UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
Or
For the transition period from__________ to ___________
Commission File Number
(Exact Name of Registrant as Specified in Its Charter)
| (State or Other Jurisdiction of Incorporation or Organization | (I.R.S. Employer Identification No.) | |
|
| 33401 | |
| (Address of Principal Executive Offices) | (Zip Code) |
(Registrant’s Telephone Number, Including Area Code)
Not applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| 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-half of one redeemable warrant | DUNEU | The Nasdaq Stock Market LLC | ||
| Warrants, each whole warrant exercisable for one share of Class A common stock, each at an exercise price of $11.50 per share | DUNEW | The Nasdaq Stock Market LLC |
Indicate by check mark whether the registrant:
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer”, “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of May 16,
2022, there were
Dune Acquisition Corporation
Quarterly Report on Form 10-Q
For the Quarter Ended March 31, 2022
Table of Contents
i
PART I. FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements
DUNE ACQUISITION CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
| March 31, 2022 | December 31, 2021 | |||||||
| (unaudited) | ||||||||
| Assets: | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Total current assets | ||||||||
| Investments held in Trust Account | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities, Class A Common Stock Subject to Possible Redemption and Stockholders’ Deficit: | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Due to related party | ||||||||
| Franchise tax payable | ||||||||
| Total current liabilities | ||||||||
| Deferred underwriting commissions | ||||||||
| Derivative warrant liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and Contingencies | ||||||||
| Class A common stock subject to possible redemption, $ | ||||||||
| Stockholders’ Deficit: | ||||||||
| Preferred stock, $ | ||||||||
| Class A common stock, $ | ||||||||
| Class B common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total stockholders’ deficit | ( | ) | ( | ) | ||||
| Total Liabilities, Class A Common Stock Subject to Possible Redemption and Stockholders’ Deficit | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
DUNE ACQUISITION CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
| For the Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| General and administrative expenses | $ | $ | ||||||
| General and administrative expenses - related party | ||||||||
| Franchise tax expense | ||||||||
| Total operating expenses | ( | ) | ( | ) | ||||
| Other income (expenses): | ||||||||
| Change in fair value of derivative warrant liabilities | ||||||||
| Interest earned on operating account | ||||||||
| Income on investments held in Trust Account | ||||||||
| Income before income tax expense | ||||||||
| Income tax expense | ||||||||
| Net income | $ | $ | ||||||
| Weighted average shares outstanding of Class A common stock, basic and diluted | ||||||||
| Basic and diluted net income per share, Class A common stock | $ | $ | ||||||
| Weighted average shares outstanding of Class B common stock, basic and diluted | ||||||||
| Basic and diluted net income per share, Class B common stock | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
DUNE ACQUISITION CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
For the Three Months Ended March 31, 2022
| Common Stock | Additional | Total | ||||||||||||||||||||||||||
| Class A | Class B | Paid-In | Accumulated | Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
| Balance - December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||
| Balance - March 31, 2022 (Unaudited) | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
For the Three Months Ended March 31, 2021
| Common Stock | Additional | Total | ||||||||||||||||||||||||||
| Class A | Class B | Paid-In | Accumulated | Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
| Balance - December 31, 2020 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||
| Balance - March 31, 2021 (Unaudited) | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
DUNE ACQUISITION CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Three Months Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash used in operating activities: | ||||||||
| Change in fair value of derivative warrant liabilities | ( | ) | ( | ) | ||||
| Income on investments held in Trust Account | ( | ) | ( | ) | ||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Due to related party | ( | ) | ||||||
| Accrued expenses | ||||||||
| Income tax payable | ||||||||
| Franchise tax payable | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities: | ||||||||
| Investment income released from Trust Account to pay for franchise taxes | ||||||||
| Net cash provided by investing activities | ||||||||
| Net change in cash | ( | ) | ( | ) | ||||
| Cash - beginning of the period | ||||||||
| Cash - end of the period | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
DUNE ACQUISITION CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Organization and Business Operations
Organization and General
Dune Acquisition Corporation (the “Company”) is a blank check company incorporated in Delaware on June 18, 2020. The Company was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses (the “business combination”). The Company is an emerging growth company and, as such, the Company is subject to all of the risks associated with emerging growth companies.
