022 and December 31, 2021
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| September 30, |
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| December 31, |
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| (unaudited) |
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Assets |
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Cash |
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| $ | |
Prepaid expenses |
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Marketable securities held in Trust Account |
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Total current assets |
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Marketable securities held in Trust Account |
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Prepaid expenses - non-current |
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Total assets |
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Liabilities, Ordinary Shares Subject to Possible Redemption, and Shareholders’ Deficit |
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Accounts payable and accrued expenses |
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Class L ordinary shares derivative liability |
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Deferred underwriting discounts and commissions |
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Total current liabilities |
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Class L ordinary shares derivative liability |
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Deferred underwriting discounts and commissions |
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Total noncurrent liabilities |
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Total liabilities |
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Commitments and Contingencies |
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Redeemable Class A ordinary shares subject to possible redemption, |
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Shareholders’ Deficit |
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Class A ordinary shares, $ |
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Additional paid-in capital |
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Accumulated deficit |
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Total Shareholders’ Deficit |
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Total Liabilities, Ordinary Shares Subject to Possible Redemption, and Shareholders’ Deficit |
| $ | |
| $ | |
The accompanying notes are an integral part of these unaudited condensed financial statements.
MELI KASZEK PIONEER CORP
Condensed Statements of Operations
For the nine and three-month periods ended September 30, 2022 and for the period from May 27 (Inception) through September 30, 2021 and three-month period ended September 30, 2021
(Unaudited)
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| For the nine-month period ended September 30, 2022 |
| For the three-month period ended September 30, 2022 |
| For the period from May 27, 2021 |
| For the three-month period ended September 30, 2021 | ||||
General and administrative expenses |
| $ | ( |
| $ | ( |
| $ | ( |
| $ | — |
Loss from operations |
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Change in fair value of derivative liability |
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Financing expense on derivative liability |
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Interest on marketable securities held in Trust Account |
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Net income (loss) |
| $ | |
| $ | |
| $ | ( |
| $ | ( |
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Weighted average shares outstanding of Class A ordinary shares subject to possible redemption, basic and diluted |
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Basic and diluted net income per share, Class A ordinary shares subject to possible redemption |
| $ |
| $ |
| $ | — |
| $ | — | ||
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Weighted average shares outstanding of Class A non-redeemable ordinary shares, basic and diluted |
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| — |
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| — | ||
Basic and diluted net income per share, Class A non-redeemable ordinary shares |
| $ |
| $ |
| $ | — |
| $ | — | ||
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Weighted average shares outstanding of Class L ordinary shares, basic and diluted |
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Basic and diluted net loss per share, Class L ordinary shares |
| $ | — |
| $ | — |
| $ | ( |
| $ | ( |
The accompanying notes are an integral part of these unaudited condensed financial statements.
MELI KASZEK PIONEER CORP
Condensed Statements of Changes in Class A Ordinary Shares Subject to Possible Redemption and Shareholders’ Deficit
For the nine-month period ended September 30, 2022 and for the period from May 27 (Inception) through September 30, 2021
(Unaudited)
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| Class A ordinary shares subject to possible redemption |
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| Class A |
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| Shares |
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| Amount |
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| Shares |
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| Amount |
| Additional |
| Accumulated Deficit |
| Shareholders’ Deficit | |||
Balance as of December 31, 2021 | |
| $ | |
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| $ |
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| $ | ( |
| $ | ( |
Accretion of Class A ordinary shares redemption value | — |
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Net income | — |
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Balance as of March 31, 2022 | |
| $ | |
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| $ |
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| $ | ( |
| $ | ( |
Accretion of Class A ordinary shares redemption value | — |
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Net income | — |
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Balance as of June 30, 2022 | |
| $ | |
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Accretion of Class A ordinary shares redemption value | — |
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Waiver of deferred underwriting discounts and commissions | — |
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Net income | — |
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Balance as of September 30, 2022 | |
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| Class L |
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| Shares |
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| Amount |
| Additional |
| Accumulated Deficit |
| Shareholders’ Deficit | |||
Balance as of May 27, 2021 (inception) | — |
| $ | — |
| $ | — |
| $ | — |
| $ | — |
Issuance of Class L ordinary shares to Sponsor | |
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Net loss | — |
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Balance as of June 30, 2021 | |
| $ | |
| $ | |
| $ | ( |
| $ | |
Reclassification of Class L ordinary shares to derivative liability (Note 5) | ( |
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Net loss | — |
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Balance as of September 30, 2021 | — |
| $ | — |
| $ | — |
| $ | ( |
| $ | ( |
The accompanying notes are an integral part of these unaudited condensed financial statements.
MELI KASZEK PIONEER CORP
Condensed Statements of Cash Flows
For the nine-month period ended September 30, 2022 and for the period from May 27 (Inception) through September 30, 2021
(Unaudited)
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| For the nine-month period ended September 30, 2022 |
| For the period from May 27, 2021 | ||
Cash flows from operating activities: |
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Net income (loss) | $ | |
| $ | ( |
Adjustments to reconcile net income (loss) to net cash used in operating activities: |
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Change in fair value of derivative liability |
| ( |
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Financing expense on derivative liabilities |
| — |
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Interest on marketable securities held in Trust Account |
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Changes in operating assets and liabilities: |
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Accounts payable and accrued expenses |
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Prepaid expenses |
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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 payable - related party |
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Proceeds from issuance of Class L ordinary shares to Sponsor |
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Payments on deferred offering costs included in accrued expenses |
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Prepaid stock subscription |
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Net cash provided by financing activities |
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Net change in cash and restricted cash |
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Cash and restricted cash, beginning of the period |
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Cash and restricted cash, end of the period | $ | |
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Supplemental disclosure of noncash activities: |
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Deferred offering costs included in accrued offering costs | $ | — |
| $ | |
Accretion of Class A ordinary shares redemption value | $ | |
| $ | — |
Waiver deferred underwriting discounts and commissions | $ | |
| $ | — |
The accompanying notes are an integral part of these unaudited condensed financial statements.
MELI Kaszek Pioneer Corp (the “Company”) is a Cayman Islands exempted company structured as a blank check company incorporated in the Cayman Islands on May 27, 2021. The Company was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization, or similar business combination with one or more businesses (the “Business Combination”). The Company is not limited to a particular industry or sector for purposes of consummating a Business Combination. The Company is an early stage and emerging growth company and, as such, the Company is subject to all of the risks associated with early stage and emerging growth companies.
As of September 30, 2022, the Company had not commenced any operations. All activity for the period ended September 30, 2022, relates to our search for a target to consummate a Business Combination. The Company will not generate any operating revenues until after the completion of its initial Business Combination, at the earliest. The Company will generate non-operating income in the form of interest income on cash and cash equivalents from the proceeds derived from the Company’s initial public offering (“IPO”).
The Company’s sponsor is MELI Kaszek Pioneer Sponsor LLC (the “Sponsor”), a Cayman Islands limited liability company.
