HCM III Acquisition Corp Unit(HCMAU) - 2023 Q3 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Financial Statements Presents unaudited condensed financial statements, including balance sheets, operations, equity changes, cash flows, and detailed notes Condensed Balance Sheets Total assets significantly decreased to $44.8 million, liabilities reduced, and shareholders' deficit improved due to share redemptions Total Assets: | Date | Amount | | :--- | :----------- | | September 30, 2023 | $44,847,360 | | December 31, 2022 | $298,599,516 | Change: Decrease of $253,752,156 (approx. 85%) Cash and marketable securities held in trust account: | Date | Amount | | :--- | :----------- | | September 30, 2023 | $44,680,719 | | December 31, 2022 | $297,619,343 | Change: Decrease of $252,938,624 (approx. 85%) Total Liabilities: | Date | Amount | | :--- | :----------- | | September 30, 2023 | $8,729,480 | | December 31, 2022 | $16,956,165 | Change: Decrease of $8,226,685 (approx. 48.5%) Shareholders' Deficit: | Date | Amount | | :--- | :----------- | | September 30, 2023 | $(8,562,839) | | December 31, 2022 | $(15,975,992) | Change: Improvement of $7,413,153 Condensed Statements of Operations Net loss of $945,139 for Q3 2023, and net income of $1.18 million for nine months, driven by lower other income Net (loss) income: | Period | 2023 | 2022 | Change (YoY) | | :-------------------------------- | :----------- | :----------- | :---------------- | | Three Months Ended September 30, | $(945,139) | $1,867,031 | $(2,812,170) | | Nine Months Ended September 30, | $1,178,392 | $11,956,900 | $(10,778,508) | Operating and formation costs: | Period | 2023 | 2022 | Change (YoY) | | :-------------------------------- | :----------- | :----------- | :---------------- | | Three Months Ended September 30, | $1,517,629 | $377,546 | $1,140,083 | | Nine Months Ended September 30, | $3,858,238 | $946,108 | $2,912,130 | Interest earned on marketable securities held in Trust Account: | Period | 2023 | 2022 | Change (YoY) | | :-------------------------------- | :----------- | :----------- | :---------------- | | Three Months Ended September 30, | $572,450 | $599,266 | $(26,816) | | Nine Months Ended September 30, | $4,736,501 | $1,146,917 | $3,589,584 | Unrealized gain on marketable securities held in Trust Account: | Period | 2023 | 2022 | Change (YoY) | | :-------------------------------- | :----------- | :----------- | :---------------- | | Three Months Ended September 30, | $0 | $824,061 | $(824,061) | | Nine Months Ended September 30, | $0 | $794,781 | $(794,781) | Change in fair value of warrant liabilities: | Period | 2023 | 2022 | Change (YoY) | | :-------------------------------- | :----------- | :----------- | :---------------- | | Three Months Ended September 30, | $0 | $821,250 | $(821,250) | | Nine Months Ended September 30, | $0 | $11,497,500 | $(11,497,500) | Condensed Statements of Changes in Shareholders' Deficit Deficit improved from $(15.98) million to $(8.56) million, aided by deferred underwriting fee reduction and net income Total Shareholders' Deficit: | Date | Amount | | :--- | :----------- | | January 1, 2023 | $(15,975,992) | | September 30, 2023 | $(8,562,839) | Change: Improvement of $7,413,153 - Reduction of Deferred Underwriting Fee: $11,827,938 (positive impact on equity)[15] - Accretion for Class A ordinary shares to redemption amount (9 months ended Sep 30, 2023): $(5,593,177)[15] - Net income (9 months ended Sep 30, 2023): $1,178,392[15] Condensed Statements of Cash Flows Net decrease in cash of $713,320, ending at $79,103, primarily from operating and financing activities offset by investing activities Net Change in Cash and Cash Equivalents: | Period | 2023 | 2022 | | :------------------------ | :----------- | :----------- | | Nine Months Ended Sep 30, | $(713,320) | $969,463 | Cash and cash equivalents – End of period: | Period | 2023 | 2022 | | :------------------------ | :----------- | :----------- | | Nine Months Ended Sep 30, | $79,103 | $969,621 | Net cash used in operating activities: | Period | 2023 | 2022 | | :------------------------ | :----------- | :----------- | | Nine Months Ended Sep 30, | $(1,043,319) | $(712,987) | Net cash provided by (used in) investing activities: | Period | 2023 | 2022 | | :------------------------ | :----------- | :----------- | | Nine Months Ended Sep 30, | $257,675,125 | $(293,250,000) | - Cash withdrawn from Trust Account in connection with redemption (2023): $258,531,801[20] Net cash (used in) provided by financing activities: | Period | 2023 | 2022 | | :------------------------ | :----------- | :----------- | | Nine Months Ended Sep 30, | $(257,345,126) | $294,932,450 | Notes to Condensed Financial Statements Explains financial