References to the "Company," "Inflection Point Acquisition Corp.," "our," "us"
or "we" refer to Inflection Point Acquisition Corp. The following discussion and
analysis of the Company's financial condition and results of operations should
be read in conjunction with the unaudited interim condensed financial statements
and the notes thereto contained elsewhere in this Quarterly Report on Form 10-Q
(this "Quarterly Report").
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report includes forward-looking statements. These forward-looking
statements 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. Our forward-looking statements include, but
are not limited to, statements regarding our or our management team's
expectations, hopes, beliefs, intentions or strategies regarding the future. In
addition, any statements that refer to projections, forecasts or other
characterizations of future events or circumstances, including any underlying
assumptions, are forward-looking statements. The words "anticipate," "believe,"
"continue," "could," "estimate," "expect," "intends," "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. Factors that might
cause or contribute to such forward-looking statements include, but are not
limited to, those set forth in the Risk Factors section of our Annual Report on
Form 10-K for the year ended December 31, 2021 filed with the SEC and this
Quarterly Report. The following discussion and analysis of our financial
condition and results of operations should be read in conjunction with the
unaudited interim condensed financial statements and the notes thereto contained
elsewhere in this Quarterly Report.
Overview
We are a blank check company incorporated on January 27, 2021 as a Cayman
Islands exempted company for the purpose of effecting a merger, share exchange,
asset acquisition, share purchase, reorganization or similar business
combination with one or more businesses (the "Initial Business Combination").
Our sponsor is Inflection Point Holdings LLC, a Cayman Islands limited liability
company (the "Sponsor"). The registration statement for our initial public
offering was declared effective on September 21, 2021. On September 24, 2021, we
consummated our initial public offering (the "IPO") of 30,000,000 units, at
$10.00 per unit (the "Units"). Each Unit consists of one of our Class A ordinary
shares, $0.0001 par value (the "Class A ordinary shares" or "Public Shares")
and one-half of one redeemable warrant (each, a "Public Warrant"), with each
whole warrant entitling the holder to purchase one Class A ordinary share for
$11.50 per share, subject to adjustment. The underwriters had a 45-day option
from the effective date to purchase up to an additional 4,500,000 Units to cover
over-allotments, if any. On October 29, 2021, the underwriters partially
exercised the over-allotment option (the "Over-Allotment" and together with the
IPO, the "Public Offering") and purchased an additional 2,975,000 Units (the
"Over-Allotment Units"), generating additional gross proceeds of $29,750,000,
and forfeited their option to purchase the remaining 1,525,000 Units.
Simultaneously with the closing of the IPO, our Sponsor purchased an aggregate
of 6,250,000 private placement warrants ("IPO Private Placement Warrants") at a
price of $1.00 per IPO Private Placement Warrants, for an aggregate purchase
price of $6,250,000. On October 29, 2021, simultaneously with the sale of the
Over-Allotment Units, our Sponsor purchased an additional 595,000 private
placement warrants (the "Over-Allotment Private Placement Warrants" and together
with the IPO Private Placement Warrants, the "Private Placement Warrants"),
generating aggregate gross proceeds to us of $595,000.
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An aggregate of 12 qualified institutional buyers ("Anchor Investors") expressed
an interest to purchase an aggregate of approximately $322.3 million of the
Units to be sold in the IPO. None of the Anchor Investors expressed an interest
in purchasing more than 9.9% of the Units sold in the IPO. The Anchor Investors
were allocated and purchased a total of 29,540,000 Units or 98.5% of the Units
sold in the IPO. One of the Anchor Investors, Kingstown 1740 Fund, LP
("Kingstown 1740"), is an affiliate of our Sponsor, and was allocated and
purchased 2,900,000 Units in the IPO.
In addition, subject to each Anchor Investor purchasing 100% of the Units
allocated to it, in connection with the closing of the IPO, our Sponsor sold
membership interests reflecting an allocation of Class B ordinary shares, par
value $0.0001 per share (the "Founder Shares") to each Anchor Investor,
amounting to an aggregate of 1,625,000 Founder Shares to all Anchor Investors
collectively. We estimated the aggregate fair value of these Founder Shares
attributable to Anchor Investors to be approximately $9.68 million, or $5.96 per
share. The excess of the fair value of the Founder Shares was determined to be
an offering cost in accordance with Staff Accounting Bulletin Topic 5A. Offering
costs allocated to the Public Shares and the Public Warrants was all charged to
shareholder's equity upon the completion of the IPO.
Transaction costs amounted to $26,658,313, consisting of $4,595,000 of
underwriting commissions, $11,541,250 of deferred underwriting commissions,
$9,680,125 of excess fair value of founder shares, and $841,938 of other
offering costs, with $23,439 allocated to the over-allotment option, $24,538,134
allocated to the Class A ordinary shares subject to redemption, and $2,096,740
allocated to the Class A ordinary shares not subject to redemption, the Public
Warrants and the Private Placement Warrants.
Following the closing of the IPO on September 24, 2021, $300,000,000 ($10.00 per
Unit) from the net proceeds of the sale of the Units in the IPO and the sale of
the IPO Private Placement Warrants was deposited into a trust account (the
"Trust Account"). Following the closing of the Over-Allotment on October 29,
2021, an additional $29,750,000 ($10.00 per Over-Allotment Unit) from the net
proceeds from the sale of the Over-Allotment Units in the Over-Allotment and the
sale of the Over-Allotment Private Placement Warrants was deposited into the
Trust Account. The proceeds deposited in the Trust Account are, and will be,
invested only in U.S. government securities, within the meaning set forth in
Section 2(a)(16) of the Investment Company Act of 1940, as amended (the
"Investment Company Act"), having a maturity of 185 days or less or in money
market funds meeting certain conditions under Rule 2a-7 promulgated under the
Investment Company Act which invest only in direct U.S. government treasury
obligations. Except with respect to interest earned on the funds held in the
Trust Account that may be released to us to pay taxes, if any, the proceeds from
the Public Offering and the sale of the Private Placement Warrants will not be
released from the Trust Account until the earliest of (i) the completion of an
Initial Business Combination, (ii) the redemption of our Public Shares if we are
unable to complete an Initial Business Combination by September 24, 2023,
subject to applicable law, or (iii) the redemption of our Public Shares properly
submitted in connection with a shareholder vote to amend our amended and
restated memorandum and articles of association to (A) modify the substance or
timing of our obligation to allow redemption in connection with an Initial
Business Combination or to redeem 100% of its Public Shares if we have not
consummated an Initial Business Combination by September 24, 2023 or (B) with
respect to any other material provisions relating to shareholders' rights or
pre-Initial Business Combination activity. The proceeds deposited in the Trust
Account could become subject to the claims of our creditors, if any, which could
have priority over the claims of our Public Shareholders.