The registration statement for the Company’s IPO was declared effective on September 28, 2021. On October 1, 2021, the Company consummated the IPO of
Transaction costs of the IPO amounted to $
Following the closing of the IPO on October 1, 2021, $
The Company will provide its public shareholders with the opportunity to redeem all or a portion of their shares of Class A ordinary shares upon the completion of the initial Business Combination either (i) in connection with a shareholder meeting called to approve the initial Business Combination or (ii) by means of a tender offer. The decision as to whether the Company will seek shareholder approval of a proposed initial Business Combination or conduct a tender offer will be made by the Company, solely in the Company’s discretion. The public shareholders will be entitled to redeem their shares at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account as of two business days prior to the consummation of the initial Business Combination including interest earned on the funds held in the Trust Account and not previously released to the Company to pay its franchise and income taxes, divided by the number of then outstanding public shares, subject to the limitations. The amount in the Trust Account is initially anticipated to be approximately $
The ordinary shares subject to redemption will be recorded at a redemption value and classified as temporary equity upon the completion of the IPO and subsequently accreted to redemption value, in accordance with the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 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 $
The Company will have only
The Sponsor has agreed that it will be liable to the Company if and to the extent any claims by a third party for services rendered or products sold to the Company, or a prospective target business with which the Company has entered into a written letter of intent, confidentiality or other similar agreement or business combination agreement, reduce the amount of funds in the Trust Account to below the lesser of (i) $
Emerging Growth Company
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012, as amended (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 independent registered public accounting firm 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 shareholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that 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.
Risks and Uncertainties
On January 30, 2020, the World Health Organization ("WHO") announced a global health emergency because of a new strain of coronavirus (the "COVID-19 outbreak"). In March 2020, the WHO classified the COVID-19 outbreak as a pandemic, based on the rapid increase in exposure globally. The full impact of the COVID-19 outbreak continues to evolve. Management continues to evaluate the impact of the COVID-19 outbreak on the industry and has concluded that while it is reasonably possible that the virus could have a negative effect on the Company’s financial position, results of its operations, and search for a target company, the specific impact is not readily determinable as of the date of these financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty or its inability to continue as a going concern.
United States and global markets are experiencing volatility and disruption following the escalation of geopolitical tensions that began in February 2022 from the conflict between Russia and Ukraine that have resulted in the deployment of military forces to eastern Europe, sanctions and other restrictive actions against Russia, Belarus and related individuals and entities. Although the length and impact of the ongoing military conflict in Ukraine is highly unpredictable, the conflict has and could continue to lead to market disruptions, including significant volatility in commodity prices, credit and capital markets, as well as supply chain disruptions. Additionally, Russian military actions and the resulting sanctions could adversely affect the global economy and financial markets and lead to instability and lack of liquidity in capital markets.
Any of the abovementioned factors, could adversely affect the search for any target business with which the Company ultimately consummate the initial Business Combination. The extent and duration of conflict, resulting sanctions and any related market disruptions are impossible to predict, but could be substantial, particularly if current or new sanctions continue for an extended period of time or if geopolitical tensions result in expanded military operations on a global scale. Any such disruptions may affect Company’s ability to raise equity or debt financing in connection with any particular Business Combination.
Liquidity and Capital Resources
As of September 30, 2022 and December 31, 2021, the Company had $
As of September 30, 2022 and December 31, 2021, the Company had working capital of $
In addition, in order to finance transaction costs in connection with a Business Combination, the Sponsor, an affiliate of the Sponsor or certain of the Company’s officers and directors may, but are not obligated to, provide the Company Working Capital Loans. As of September 30, 2022 and December 31, 2021, there were no amounts outstanding under any Working Capital Loans.
In order to fund working capital deficiencies or finance transaction costs in connection with a Business Combination, on November 14, 2022, the Sponsor provided a firm commitment to the Company of up to $
Based on the foregoing, management believes that the Company will have sufficient working capital and funding to meet its needs through the earlier of the consummation of a Business Combination or one year from this filing. Over this time period, the Company will be using the funds held outside of the Trust Account for paying existing accounts payable, identifying and evaluating prospective initial Business Combination candidates, performing due diligence on prospective target businesses, paying for travel expenditures, selecting the target business to merge with or acquire, and structuring, negotiating and consummating the Business Combination.
The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US 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 US 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 statement of the financial position, operating results and cash flows for the periods presented.
The results for the period 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 periods.
The preparation of financial statements in conformity with US 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.
The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash and cash equivalents. As of September 30, 2022 and December 31, 2021, there were
Marketable Securities Held in Trust Account
The Company’s portfolio of investments held in the Trust Account are comprised solely of U.S. government securities with a maturity of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act which invest only in direct U.S. government treasury obligations. Marketable securities are presented on the balance sheet at fair value at the end of the period. Gains and losses resulting from the change in fair value of these investments are included in interest on marketable securities held in the Trust Account in the accompanying statements of operations.
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institution, which, at times, may exceed the Federal Depository Insurance Coverage. The Company has not experienced losses on these accounts.
The Company accounts for its Class A ordinary shares subject to possible redemption in accordance with the guidance in ASC 480. Class A ordinary shares subject to mandatory redemption (if any) are classified as a liability instrument and are measured at fair value. Conditionally redeemable Class A ordinary shares (including ordinary shares that features redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity. At all other times, Class A ordinary shares are classified as shareholders' equity. The Company’s Class A ordinary shares feature certain redemption rights that are considered to be outside of the Company’s control and subject to the occurrence of uncertain future events.
The fair value of the Company’s assets and liabilities, which qualify as financial instruments under the ASC 820, “Fair Value Measurement,” approximates the carrying amounts represented on the balance sheets, primarily due to their short-term nature.
The Company accounts for derivative financial instruments in accordance with ASC 815, “Derivatives and Hedging.” For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value upon issuance and remeasured at each reporting date, with changes in the fair value reported in the statements of operations. The classification of derivative financial instruments is evaluated at the end of each reporting period.
The fair value of the Company’s assets and liabilities, which qualify as financial instruments under the ASC 820 approximates the carrying amounts represented on the balance sheets.
The fair value hierarchy is categorized into three levels based on the inputs as follows:
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. Example 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 the Company’s assessment of the assumptions that market participants would use in pricing the asset or liability.
The Company accounts for income taxes under ASC 740, “Income Taxes”. ASC 740 requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the 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.
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.
There is currently no taxation imposed on income by the Government of the Cayman Islands. In accordance with Cayman income tax regulations, income taxes are not levied on the Company. Consequently, income taxes are not reflected in the Company’s financial statements.
The Company complies with accounting and disclosure requirements of ASC 260, “Earnings per Share”. Net income (loss) per share is computed by dividing net income (loss) by the weighted-average number of ordinary shares outstanding during the period.
The statements of operations include a presentation of income (loss) per Class A ordinary shares subject to possible redemption, Class A non-redeemable ordinary shares and Class L ordinary shares following the two-class method of income (loss) per share. In order to determine the net income (loss) attributable to Class A ordinary shares subject to possible redemption, Class A non-redeemable ordinary shares and Class L ordinary shares, the Company first considered the total income (loss) allocable to the different classes of shares. This is calculated using the total net income (loss) less any dividends paid and deemed dividends. For purposes of calculating net income (loss) per share, any remeasurement of the accretion to redemption value of the Class A ordinary shares subject to possible redemption was considered to be dividends paid to the public stockholders based on ASC 480-10-S99-3A.
