| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Cayman Islands | N/A | |
(State or other jurisdiction of incorporation) | (IRS Employer Identification No.) | |
Century Yard, Cricket Square Elgin Avenue P.O. Box 1111, George Town Grand Cayman, Cayman Islands | KY1-1102 | |
(Address of principal executive offices) | (Zip Code) | |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Units, each consisting of one Class A ordinary share and one-half of one redeemable warrant | IVCBU | The Nasdaq Stock Market LLC | ||
Class A ordinary shares, par value $0.0001 per share | IVCB | The Nasdaq Stock Market LLC | ||
Redeemable warrants, each whole warrant exercisable for one Class A ordinary share at an exercise price of $11.50 | IVCBW | The Nasdaq Stock Market LLC |
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☒ | Smaller reporting company | ☒ | |||
| Emerging growth company | ☒ | |||||
INVESTCORP EUROPE ACQUISITION CORP I
INDEX TO FINANCIAL STATEMENTS
| Page | ||||
PART I FINANCIAL INFORMATION | ||||
Condensed Balance Sheets as of September 30, 2023 (unaudited) and December 31, 2022 | 1 | |||
| 2 | ||||
| 3 | ||||
| 5 | ||||
| 6 | ||||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 23 | |||
Item 3. Quantitative and Qualitative Disclosures About Market Risk | 29 | |||
| 29 | ||||
PART II OTHER INFORMATION | ||||
| 29 | ||||
| 30 | ||||
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 30 | |||
| 30 | ||||
| 30 | ||||
| 30 | ||||
| 30 | ||||
| 31 | ||||
As of September 30, 2023 (Unaudited) | As of December 31, 2022 | |||||||
Assets | ||||||||
Current Assets | ||||||||
Cash | $ | 31,052 | $ | 479,009 | ||||
Prepaid expenses | 113,423 | 589,702 | ||||||
Total Current Assets | 144,475 | 1,068,711 | ||||||
Marketable securities held in Trust Account | 206,459,256 | 356,976,644 | ||||||
Total Assets | $ | 206,603,731 | $ | 358,045,355 | ||||
| Liabilities, Shares Subject to Redemption and Shareholders’ Deficit | ||||||||
Current Liabilities | ||||||||
Accounts payable and accrued expenses | $ | 7,153,522 | $ | 1,284,291 | ||||
Note payable to Sponsor | 3,315,000 | — | ||||||
Total Current Liabilities | 10,468,522 | 1,284,291 | ||||||
Warrant liabilities | 10,109,000 | 1,552,250 | ||||||
Deferred underwriting fee payable | 12,075,000 | 12,075,000 | ||||||
Total Liabilities | $ | 32,652,522 | $ | 14,911,541 | ||||
Commitments and Contingencies (Note 10) | ||||||||
Class A ordinary shares subject to possible redemption, $0.0001 par value; 19,005,667 shares at $10.86 and 34,500,000 shares at $10.35 per share redemption value at September 30, 2023 and December 31, 2022, respectively | 206,459,256 | 356,976,644 | ||||||
Shareholders’ Deficit | ||||||||
Preference shares, $0.0001 par value; 1,000,000 shares authorized; none issued and outstanding | — | — | ||||||
Class A ordinary shares, $0.0001 par value, 400,000,000 shares authorized, none issued and outstanding at September 30, 2023 and December 31, 2022 (excluding 19,005,667 and 34,500,000 shares subject to possible redemption, respectively) | — | — | ||||||
Class B ordinary shares, $0.0001 par value, 40,000,000 shares authorized, 8,625,000 issued and outstanding shares at September 30, 2023 and December 31, 2022 | 863 | 863 | ||||||
Accumulated deficit | (32,508,910 | ) | (13,843,693 | ) | ||||
Total Shareholders’ Deficit | (32,508,047 | ) | (13,842,830 | ) | ||||
| Total Liabilities, Shares Subject to Redemption and Shareholders’ Deficit | $ | 206,603,731 | $ | 358,045,355 | ||||
For the three months ended | For the nine months ended | |||||||||||||||
September 30, 2023 | September 30, 2022 | September 30, 2023 | September 30, 2022 | |||||||||||||
Formation and operating costs | $ | 1,058,457 | $ | 860,671 | $ | 7,653,872 | $ | 1,622,634 | ||||||||
Loss from Operations | (1,058,457 | ) | (860,671 | ) | (7,653,872 | ) | (1,622,634 | ) | ||||||||
Other income (expense) | ||||||||||||||||
Change in fair value of warrant liabilities | (3,292,000 | ) | 2,067,000 | (8,556,750 | ) | 23,443,500 | ||||||||||
Interest earned on Marketable securities held in Trust Account | 2,647,851 | 1,588,336 | 8,638,982 | 2,098,957 | ||||||||||||
Gain (loss) on foreign exchange | (4,595 | ) | — | (4,595 | ) | 9,239 | ||||||||||
Total other income (expense) | (648,744 | ) | 3,655,336 | 77,637 | 25,551,696 | |||||||||||
Net Income (Loss) | $ | (1,707,201 | ) | $ | 2,794,665 | $ | (7,576,235 | ) | $ | 23,929,062 | ||||||
Basic and diluted weighted average redeemable Class A ordinary shares outstanding | 19,005,667 | 34,500,000 | 22,865,061 | 34,500,000 | ||||||||||||