position, operations, IPO, Business Combination efforts, liquidity, going concern risks, and accounting policies NOTE 1 — ORGANIZATION AND PLAN OF BUSINESS OPERATIONS Blank check company seeking a Business Combination, facing liquidation risk without an extension or deal by November 25, 2023 - Company Purpose: Blank check company formed for a Business Combination[22] Initial Public Offering (IPO) Details: | Metric | Value | | :--- | :----------- | | Date | January 25, 2022 | | Units Sold | 28,750,000 | | Gross Proceeds | $287,500,000 | Private Placement Warrants: | Metric | Value | | :--- | :----------- | | Date | Simultaneously with IPO | | Warrants Sold | 13,000,000 | | Gross Proceeds | $13,000,000 | - Trust Account Initial Deposit: $293,250,000 ($10.20 per Unit)[28] - Business Combination Deadline Extension: Original deadline April 25, 2023, extended to November 25, 2023, with an option to extend monthly up to January 25, 2024[40][41][151] Share Redemptions: | Metric | Value | | :--- | :----------- | | Shares redeemed | 24,670,594 | | Shares outstanding after redemption | 4,079,406 | | Amount withdrawn from Trust Account for redemption | $258,531,801 | - Going Concern Uncertainty: Management has determined that if a Business Combination is not completed or an extension is not obtained by November 25, 2023 (or January 25, 2024), the company will liquidate, raising substantial doubt about its ability to continue as a going concern[47][153] NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Outlines GAAP presentation, Emerging Growth Company status, warrant accounting, temporary equity, income taxes, and EPS calculation - Basis of Presentation: Unaudited condensed financial statements prepared in accordance with GAAP for interim financial information, following SEC Form 10-Q and Article 8 of Regulation S-X[50] - Emerging Growth Company Status: The company is an "Emerging Growth Company" and has elected to use the extended transition period for complying with new or revised financial accounting standards[52][53] - Warrant Instruments Accounting: Warrants are classified as liabilities at fair value and re-measured at each reporting period, with changes recognized in the statement of operations, as they do not meet equity treatment criteria under ASC 815[60] - Class A Ordinary Shares Subject to Possible Redemption: Classified as temporary equity at redemption value, outside of shareholders' deficit, due to redemption rights outside the company's control[62] - Income Taxes: The company is an exempted Cayman Islands Company, not subject to income taxes in Cayman Islands or the U.S., resulting in a zero tax provision[68] - Net Income per Ordinary Share: Computed by dividing net income by the weighted average number of ordinary shares outstanding, allocating net income pro rata to Class A and Class B ordinary shares, assuming a Business Combination is the most likely outcome. Diluted EPS is the same as basic EPS as warrants are contingent on future events[69][70][71] - Recent Accounting Standards Adoption: - ASU 2020-06 (Debt with Conversion and Other Options): Retrospectively adopted January 1, 2022; no impact on financial position, results, or cash flows[79] - ASU 2016-13 (Credit Losses): Adopted January 1, 2023; no material impact on financial statements[80] NOTE 3 — INITIAL PUBLIC OFFERING Completed IPO of 28,750,000 units at $10.00 each, comprising Class A ordinary shares and redeemable Public Warrants - Units Sold: 28,750,000 (including over-allotment option)[82] - Purchase Price per Unit: $10.00[82] - Unit Composition: One Class A ordinary share and one-half of one redeemable Public Warrant[82] - Public Warrant Exercise Price: $11.50 per share[82] NOTE 4 — PRIVATE PLACEMENT Sponsor and Cantor Fitzgerald purchased 13,000,000 Private Placement Warrants for $13,000,000, exercisable at $11.50 per share Private Placement Warrants Sold: | Metric | Value | | :--- | :----------- | | Warrants Sold | 13,000,000 | | Purchase Price per Warrant | $1.00 | | Gross Proceeds | $13,000,000 | - Purchasers: HCM Investor Holdings, LLC (Sponsor) and Cantor Fitzgerald & Co[85] - Warrant Exercise Price: $11.50 per share[86] - Expiration Condition: Warrants expire worthless if no Business Combination is completed within the Combination Period[86] NOTE 5 — RELATED PARTY TRANSACTIONS Details Founder Shares, administrative services agreement, and promissory notes from the Sponsor for extensions and working capital - Founder Shares: Initial issuance of 7,187,500 Class B ordinary shares to Sponsor for $25,000, later increased to 10,062,500 Founder Shares, subject to transfer restrictions[88][89] - Administrative Services Agreement: Monthly fee of up to $10,000 for office space and administrative