Our management has broad discretion with respect to the specific application of
the net proceeds of the Public Offering and the sale of the Private Placement
Warrants although substantially all of the net proceeds are intended to be
generally applied toward consummating an Initial Business Combination (less
deferred underwriting commissions). Our Initial Business Combination must be
with one or more operating businesses or assets with a fair market value equal
to at least 80% of the value of the Trust Account (excluding the amount of any
deferred underwriting discount held in trust and taxes payable on the income
earned on the Trust Account). However, we will only complete an Initial Business
Combination if the post-transaction company owns or acquires 50% or more of the
issued and outstanding voting securities of the target or otherwise acquires a
controlling interest in the target sufficient for it not to be required to
register as an investment company under the Investment Company Act. There is no
assurance that we will be able to successfully effect an Initial Business
Combination.
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We will have until September 24, 2023 to complete an Initial Business
Combination (the "Combination Period"). However, if we are unable to complete an
Initial Business Combination within 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, including interest earned on the
funds held in the Trust Account (less tax payable and 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 liquidation
distributions, if any), and (iii) as promptly as reasonably possible following
such redemption, subject to the approval of our remaining shareholders and our
board of directors, liquidate and dissolve, subject in the case of clauses (ii)
and (iii) to our obligations under Cayman Islands law to provide for claims of
creditors and in all cases subject to the other requirements of applicable law.
Proposed Business Combination with Intuitive Machines
On September 16, 2022, the Company entered into a business combination agreement
(the "Business Combination Agreement") with Intuitive Machines, LLC, a Texas
limited liability company ("Intuitive Machines" and, subsequent to the Proposed
Business Combination, "Intuitive Machines OpCo"), pursuant to which, subject to
the satisfaction or waiver of certain closing conditions, including the approval
of the Business Combination Agreement and the transactions contemplated thereby
by the Company's shareholders, (1) at the closing of the transactions
contemplated by the Business Combination Agreement (the "Closing") and following
the Domestication (as defined below), (a) the Company will acquire equity
securities and become the managing member of Intuitive Machines OpCo and (b) the
Company will issue voting equity securities without economic rights to the
existing members of Intuitive Machines prior to the Closing ("Intuitive Machines
Members"), resulting in a combined company organized in an umbrella partnership
C corporation ("Up-C") structure, in which substantially all of the assets and
the business of the combined company will be held by Intuitive Machines OpCo;
(2) the Company will domesticate (the "Domestication") as a Delaware corporation
in accordance with the Delaware General Corporation Law ("DGCL"), the Companies
Act (As Revised) of the Cayman Islands (the "Companies Act") and the Company's
amended and restated memorandum and articles of association, (3) Intuitive
Machines will change its jurisdiction from Texas to Delaware (the "Conversion")
and complete a recapitalization (the "Recapitalization") whereby all outstanding
equity securities of Intuitive Machines will be converted or exchanged into
common units, options, and unvested earn out units, as applicable, and (4) the
other transactions contemplated by the Business Combination Agreement and
documents related thereto will be consummated (such transactions, together with
the business combination and the Domestication, Conversion, and
Recapitalization, the "Proposed Business Combination"). In connection with the
Proposed Business Combination, the Company will be renamed "Intuitive Machines,
Inc." ("New Intuitive Machines").
The Domestication
As a condition to the Proposed Business Combination, the Company will change its
jurisdiction of incorporation by effecting a deregistration under Section 206 of
the Companies Act and a domestication under Section 388 of the DGCL, pursuant to
which the Company's jurisdiction of incorporation will be changed from the
Cayman Islands to the State of Delaware. Immediately prior to the Domestication,
pursuant to the Company's amended and restated memorandum and articles of
association, each Founder Share will convert automatically, on a
one-for-one basis, into a Class A ordinary share. Immediately following such
conversion, in connection with the Domestication, each of the then issued and
outstanding Class A ordinary shares will convert automatically, on a
one-for-one basis, into one share of New Intuitive Machines Class A common
stock, par value $0.0001 per share, each of which will carry voting rights of
one vote per share (collectively, the "New Intuitive Machines Class A Common
Stock"); (iii) each whole warrant to purchase one Class A ordinary share (each
warrant, a "Company Warrant") will automatically represent the right to purchase
one share of New Intuitive Machines Class A Common Stock on the same terms as
the Company Warrants (each a "New Intuitive Machines Warrant") and (c) each of
the units of the Company outstanding as of immediately prior to the
Domestication will automatically be canceled and each holder will be entitled to
one share of New Intuitive Machines Class A Common Stock and one-half of one New
Intuitive Machines Warrant, per unit. No fractional New Intuitive Machines
Warrants will be issued upon such cancellation.