As of September 30, 2022, the Company did not have any dilutive securities and other contracts that could, potentially, be exercised or converted into ordinary shares and then share in the earnings of the Company. As a result, diluted net income (loss) per share is the same as basic income (loss) per share for the period presented.
Class L ordinary shares will convert into Class A ordinary shares after the initial Business Combination only to the extent certain triggering events occur prior to the 5th anniversary of the initial Business Combination, including three equal triggering events based on the Company’s stock trading at $
The earnings (loss) per share presented in the statements of operations is based on the following:
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| For the nine-month period ended September 30, 2022 |
| For the three-month period ended September 30, 2022 | ||||||||
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| Class A ordinary shares subject to possible redemption |
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| Class A ordinary shares subject to possible redemption |
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| Class A non-redeemable ordinary shares |
Basic and diluted net income per share: |
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Numerator: |
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Allocation of net income including accretion of temporary equity | $ | |
| $ | |
| $ | |
| $ | |
Accretion of temporary equity to redemption value |
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Allocation of net income | $ | |
| $ | |
| $ | |
| $ | |
Denominator: |
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Weighted-average shares outstanding |
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Basic and diluted net income per share | $ | |
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| For the period from May 27, 2021 (Inception) through September 30, 2021 |
| For the three-month period ended September 30, 2021 | ||
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| Class L ordinary shares |
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| Class L ordinary shares |
Basic and diluted net loss per share: |
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Numerator: |
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Net loss | $ | ( |
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Denominator: |
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Weighted-average shares outstanding |
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Basic and diluted net loss per share | $ | ( |
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Recently Adopted Accounting Standards
On October 1, 2021, the Company consummated its IPO of
Following the closing of the IPO, the Company received $
The Private Placement Shares will not be transferable, assignable, or salable until
Founder Shares
As of June 17, 2021, the Sponsor paid $
The Sponsor, officers and directors of the Company have entered into a letter agreement with the Company, pursuant to which they have agreed to (i) waive their redemption rights with respect to any Class L ordinary shares and public shares they hold in connection with the completion of the initial Business Combination, (ii) waive their redemption rights with respect to any Class L ordinary shares and public shares they hold in connection with a shareholder vote to approve an amendment to the Company amended and restated memorandum and articles of association (as defined below) to modify the substance or timing of the Company’s obligation to redeem
On September 10, 2021, the Company also amended its memorandum and articles of association (the “Amended and Restated Memorandum and Articles of Association”). The Company’s Amended and Restated Memorandum and Articles of Association provide that the holders of the Class L ordinary shares have the right to vote on the appointment of directors. Holders of the public shares are not entitled to vote on the appointment or removal of directors or continuing the Company in a jurisdiction outside the Cayman Islands prior to consummation of the initial Business Combination.
The Sponsor has agreed not to transfer, assign or sell (i) any of their Class L ordinary shares and any Class A ordinary shares issuable upon conversion thereof until the earlier to occur of: (A)
The Company’s Amended and Restated Memorandum and Articles of Association provide that the Class L ordinary shares will convert into Class A ordinary shares after the initial Business Combination, only to the extent the trading price of the public shares exceeds certain market price thresholds after the initial Business Combination and before the fifth anniversary of the initial Business Combination, at a ratio such that the number of Class A ordinary shares issuable upon conversion of all Class L ordinary shares would equal, in the aggregate on an as-converted basis, would represent
In addition, in the event of any liquidation, merger, share exchange, reorganization or other similar transaction is consummated after our initial Business Combination (“Strategic Transaction”) that results in all of the public shareholders having the right to exchange their Class A ordinary shares for cash, securities or other property, then, immediately before the consummation of such Strategic Transaction, all of the then-outstanding Class L ordinary shares will automatically convert into Class A ordinary shares, contemporaneously with the closing of such Strategic Transaction, at a ratio such that the aggregate number of Class A ordinary shares issuable upon conversion of all Class L ordinary shares (including the Class L ordinary shares) in the aggregate on an as-converted basis, would represent no more than
completion of this offering (including any over-allotment shares if the underwriters exercise their over-allotment option and without giving effect to any redemptions of any public shares in connection with the initial Business Combination), plus (ii) the total number of Class A ordinary shares issued or deemed issued or issuable upon conversion of the Class L ordinary shares, plus (iii) unless waived by the Sponsor, the total number of Class A ordinary shares or equity-linked securities exercisable for or convertible into Class A ordinary shares issued, deemed issued, or to be issued, in connection with or in relation to the consummation of the initial Business Combination, excluding (x) any Class A ordinary shares or equity-linked securities exercisable for or convertible into Class A ordinary shares issued, deemed issued, or to be issued, to any seller in the initial Business Combination, (y) any redemption of public shares in connection with the initial Business Combination or (z) forward purchase shares.
All Class L ordinary shares that have not been converted to Class A ordinary shares on the fifth anniversary of the initial Business Combination will be exchanged on such date, at the Company’s election, for an aggregate for all such Class L ordinary shares of either (i)
The Company accounts for the Class L ordinary shares as equity linked instruments. Based on the guidance in ASC 815, certain adjustments to the settlement amount of the Class L ordinary shares are based on a variable that is not an input to the fair value of a “fixed-for-fixed” option as defined under ASC 815-40. The Class L ordinary shares are recorded as a liability as these shares are not considered indexed to the Company’s own stock and not eligible for an exception from derivative accounting.
Promissory Note - Related Party
The Sponsor agreed to loan the Company up to $
Related Party Loans
In order to finance working capital deficiencies or transaction costs in connection with a Business Combination, the Sponsor or an affiliate of the Sponsor or certain of the Company’s officers and directors may, but are not obligated to, loan the Company funds as may be required (the “Working Capital Loans”). If the Company completes an initial Business Combination, the Company will repay such loaned amounts out of the proceeds of the Trust Account released to it. 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 $
Additionally, on November 14, 2022, the Sponsor provided a firm commitment to the Company of up to $
Administrative Services Agreement
On October 1, 2021, the Company entered into an agreement that provides that, subsequent to the closing of the IPO and continuing until the earlier of the Company’s consummation of an initial Business Combination or the Company’s liquidation, the Company will pay the Sponsor a total of $
Forward Purchase Agreement
Class L Ordinary Shares
The Class L ordinary shares are accounted for as a liability in accordance with ASC 815 and presented as a derivative liability on the balance sheets. The derivative liability was measured at fair value as of September 10, 2021 (date on which the Company amended its memorandum and articles of association) and will be evaluated on a recurring basis, with changes in fair value presented within fair value of derivative liability in the statements of operations.
The following table presents a summary of the changes in the fair value of the Class L ordinary shares derivative liability as of September 30, 2022:
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| Class L ordinary shares derivative liability | |
Fair value of Class L ordinary shares, December 31, 2021 | $ | |
Changes in fair value during the nine-month period |
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Fair value of Class L ordinary shares, September 30, 2022 | $ | |
The amounts of changes in the fair value on derivative instruments are reported in the statements of operations.