services from an affiliate of the Sponsor. Fees incurred for the nine months ended September 30, 2023, were $90,000[90] - Promissory Note - Related Party: An additional promissory note issued to the Sponsor on April 21, 2023, for up to $3,000,000. As of September 30, 2023, $856,676 was advanced for Trust Account extension payments[92] - Working Capital Note: On July 18, 2023, the Sponsor loaned an additional $400,000 for working capital, outstanding as of September 30, 2023[93] NOTE 6 — COMMITMENTS AND CONTINGENCIES Covers registration rights, deferred underwriting fees, financial advisor fees, and the Murano PV merger agreement - Registration and Shareholder Rights: Holders of Founder Shares, Private Placement Warrants, and warrants from Working Capital Loans are entitled to registration rights[95] - Underwriting Agreement: A deferred underwriting fee of $3,000,000 remains payable to underwriters upon consummation of a Business Combination, following a $12,125,000 reduction on March 13, 2023[97][98] - Finder's Agreement: A $1,000,000 finder's fee is contingent on the consummation of a Business Combination with a target introduced by the service provider[99] - Business Combination Agreement (A&R BCA): Entered on August 2, 2023, for a merger with Murano PV, resulting in the company being renamed "Murano Global Hospitality Corp" and becoming a wholly-owned subsidiary of New PubCo (Jersey)[105][106][107] - Financial Advisor Agreement (CCM): Includes an advisor fee of $1,000,000, a transaction fee of 4.0% of certain proceeds, and a discretionary fee up to $1,000,000, all contingent on the Merger closing[102][104] - Sponsor Forfeiture: The Sponsor agreed to forfeit 1,250,000 Class A Ordinary Shares and all its warrants upon the closing of the Merger[110] NOTE 7 — WARRANT LIABILITIES Describes terms for 14,375,000 Public Warrants and 13,000,000 Private Placement Warrants, including exercise and redemption conditions Outstanding Warrants (as of Sep 30, 2023): | Type | Quantity | | :--- | :----------- | | Public Warrants | 14,375,000 | | Private Placement Warrants | 13,000,000 | - Public Warrant Exercisability: Commences on the later of one year from IPO closing or 30 days after Business Combination[113] - Public Warrant Expiration: Five years from Business Combination completion or earlier upon redemption or liquidation[113] - Public Warrant Redemption Conditions: Redeemable at $0.01 per warrant if Class A ordinary share closing price equals or exceeds $18.00 for 20 trading days within a 30-trading day period, with 30 days' prior notice[116][117] - Private Placement Warrants Differences: Non-transferable/assignable for 30 days post-Business Combination (with limited exceptions), exercisable on a cashless basis, and non-redeemable if held by initial purchasers or permitted transferees[121] - Exercise Price Adjustment: Exercise price and redemption trigger price may be adjusted if additional equity is issued below $9.20 per share in connection with a Business Combination, and the post-combination market value is also below $9.20[120] NOTE 8 — CLASS A ORDINARY SHARES SUBJECT TO POSSIBLE REDEMPTION AND SHAREHOLDERS' DEFICIT Details share capital, 4,079,406 Class A ordinary shares subject to redemption, and Class B share conversions Authorized Shares: | Type | Quantity | | :--- | :----------- | | Preference Shares | 5,000,000 (none issued/outstanding) | | Class A Ordinary Shares | 500,000,000 | | Class B Ordinary Shares | 50,000,000 | - Class A Ordinary Shares Subject to Redemption (as of Sep 30, 2023): 4,079,406[123] - Class B Ordinary Shares Outstanding (as of Sep 30, 2023): 75,000 (down from 10,062,500 at Dec 31, 2022, due to conversion)[124] - Sponsor's Class B to Class A Conversion: On April 22, 2023, the Sponsor converted 9,987,500 Class B ordinary shares into Class A ordinary shares[124] - Class B Voting Rights: Holders have the right to elect all directors prior to a Business Combination[125] - Class B Conversion: Remaining Class B shares automatically convert to Class A shares upon a Business Combination at a ratio ensuring Founder Shares equal 25.9% of total outstanding ordinary shares post-IPO and equity-linked securities (excluding certain items)[126][127] NOTE 9 — FAIR VALUE MEASUREMENTS Provides fair value hierarchy for assets and liabilities, including Level 3 Private Placement Warrants valued by a binomial lattice model Fair Value Hierarchy (September 30, 2023): | Description | Level | Fair Value | | :------------------------------------------ | :---- | :--------- | | Money Market | 1 | $3,067 | | Cash and marketable securities held in Trust Account | 1 | $44,680,719 | | Warrant liability – Public Warrants | 1 | $287,500 | | Warrant liability – Private Placement Warrants | 3 | $260,000 | - Valuation Method for Warrants: Public Warrants (after detachment) are Level 1 using observable market quotes. Private Placement Warrants are Level 3, valued using a binomial lattice model (Cox-Ross-Rubenstein methodology) with expected volatility as the primary unobservable input[130] Level 3 Fair Value Changes (Private Placement Warrants): | Date | Fair Value | | :--- | :----------- | | December 31, 2022 | $260,000 | | March 31, 2023 | $390,000 | | June 30, 2023 | $260,000 | | September 30, 2023 | $260,000 | NOTE 10 — SUBSEQUENT EVENTS Sponsor provided additional working capital and an extension payment, extending the Business Combination deadline to November 25, 2023 - Working Capital Loan: On October 18, 2023, Sponsor transferred $150,000 to the Company under the Working Capital Note[133] - Extension Payment: On October 23, 2023, Sponsor made a $142,779 extension payment, extending the Business Combination deadline to November 25, 2023[133] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Blank check company with no operating revenues, reporting net loss/net income from Trust Account interest, facing going concern uncertainty - Nature of Operations: Blank check company, no operating revenues to date; activities focused on IPO and identifying a Business Combination target[136][138] Financial Performance (Net Income/Loss): | Period | Amount | | :--- | :----------- | | Three months ended Sep 30, 2023 | Net loss of $945,139 | | Nine months ended Sep 30, 2023 | Net income of $1,178,392 | - Primary Income Source: Non-operating income from interest on marketable securities held in the Trust Account[138][139][141] - Liquidity and Capital Resources: - Cash balance as of Sep 30, 2023: $79,103 - Marketable securities in Trust Account as of Sep 30, 2023: $44,680,719 - Working capital loans from Sponsor for extensions and working capital[147][148][149][151][152] - Going Concern Uncertainty: Substantial doubt about the company's ability to continue as a going concern if a Business Combination is not completed or an extension is not obtained by November 25, 2023 (or January 25, 2024)[153][154] - Contractual Obligations: Includes administrative services fee ($10,000/month), deferred underwriting fee ($3,000,000 contingent on Business Combination), and financial advisor fee/finder's fees (contingent on Business Combination)[156][157][158][159][160] Item 3. Quantitative and Qualitative Disclosures Regarding Market Risk Not required for smaller reporting companies, thus no disclosures are provided - Disclosure Exemption: Not required for smaller reporting companies[167] Item 4. Controls and Procedures Management concluded disclosure controls were effective as of September 30, 2023, with no material changes in internal control - Effectiveness of Disclosure Controls and Procedures: Management concluded that disclosure controls and procedures were effective at a reasonable assurance level as of September 30, 2023[169] - Changes in Internal Control over Financial Reporting: No material changes occurred during the fiscal quarter of 2023[170] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company reported no legal proceedings - Legal Proceedings: None[172] Item 1A. Risk Factors No material changes to risk factors previously disclosed in the Form 10-K for fiscal year ended December 31, 2022 - Risk Factors: No material changes to those disclosed in the Form 10-K for the fiscal year ended December 31, 2022[172] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds - Unregistered Sales of Equity Securities: None[173] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities - Defaults Upon Senior Securities: None[173] Item 4. Mine Safety Disclosures The company reported no mine safety disclosures - Mine Safety Disclosures: None[173] Item 5. Other Information The company reported no other information - Other Information: None[173] Item 6. Exhibits Lists exhibits including Business Combination Agreements, Sponsor Support Agreements, and Certifications - Key Exhibits: - Business Combination Agreement (March 13, 2023) - Amended and Restated Business Combination Agreement (August 2, 2023) - Sponsor Support Agreement (August 2, 2023) - Certifications of Principal Executive Officer and Principal Financial Officer (31.1, 31.2, 32.1, 32.2) - XBRL Instance Document and Taxonomy Extensions[174] PART III - SIGNATURES Signatures Report signed by Shawn Matthews (CEO) and James Bond (CFO) on November 13, 2023, certifying compliance - Signatories: - Shawn Matthews: Chairman and Chief Executive Officer and Director (Principal Executive Officer) - James Bond: President and Chief Financial Officer (Principal Financial and Accounting Officer)[178] - Date of Signature: November 13, 2023[178]