Northern Star Investment Corp. III - Quarter Report: 2022 June (Form 10-Q)

☒	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

Delaware		85-4136140
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Units, each consisting of one share of Class A Common Stock and one-sixth of one redeemable warrant		NSTC.U		The New York Stock Exchange
Class A Common Stock, par value $0.0001 per share		NSTC		The New York Stock Exchange
Redeemable warrants, exercisable for shares of Class A Common Stock at an exercise price of $11.50 per share		NSTC WS		The New York Stock Exchange

Large accelerated filer		☐		Accelerated filer		☐
Non-accelerated filer		☒		Smaller reporting company		☒
				Emerging growth company		☒

		June 30, 2022				September 30, 2021
		(Unaudited)				(Audited)
ASSETS
Current Assets
Cash		$	259,627			$	1,040,030
Prepaid expenses			15				6,682
Total Current Assets			259,642				1,046,712
Marketable securities held in Trust Account			400,611,429				400,021,007
TOTAL ASSETS		$	400,871,071			$	401,067,719
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities
Accrued expenses		$	200,909			$	356,449
Accrued offering costs			—				27,550
Income taxes payable			17,745				—
Total Current Liabilities			218,654				383,999
Warrant liabilities			3,611,667				16,252,500
Deferred underwriting fee payable			14,000,000				14,000,000
Total Liabilities			17,830,321				30,636,499
Commitments and Contingencies
Class A common stock subject to possible redemption 40,000,000 shares at redemption value, as of June 30, 2022, and September 30, 2021			400,293,684				400,000,000
Stockholders’ Deficit
Preferred stock, $0.0001 par value; 1,000,000 shares authorized; 0 shares issued and outstanding			—				—
Class A common stock, $0.0001 par value; 125,000,000 shares authorized; 0 shares issued and outstanding (excluding 40,000,000 shares subject to possible redemption) as of June 30, 2022, and September 30, 2021			—				—
Class B common stock, $0.0001 par value; 25,000,000 shares authorized; 10,000,000 shares issued and outstanding as of June 30, 2022 and September 30, 2021			1,000				1,000
Additional paid-in capital			—				—
Accumulated deficit			(17,253,934	)			(29,569,780	)
Total Stockholders’ Deficit			(17,252,934	)			(29,568,780	)
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT		$	400,871,071			$	401,067,719

		Three Months Ended June 30,								Nine Months Ended June 30,				For the Period from November 30, 2020 (Inception) through June 30,
		2022				2021				2022				2021
Operating and formation costs		$	198,877			$	162,863			$	603,979			$	274,382
Loss from operations			(198,877	)			(162,863	)			(603,979	)			(274,382	)
Other income (expense):
Change in fair value of warrants			3,611,666				(3,940,000	)			12,640,833				(4,235,500	)
Transaction costs allocated to warrant liabilities			—				—				—				(377,083	)
Interest earned on marketable securities held in Trust Account			576,991				11,909				590,421				15,860
Unrealized loss on marketable securities held in Trust Account			—				(244	)			—				—
Other income (loss), net			4,188,657				(3,928,335	)			13,231,254				(4,596,723	)
Income (loss) before benefit from (provision for) income taxes			3,989,780				(4,091,198	)			12,627,275				(4,871,105	)
Provision for income taxes			(17,745	)			—				(17,745	)			—
Net income (loss)		$	3,972,035			$	(4,091,198	)		$	12,609,530			$	(4,871,105	)
Basic and diluted weighted average shares outstanding, Class A common stock			40,000,000				40,000,000				40,000,000				22,264,151
Basic and diluted net income (loss) per share, Class A common stock		$	0.08			$	(0.08	)		$	0.25			$	(0.16	)
Basic and diluted weighted average shares outstanding, Class B common stock			10,000,000				10,000,000				10,000,000				8,702,830
Basic and diluted net income (loss) per share, Class B common stock		$	0.08			$	(0.08	)		$	0.25			$	(0.16	)