Concurrently with the Domestication and subject to the satisfaction or waiver of
the conditions set forth in the Business Combination Agreement, including
approval by the Company's shareholders, the Company will adopt a certificate of
incorporation (the "Proposed Certificate of Incorporation") that, among other
things, will implement a revised class structure with the shares of New
Intuitive Machines Class A Common Stock having one vote per share and economic
rights, the shares of Class B common stock of New Intuitive Machines, par value
$0.0001 per share, having one vote per share and no economic rights
(collectively, the "New Intuitive Machines Class B Common Stock") and the shares
of Class C common stock of New Intuitive Machines, par value $0.0001 per share,
having three votes per share and no economic rights (collectively, the "New
Intuitive Machines Class C Common Stock" and the New Intuitive Machines Class A
Common Stock, the New Intuitive Machines Class B Common Stock and New Intuitive
Machines Class C Common Stock, collectively, the "New Intuitive Machines Common
Stock"). The Proposed Certificate of Incorporation will also authorize the
issuance of "blank check" preferred stock, par value $0.0001 per share, having
such characteristics as the board may, from time to time, provide. The Company's
board of directors will adopt a Certificate of Designation of Preferences,
Rights and Limitations of 10% Series A Cumulative Convertible Preferred Stock,
creating the Series A Preferred Stock (as defined below).
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The Conversion and Recapitalization
In connection with the Proposed Business Combination, Intuitive Machines will
change its jurisdiction of organization from Texas to Delaware. Immediately
prior to the Closing, Intuitive Machines will effectuate the Recapitalization
whereby all outstanding equity securities of Intuitive Machines will be
converted into common units of Intuitive Machines OpCo ("Intuitive Machines OpCo
Common Units"), options to purchase Intuitive Machines OpCo Common Units
("Intuitive Machines OpCo Options") and unvested earn out units of Intuitive
Machines OpCo ("Earn Out Units").
Consideration and Structure
As a result of the Up-C structure, the business combination consideration to be
received by Intuitive Machines Members will consist of securities of both
Intuitive Machines OpCo having economic rights but not voting rights and New
Intuitive Machines having voting rights but not economic rights equal to a value
of approximately $700,000,000. In particular, the business combination
consideration to be received by the Intuitive Machines Members will be an
aggregate of (a) (i) 68,125,987 Intuitive Machines OpCo Common Units,
(ii) 1,874,013 Intuitive Machines OpCo Options and (iii) 10,000,000 Earn Out
Units and (b) (i) 278 shares of New Intuitive Machines Class B Common Stock
(excluding 1,874,013 shares of New Intuitive Machines Class B Common Stock
reserved for issuance upon exercise of Intuitive Machines OpCo Options) and (ii)
68,125,709 shares of New Intuitive Machines Class C Common Stock (excluding
10,000,000 shares of New Intuitive Machines Class C Common Stock reserved for
issuance upon vesting of the Earn Out Units).
The 10,000,000 Earn Out Units received by the applicable Intuitive Machines
Members will be subject to vesting and will be earned, released and delivered
upon satisfaction of the following milestones: (i) 2,500,000 Earn Out Units will
vest if, during the Earn Out Period (as defined below), Intuitive Machines is
awarded the OMES III Contract by NASA ("Triggering Event I"), (ii) 5,000,000
Earn Out Units will vest if, within the Earn Out Period, Triggering Event I
occurs and the volume weighted average closing sale price of New Intuitive
Machines Class A Common Stock equals or exceeds $15.00 per share ("Triggering
Event II-A"), (iii) 7,500,000 Earn Out Units will vest if, within the Earn Out
Period, Triggering Event I has not occurred and the volume weighted average
closing sale price of New Intuitive Machines Class A Common Stock equals or
exceeds $15.00 per share ("Triggering Event II-B"), and (iv) 2,500,000 Earn Out
Units will vest if, within the Earn Out Period, Triggering Event III occurs the
volume weighted average closing sale price of New Intuitive Machines Class A
Common Stock equals or exceeds $17.50 per share ("Triggering Event III"),
provided, that Triggering Event II-A and Triggering Event II-B may not both be
achieved. "Earn Out Period" means (i) with respect to Triggering Event I, the
time period beginning on September 16, 2022 and ending at 11:59 pm ET on
December 31, 2023, and (ii) with respect to Triggering Event II-A, Triggering
Event II-B and Triggering Event III, the time period beginning on the date that
is 150 days following the date of Closing and ending on the date that is the
five (5) year anniversary of the date of Closing. If a Change of Control (as
defined in the Business Combination Agreement) occurs during the Earn Out Period
that results in the holders of New Intuitive Machines Class A Common Stock
receiving a per share price greater than or equal to $15.00 or $17.50,
respectively, then immediately prior to the consummation of such Change of
Control, to the extent not previously triggered, then Triggering Event II-A or
Triggering Event II-B will be deemed to have occurred, as applicable, and the
applicable Earn Out Units shall vest.
After the expiration of the applicable lock-up period, holders of certain
Intuitive Machines OpCo Common Units will be permitted to exchange such
Intuitive Machines OpCo Common Units (along with the cancellation of the paired
share of New Intuitive Machines Class B Common Stock or share of New Intuitive
Machines Class C Common Stock) for shares of New Intuitive Machines Class A
Common Stock on a one-for-one basis pursuant to the second amended and restated
limited liability company agreement of Intuitive Machines OpCo (the "Second A&R
Operating Agreement") (subject to customary conversion rate adjustments for
stock splits, stock dividends and reclassifications) or, at the election of New
Intuitive Machines (determined by a majority of the directors of New Intuitive
Machines who are disinterested with respect to such determination), cash from a
substantially concurrent public offering or private sale in an amount equal to
the net amount, on a per share basis, of cash received as a result of such
public offering or private sale.
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Upon the vesting of any Earn Out Units, each of the applicable Intuitive
Machines Members will be issued (i) by Intuitive Machines OpCo an equal number
of Intuitive Machines OpCo Common Units and (ii) by New Intuitive Machines an
equal number of shares of New Intuitive Machines Class C Common Stock, in
exchange for surrender of the applicable Earn Out Units and the payment to New
Intuitive Machines of a per-share price equal to the par value per share of the
New Intuitive Machines Class C Common Stock. Upon the exercise of any Intuitive
Machines OpCo Option, (i) Intuitive Machines OpCo will issue to the exercising
holder such number of Intuitive Machines OpCo Common Units to be received by
such exercising holder as a result of such exercise and (ii) New Intuitive
Machines will issue to the exercising holder an equal number of shares of New
Intuitive Machines Class B Common Stock, in exchange for the payment to New
Intuitive Machines of a per-share price equal to the par value per share of the
New Intuitive Machines Class B Common Stock.