Basic and diluted net income (loss) per redeemable Class A ordinary share | $ | (0.06 | ) | $ | 0.06 | $ | (0.24 | ) | $ | 0.55 | ||||||
Basic and diluted weighted average non-redeemable Class B ordinary shares outstanding | 8,625,000 | 8,625,000 | 8,625,000 | 8,625,000 | ||||||||||||
Basic and diluted net income (loss) per non-redeemable Class B ordinary share | $ | (0.06 | ) | $ | 0.06 | $ | (0.24 | ) | $ | 0.55 | ||||||
Ordinary Shares Class B | Additional Paid-in Capital | Accumulated Deficit | Total Shareholders’ Deficit | |||||||||||||||||
Shares | Amount | |||||||||||||||||||
Balance – December 31, 2022 (audited) | 8,625,000 | $ | 863 | $ | — | $ | (13,843,693 | ) | $ | (13,842,830 | ) | |||||||||
Extension Contribution | — | — | — | (350,000 | ) | (350,000 | ) | |||||||||||||
Remeasurement of redeemable shares to redemption value | — | — | — | (3,608,818 | ) | (3,608,818 | ) | |||||||||||||
Net loss | — | — | — | (2,116,311 | ) | (2,116,311 | ) | |||||||||||||
Balance – March 31, 2023 (unaudited) | 8,625,000 | $ | 863 | $ | — | $ | (19,918,822 | ) | $ | (19,917,959 | ) | |||||||||
Extension Contribution | — | — | — | (1,050,000 | ) | (1,050,000 | ) | |||||||||||||
Remeasurement of redeemable shares to redemption value | — | — | — | (2,382,313 | ) | (2,382,313 | ) | |||||||||||||
Net loss | — | — | — | (3,752,723 | ) | (3,752,723 | ) | |||||||||||||
Balance – June 30, 2023 (unaudited) | 8,625,000 | $ | 863 | $ | — | $ | (27,103,858 | ) | $ | (27,102,995 | ) | |||||||||
Extension Contribution | — | — | — | (1,050,000 | ) | (1,050,000 | ) | |||||||||||||
Remeasurement of redeemable shares to redemption value | — | — | — | (2,647,851 | ) | (2,647,851 | ) | |||||||||||||
Net loss | — | — | — | (1,707,201 | ) | (1,707,201 | ) | |||||||||||||
Balance – September 30, 2023 (unaudited) | 8,625,000 | $ | 863 | — | $ | (32,508,910 | ) | $ | (32,508,047 | ) | ||||||||||
Ordinary Shares Class B | Additional Paid-in Capital | Accumulated Deficit | Total Shareholders’ Deficit | |||||||||||||||||
Shares | Amount | |||||||||||||||||||
Balance – December 31, 2021 (audited) | 8,625,000 | $ | 863 | $ | — | $ | (35,828,005 | ) | $ | (35,827,142 | ) | |||||||||
Remeasurement of redeemable shares to redemption value | — | — | — | 94,443 | 94,443 | |||||||||||||||
Net income | — | — | — | 15,891,664 | 15,891,664 | |||||||||||||||
Balance – March 31, 2022 (unaudited) | 8,625,000 | $ | 863 | $ | — | $ | (19,841,898 | ) | $ | (19,841,035 | ) | |||||||||
Net income | — | — | — | 5,242,733 | 5,242,733 | |||||||||||||||
Balance – June 30, 2022 (unaudited) | 8,625,000 | $ | 863 | $ | — | $ | (14,599,165 | ) | $ | (14,596,302 | ) | |||||||||
Remeasurement of redeemable shares to redemption value | — | — | — | (2,099,844 | ) | (2,099,844 | ) | |||||||||||||
Net income | — | — | — | 2,794,665 | 2,794,665 | |||||||||||||||
Balance – September 30, 2022 (unaudited) | 8,625,000 | $ | 863 | — | $ | (13,904,344 | ) | $ | (13,903,481 | ) | ||||||||||
For the nine months ended | ||||||||
September 30, 2023 | September 30, 2022 | |||||||
Cash Flows from Operating Activities: | ||||||||
Net income (loss) | $ | (7,576,235 | ) | $ | 23,929,062 | |||
Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
Interest earned on marketable securities held in Trust Account | (8,638,982 | ) | (2,098,956 | ) | ||||
Change in fair value of warrant liabilities | 8,556,750 | (23,443,500 | ) | |||||
Changes in operating assets and liabilities: | ||||||||
Prepaid expenses | 476,279 | 414,579 | ||||||
Accounts payable and accrued expenses | 5,869,231 | (650,405 | ) | |||||
Accrued offering expenses | — | (205,244 | ) | |||||
Net cash used in operating activities | (1,312,957 | ) | (2,054,464 | ) | ||||
Cash Flows from Investing Activities: | ||||||||
Extension Contribution | (2,450,000 | ) | — | |||||
Withdrawal from Trust Account for redemptions | 161,606,370 | — | ||||||
| Net cash provided by investing activities | 159,156,370 | — | ||||||
Cash Flows from Financing Activities: | ||||||||
Proceeds from affiliate promissory note | 3,315,000 | — | ||||||
| Payment to Redeeming Shareholders | (161,606,370 | ) | — | |||||
| Net cash used in financing activities | (158,291,370 | ) | — | |||||
Net change in cash | (447,957 | ) | (2,054,464 | ) | ||||
Cash at beginning of period | 479,009 | 2,632,930 | ||||||
Cash at end of period | $ | 31,052 | $ | 578,466 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Remeasurement of Class A Ordinary Shares to redemption value | $ | 8,638,982 | $ | 2,099,844 | ||||