		Class A								Class B								Additional								Total
		Common Stock								Common Stock								Paid-in				Accumulated				Stockholders’
		Shares				Amount				Shares				Amount				Capital				Deficit				Deficit
Balance – September 30, 2021			—			$	—				10,000,000			$	1,000			$	—			$	(29,569,780	)		$	(29,568,780	)
Net income			—				—				—				—				—				1,571,594				1,571,594
Balance – December 31, 2021			—				—				10,000,000				1,000				—				(27,998,186	)			(27,997,186	)
Net income			—				—				—				—				—				7,065,901				7,065,901
Balance – March 31, 2022			—				—				10,000,000				1,000				—				(20,932,285	)			(20,931,285	)
Remeasurement adjusted to shares subject to redemption																							(293,684	)			(293,684	)
Net income			—				—				—				—				—				3,972,035				3,972,035
Balance – June 30, 2022			—			$	—				10,000,000			$	1,000			$	—			$	(17,253,934	)		$	(17,252,934	)

		Class A Common Stock								Class B Common Stock								Additional Paid in				Accumulated				Total Stockholders’
		Shares				Amount				Shares				Amount				Capital				Deficit				Equity (Deficit)
Balance – November 30, 2020 (inception)			—			$	—				—			$	—			$	—			$	—			$	—
Issuance of Class B common stock to Sponsor			—				—				10,062,500				1,006				23,994				—				25,000
Net loss			—				—				—				—				—				(875	)			(875	)
Balance –December 31, 2020			—				—				10,062,500				1,006				23,994				(875	)			24,125
Cash paid in excess of fair value of Private Placement Warrants			—				—				—				—				273,000				—				273,000
Remeasurement adjusted to shares subject to redemption			—				—				—				—				(296,994	)			(28,337,911	)			(28,634,905	)
Net loss			—				—				—				—				—				(779,032	)			(779,032	)
Balance –March 31, 2021			—				—				10,062,500				1,006				—				(29,117,818	)			(29,116,812	)
Remeasurement adjusted to shares subject to redemption			—				—				—				—				(6	)			881				875
Forfeiture of Founder Shares			—				—				(62,500	)			(6	)			6				—				—
Net loss			—				—				—				—				—				(4,091,198	)			(4,091,198	)
Balance –June 30, 2021			—			$	—				10,000,000			$	1,000			$	—			$	(33,208,135	)		$	(33,207,135	)

		Nine Months Ended June 30,				For The Period from November 30, 2020 (Inception) Through June 30,
		2022				2021
Cash Flows from Operating Activities:
Net income (loss)		$	12,609,530			$	(4,871,105	)
Adjustments to reconcile net income (loss) to net cash used in operating activities:
Change in fair value of warrant liabilities			(12,640,833	)			4,235,500
Transaction costs allocated to warrant liabilities			—				377,083
Interest earned on marketable securities held in Trust Account			(590,421	)			(15,860	)
Changes in operating assets and liabilities:
Prepaid expenses			6,667				(6,680	)
Income taxes payable			17,745				—
Accrued expenses			(155,541	)			158,965
Net cash used in operating activities			(752,853	)			(122,097	)
Cash Flows from Investing Activities:
Investment of cash into Trust Account			—				(400,000,000	)
Net cash used in investing activities			—				(400,000,000	)
Cash Flows from Financing Activities:
Proceeds from sale of Units, net of underwriting discounts paid			—				392,000,000
Proceeds from sale of Private Placements Warrants			—				9,750,000
Repayment of promissory note – related party			—				(150,000	)
Payment of offering costs			(27,550	)			(473,563	)
Net cash ( used in ) provided by financing activities			(27,550	)			401,126,437
Net Change in Cash			(780,403	)			1,004,340
Cash – Beginning of period			1,040,030				150,000
Cash – End of period		$	259,627			$	1,154,340
Non-Cash investing and financing activities:
Offering costs included in accrued offering costs		$	—			$	5,050
Remeasurement of Class A common stock to redemption amount		$	293,684			$	28,363,530
Deferred underwriting fee payable		$	—			$	14,000,000
Forfeiture of Founder Shares		$	—			$	(6	)

As of June 30, 2022, the Company had not commenced any operations. All activity through June 30, 2022 relates to the Company’s formation, its initial public offering (“Initial Public Offering”), which is described below, and subsequent to the Initial Public Offering, seeking to identify a target company for a Business Combination. The Company believes it will not generate any operating revenues until after the completion of its initial Business Combination, at the earliest. The Company will on cash and cash equivalents in the form of interest income from the proceeds derived from the Initial Public Offering and simultaneous private placement described below.