Representations, Warranties, Covenants and Termination
The parties to the Business Combination Agreement have made customary
representations, warranties and covenants in the Business Combination Agreement,
including, among others, covenants with respect to the conduct of Intuitive
Machines and the Company prior to the Closing. The Closing is subject to certain
customary conditions. There is no assurance that the Proposed Business
Combination will be completed.
The Business Combination Agreement may be terminated under certain customary and
limited circumstances at any time prior to the Closing, including, among others,
(i) by mutual written consent of the Company and Intuitive Machines; (ii) either
the Company or Intuitive Machines if the Closing has not occurred on or before
September 16, 2023; and (iii) by Intuitive Machines if the Company has not
obtained shareholder approval after the conclusion of the extraordinary general
meeting of the Company's shareholders to be held for the purpose of voting on
the Proposed Business Combination. Upon termination of the Business Combination
Agreement, in certain circumstances, Intuitive Machines will reimburse the
Company for any amounts due and owing to the Sponsor, up to $1,500,000.
The Series A Investment
On September 16, 2022, concurrently with the execution of the Business
Combination Agreement, the Company entered into a purchase agreement (the
"Series A Purchase Agreement") with Kingstown 1740 (an existing security holder
of the Company and an affiliate of the Sponsor) and Ghaffarian Enterprises, LLC
(an affiliate of Kamal Ghaffarian, an Intuitive Machines founder) (collectively,
the "Series A Investors"), pursuant to which, and on the terms and subject to
the conditions of which, New Intuitive Machines agreed to issue and sell to the
Series A Investors (i) an aggregate of 26,000 shares of 10% Series A Cumulative
Convertible Preferred Stock, par value $0.0001 per share (the "Series A
Preferred Stock") which will be convertible into shares of New Intuitive
Machines Class A Common Stock in accordance with the terms of the Certificate of
Designation of Preferences, Rights and Limitations of 10% Series A Cumulative
Convertible Preferred Stock (the "Certificate of Designation") to be adopted by
the Company's board of directors following the Domestication but prior to the
Closing and (ii) warrants to purchase 541,667 shares of New Intuitive Machines
Class A Common Stock at an initial exercise price of $15.00 per share, subject
to adjustment (the "Preferred Investor Warrants"). The Series A Investment will
be consummated following the Domestication but immediately prior to the Closing.
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Tax Receivable Agreement
The Business Combination Agreement contemplates that, at the Closing, New
Intuitive Machines will enter into a tax receivable agreement (the "Tax
Receivable Agreement") with Intuitive Machines OpCo and certain Intuitive
Machines Members (the "TRA Holders"). Pursuant to the Tax Receivable Agreement,
New Intuitive Machines will generally be required to pay the TRA Holders 85% of
the amount of the cash tax savings, if any, in U.S. federal, state, and local
taxes that are based on, or measured with respect to, net income or profits, and
any interest related thereto that New Intuitive Machines (and applicable
consolidated, unitary, or combined subsidiaries thereof, if any and collectively
the "Tax Group") realizes, or is deemed to realize, as a result of certain tax
attributes (the "Tax Attributes"), including:
? existing tax basis in certain assets of Intuitive Machines OpCo and certain of
its direct or indirect subsidiaries, including assets that will eventually be
subject to depreciation or amortization, once placed in service;
? tax basis adjustments resulting from taxable exchanges of Intuitive Machines
OpCo Common Units (including any such adjustments resulting from certain
payments made by New Intuitive Machines under the Tax Receivable Agreement)
acquired by New Intuitive Machines from a TRA Holder pursuant to the terms of
the Second A&R Operating Agreement;
? certain tax benefits realized by New Intuitive Machines as a result of certain
U.S. federal income tax allocations of taxable income or gain away from New
Intuitive Machines and to other members of Intuitive Machines OpCo and
deductions or losses to New Intuitive Machines and away from other members of
Intuitive Machines OpCo, in each case as a result of the Proposed Business
Combination; and
? tax deductions in respect of portions of certain payments made under the Tax
Receivable Agreement.
Upon the completion of the Proposed Business Combination, New Intuitive Machines
will be a party to the Tax Receivable Agreement. Under the terms of the Tax
Receivable Agreement, New Intuitive Machines will make payments to the TRA
Holders in respect of 85% of the cash tax savings resulting from the net tax
benefit to New Intuitive Machines of certain Tax Attributes (calculated using
certain assumptions, and subject to the terms of the Tax Receivable Agreement).
However, until a TRA Holder exchanges at least 5% of its Intuitive Machines OpCo
Common Units, New Intuitive Machines will hold such payments applicable to
existing basis until the TRA Holder satisfies such threshold exchange. Upon the
completion of the Proposed Business Combination, no TRA Holder will have
exchanged at least 5% of its Intuitive Machines OpCo Common Units. The tax
impacts of the transaction were estimated based on the applicable law in effect
on June 30, 2022.
Future exchanges will result in incremental tax attributes and potential cash
tax savings for New Intuitive Machines. Depending on New Intuitive Machines'
assessment on realizability of such tax attributes, the arising Tax Receivable
Agreement liability will be recorded at the exchange date against equity, or at
a later point through income.
However, if all of the TRA Holders were to exchange or sell us all of their
Intuitive Machines OpCo Common Units, New Intuitive Machines would recognize a
deferred tax asset of approximately $169.2 million and a liability under the Tax
Receivable Agreement of approximately $147.2 million, assuming: (i) all
exchanges or purchases occurred on the same day; (ii) a price of $10 per share;
(iii) a constant corporate tax rate; (iv) that New Intuitive Machines will have
sufficient taxable income to fully utilize the tax benefits; and (v) no material
changes in tax law. These amounts are estimates and have been prepared for
illustrative purposes only. The actual amount of deferred tax assets and related
liabilities that New Intuitive Machines will recognize will differ based on,
among other things, the timing of the exchanges, the price per share of New
Intuitive Machines Class A Common Stock at the time of the exchange, and the tax
rates then in effect and certain change of control or early termination events
occurring.