The following table presents the Company's fair value hierarchy for assets and liabilities measured at fair value on a recurring basis as of September 30, 2022 and December 31, 2021:
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| As of September 30, 2022 | ||||||||||
| Level 1 |
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| Total | ||||
Assets |
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Marketable securities held in Trust Account | $ | |
| $ | — |
| $ | — |
| $ | |
Total Assets | $ | |
| $ | — |
| $ | — |
| $ | |
Liabilities |
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Class L ordinary shares derivative liability | $ | — |
| $ | — |
| $ | |
| $ | |
Total Liabilities | $ | — |
| $ | — |
| $ | |
| $ | |
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| As of December 31, 2021 | ||||||||||
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| Level 2 |
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| Total | ||||
Assets |
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Marketable securities held in Trust Account | $ | |
| $ | — |
| $ | — |
| $ | |
Total Assets | $ | |
| $ | — |
| $ | — |
| $ | |
Liabilities |
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Class L ordinary shares derivative liability | $ | — |
| $ | — |
| $ | |
| $ | |
Total Liabilities | $ | — |
| $ | — |
| $ | |
| $ | |
There were
The Company measured the Class L ordinary shares derivative liability at fair value determined at Level 3. In order to capture the market conditions associated with the Class L ordinary shares derivative liability, the Company applied an approach that incorporated a Monte Carlo simulation, which involved random iterations of future stock-price paths over the contractual life of the Class L ordinary shares. Based on assumptions regarding potential changes in control of the Company, and the probability distribution of outcomes, the payoff to the holder was determined based on the achievement of the various market thresholds within each simulated path. The present value of the payoff in each simulated trial is calculated, and the fair value of the liability is determined by taking the average of all present values.
The key inputs into the Monte-Carlo simulation model for Class L ordinary shares were as follows, as of September 30, 2022 and December 31, 2021:
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Input | September 30, 2022 |
| December 31, 2021 | ||
Risk-free interest rate |
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Expected term |
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Expected volatility |
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Stock price(1) | $ | |
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Dividend yield |
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(1)
Registration and Shareholder Rights
The holders of the Class L ordinary shares and Private Placement Shares that may be issued upon conversion of Working Capital Loans have registration rights that require us to register a sale of any of the Company’s securities held by them (in the case of the Class L ordinary shares, only after conversion to the Class A ordinary shares) pursuant to a registration rights agreement signed at the closing of the IPO (the “Registration Rights Agreement”). These holders are entitled to make up to three demands, excluding short form registration demands, that we register such securities for sale under the Securities Act. In addition, these holders have certain “piggy-back” registration rights to include such securities in other registration statements filed by us and rights to require us to register for resale such securities pursuant to Rule 415 under the Securities Act.
Underwriting Agreement
The Company granted the underwriters a
On October 1, 2021, the Company paid underwriting discounts and commissions of $
During September 2022,
Investment Management Trust Agreement
In connection with the IPO, the Company entered into an investment management trust agreement pursuant to which a portion of the proceeds of the IPO and the sale of the Private Placement Shares were delivered and are to be held in the Trust Account for the benefit of the Company and the holders of the shares issued in connection with the IPO.
Preferred Shares
The Company is authorized to issue
Class A Ordinary Shares
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| For the nine-month period ended September 30, 2022 |
| For the three-month period ended September 30, 2022 |
| For the period from May 27, 2021 |
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| For the three-month period ended September 30, 2021 | ||||
Insurance | $ | |
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Other expenses |
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General and administrative expenses | $ | |
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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 MELI Kaszek Pioneer Corp, references to our “management” or our “management team” refer to our officers, references to the “Sponsor” refer to MELI Kaszek Pioneer Sponsor LLC, a Cayman Islands limited liability company. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this Quarterly Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report includes “forward-looking statements” 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, business strategy and the plans and objectives of management for future operations, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. The forward-looking statements contained in this Quarterly Report are based on our current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, those factors discussed elsewhere in this Quarterly Report on Form 10-Q, including under Part II, Item 1A, “Risk Factors,” as well as those factors described in the section entitled “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission (the “SEC”) on February 17, 2022 and in our other SEC filings. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
Overview
We are a blank check company incorporated on May 27, 2021 under the laws of the Cayman Islands and formed for the purpose of effecting a merger, share exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. We have not identified any business combination target and we have not, nor has anyone on our behalf, initiated any substantive discussions directly or indirectly, with respect to identifying any business combination target. We intend to effectuate our initial Business Combination (the “Business Combination”) using cash from the proceeds of our initial public offering (the “Initial Public Offering”) and the cash from the private placement of the private placement shares (as defined below) (pursuant to the Private Placement Shares Purchase Agreement entered into in connection with the Initial Public Offering) (the “Private Placement”), the proceeds of the sale of our securities in connection with our initial Business Combination (pursuant to the forward purchase agreement entered into in connection with the Initial Public Offering (the “Forward Purchase Agreements”) or other forward purchase agreements or backstop agreements we may enter into following the consummation of our Initial Public Offering or otherwise), our capital stock, debt or a combination of cash, stock and debt.
The registration statement for our Initial Public Offering was declared effective by the SEC on September 28, 2021. On October 1, 2021, we consummated our Initial Public Offering of 28,750,000 Class A ordinary shares (the “Class A ordinary shares”), which includes the exercise in full of the underwriters’ option to purchase an additional 3,750,000 shares at $10.00 per share, generating gross proceeds of $287,500,000. Simultaneously with the consummation of the Initial Public Offering, we consummated the sale of 975,000 shares (the “Private Placement Shares”), at a price of $10.00 per share, generating aggregate gross proceeds to the Company of $9,750,000 which was received prior to the consummation of the Initial Public Offering.
Transaction costs of the Initial Public Offering amounted to $16,709,861 consisting of $5,750,000 of underwriting discounts and commissions, $10,062,500 of deferred underwriting discounts and commissions, and $897,361 of other offering costs. During September 2022 two of the four underwriters waived their entitlement to the deferred underwriting discounts and commissions. As a result, the underwriting discounts and commissions amounted to $7,546,875.
Following the closing of the Initial Public Offering, a total of $287,500,000 was placed in a U.S.-based trust account (the “Trust Account”), with Continental Stock Transfer & Trust Company acting as trustee. The proceeds held in the Trust Account have been invested only in U.S. government treasury obligations with a maturity of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act of 1940, as amended, which invest only in direct U.S. government treasury obligations. Except for the withdrawal of interest to pay our taxes, none of the funds held in trust will be released from the Trust Account until the earliest of (i) the completion of our initial Business Combination, (ii) the redemption of our public shares if we are unable to complete our initial Business Combination within 24 months from the closing of the Initial Public Offering, subject to applicable law, and (iii) the redemption of our public shares properly submitted in connection with a shareholder vote to approve an amendment to our amended and restated memorandum and articles of association to modify the substance or timing of our obligation to redeem 100% of our public shares if we have not consummated an initial Business Combination within 24 months from the Initial Public Offering or with respect to any other material provisions relating to shareholders’ rights or pre-initial Business Combination activity.