Following the closing of the Initial Public Offering on March 4, 2021, an amount of $400,000,000 ($10.00 per Unit) from the net proceeds of the sale of the Units in the Initial Public Offering and the sale of the Private Warrants was placed in a trust account (the “Trust Account”), located in the United States and held as cash items or 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”), with a maturity of 185 days or less or in any open-ended investment company that holds itself out as a money market fund selected by the Company meeting the conditions of paragraph (d) of the Investment Company Act, as determined by the Company, until the earlier of: (i) the completion of a Business Combination and (ii) the distribution of the assets held in the Trust Account, as described below.

The holders of Founder Shares have agreed (a) to waive their conversion rights with respect to their Founder Shares and Public Shares held by them in connection with the completion of a Business Combination and (b) not to propose an amendment to the Amended and Restated Certificate of Incorporation (i) that would affect the substance or timing of the Company’s obligation to redeem 100% of its Public Shares if the Company does not complete a Business Combination or (ii) with respect to any other provision relating to stockholders’ rights activity, unless the Company provides the public stockholders with the opportunity to redeem their Public Shares in conjunction with any such amendment.

If the Company is unable to complete a Business Combination by March 4, 2023 (the “Combination Period”) and such period is not extended by stockholders, the Company 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 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 and not previously released to the Company (less up to $100,000 of interest to pay dissolution expenses), divided by the number of then outstanding Public Shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidating distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the Company’s remaining stockholders and the Company’s board of directors, dissolve and liquidate, subject in the case of clauses (ii) and (iii) to the Company’s obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law. There will be no redemption rights or liquidating distributions with respect to the Company’s warrants, which will expire worthless if the Company fails to complete a Business Combination within the Combination Period.

		Three Months Ended June 30, 2022								Three Months Ended June 30, 2021								Nine Months Ended June 30, 2022								For the Period from November 30, 2020 (Inception) through June 30, 2021
		Class A				Class B				Class A				Class B				Class A				Class B				Class A				Class B
Basic and diluted net income (loss) per common stock
Numerator:
Allocation of net income (loss), as adjusted		$	3,177,628			$	794,407			$	(3,272,258	)		$	(818,065	)		$	10,087,624			$	2,521,906			$	(3,502,150	)		$	(1,368,955	)
Denominator:
Basic and diluted weighted average shares outstanding			40,000,000				10,000,000				40,000,000				10,000,000				40,000,000				10,000,000				22,264,151				8,702,830
Basic and diluted net income (loss) per common stock		$	0.08			$	0.08			$	(0.08	)		$	(0.08	)		$	0.25			$	0.25			$	(0.16	)		$	(0.16	)

•

Level 1, defined as observable inputs such as quoted prices (unadjusted) for identical instruments in active markets;

•

Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and

•

Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.

		Description				Level				June 30, 2022				Level				September 30, 2021
Assets:
Marketable securities held in Trust Account – U.S Treasury Securities Money Market Fund							1			$	400,611,429				1			$	400,021,007
Liabilities:
Warrant Liabilities – Public							1			$	1,466,667				1			$	6,600,000
Warrant Liabilities – Private Warrants Placement							2			$	2,145,000				2			$	9,652,500

This Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Exchange Act that are not historical facts and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Form 10-Q including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of the Company’s Annual Report on Form filed with the U.S. Securities and Exchange Commission (the “SEC”). The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

We have neither engaged in any operations nor generated any revenues to date. Our only activities through June 30, 2022 were organizational activities, those necessary to prepare for the Initial Public Offering, described below, and searching to identify a target business with which to consummate an initial Business Combination. We do not expect to generate any operating revenues until after the completion of our Business Combination. We generate income in the form of interest income on marketable securities held in the Trust Account. We incur expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses.

We have no obligations, assets or liabilities, which would be considered sheet arrangements as of June 30, 2022. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating sheet arrangements. We have not entered into any sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any assets.