For the three months ended | ||||||||||||||||
September 30, 2023 | September 30, 2022 | |||||||||||||||
Redeemable Class A ordinary shares | Non- Redeemable Class B ordinary shares | Redeemable Class A ordinary shares | Non- Redeemable Class B ordinary shares | |||||||||||||
Basic and diluted net income (loss) per share: | ||||||||||||||||
Numerator: | ||||||||||||||||
Allocation of net income (loss) | $ | (1,174,293 | ) | $ | (532,908 | ) | $ | 2,235,732 | $ | 558,933 | ||||||
Denominator: | ||||||||||||||||
Weighted-average shares outstanding | 19,005,667 | 8,625,000 | 34,500,000 | 8,625,000 | ||||||||||||
Basic and diluted net income (loss) per share | $ | (0.06 | ) | $ | (0.06 | ) | $ | 0.06 | $ | 0.06 | ||||||
For the nine months ended | ||||||||||||||||
September 30, 2023 | September 30, 2022 | |||||||||||||||
Redeemable Class A ordinary shares | Non- Redeemable Class B ordinary shares | Redeemable Class A ordinary shares | Non- Redeemable Class B ordinary shares | |||||||||||||
Basic and diluted net income (loss) per share: | ||||||||||||||||
Numerator: | ||||||||||||||||
Allocation of net income (loss) | $ | (5,501,135 | ) | $ | (2,075,100 | ) | $ | 19,143,250 | $ | 4,785,812 | ||||||
Denominator: | ||||||||||||||||
Weighted-average shares outstanding | 22,865,061 | 8,625,000 | 34,500,000 | 8,625,000 | ||||||||||||
Basic and diluted net income (loss) per share | $ | (0.24 | ) | $ | (0.24 | ) | $ | 0.55 | $ | 0.55 | ||||||
September 30, 2023 | December 31, 2022 | |||||||
As of beginning of the period | $ | 356,976,644 | $ | 351,900,000 | ||||
Less: | ||||||||
Redemptions as a result of Extraordinary General Meeting | (161,606,370 | ) | ||||||
Plus: | ||||||||
Extension Contribution | 2,450,000 | — | ||||||
Remeasurement of carrying value to redemption value | 8,638,982 | 5,076,644 | ||||||
Class A ordinary shares subject to possible redemption | $ | 206,459,256 | $ | 356,976,644 | ||||
| (1) | Class A ordinary shares : Each Class A ordinary share issued and outstanding immediately prior to the Second Merger Effective Time (after giving effect to redemptions) shall be exchanged for one Pubco Ordinary Share. |
| (2) | Warrants : Each warrant outstanding immediately prior to the Second Merger Effective Time shall cease to represent a right to acquire the number of Class A ordinary shares set forth in such warrant and will be exchanged for a warrant to acquire one Pubco Ordinary Share. Each of the Pubco Warrants shall have, and be subject to, substantially the same terms and conditions set forth in the Company public warrants. |
| (1) | if at any time from the Second Merger Effective Time through the date that is the tenth anniversary of the Second Merger Effective Time the volume-weighted average price of Pubco Ordinary Shares is greater than or equal to $12.00 over any 20 trading days within any 30 trading day period; and |
| (2) | if at any time from the Second Merger Effective Time through the date that is the tenth anniversary of the Second Merger Effective Time there is a change of control of Pubco. |
| • | in whole and not in part; |
| • | at a price of $0.01 per warrant; |
| • | upon not less than 30 days’ prior written notice of redemption to each warrant holder; and |
| • | if, and only if, the closing price of the Class A ordinary shares equals or exceeds $18.00 per share for any 20 trading days within a 30-trading day period ending three trading days before the Company sends the notice of redemption to the warrant holders. |
| • | in whole and not in part; |
| • | at a price of $0.10 per warrant; |
| • | upon a minimum of 30 days’ prior written notice of redemption provided that holders will be able to exercise their warrants on a cashless basis prior to redemption and receive that number of shares based on the redemption date and the fair market value of the Class A ordinary shares; |
| • | if, and only if, the Reference Value (as defined above under “—Redemption of warrants when the price per Class A ordinary share equals or exceeds $18.00”) equals or exceeds $10.00 per share (as adjusted for share sub-divisions, share dividends, reorganizations, recapitalizations and the like); and |
| • | if the Reference Value is less than $18.00 per share (as adjusted for share sub-divisions, share dividends, reorganizations, recapitalizations and the like), the private placement warrants must also be concurrently called for redemption on the same terms as the outstanding public warrants, as described above. |
As of September 30, 2023 | (Level 1) | (Level 2) | (Level 3) | |||||||||