Business Combination
If we are unable to complete a Business Combination within 24 months from the closing of the Initial Public Offering (the “Combination Period”), we will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the public shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account (as defined below), including interest earned on the funds held in the Trust Account (as defined below) and not previously released to us to pay our taxes (less up to $100,000 of interest to pay dissolution expenses), divided by the number of then outstanding Public Shares, which redemption will completely extinguish public shareholders’ rights as shareholders (including the right to receive further liquidating distributions, if any), and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the remaining shareholders and the board of directors, liquidate and dissolve, subject in each case, to our obligations under Cayman Islands law to provide for claims of creditors and the requirements of other applicable law.
The issuance of additional shares in connection with a Business Combination to the owners of the target or other investors:
may significantly dilute the equity interest of investors in the Initial Public Offering;
may subordinate the rights of holders of Class A ordinary shares if preferred shares are issued with rights senior to those afforded our Class A ordinary shares;
could cause a change in control if a substantial number of shares of our Class A ordinary shares are issued, which may affect, among other things, our ability to use our net operating loss carry forwards, if any, and could result in the resignation or removal of our present officers and directors;
may have the effect of delaying or preventing a change of control of us by diluting the share ownership or voting rights of a person seeking to obtain control of us; and
may adversely affect prevailing market prices for our Class A ordinary shares.
Similarly, if we issue debt securities or otherwise incur significant debt to bank or other lenders or the owners of a target, it could result in:
default and foreclosure on our assets if our operating revenues after an initial Business Combination are insufficient to repay our debt obligations;
acceleration of our obligations to repay the indebtedness even if we make all principal and interest payments when due if we breach certain covenants that require the maintenance of certain financial ratios or reserves without a waiver or renegotiation of that covenant;
our immediate payment of all principal and accrued interest, if any, if the debt is payable on demand;
our inability to obtain necessary additional financing if the debt contains covenants restricting our ability to obtain such financing while the debt is outstanding;
our inability to pay dividends on our Class A ordinary shares;
using a substantial portion of our cash flow to pay principal and interest on our debt, which will reduce the funds available for dividends on our Class A ordinary shares if declared, expenses, capital expenditures, acquisitions and other general corporate purposes;
limitations on our flexibility in planning for and reacting to changes in our business and in the industry in which we operate;
increased vulnerability to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation; and
limitations on our ability to borrow additional amounts for expenses, capital expenditures, acquisitions, debt service requirements, execution of our strategy and other purposes and other disadvantages compared to our competitors who have less debt.
We expect 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
As of September 30, 2022, we had not commenced any operations nor generated any revenues. All activity for the period ended September 30, 2022 relates to our search for a target to consummate a Business Combination. We will not generate any operating revenues until after the completion of a Business Combination, at the earliest. We will generate non-operating income in the form of gain on investment (net), dividends and interest held in the Trust Account (as defined below). We expect to incur increased expenses, as compared to the period before our Initial Public Offering, 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-month period ended September 30, 2022, we had a net income of $78,912,013, consisting of $1,053,861 of general and administrative expenses ($643,781 corresponding to insurance expenses), $1,714,865 of interest on marketable securities held in Trust Account and changes in the value of the Class L ordinary shares derivative liability of $78,251,009. For the three-month period ended September 30, 2022, we had a net income of $27,525,497, consisting of $314,024 of general and administrative expenses ($214,593 corresponding to insurance expenses), $1,297,684 of interest on marketable securities held in Trust Account and changes in the value of the Class L ordinary shares derivative liability of $26,541,837. For the period from May 27, 2021 (inception) through September 30, 2021, we had a net loss of $55,860,934, consisting of $10,624 of general and administrative expenses, $54,956,475 of financing expense on derivative liabilities and $893,835 of changes in the value of the Class L ordinary shares derivative liability of. For the three-month period ended September 30, 2021, we had a net loss of $55,850,310, consisting of $54,956,475 of financing expense on derivative liabilities and $893,835 of changes in the value of the Class L ordinary shares derivative liability.
Liquidity and Capital Resources
On October 1, 2021, we consummated our Initial Public Offering of 28,750,000 Class A ordinary shares, which includes the exercise in full of the underwriters’ option to purchase an additional 3,750,000 Class A ordinary shares at $10.00 per share, generating gross proceeds of $287,500,000. Simultaneously with the consummation of the Initial Public Offering, we consummated the sale of 975,000 Private Placement Shares, at a price of $10.00 per share, generating aggregate gross proceeds to the Company of $9,750,000.
Transaction costs of the Initial Public Offering amounted to $16,709,861 consisting of $5,750,000 of underwriting discounts and commissions, $10,062,500 of deferred underwriting discounts and commissions, and $897,361 of other offering costs. During September 2022 two of the four underwriters have waived their entitlement to the deferred underwriting discounts and commissions. As a result, the underwriting discounts and commissions amounted to $7,546,875.
Upon closing of the Initial Public Offering, a total of $287,500,000 was placed in the Trust Account. The proceeds held in the Trust Account have been invested only in U.S. government treasury obligations with a maturity of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act of 1940, as amended, which invest only in direct U.S. government treasury obligations.
As of September 30, 2022 and December 31, 2021, we had cash outside our Trust Account of $815,520 and $1,259,439. All remaining cash from the Initial Public Offering is held in the Trust Account and is generally unavailable for use prior to an initial Business Combination.
As of September 30, 2022 and December 31, 2021 we had working capital of $277,343,053 and of $2,085,395 (not taking into account any tax obligations), respectively. As of September 30, 2022, the working capital calculation includes the investments held in the Trust Account as part of current assets and the Class L ordinary shares derivative liability and the deferred underwriting discounts and
commissions as part of the current liabilities. The Company classified the investments held in the Trust Accounts as a current asset as the Company has less than 12 months from the balance sheet date to consummate a Business Combination, at which point, if the Company did not find a Business Combination partner, the Company would cease to exist, and the funds would be liquidated from the Trust Account. The Company classified the Class L ordinary shares derivative liability and the deferred underwriting discounts and commissions as current liabilities as the Company has less than 12 months from the balance sheet date to consummate a Business Combination, at which point, if the Company did not find a Business Combination partner, the Company would cease to exist, and the Class L ordinary shares derivative liability would not be converted, and the deferred underwriting discounts and commissions would not be paid as the fees owed are contingent upon a successful Business Combination.
We intend to use substantially all of the funds held in the Trust Account, including any amounts representing interest earned on the Trust Account (excluding deferred underwriting discounts and commissions) and the proceeds from the sale of the forward purchase shares, to complete our initial Business Combination. Our annual income tax obligations will depend on the amount of interest and other income earned on the amounts held in the trust account. We expect the interest earned on the amount in the trust account will be sufficient to pay our income taxes. To the extent that our equity or debt is used, in whole or in part, as consideration to complete our initial Business Combination, the remaining proceeds held in the Trust Account will be used as working capital to finance the operations of the target business or businesses, make other acquisitions and pursue our growth strategies.
In order to finance working capital deficiencies or transaction costs in connection with an intended initial Business Combination, the Sponsor or an affiliate of the Sponsor or certain of the Company’s officers and directors may, but are not obligated to, loan the Company funds as may be required (the “Working Capital Loans”). If the Company completes an initial Business Combination, the Company will repay such loaned amounts out of the proceeds of the Trust Account released to it. 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 $2,000,000 of such loans may be convertible into shares, at a price of $10.00 per shares at the option of the lender. Such shares would be identical to the Private Placement Shares. Additionally, on November 14, 2022, the Sponsor provided a $800,000 commitment letter to the Company to be drawn against, as needed, over the course of 13 months from the date of the commitment letter to fund working capital deficiencies or finance transaction costs in connection with a Business Combination.