If New Intuitive Machines exercises its right to terminate the Tax Receivable
Agreement or in the case of a change in control of New Intuitive Machines or a
material breach of New Intuitive Machines' obligations under the Tax Receivable
Agreement, all obligations under the Tax Receivable Agreement will be
accelerated and New Intuitive Machines will be required to make a payment to the
TRA Holders in an amount equal to the present value of future payments under the
Tax Receivable Agreement. This payment would be based on certain assumptions,
including that New Intuitive Machines would have sufficient taxable income to
fully utilize the benefits arising from the Tax Attributes subject to the Tax
Receivable Agreement. If New Intuitive Machines were to elect to terminate the
Tax Receivable Agreement immediately after the Proposed Business Combination,
assuming the market value of New Intuitive Machines Class A Common Stock is
equal to $10 per share, the Company currently estimates that it would be
required to pay approximately $99.7 million to satisfy its total liability.
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Equity Facility
On September 16, 2022, the Company entered into a common stock purchase
agreement (the "Cantor Purchase Agreement"), dated September 16, 2022, with CF
Principal Investments LLC ("CFPI") relating to an equity facility under which
shares of newly issued New Intuitive Machines Class A Common Stock may be sold
to CFPI by New Intuitive Machines. Pursuant to the terms of the Cantor Purchase
Agreement, New Intuitive Machines will have the right, but not the obligation,
from time to time at its sole discretion, until the first day of the month
following the 18-month period from and after the Commencement (as defined in the
Cantor Purchase Agreement), to direct CFPI to purchase up to the lesser of
(i) $50 million of newly issued New Intuitive Machines Class A Common Stock and
(ii) the Exchange Cap, by delivering written notice to CFPI prior to the
commencement of trading on any trading day, subject to certain customary
conditions and limitations set forth in the Cantor Purchase Agreement. In
connection with the execution of the Cantor Purchase Agreement, the Company
agreed to issue 100,000 shares (the "Commitment Shares") of New Intuitive
Machines Class A Common Stock to CFPI. The Company entered into a registration
rights agreement with CFPI, pursuant to which it agreed to register for resale,
pursuant to Rule 415 under the Securities Act of 1933, as amended (the
"Securities Act"), the shares of New Intuitive Machines Class A Common Stock
that are sold to CFPI under the equity facility and the Commitment Shares.
Sponsor Support Agreement
Concurrently with the execution and delivery of the Business Combination
Agreement, the Sponsor, the Company and Intuitive Machines entered into the
Sponsor Support Agreement pursuant to which the Sponsor agreed to, among other
things, vote and approve the Business Combination Agreement and all other
documents and transaction contemplated thereby, and to waive, subject to the
consummation of the Proposed Business Combination, any and all anti-dilution
rights with respect to the rate that the Founder Shares convert into Class A
ordinary shares in connection with the transactions contemplated by the Business
Combination Agreement, in each case, subject to the terms and conditions of the
Sponsor Support Agreement. In connection with the Sponsor Support Agreement, the
Company provided the Sponsor with indemnification against certain claims brought
against the Sponsor for a period of six years following the Closing.
Non-Redemption Agreement
Concurrently with the execution of the Business Combination Agreement, the
Company and Intuitive Machines entered into a non-redemption agreement (the
"Non-Redemption Agreement") with Kingstown 1740, an affiliate of the Sponsor,
pursuant to which Kingstown 1740 agreed not to redeem the 2,900,000 Class A
ordinary shares held by it.
For additional information regarding the Proposed Business Combination, see the
Company's Registration Statement on Form S-4 filed by on October 13, 2022.
Liquidity and Capital Resources; Going Concern
As of September 30, 2022, we had $19,442 in cash and working capital deficit of
$1,995,115.
On September 30, 2021, our Sponsor agreed to provide us with loans in such
amounts as may be required by us to fund our working capital requirements up to
an aggregate of $250,000. On March 8, 2022, the Sponsor agreed to provide us
with loans in such amounts as may be required by us to fund our working capital
requirements up to an aggregate of $500,000.
On August 4, 2022, the Sponsor agreed to loan the Company up to $1,000,000 to be
used for ongoing expenses reasonably related to the business of the Company and
the consummation of an Initial Business Combination pursuant to a convertible
promissory note (the "Working Capital Note").
32
All unpaid principal under the Working Capital Note shall be due and payable in
full on the earlier of (i) September 24, 2023 and (ii) the effective date of an
Initial Business Combination, involving the Company and one or more businesses
(such earlier date, the "Maturity Date"), unless accelerated upon the occurrence
of an event of default as set forth in the Working Capital Note. The Sponsor
will have the option, at any time on or prior to the Maturity Date, to convert
up to $1,000,000 outstanding under the Working Capital Note into warrants to
purchase Class A ordinary shares at a conversion price of $1.00 per warrant,
with each warrant entitling the holder to purchase one Class A ordinary share at
a price of $11.50 per share, subject to the same adjustments applicable to the
Private Placement Warrants. As of September 30, 2022, there was $125,000
outstanding under the Working Capital Note.
Until consummation of its Initial Business Combination, the Company will be
using these funds for paying existing accounts payable, identifying and
evaluating prospective Initial Business Combination candidates, performing due
diligence on prospective target businesses, paying for travel expenditures,
selecting the target business to merge with or acquire, and structuring,
negotiating and consummating an Initial Business Combination. In addition to the
Working Capital Note, in order to finance transaction costs in connection with
an Initial Business Combination, the Sponsor or an affiliate of the Sponsor, or
certain of the Company's officers and directors may, but, except as set forth
above, are not obligated to, loan the Company funds as may be required on a
non-interest basis (any such loans together with the loans made under the
Working Capital Note, the "Working Capital Loans").