The Company assessed its warrants under ASC “Distinguishing liabilities from equity” and ASC “Derivatives and Hedging—Contracts in Entity’s Own Equity”. The Company accounts for the Public Warrants (as defined below) and Private Placement Warrants (collectively, the “Warrants”) as derivative liabilities. A provision in the Warrant Agreement related to certain tender or exchange offers precludes the Warrants from being accounted for as components of equity. As the Warrants meet the definition of a derivative as contemplated in ASC 815, the Company accounts for Warrants for shares of the Company’s common stock that are not indexed to its own stock as derivative liabilities at fair value on the balance sheets and measured at fair value at inception (on the date of the Initial Public Offering) and at each reporting date in accordance with ASC 820, with changes in fair value recognized in the statements of operations in the period of change.

In August 2020, the FASB issued ASU “Debt—Debt with Conversion and Other Options (Subtopic and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, and it also simplifies diluted earnings per share calculation in certain areas. ASU is effective for fiscal years beginning after December 15, 2023, with early adoption permitted. The Company is currently assessing the impact, if any, that ASU would have on its financial position, results of operations or cash flows.

Under the supervision and with the participation of our management, including our principal executive officer and principal financial and accounting officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the fiscal quarter ended June 30, 2022, as such term is defined in and under the Exchange Act. Based on this evaluation, our principal executive officer and principal financial and accounting officer have concluded that during the period covered by this report, our disclosure controls and procedures (as defined in and under the Exchange Act) were not effective due to a material weakness in internal controls over financial reporting related to the Company’s accounting for complex financial instruments. To address this material weakness, management has devoted, and plans to continue to devote, significant effort and resources to the remediation and improvement of its internal control over financial reporting. We are monitoring our processes to ensure proper identification and appropriate application of applicable accounting requirements. These processes include timely evaluation of relevant accounting guidance to better understand the nuances of the complex accounting standards that apply to our condensed financial statements. We are also ensuring enhanced access to accounting literature, research materials and documents and are monitoring our processes to ensure increased communication among our personnel and third-party professionals with whom we consult regarding complex accounting applications.

As of the date of this Quarterly Report, there have been no material changes with respect to those risk factors previously disclosed in our Annual Report on Form for the year ended September 30, 2021 except as set forth below. 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 described elsewhere in this report, in connection with the preparation of our financial statements as of June 30, 2022, management identified errors made in our historical financial statements where we improperly classified some of our Class A common stock subject to possible redemption. We previously determined the Class A common stock subject to possible redemption to be equal to the redemption value of $10.00 per share of Class A common stock while also taking into consideration that a redemption cannot result in net tangible assets being less than $5,000,001 pursuant to our amended and restated certificate of incorporation. Management determined that the Class A common stock issued during our initial public offering can be redeemed or become redeemable subject to the occurrence of future events considered outside our control. Therefore, management concluded that temporary equity should include all shares of Class A common stock subject to possible redemption. As a result, management has noted a classification error related to temporary equity and permanent equity. This resulted in a restatement to the initial carrying value of the Class A common stock subject to possible redemption with the offset recorded to additional capital (to the extent available), accumulated deficit and Class A common stock. Management concluded that the foregoing constituted a material weakness as of June 30, 2022.

As a result, we performed additional analysis as deemed necessary to ensure that our financial statements were prepared in accordance with U.S. generally accepted accounting principles. Accordingly, management believes that the financial statements included in this Form present fairly in all material respects our financial position, results of operations and cash flows for the period presented. However, we cannot assure you that the foregoing will not result in any future material weaknesses or deficiencies in internal control over financial reporting. Even though we have strengthened our controls and procedures, in the future those controls, and procedures may not be adequate to prevent or identify irregularities or errors or to facilitate the fair presentation of our financial statements.

We are subject to changing laws and regulations regarding regulatory matters, corporate governance and public disclosure that have increased both our costs and the risk of

On March 4, 2021, we consummated the Initial Public Offering of 40,000,000 Units, inclusive of 5,000,000 Units sold to the underwriters upon the underwriters’ election to partially exercise their over-allotment option, at a price of $10.00 per Unit, generating total gross proceeds of $400,000,000. Citigroup Global Markets Inc. acted as the book-running manager of the Initial Public Offering. The securities in the offering were registered under the Securities Act on registration statements on and The Securities and Exchange Commission declared the registration statements effective on March 1, 2021.

For a description of the use of the proceeds generated in our Initial Public Offering, see Part I, Item 2 of this

The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on