Assets | ||||||||||||
Marketable securities held in Trust Account | $ | 206,459,256 | $ | — | $ | — | ||||||
Liabilities | ||||||||||||
Public Warrants | 5,135,000 | — | — | |||||||||
Private Placement Warrants | — | — | 4,974,000 | |||||||||
Total | $ | 211,594,256 | $ | — | $ | 4,974,000 | ||||||
As of December 31, 2022 | (Level 1) | (Level 2) | (Level 3) | |||||||||
Assets | ||||||||||||
Marketable securities held in Trust Account | $ | 356,976,644 | $ | — | $ | — | ||||||
Liabilities | ||||||||||||
Public Warrants | 776,250 | — | — | |||||||||
Private Placement Warrants | — | — | 776,000 | |||||||||
Total | $ | 357,752,894 | $ | — | $ | 776,000 | ||||||
Fair Value as of September 30, 2023 | Fair Value as of December 31, 2022 | |||||||
Money Market Mutual Fund | $ | 206,459,256 | $ | 356,976,644 | ||||
$ | 206,459,256 | $ | 356,976,644 | |||||
Private Warrant Liability | ||||
Fair Value as of December 31, 2022 | 776,000 | |||
Change in fair value | 1,064,340 | |||
Fair value as of March 31, 2023 | $ | 1,840,340 | ||
Change in fair value | 1,617,660 | |||
Fair value as of June 30, 2023 | $ | 3,458,000 | ||
Change in fair value | 1,516,000 | |||
Fair value as of September 30, 2023 | $ | 4,974,000 | ||
Input | 9/30/2023 | 12/31/2022 | ||||||
Share price | $ | 10.88 | $ | 10.30 | ||||
Exercise price | $ | 11.50 | $ | 11.50 | ||||
Risk-free rate of interest | 4.60 | % | 3.99 | % | ||||
Volatility | 60.02 | % | 10.70 | % | ||||
Term (in years) | 5.31 | 5.29 | ||||||
Dividend yield | — | % | — | % | ||||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
All statements other than statements of historical fact included in this Report including, without limitation, statements under “Item 2. 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. When used in this Report, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend” and similar expressions, as they relate to us or the Company’s management, identify forward-looking statements. Such forward-looking statements are based on the beliefs of management, as well as assumptions made by, and information currently available to, the Company’s management. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors detailed in our filings with the SEC.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Overview
We are a blank check company incorporated on March 22, 2021 as a Cayman Islands exempted company and incorporated for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses or assets. We have signed a Business Combination Agreement with our selected Business Combination target as of April 25, 2023. We intend to effectuate our initial business combination using cash from the proceeds of our IPO and the private placement of the private placement warrants, the proceeds of the sale of our shares in connection with our initial business combination, shares issued to the owners of the target, debt issued to bank or other lenders or the owners of the target, or a combination of the foregoing.
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 our IPO, which dilution would increase if the anti-dilution provisions in the Class B ordinary shares resulted in the issuance of Class A ordinary shares on a greater than one-to-one basis upon conversion of the Class B ordinary shares; |
| • | may subordinate the rights of holders of Class A ordinary shares if preference 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 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 units, Class A ordinary shares and/or warrants. 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 security is payable on demand; |
| • | our inability to obtain necessary additional financing if the debt security contains covenants restricting our ability to obtain such financing while the debt security 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; |
23
| • | 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. |
Recent Developments
Business Combination Agreement
On April 25, 2023, the Company entered into a business combination agreement with Orca Holdings Limited, a Cayman Islands exempted company incorporated with limited liability (“OpSec”). Capitalized terms used in this Form 10-Q but not otherwise defined herein have the meanings given to them in the Business Combination Agreement. Upon the terms and subject to the conditions of the Business Combination Agreement and in accordance with applicable law, as soon as practicable following the date of the Business Combination Agreement, the Company will form, or cause to be formed, Pubco, Merger Sub I and Merger Sub II.