Based on the foregoing, the $19,442 in cash held outside the Trust Account will
not be sufficient to allow the Company to operate for at least 12 months from
the issuance of these unaudited condensed financial statements, assuming that an
Initial Business Combination is not consummated during that time.
Prior to the completion of an Initial Business Combination, the Company does not
expect to seek loans from parties other than our Sponsor or an affiliate of our
Sponsor as it does 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 the
Trust Account. If the Company is unable to raise additional capital, it may be
required to take additional measures to conserve liquidity, which could include,
but not necessarily be limited to, curtailing operations, suspending the pursuit
of its business plan, and reducing overhead expenses. The Company cannot provide
assurance that new financing will be available to it on commercially acceptable
terms, if at all.
In connection with the Company's assessment of going concern considerations in
accordance with Financial Accounting Standard Board's Accounting Standards
Codification ("ASC") Topic 205-40, "Basis of Presentation - Going Concern", the
Company has until September 24, 2023 (absent any extensions of such period) to
consummate the Proposed Business Combination or another Initial Business
Combination. It is uncertain that the Company will be able to consummate the
Proposed Business Combination or another Initial Business Combination by this
time. If the Proposed Business Combination or another Initial Business
Combination is not consummated by this date, there will be a mandatory
liquidation and subsequent dissolution of the Company. Management has determined
that the liquidity condition and mandatory liquidation, should the Proposed
Business Combination or another Initial Business Combination not occur, and
potential subsequent dissolution, raises substantial doubt about the Company's
ability to continue as a going concern after September 24, 2023. No adjustments
have been made to the carrying amounts of assets or liabilities should the
Company be required to liquidate after September 24, 2023. The Company intends
to complete the Proposed Business Combination or another Initial Business
Combination before the mandatory liquidation date. However, there can be no
assurance that the Company will be able to consummate the Proposed Business
Combination or any Initial Business Combination by September 24, 2023.
Risks and Uncertainties
We are currently evaluating the impact of the COVID-19 pandemic and
Russian-Ukraine war on the industry and have concluded that while it is
reasonably possible that the virus and the war could have a negative effect on
our financial position, results of its operations and/or search for a target
company, the specific impact is not readily determinable as of the date of the
unaudited condensed financial statements included elsewhere in this Quarterly
Report. The unaudited condensed financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Results of Operations
As of September 30, 2022, we had not commenced any operations. All activity for
the period from January 27, 2021 (inception) through September 30, 2022 relates
to our formation and the Public Offering and, subsequent to the closing of the
IPO, identifying a target company for an Initial Business Combination. We have
neither engaged in any operations nor generated any revenues to date. We will
not generate any operating revenues until after the completion of our Initial
Business Combination, at the earliest. We generate non-operating income in the
form of interest income on cash and cash equivalents from the proceeds derived
from the Public Offering. We incur increased expenses as a result of being a
public company (for legal, financial reporting, accounting and auditing
compliance), as well as for due diligence expenses.
33
For the three months ended September 30, 2022, we had net loss of $520,888,
which consisted primarily of formation and operating costs amounting to
$2,011,943, offset by interest income earned on cash and marketable securities
held in Trust Account amounting to $1,491,055.
For the nine months ended September 30, 2022, we had net loss of $950,023, which
consisted primarily of formation and operating costs amounting to $2,936,836,
offset by interest income earned on cash and marketable securities held in Trust
Account amounting to $1,986,813.
For the three months ended September 30, 2021, we had a net loss of $44,976
which consisted of formation and operating costs amounting to $21,737 and
$23,439 of issuance cost of over-allotment offset by interest income earned on
cash and marketable securities held in Trust Account amounting to $200.
For the period from January 27, 2021 (Inception) to September 30, 2021, we had
net loss of $64,864, which consisted of formation and operating costs amounting
to $41,625 and $23,439 of issuance cost of over-allotment offset by interest
income earned on cash and marketable securities held in Trust Account amounting
to $200.
We do not have any long-term debt obligations, capital lease obligations,
operating lease obligations, purchase obligations or long-term liabilities.
As of September 30, 2022 and December 31, 2021, we did not have any off-balance
sheet arrangements.
Administrative Services Agreement
Commencing on September 21, 2021, we agreed to pay Kingstown Capital Management
L.P., an affiliate of our Sponsor, $15,000 per month for office space, utilities
and secretarial and administrative support services. Upon the earlier of the
completion of an Initial Business Combination or our liquidation, we will cease
paying such monthly fees.
Registration Rights
The holders of the (i) Founder Shares and the Class A ordinary shares issuable
upon conversion of Founder Shares, (ii) Forward Purchase Shares, (iii) Private
Placement Warrants and the Class A ordinary shares underlying such Private
Placement Warrants and (iv) warrants that may be issued upon conversion of
Working Capital Loans and the Class A ordinary shares underlying such warrants
will have registration rights to require us to register a sale of any of our
securities held by them and our any other securities acquired by them prior to
the consummation of our Initial Business Combination pursuant to a registration
rights agreement entered into in connection with the IPO. Pursuant to the
registration rights agreement and assuming $1,500,000 of Working Capital Loans
are converted into additional warrants, we will be obligated to register up to
21,588,750 Class A ordinary shares and 8,345,000 warrants. The number of Class A
ordinary shares includes (i) 8,243,750 Class A ordinary shares to be issued upon
conversion of the Founder Shares, (ii) 5,000,000 Forward Purchase Shares,
(iii) 6,845,000 Class A ordinary shares underlying the Private Placement
Warrants and (iv) 1,500,000 Class A ordinary shares underlying the warrants
issuable upon conversion of Working Capital Loans. The number of warrants
includes 6,845,000 Private Placement Warrants and 1,500,000 additional warrants
issuable upon the conversion of Working Capital Loans. The holders of these
securities are entitled to make up to three demands, excluding short form
demands, that we register such securities. In addition, the holders have certain
"piggy-back" registration rights with respect to registration statements filed
subsequent to our completion of our Initial Business Combination. We will bear
the expenses incurred in connection with the filing of any such registration
statements.