We do not believe we will need to raise additional funds in order to meet the expenditures required for operating our business prior to our initial Business Combination. However, if our estimates of the costs of identifying a target business, undertaking in-depth due diligence and negotiating an initial Business Combination are less than the actual amount necessary to do so, we may have insufficient funds available to operate our business prior to our initial Business Combination.
Moreover, we may need to obtain additional financing to complete our initial Business Combination, either because the transaction requires more cash than is available from the proceeds held in our Trust Account or because we become obligated to redeem a significant number of our public shares upon completion of the Business Combination, in which case we may issue additional securities or incur debt in connection with such Business Combination. Subject to compliance with applicable securities laws, we would only complete such financing simultaneously with the completion of our initial Business Combination. If we are unable to complete our initial Business Combination because we do not have sufficient funds available to us, we will be forced to cease operations and liquidate the Trust Account. In addition, following our initial Business Combination, if cash on hand is insufficient, we may need to obtain additional financing in order to meet our obligations.
The following table presents our cash flows from operating activities for the following periods:
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Net cash and restricted cash (used in) provided by: | For the nine-month period ended September 30, 2022 |
| For the three-month period ended September 30, 2022 |
| For the period from May 27, 2021 |
| For the three-month period ended September 30, 2021 | ||||
Operating activities | $ | (443,919) |
| $ | (107,029) |
| $ | — |
| $ | — |
Financing activities |
| — |
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| — |
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| 9,755,780 |
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| 9,755,780 |
Net change in cash and restricted cash | $ | (443,919) |
| $ | (107,029) |
| $ | 9,755,780 |
| $ | 9,755,780 |
Cash used in operating activities consists of net income adjusted for certain non-cash items, and the effect of changes in working capital. Net cash used in operating activities in the nine and three-month periods ended September 30, 2022 resulted mainly from a decrease in prepaid expenses. Net cash provided by financing activities for the period from May 27, 2021 (inception) through September 30, 2021 and for the three-month period ended September 30, 2021 was primarily from the prepaid stock subscription.
Commitments and Contractual Obligations
We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities, other than as described below.
Registration Rights
The holders of the Class L ordinary shares, Private Placement Shares and private placement shares that may be issued upon conversion of Working Capital Loans have registration rights that require us to register a sale of any of our securities held by them (in the case of the Class L ordinary shares, only after conversion to our Class A ordinary shares) pursuant to a registration rights agreement at the closing of the Initial Public Offering (the “Registration Rights Agreement”). These holders are entitled to make up to three demands, excluding short form registration demands, that we register such securities for sale under the Securities Act. In addition, these holders will have certain “piggy-back” registration rights to include such securities in other registration statements filed by us and rights to require us to register for resale such securities pursuant to Rule 415 under the Securities Act.
Pursuant to the Forward Purchase Agreements, we agreed that we will use our commercially reasonable efforts to file within 30 calendar days after the closing of our initial Business Combination a registration statement with the SEC for a secondary offering of the forward purchase shares (as defined below) owned by our Sponsor or the forward transferees, respectively, and use our commercially reasonable efforts to cause such registration statement to be declared effective as soon as practicable after such completion.
However, the Registration Rights Agreement provides that we will not permit any registration statement filed under the Securities Act to become effective until termination of the applicable lock-up period, which occurs (i) in the case of the Class L ordinary shares, any Class A ordinary shares issuable upon conversion thereof and the forward purchase shares, until the earlier of (A) eighteen months after the completion of our initial Business Combination, or (B) subsequent to our initial Business Combination, if the last sale price of the Class A ordinary shares equals or exceeds $13.00 per share (as adjusted for share sub-divisions, share dividends, right issuances, subdivisions, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days after our initial Business Combination, or (C) following the completion of our initial Business Combination, such future date on which we complete a liquidation, merger, share exchange, reorganization or other similar transaction that results in all of our public shareholders having the right to exchange their Class A ordinary shares for cash, securities or other property, and (ii) in the case of the private placement shares, 30 days after the completion of our initial Business Combination. We will bear the costs and expenses of filing any such registration statements.
Administrative Services Agreement
On October 1, 2021, the Company entered into an agreement that provides that, subsequent to the closing of the Initial Public Offering and continuing until the earlier of the Company’s consummation of an initial Business Combination or the Company’s liquidation, the Company pays the Sponsor a total of $10,000 per month for office space, secretarial, due diligence and administrative services.
Forward Purchase Agreements
In connection with the Initial Public Offering, we entered into the Forward Purchase Agreement with the Sponsor, pursuant to which the Sponsor committed to purchase from the Company 5,000,000 forward purchase shares (the “Forward Purchase Shares”), at a price of $10.00 per Forward Purchase Share, for an aggregate purchase price of $50,000,000 in a private placement to close substantially concurrently with the closing of an initial Business Combination. The obligations under the Forward Purchase Agreement will not depend on whether any Class A ordinary shares are redeemed by public shareholders. The Class A ordinary shares issuable pursuant to the Forward Purchase Agreement will be identical to the Class A ordinary shares sold in the Initial Public Offering, except that the Sponsor will have certain registration rights, as described herein, and the Class A ordinary shares will not be eligible for redemption in connection with an initial Business Combination.
Underwriting Agreement
Upon the closing of the Initial Public Offering we paid $5,750,000 (accounting for the exercise of the underwriters’ over-allotment option in full) to the underwriters for underwriting discounts and commissions. Additionally, the underwriters are entitled to a deferred fee of $10,062,500 (accounting for the exercise of the underwriters’ over-allotment option in full), which will be payable to the underwriters from the amounts held in the Trust Account solely in the event that we complete an initial Business Combination, subject to the terms of the underwriting agreement.
During September 2022, two of the four underwriters waived their entitlement to deferred underwriting discounts and commissions. Deferred underwriting discounts and commissions was reduced to $7,546,875, with the $2,515,625 waiver being recognized in accumulated deficit.
Off-Balance Sheet Financing Arrangements
As of September 30, 2022, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.
Critical Accounting Estimates
The preparation of unaudited 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 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 estimates:
Class L ordinary shares
The Class L ordinary shares are accounted for as a liability in accordance with Accounting Standards Codification (“ASC”) 815, “Derivatives and Hedging” and presented as a derivative liability on the balance sheets. The derivative liability was measured at fair value as of September 10, 2021 and will be evaluated on a recurring basis, with changes in fair value presented within fair value of derivative liability in the statements of operations. In order to capture the market conditions associated with the Class L ordinary shares liability, the Company applied an approach that incorporated a Monte Carlo simulation, which involved random iterations of future stock-price paths over the contractual life of the Class L ordinary shares. Based on assumptions regarding potential changes in control of the Company, and the probability distribution of outcomes, the payoff to the holder was determined based on the achievement of the various market thresholds within each simulated path. The present value of the payoff in each simulated trial is calculated, and the fair value of the liability is determined by taking the average of all present values.