In connection with the transactions contemplated by the Business Combination Agreement, (1) the OpSec Shareholders will contribute to Pubco all of the issued and outstanding OpSec Ordinary Shares in exchange for (a) Pubco Ordinary Shares and (b) an aggregate amount in cash equal to $10,000,000, (2) following the Share Contribution, OpSec will merge with and into Merger Sub I, as a result of which the separate corporate existence of OpSec shall cease and Merger Sub I shall continue as the surviving company, and (3) following the First Merger, the Company will merge with and into Merger Sub II, as a result of which (a) the separate corporate existence of Merger Sub II shall cease and the Company shall continue as the surviving company, (b) the issued and outstanding Class A ordinary shares immediately prior to the effective time of the Second Merger shall be exchanged for Pubco Ordinary Shares concurrently with the Second Merger, (c) the issued and outstanding Class B ordinary shares immediately prior to the Second Merger Effective Time shall be transferred to Pubco in exchange for Pubco Ordinary Shares and (d) the warrants of the Company outstanding immediately prior to the Second Merger Effective Time shall cease to represent a right to acquire the number of Class A ordinary shares set forth in such warrant and will instead be assumed by Pubco and automatically converted into Pubco Warrants to acquire an equal number of Pubco Ordinary Shares.
Following consummation of the transactions, the Company will be a wholly-owned subsidiary of Pubco and OpSec will be a wholly-owned subsidiary of Pubco. OpSec will hold approximately 97% of the issued and outstanding equity of its underlying operating subsidiaries. The Transactions are expected to close in the second half of 2023, subject to customary closing conditions, including the required approval by the shareholders of the Company.
For additional information regarding the Business Combination Agreement, see the Company’s Current Report on Form 8-K filed with the SEC on April 26, 2023.
Results of Operations and Known Trends or Future Events
We have neither engaged in any operations nor generated any revenues to date. Our only activities since inception have been organizational activities, activities necessary to prepare and complete for our IPO, and since our IPO, activities related to searching for a target for our Business Combination. Following our IPO, we will not generate any operating revenues until after completion of our initial business combination. We generate non-operating income in the form of interest income on cash and cash equivalents.
For the three months ended September 30, 2023, we had a net loss of $1,707,201, which consisted of a $3,292,000 loss on the change in fair value of warrant liabilities, $1,058,457 in formation and operating costs and a loss on exchange rate of $4,595, offset by $2,647,851 in interest income on Marketable Securities held in Trust Account. For the nine months ended September 30, 2023, we had a net loss of $7,576,235, which consisted of a $8,556,750 loss on the fair value of warrant liabilities, $7,653,872 in formation and operating costs and a loss on exchange rate of $4,595, offset by $8,638,982 in interest income on Marketable Securities held in Trust Account. The high level of operating costs in the three month and nine month periods reflects due diligence work related to evaluating the business combination ahead of the announcement in April 2023, legal expenses related to finalizing the Business Combination Agreement and additional legal expenses related to the business combination in the period since the Business Combination Agreement was signed.
For the three months ended September 30, 2022, we had net income of $2,794,665, which consisted of a $2,067,000 gain on the fair value of warrant liabilities, and $1,588,336 in interest income on Marketable Securities held in Trust Account, offset by $860,671 in formation and operating costs. For the nine months ended September 30, 2022, we had net income of $23,929,062, which consisted of a $23,443,500 gain on the fair value of warrant liabilities, $2,098,957 in interest income on Marketable Securities held in Trust Account and $9,239 in foreign exchange gain, offset by $1,622,634 in formation and operating costs.
24
Liquidity and Capital Resources
Our liquidity needs have been satisfied through receipt of $25,000 from the sale of the founder shares to our sponsor to cover for certain expenses on our behalf in exchange for the issuance of the 8,625,000 founder shares, and the Loan with our Sponsor of $3,315,000.
For the nine months ended September 30, 2023, we utilized $1,312,957 in operating activities, which was largely driven by an increase of $5,869,231 in accounts payable and accrued expenses, $476,279 in Prepaid and other as well as a $8,556,750 change in fair value of our warrant liabilities, offset by $8,638,982 in interest earned on our marketable securities held in the Trust Account.
For the nine months ended September 30, 2023, we were provided $159,156,370 from our investing activities, which was primarily driven by $161,606,370 redemptions as a result of our extraordinary shareholder meeting offset by $2,450,000 in Extension Contributions.
For the nine months ended September 30, 2023, we utilized $158,291,370 in our financing activities, which was the result of the $161,606,370 payout of redemptions by our shareholders offset by $3,315,000 in proceeds from our promissory note.