At the Closing, the Company, the Sponsor and certain securityholders of
Intuitive Machines will enter into an amended and restated registration rights
agreement (the "A&R Registration Rights Agreement"), pursuant to which, among
other things, the Sponsor and such securityholders will be granted certain
customary registration rights, on the terms and subject to the conditions
therein, with respect to securities of New Intuitive Machines that they will
hold following the Proposed Business Combination.
34
Underwriting Agreement
We granted the underwriters a 45-day option from the Effective Date to purchase
up to an additional 4,500,000 Units to cover over-allotments, if any. On October
29, 2021, the underwriters partially exercised the over-allotment option and
purchased 2,975,000 Over-Allotment Units, generating aggregate gross proceeds of
$29,750,000, and forfeited their option to purchase the remaining 1,525,000
Units.
The Company provided a discount to the underwriters at the closing of the Public
Offering of 2.0% per Unit, or $4,595,000, excluding the proceeds from the
purchase of an aggregate of 10,000,000 Units by certain of our Anchor Investors,
$4,000,000 of which was payable upon the closing of the IPO and $595,000 was
payable upon closing of the Over-Allotment. Additionally, the underwriting
agreement states that the Company will pay Citigroup Global Markets Inc.
("Citi") a deferred discount of $0.35 per Unit sold in the Public Offering
including pursuant to the Over-Allotment, or an aggregate of $11,541,250 upon
the Company's completion of an Initial Business Combination, which would be
payable 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.
Professional Service Agreement
We reimburse our Sponsor for services provided by one of our Sponsor's employees
who serves as our Chief of Staff ("COS"). The COS receives $12,500 per month for
services rendered, commencing September 25, 2021, through the closing of our
Initial Business Combination. For the three and nine months ended September 30,
2022, we recorded $37,500 and $112,500, respectively, of compensation for
services provided. As of September 30, 2022, there was $37,500 due to the COS.
Critical Accounting Policies
This management's discussion and analysis of our financial condition and results
of operations is based on our unaudited condensed financial statements, which
have been prepared in accordance with US GAAP. The preparation of our unaudited
condensed financial statements requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses and
the disclosure of contingent assets and liabilities in our unaudited condensed
financial statements. On an ongoing basis, we evaluate our estimates and
judgments, including those related to fair value of financial instruments and
accrued expenses. We base our estimates on historical experience, known trends
and events and various other factors that we believe to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions. We have identified the following as its critical
accounting policies:
Offering Costs
We comply with the requirements of the ASC 340-10-S99-1. Offering costs consists
of legal, accounting, underwriting fees and other costs incurred through the
balance sheet date that are directly related to the Public Offering. Offering
costs are allocated to the separable financial instruments issued in the Public
Offering based on a relative fair value basis, compared to total proceeds
received. Transaction costs amounted to $26,658,313, consisting of $4,595,000 of
underwriting commissions, $11,541,250 of deferred underwriting commissions,
$9,680,125 of excess fair value of founder shares, and $841,938 of other
offering costs, with $23,439 included in the unaudited condensed statements of
operations as an allocation for the over-allotment option, $24,538,134 included
in temporary equity as an allocation for the Class A ordinary shares subject to
redemption, and $2,096,740 included in additional paid-in capital as an
allocation for the Class A ordinary shares not subject to redemption, the Public
Warrants and the Private Placement Warrants.
Subject to each Anchor Investor purchasing 100% of the Units allocated to it in
the IPO, and in connection with the closing of the IPO, our Sponsor sold
membership interests reflecting an allocation of an aggregate of 1,625,000
Founder Shares to the Anchor Investors collectively. We, through an independent
valuations expert, estimated the aggregate fair value of these Founder Shares
attributable to Anchor Investors to be approximately $9.68 million, or $5.96 per
share. The excess of the fair value of the Founder Shares was determined to be
an offering cost in accordance with Staff Accounting Bulletin Topic 5A.
35
Class A Ordinary Shares Subject to Possible Redemption
All of the Class A Ordinary Share sold as part of the Units in the Public
Offering contain a redemption feature which allows for the redemption of such
Public Shares in connection with our liquidation, if there is a shareholder vote
or tender offer in connection with an Initial Business Combination and in
connection with certain amendments to our amended and restated memorandum and
articles of association. In accordance with SEC and its staff's guidance on
redeemable equity instruments, which has been codified in ASC 480-10-S99,
redemption provisions not solely within our control require ordinary shares
subject to redemption to be classified outside of permanent equity.
The Class A ordinary shares are subject to SEC and its staff's guidance on
redeemable equity instruments, which has been codified in ASC 480-10-S99. If it
is probable that the equity instrument will become redeemable, we have the
option to either accrete changes in the redemption value over the period from
the date of issuance (or from the date that it becomes probable that the
instrument will become redeemable, if later) to the earliest redemption date of
the instrument or to recognize changes in the redemption value immediately as
they occur and adjust the carrying amount of the instrument to equal the
redemption value at the end of each reporting period. We recognize changes in
redemption value immediately as they occur. Immediately upon the closing of the
IPO and the Over-Allotment, we recognized the remeasurement from initial book
value to redemption amount value. The change in the carrying value of redeemable
ordinary shares resulted in charges against additional paid-in capital.
Related Party Redemption Waiver Agreement
In September 2021, we entered into a redemption waiver agreement with one of our
Anchor Investors, Kingstown 1740, whereby Kingstown 1740 agreed to waive its
redemption rights on 1,386,989 Class A ordinary shares it holds, and these Class
A ordinary shares are classified as shareholders' equity.