The inputs used as of September 30, 2022, were as follow: risk-free rate of 4.03%; expected term of 5.75 years; expected volatility of 5.5% and adjusted stock price of $9.35.
The inputs used as of December 31, 2021, were as follow: risk-free rate of 1.34%; expected term of 6.00 years; expected volatility of 18.0% and adjusted stock price of $11.56.
Recent Accounting Standards
The Company has considered all other new accounting standards and has concluded that there are no new standards that may have a material impact on the results of operations, financial condition, or cash flows, based on the current information.
JOBS Act
The Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) contains provisions that, among other things, relax certain reporting requirements for qualifying public companies. We qualify as an “emerging growth company” and under the JOBS Act are allowed to comply with new or revised accounting pronouncements based on the effective date for private (not publicly traded) companies. We are electing to delay the adoption of new or revised accounting standards, and as a result, we may not comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. As a result, the financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
Additionally, we are in the process of evaluating the benefits of relying on the other reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, if, as an “emerging growth company,” we choose to rely on such exemptions we may not be required to, among other things, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis) and (iv) disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the CEO’s compensation to median employee compensation. These exemptions will apply for a period of five years following the completion of our Initial Public Offering or until we are no longer an “emerging growth company,” whichever is earlier.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide the information required by this Item.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended (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 Co-Chief Executive Officers, to allow timely decisions regarding required disclosure.
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our Co-Chief Executive Officers, our management evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act, as of the end of the period covered by this Quarterly Report on Form 10-Q (the “Evaluation Date”). Based upon that evaluation, our Co-Chief Executive Officers concluded that, as of the Evaluation Date, our disclosure controls and procedures were not effective due to the material weakness in internal control over financial reporting that as we previously reported in our Current Report on Form 8-K filed with the SEC on November 21, 2022.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) that occurred during the period 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.
Our internal control over financial reporting did not result in the proper determination of our EPS as of September 30, 2021 and December 31, 2021, which is computed by dividing net income (loss) by the weighted-average number of ordinary shares outstanding during the relevant period.
On September 10, 2021, the Company amended certain terms of the Class L ordinary shares (the “Class L Shares”) held by the Sponsor. As a result of the amendment, the Class L Shares no longer met the requirement to be classified in equity and was recorded as a liability. The Company did not consider the Class L Shares in its calculation of basic and diluted net loss per share as of September 30, 2021 and December 31, 2021. Management re-evaluated this conclusion and determined that basic and diluted net loss per share should be calculated by attributing net loss for the period from May 27, 2021 (inception) to September 30, 2021 to the Class L Shares, which represent the Sponsor’s existing equity interest in the Company and the only class of share outstanding for that period. The net loss for the period from October 1, 2021 to December 31, 2021 will be attributed to the Class A ordinary shares subject to possible redemption and the Class A non-redeemable ordinary shares, based on the respective participation rights of those shares for that period. The Class L ordinary shares had no participation rights effective October 1, 2021.
Management has implemented remediation steps to address the material weakness and to improve our internal control over financial reporting. Specifically, our plans at this time are to expand and improve our review process for complex securities and related accounting standards. We also plan to further improve this process by enhancing access to accounting literature and identifying of third-party professionals with whom to consult regarding complex accounting applications. The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
None.
ITEM 1A. RISK FACTORS.
Except as set forth below, there have been no material changes to the risk factors described in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on February 17, 2022.
Changes in laws or regulations, including different or heightened rules or requirements promulgated by the SEC, or a failure to comply with any laws and regulations, may adversely affect our business, including our ability to negotiate and complete our initial Business Combination and results of operations.
We are subject to laws and regulations. In particular, we are required to comply with certain SEC and other legal requirements related to a potential business combination. Compliance with, and monitoring of, applicable laws and regulations may be difficult, time consuming and costly. Those laws and regulations and their interpretation and application may also change from time to time and those changes could have a material adverse effect on the business, investments and results of our operations. In addition, a failure to comply with applicable laws or regulations, as interpreted and applied, could have a material adverse effect on our business and results of operations. It is possible that we will become subject to different or heightened rules or requirements promulgated by the SEC or other regulators, and we may become subject to heightened or increased scrutiny by the SEC.
On March 30, 2022, the SEC proposed rules relating to, among other items, enhancing disclosures in business combination transactions involving Special Purpose Acquisition Companies (“SPACs”) and private operating companies; amending the financial statement requirements applicable to transactions involving shell companies; enhancing disclosure with regards to the use of projections in SEC filings in connection with proposed business combination transactions; expanding the scope of 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. These rules, if adopted, whether in the form proposed or in revised form, may materially adversely affect our ability to negotiate and complete our initial Business Combination, may increase the costs and time related thereto.
Our search for a target, and any target business with which we ultimately consummate a business combination, may be materially adversely affected by the geopolitical uncertainty and macroeconomic environment resulting from the Russia-Ukraine conflict and subsequent sanctions against Russia, Belarus and related individuals and entities.
United States and global markets are experiencing volatility and disruption following the escalation of geopolitical tensions that began in February 2022 from the conflict between Russia and Ukraine that have resulted in the deployment of military forces to eastern Europe, sanctions and other restrictive actions against Russia, Belarus and related individuals and entities. The conflict and the resulting measures that have been taken, and could be taken in the future, by the North Atlantic Treaty Organization, the United States, the United Kingdom, the European Union and other countries have created global security concerns that could have a lasting impact on regional and global economies. Although the length and impact of the ongoing military conflict in Ukraine is highly unpredictable, the conflict has and could continue to lead to market disruptions, including significant volatility in commodity prices, credit and capital markets, as well as supply chain disruptions. Additionally, Russian military actions and the resulting sanctions have and could continue to adversely affect the global economy and financial markets and lead to instability and lack of liquidity in capital markets.
Any of the abovementioned factors, or any other negative impact on the global economy, capital markets or other geopolitical conditions resulting from the conflict and subsequent sanctions, could adversely affect our search for a business combination and any target business with which we ultimately consummate a business combination. The extent and duration of conflict, resulting sanctions and any related market disruptions are impossible to predict, but could be substantial, particularly if current or new sanctions continue for an extended period of time or if geopolitical tensions result in expanded military operations on a global scale. Any such disruptions may also have the effect of heightening many of the other risks described in the “Risk Factors” section of our Annual Report on Form 10-K, such as those related to the market for our securities or our ability to raise equity or debt financing in connection with any particular business combination.
We may be deemed a “foreign person” under the regulations relating to the Committee on Foreign Investment in the United States (“CFIUS”) and our failure to obtain any required approvals within the requisite time period may require us to liquidate.
CFIUS has authority to review direct or indirect investments by foreign persons in U.S. businesses. Under the CFIUS regulations, foreign investors may be required to make mandatory filings and pay filing fees related to such filings. CFIUS also has the authority to self-initiate national security reviews of foreign direct and indirect investments in U.S. businesses if the parties to that investment choose not to file voluntarily or at the request of CFIUS. In the case that CFIUS determines an investment to be a threat to national security, CFIUS has the power to block or impose mitigation measures on the investment. 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. Certain 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 involved in activities relating to “critical technologies,” “critical infrastructure” and/or “sensitive personal data” also are within the jurisdiction of CFIUS.