The net proceeds from the sale of the units in our IPO and the sale of the private placement warrants for an aggregate purchase price of $16,700,000, after deducting offering expenses of $1,103,227 and underwriting commissions of $6,900,000 (excluding deferred underwriting commissions of $12,075,000), was $351,900,000, which is held in the Trust Account and includes the deferred underwriting commissions described above. The proceeds held in the Trust Account is 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 which invest only in direct U.S. government treasury obligations. The remaining $31,052 is not held in the Trust Account.
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 commissions) net of any redemptions, to complete our initial business combination. We may withdraw interest to pay our taxes, if any. Our annual income tax obligations will depend on the amount of interest and other income earned on the amounts held in the Trust Account. 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.
Prior to the completion of our initial business combination, as of September 30, 2023, we have available to us approximately $31,052 of proceeds held outside the Trust Account, as well as any funds from loans from our sponsor, its affiliates or members of our management team. We will use these funds to primarily identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, and structure, negotiate and complete a business combination.
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. In order to fund working capital deficiencies or finance transaction costs in connection with an intended initial business combination, our sponsor or an affiliate of our sponsor or certain of our officers and directors may, but are not obligated to, loan us funds as may be required. If we complete our initial business combination, we would repay such loaned amounts out of the proceeds of the Trust Account released to us. In the event that our initial business combination does not close, we may use a portion of the working capital held outside the Trust Account to repay such loaned amounts but no proceeds from our Trust Account would be used for such repayment. Up to $2,000,000 of such loans may be convertible into private placement warrants of the post business combination entity at a price of $1.00 per warrant at the option of the lender. Such warrants would be identical to the private placement warrants. Prior to the completion of our initial business combination, we do not expect to seek loans from parties other than our sponsor or an affiliate of our sponsor as we do not believe third parties will be willing to loan such funds and provide a waiver against any and all rights to seek access to funds in our Trust Account.
On March 7, 2023, we entered into a non-interest bearing convertible unsecured loan (the “Loan”) in the principal amount of up to $2,000,000 from one of our Sponsor’s affiliates to provide us with additional working capital and to fund the initial Contributions described below. The portion of the Loan used to provide us with additional working capital will not be deposited into our Trust Account. If we do not consummate an initial business combination by December 17, 2023 the Loan will be repaid only from funds held outside of the Trust Account or will be forfeited, eliminated or otherwise forgiven. The Loan is convertible into private placement warrants of the post-business combination entity at a price of $1.00 per warrant at the option of the lender. Such warrants
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would be identical to the private placement warrants. The conversion option represents an embedded derivative under ASC 815-15, “Embedded Derivatives.” The Company has determined that based on the valuation of its Private Placement Warrants and the fact that a Business Combination is not considered probable until such time as it is consummated, the value of this conversion option is de minimis.
On July 6, 2023, the Company entered into a non-interest bearing unsecured loan in the principal amount of up to $1,700,000 from the Sponsor to fund monthly contributions into the Trust Account until the earlier of a completion of the Business Combination or December 17, 2023. The portion of the Loan used to provide the Company with additional working capital will not be deposited into the Trust Account.
The total amount outstanding under the Loans entered into on March 7, 2023 and July 6, 2023 and any other Working Capital Loans as of September 30, 2023 was 3,315,000. During the month of October, we drew down an additional $385,000 which left our available $3,700,000 in related party notes fully drawn. There was no amount outstanding under any Working Capital Loans as of December 31, 2022.
On March 14, 2023 we convened an Extraordinary General Meeting at which our Sponsor agreed, by making monthly advancements on the Loan, to contribute (each such contribution, a “Contribution”) into the Trust Account the lesser of (x) an aggregate of $350,000 or (y) $0.03 per share for each public share that was not redeemed at the Extraordinary General Meeting for each monthly period (commencing on March 17, 2023 and ending on the 17th day of each subsequent month), or prior thereof, until the earlier of the completion of the initial business combination and the end of the Combination Period.
We expect our future primary liquidity requirements during the period until the business combination to include legal, accounting, due diligence, travel and other expenses associated with structuring, negotiating and documenting successful business combinations; legal and accounting fees related to regulatory reporting requirements; Nasdaq and other regulatory fees; consulting, travel and miscellaneous expenses incurred during the search for initial business combination target; and general working capital that will be used for miscellaneous expenses and reserves.
In addition, we could use a portion of the funds not being placed in trust to pay commitment fees for financing, fees to consultants to assist us with our search for a target business or as a down payment or to fund a “no-shop” provision (a provision designed to keep target businesses from “shopping” around for transactions with other companies or investors on terms more favorable to such target businesses) with respect to a particular proposed business combination, although we do not have any current intention to do so. If we entered into an agreement where we paid for the right to receive exclusivity from a target business, the amount that would be used as a down payment or to fund a “no-shop” provision would be determined based on the terms of the specific business combination and the amount of our available funds at the time. Our forfeiture of such funds (whether as a result of our breach or otherwise) could result in our not having sufficient funds to continue searching for, or conducting due diligence with respect to, prospective target businesses.