Net Loss Per Ordinary Share
We comply with accounting and disclosure requirements of ASC Topic 260,
"Earnings Per Share." Our unaudited condensed statements of operations includes
a presentation of loss per share for ordinary shares subject to possible
redemption in a manner similar to the two-class method of loss per share. The
remeasurement associated with the redeemable Class A ordinary shares is excluded
from net loss per ordinary share as the redemption value approximates fair
value. Net loss per share, basic and diluted, for Class A redeemable ordinary
shares is calculated by dividing interest income earned and realized gains or
losses on the Trust Account for the nine months ended September 30, 2022 and for
the period from January 27, 2021 (Inception) to September 30, 2021, by the
weighted average number of Class A ordinary shares outstanding since original
issuance. We have not considered the effect of the Public Warrants or the
Private Placement Warrants to purchase an aggregate of 23,332,500 of our Class A
ordinary shares in the calculation of diluted loss per share, since their
exercise is contingent upon future events. Net loss per share, basic and
diluted, for Class A and Class B non-redeemable ordinary shares is calculated by
dividing the net loss, adjusted for income or loss attributable to Class A
ordinary shares, by the weighted average number of Class A and Class B
non-redeemable ordinary shares outstanding for the period. Class A
non-redeemable ordinary shares and Class B non-redeemable ordinary shares, which
include the Founder Shares, do not have any redemption features and do not
participate in the income or losses of the Trust Account. At September 30, 2022
and December 31, 2021, we 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 our company. As a result, diluted loss
per share is the same as basic loss per share for the period presented.
Warrants
We evaluated the warrants in accordance with ASC 815-40, "Derivatives and
Hedging - Contracts in Entity's Own Equity," and concluded that there were no
indexation or tender offer provisions in the warrant agreement that precluded
the warrants from being accounted for as components of equity, and the warrants
meet the criteria in ASC 815-40-25 to be classified in shareholders' deficit.
Fair value of the Public and Private Placement Warrants was determined by an
independent valuation expert as of September 24, 2021 (the date of the IPO) and
October 29, 2021 (the date of the Over-Allotment) using a Monte Carlo Model.
Proceeds from the IPO and subsequent partial exercise of the over-allotment
option allocated to the Public Warrants was an aggregate $11,995,753
($11,025,229, net of offering costs) and is recorded in additional paid-in
capital. Proceeds from the issuance of the Private Placement Warrants were
$6,845,000 ($6,831,701, net of offering costs) and is recorded in additional
paid-in capital.
36
Forward Purchase Agreement
In September 2021, we entered into a forward purchase agreement ("FPA") pursuant
to which certain affiliates of our Sponsor ("Kingstown") agreed to purchase up
to 5,000,000 forward purchase Class A ordinary shares ("Forward Purchase
Shares"), for $10.00 per share, or an aggregate amount of up to $50,000,000, in
a private placement that will close concurrently with the closing of our Initial
Business Combination, subject to approval by the Kingstown investment committee.
We have the right, in our sole discretion, to reduce the amount of Forward
Purchase Shares that Kingstown may purchase pursuant to the FPA. We have not
considered the effect of the Forward Purchase Shares in the calculation of
diluted income per share, since their issuance is contingent upon future events.
We evaluated the FPA under ASC 480 and ASC 815-40 to determine the appropriate
accounting treatment. The FPA does not meet the criteria to be classified as a
liability under ASC 480. In addition, there is no net cash settlement feature
and settlement will be in gross physical delivery of Class A ordinary shares;
therefore, the FPA should be classified as equity. However, as the issuance of
Forward Purchase Shares is contingent on several factors, including the
consummation of an Initial Business Combination, approval by the Kingstown
investment committee, and our discretion, we will record the FPA when it becomes
probable that the triggering events will occur. Until such time, due to the
contingent nature of the FPA, we will disclose the contingency in the notes to
our unaudited condensed financial statements.
Series A Purchase Agreement
In connection with the transactions contemplated by the Business Combination
Agreement, the Company entered into the Series A Purchase Agreement with the
Series A Investors. Pursuant to the Securities Purchase Agreement, the Series A
Investors have agreed to purchase an aggregate of $26.0 million of Series A
Preferred Stock and Preferred Investor Warrants in the Series A Investment. The
Company will, upon the terms and subject to the conditions of the Series A
Purchase Agreement, issue and sell to the Series A Investors (i) an aggregate of
26,000 shares of Series A Preferred Stock which will be convertible into shares
of New Intuitive Machines Class A Common Stock at an initial conversion price
determined by dividing the Stated Value (as defined in the Certificate of
Designation) of such shares of Series A Preferred Stock by the conversion price
of $12.00 per share, subject to adjustment, at the holder's option and (ii) the
Preferred Investor Warrants to purchase 541,667 shares of New Intuitive Machines
Class A Common Stock at an initial exercise price of $15.00 per share, subject
to adjustment in accordance with the terms of the Preferred Investor Warrants.
The Series A Investment will be consummated following the Domestication but
immediately prior to the Closing.
The Preferred Investor Warrants and Series A Preferred Stock each represent
freestanding financial instruments. The Series A Preferred Stock will be
classified in temporary equity pursuant to ASC 480-10-S99-3A. The Preferred
Investor Warrants will be initially recorded at fair value, with the residual
amount allocated to the Series A Preferred Stock.
Inflation
We do not believe that inflation had a material impact on our business, revenues
or operating results during the period presented.
Emerging Growth Company Status
We are an "emerging growth company," as defined in Section 2(a) of the
Securities Act, as modified by the Jumpstart our Business Startups Act of 2012,
(the "JOBS Act"), and may take advantage of certain exemptions from various
reporting requirements that are applicable to other public companies that are
not emerging growth companies including, but not limited to, not being required
to comply with the auditor attestation requirements of Section 404 of the
Sarbanes-Oxley Act, reduced disclosure obligations regarding executive
compensation in its periodic reports and proxy statements, and exemptions from
the requirements of holding a nonbinding advisory vote on executive compensation
and shareholder approval of any golden parachute payments not previously
approved.
37
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 Securities Exchange Act of 1934, as amended (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. We have 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, we, 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 our unaudited
condensed financial statements with another public company which is either not
an emerging growth company or 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.
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