Our sponsor is a Cayman Islands limited liability company and is controlled by Kaszek Ventures Opportunity II, LP, a Cayman Islands exempted limited partnership (“Kaszek”), and MELI Capital Ventures LLC, a Cayman Islands limited liability company controlled by MercadoLibre, Inc., a Delaware corporation (“MELI”). Thus, our sponsor may be deemed to be a foreign person for CFIUS purposes. Our sponsor currently owns 12,739,286 Class L ordinary shares of the Company and 975,000 Class A ordinary shares of the Company. The co-managers of the Sponsor, Kaszek and MELI, by virtue of their shared control over our sponsor, may be deemed to beneficially own the Class A ordinary shares and Class L ordinary shares held by our sponsor. In addition, certain members of our Board are non-U.S. persons.
The Company may be deemed to be a “foreign person” under the regulations relating to CFIUS or may be subject to review by any other U.S. government entity. Further, although the Company intends to focus its search for an initial Business Combination on technology-enabled companies incorporated and operating in Latin America, targets with which the Company may pursue a Business Combination could include U.S. businesses or companies in Latin America that have subsidiaries or operations in the United States. As such, a Business Combination with a U.S. business or foreign business with U.S. subsidiaries or operations that we may wish to pursue may be subject to CFIUS review or other regulatory review, depending on the Company’s ultimate share ownership following the Business Combination and other factors.
If a particular proposed Business Combination falls within CFIUS’s jurisdiction, we may determine that we are required to make a mandatory filing or that we will submit to CFIUS review on a voluntary basis, or we may determine to proceed with the transaction without submitting to CFIUS and risk CFIUS intervention, before or after closing the transaction. CFIUS may decide to modify or delay our proposed Business Combination, impose conditions with respect to such Business Combination, request the President of the United States to order us to divest all or a portion of the U.S. target business that we acquire in our Business Combination without first obtaining CFIUS approval or prohibit the Business Combination entirely. Accordingly, the pool of potential targets with which the proposed Business Combination can occur may be limited. These risks may limit the attractiveness of, delay or prevent us from pursuing our initial Business Combination with certain target companies that we believe would otherwise be attractive to us and our shareholders.
Moreover, the process of government review or a decision to delay or prohibit the transaction, whether by CFIUS or otherwise, could be lengthy, and we have limited time to complete our Business Combination. If we are unable to consummate our Business Combination within the applicable time period required under the Company’s amended and restated memorandum and articles of association, we will be required to wind up, redeem and liquidate. In such event, our shareholders will miss the opportunity to benefit from an investment in a target company and the appreciation in value of such investment through a Business Combination.
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 “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 domestic (i.e., U.S.) corporations and certain domestic subsidiaries of publicly traded foreign corporations. 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 (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; however, no guidance has been issued to date.
The IRA applies only to repurchases that occur after December 31, 2022. It is uncertain whether, and/or to what extent, the excise tax could apply to any redemptions of our public shares after December 31, 2022, including any redemptions in connection with initial Business Combination or a liquidation in the event we do not consummate an initial Business Combination by October 1, 2023. Any redemption or other repurchase that occurs after December 31, 2022, in connection with a Business Combination or otherwise may be subject to the excise tax. Whether and to what extent we would be subject to the excise tax in connection with a Business Combination 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 structure of the Business Combination, (iii) the nature and amount of any private investment in public equity or other equity issuances 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 (iv) the content of regulations and other guidance from 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 a Business Combination and in our ability to complete a Business Combination.
We have identified a material weakness in our internal control over financial reporting. If we fail to maintain an effective system of internal controls over financial reporting in the future, any material weakness in the future could result in loss of investor confidence and adversely affect our business, including our ability to attract a prospective target, or stock price.
We reported in Part I, Item 4 of Amendment No. 1 to our Quarterly Report on Form 10-Q for the quarter ended September 30, 2021 and Part II, Item 9A of Amendment No. 1 to our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, each filed with the SEC on November 21, 2022, that we identified a material weakness in connection with the misapplication of the calculation of the weighted-average number of ordinary shares outstanding for net income (loss) per ordinary share.
We have taken a number of measures to remediate the material weakness described therein; however, we can offer no assurance that these initiatives will ultimately have the intended effects; however, the elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects. If we are unable to maintain effective internal control over financial reporting or disclosure controls and procedures, our ability to record, process and report financial information accurately, and to prepare financial statements within required time periods, could be adversely affected. Any material weaknesses identified in the future could adversely affect investor confidence in our financial statements and adversely affect our business, including our ability to attract a prospective target, or stock price.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
On October 1, 2021, we consummated our Initial Public Offering of 28,750,000 shares, which includes the exercise in full of the underwriters’ option to purchase an additional 3,750,000 shares at $10.00 per share. Simultaneously with the consummation of the Initial Public Offering, the Company consummated the sale of 975,000 Private Placement Shares, at a price of $10.00 per share, generating aggregate gross proceeds to the Company of $9,750,000.
The securities sold in our Initial Public Offering were registered under the Securities Act on a registration statement on Form S-1 (No. 333-259473). The SEC declared the registration statement effective on September 28, 2021.
The Private Placement Shares were issued pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act. The Private Placement Shares are identical to the Class A ordinary shares sold in the Initial Public Offering, except that (x) the Private Placement Shares will not be transferable, assignable or salable until 30 days after the completion of our initial Business Combination, subject to certain limited exceptions, (y) as long as the Private Placement Shares are held by our Sponsor or its permitted transferees, the Private Placement Shares will not be redeemable by us and (z) the Private Placement Shares are entitled to registration rights.
Of the gross proceeds received from the Initial Public Offering and the sale of Private Placement Shares, $287,500,000 was placed in the Trust Account.
Transaction costs of the Initial Public Offering amounted to $16,709,861 consisting of $5,750,000 of underwriting discounts and commissions, $10,062,500 of deferred underwriting discounts and commissions, and $897,361 of other offering costs. During September 2022 two of the four underwriters waived their entitlement to the deferred underwriting discounts and commissions. As a result, the underwriting discounts and commissions amounted to $7,546,875 as of September 30, 2022.
For a description of the use of the proceeds generated in our Initial Public Offering, see Part I, Item 2 of this Quarterly Report on Form 10-Q.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
Exhibit No. | Description of Exhibit | |
31.1* | ||
31.2* | ||
32.1* | ||
32.2* | ||
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |
104 | The cover page from the Company’s Form 10-Q for the quarterly period ended September 30, 2022, formatted in Inline XBRL and contained in Exhibit 101 |
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* | Filed or furnished herewith, as applicable. |
SIGNATURES
Pursuant to the requirements of Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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| MELI KASZEK PRIONEER CORP | |
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Date: November 21, 2022 | By: | /s/ Hernan Kazah |
| Name: | Hernan Kazah |
| Title: | Co-Chief Executive Officer |
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Date: November 21, 2022 | By: | /s/ Pedro Arnt |
| Name: | Pedro Arnt |
| Title: | Co-Chief Executive Officer |