If we are not able to consummate a business combination before the end of the business combination period, we will commence an automatic winding up, dissolution and liquidation. Management has determined that the automatic liquidation, should a business combination not occur, and potential subsequent dissolution also raises substantial doubt about our ability to continue as a going concern. While management intends to complete a business combination, it is uncertain whether we will be able to do so. No adjustments have been made to the carrying amounts of assets or liabilities.
These conditions, including the working capital deficit and proximity to the end of our Extension Period, raise substantial doubt about our ability to continue as a going concern for a period of time within one year after the date that the financial statements are issued. There is no assurance that our plan to consummate a business combination will be successful within the business combination period. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Controls and Procedures
We are required to maintain an effective system of internal controls as defined by Section 404 of the Sarbanes-Oxley Act. Only in the event that we are deemed to be a large accelerated filer or an accelerated filer and no longer an emerging growth company would we be required to comply with the independent registered public accounting firm attestation requirement. Further, for as long as we remain an emerging growth company as defined in the JOBS Act, we intend to 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 requirement.
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We expect to assess the internal controls of our target business or businesses prior to the completion of our initial business combination and, if necessary, to implement and test additional controls as we may determine are necessary in order to state that we maintain an effective system of internal controls. A target business may not be in compliance with the provisions of the Sarbanes-Oxley Act regarding the adequacy of internal controls. Many small and mid-sized target businesses we may consider for our initial business combination may have internal controls that need improvement in areas such as:
| • | staffing for financial, accounting and external reporting areas, including segregation of duties; |
| • | reconciliation of accounts; |
| • | proper recording of expenses and liabilities in the period to which they relate; |
| • | evidence of internal review and approval of accounting transactions; |
| • | documentation of processes, assumptions and conclusions underlying significant estimates; and |
| • | documentation of accounting policies and procedures. |
Because it will take time, management involvement and perhaps outside resources to determine what internal control improvements are necessary for us to meet regulatory requirements and market expectations for our operation of a target business, we may incur significant expenses in meeting our public reporting responsibilities, particularly in the areas of designing, enhancing, or remediating internal and disclosure controls. Doing so effectively may also take longer than we expect, thus increasing our exposure to financial fraud or erroneous financing reporting.
Off-Balance Sheet Arrangements
As of September 30, 2023, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.
Commitments and Contractual Obligations
Registration Rights
The holders of the Founder Shares and Private Placement Warrants (and any Class A ordinary shares issuable upon the exercise of the Private Placement Warrants and warrants that may be issued upon conversion of the Working Capital Loans and upon conversion of the Founder Shares) will be entitled to registration rights pursuant to a registration rights and shareholder agreement to be signed prior to or on the effective date of the IPO, requiring the Company to register such securities for resale (in the case of the Founder Shares, only after conversion to Class A ordinary shares). The holders of these securities will be entitled to make up to three demands, excluding short form demands, that the Company register such securities. In addition, the holders will have certain “piggy-back” registration rights with respect to registration statements filed subsequent to the completion of a Business Combination. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
Underwriting Agreement
The underwriter will be entitled to a deferred fee of $0.35 per Unit, or $12,075,000 in the aggregate. The deferred fee will become payable to the underwriter from the amounts held in the Trust Account solely in the event that the Company completes a Business Combination, subject to the terms of the underwriting agreement.
Consulting Agreements
In April 2023, the Company entered into two agreements with each of the IPO underwriters, each to act as a capital markets advisor and as a placement agent in relation to the Business Combination. On June 9, 2023, the Company terminated the two engagement letters with one of the IPO underwriters, and such termination nullified the Company’s obligation to pay any fees under such agreements. With respect to the other IPO underwriter, as compensation for their services, half of a placement fee of 3.0% of the gross proceeds of securities sold in the placement will be paid to the agent upon consummation of the placement (the “Placement Fee”) and $4,000,000 will be paid to the agent upon consummation of the Business Combination (the “Transaction Fee”). The Placement Fee and the Transaction fee will only become payable in the event the placement and the Business Combination are consummated, respectively, and as such nothing will be recorded until that time.
In June 2023, the Company entered into an agreement with a third-party consultant to provide advisory services in relation to the Business Combination. As compensation for those services, an advisory fee of $2,000,000 is payable in the event the transaction is consummated (the “Advisory Fee”). This fee will only become payable in the event the Business Combination is consummated and as such nothing will be recorded until that time.
Additionally, the agent and the consultant are eligible to be reimbursed in the aggregate up to $500,000 in expenses in the event the Business Combination is not consummated and $1,000,000 in the event it is consummated. As of September 30, 2023, approximately $1,161,000 has been incurred by the third parties. As the Business Combination is not yet considered probable, $500,000 of the approximately $1,161,000 is accrued in the Accounts Payable and Accrued Expenses line on the balance sheet.
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JOBS Act
The JOBS Act contains provisions that, among other things, relax certain reporting requirements for qualifying public companies. We will qualify as an “emerging growth company” and under the JOBS Act will be 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, our 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 independent registered public accounting firm’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 report of the independent registered public accounting firm 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 IPO or until we are no longer an “emerging growth company,” whichever is earlier.
Critical Accounting Policies
Management’s discussion and analysis of our results of operations and liquidity and capital resources are based on our financial statements. We describe our significant accounting policies in Note 2 – Summary of Significant Accounting Policies, of the Notes to Financial Statements included in this report. Our financial statements have been prepared in accordance with U.S. GAAP. Certain of our accounting policies require that management apply significant judgments in defining the appropriate assumptions integral to financial estimates. On an ongoing basis, management reviews the accounting policies, assumptions, estimates and judgments to ensure that our financial statements are presented fairly and in accordance with U.S. GAAP. Judgments are based on historical experience, terms of existing contracts, industry trends and information available from outside sources, as appropriate. However, by their nature, judgments are subject to an inherent degree of uncertainty, and, therefore, actual results could differ from our estimates.
Recent Accounting Standards
In August 2020, the FASB issued ASU No. 2020-06, “Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity”. The update simplifies the accounting for convertible instruments by removing certain separation models in Subtopic 470-20, Debt-Debt with Conversion and Other Options for convertible instruments and introducing other changes. As a result of ASU No. 2020-06, more convertible debt instruments will be accounted for as a single liability measured at amortized cost and more convertible preference shares will be accounted for as a single equity instrument measured at historical cost, as long as no features require bifurcation and recognition as derivatives. The amendments are effective for smaller reporting companies for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. The Company adopted ASU No. 2020-06 upon its incorporation. The impact to the balance sheet, statements of operations and cash flows was not material.
We have considered all new accounting pronouncements and have concluded that there are no new pronouncements that may have a material impact on our results of operations, financial condition, or cash flows, based on the current information.
Factors That May Adversely Affect Our Results of Operations
Our results of operations and our ability to complete an initial business combination may be adversely affected by various factors that could cause economic uncertainty and volatility in the financial markets, many of which are beyond our control. Our business could be impacted by, among other things, downturns in the financial markets or in economic conditions, increases in oil prices, inflation, increases in interest rates, supply chain disruptions, declines in consumer confidence and spending, the ongoing effects of the COVID-19 pandemic, including resurgences and the emergence of new variants, and geopolitical instability, such as the military conflict in the Ukraine. We cannot at this time fully predict the likelihood of one or more of the above events, their duration or magnitude or the extent to which they may negatively impact our business and our ability to complete an initial business combination.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
As of September 30, 2023, we were not subject to any material market or interest rate risk. Following the consummation of our Initial Public Offering, the net proceeds of the Initial Public Offering and the Private Placement, including amounts in the Trust Account, were invested 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. Due to the short-term nature of these investments, we believe there was no associated material exposure to interest rate risk.
We have not engaged in any hedging activities since our inception. We do not expect to engage in any hedging activities with respect to the market risk to which we are exposed.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act, such as this quarterly report, is recorded, processed, summarized, and reported within the time period specified in the SEC’s rules and forms. Disclosure controls and procedures are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure. Our principal executive officer and principal financial and accounting officer (our “Certifying Officers”) evaluated the effectiveness of our disclosure controls and procedures as of September 30, 2023, pursuant to Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based upon that evaluation, our Certifying Officers concluded that, as of September 30, 2023, our disclosure controls and procedures were effective.
We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Management’s Report on Internal Controls Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control-Integrated Framework (2013), our management concluded that our internal control over financial reporting was effective as of September 30, 2023.
Changes in Internal Control over Financial Reporting
There were no changes 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) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II-OTHER INFORMATION
Item 1. Legal Proceedings
None.
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Item 1A. Risk Factors
Factors that could cause our actual results to differ materially from those in this report include the risks described under the heading “Risk Factors” included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on April 24, 2023 (the “2022 10-K”). Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. As of the date of this Report, there have been no material changes to the risk factors disclosed in the 2022 10-K. We may disclose changes to such risk factors or disclose additional risk factors from time to time in our future filings with the SEC.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
No underwriting discounts or commissions were paid with respect to such sales.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
| * | Filed herewith |
| ** | Furnished herewith |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
INVESTCORP EUROPE ACQUISITION CORP I | ||||||
| Date: November 14, 2023 | By: | /s/ Craig Sinfield-Hain | ||||
Name: Craig Sinfield-Hain | ||||||
Title: Chief Financial Officer | ||||||
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