As of March 31, 2022, the Company had not commenced any operations. All activity for the period from June 18, 2020 (inception) through March 31, 2022 relates to the Company’s formation and the initial public offering (the “initial public offering”), described below, and since the closing of the initial public offering, the search for a prospective initial business combination. The Company will not generate any operating revenues until after the completion of its initial business combination, at the earliest. The Company generates non-operating income in the form of interest income from the proceeds derived from the initial public offering (as defined below).
Sponsor and Financing
The Company’s sponsor is Dune Acquisition
Holdings LLC, a Delaware limited liability company (the “Sponsor”). The registration statement for the Company’s initial
public offering was declared effective on December 17, 2020. On December 22, 2020, the Company consummated its initial public offering
of
Simultaneously with the closing of the initial
public offering, the Company consummated the private placement (“private placement”) of
Trust Account
Upon the closing of the initial public offering
and the private placement, $
Initial Business Combination
The Company’s management has broad discretion
with respect to the specific application of the net proceeds of the initial public offering and the sale of private placement warrants,
although substantially all of the net proceeds are intended to be applied generally toward consummating a business combination. There
is no assurance that the Company will be able to complete a business combination successfully. The Company must complete one or more initial
Business Combinations having an aggregate fair market value of at least
5
DUNE ACQUISITION CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company will provide the holders of the public shares (the “public
stockholders”) with the opportunity to redeem all or a portion of their public shares upon the completion of
a business combination either (i) in connection with a stockholder meeting called to approve the business combination or (ii) by means
of a tender offer. The decision as to whether the Company will seek stockholder approval of a business combination or conduct a tender
offer will be made by the Company, solely in its discretion. The public stockholders will be entitled to redeem their public shares for
a pro rata portion of the amount then held in the trust account (initially anticipated to be $
The Certificate of Incorporation provides that
a public stockholder, together with any affiliate of such stockholder or any other person with whom such stockholder is acting in concert
or as a “group” (as defined under Section 13 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)),
will be restricted from redeeming its shares with respect to more than an aggregate of
The Sponsor and the Company’s officers and
directors (the “initial stockholders”) agreed not to propose an amendment to the Certificate of Incorporation to modify the
substance or timing of the Company’s obligation to redeem
If the Company is unable to complete a business
combination within 18 months from the closing of the initial public offering, or June 22, 2022 (the “Combination Period”),
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 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 and not previously released to the Company to pay
its taxes (less up to $
6
DUNE ACQUISITION CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The initial stockholders agreed to waive their
rights to liquidating distributions from the trust account with respect to the Founder Shares if the Company fails to complete a business
combination within the Combination Period. However, if the initial stockholders acquire public shares in or after the initial public offering,
they will be entitled to liquidating distributions from the trust account with respect to such public shares if the Company fails to complete
a business combination within the Combination Period. The underwriters agreed to waive their rights to the deferred underwriting commission
(see Note 5) held in the trust account in the event the Company does not complete a Business Combination within the Combination Period,
and in such event, such amounts will be included with the other funds held in the trust account that will be available to fund the redemption
of the public shares. In the event of such distribution, it is possible that the per share value of the residual assets remaining available
for distribution (including trust account assets) will be only $
Proposed Business Combination
On October 12, 2021, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”), by and among the Company, Dune Merger Sub, Inc., a Delaware corporation and a direct wholly-owned subsidiary of the Company (“Merger Sub”), Dune Merger Sub II, LLC, a Delaware limited liability company and direct, wholly-owned subsidiary the Company (“Merger Sub II”), and TradeZero Holding Corp., a Delaware corporation (“TradeZero”).
Consideration
In accordance with the terms and subject to the
conditions of the Merger Agreement, at the closing of the transactions contemplated by the Merger Agreement (the “Closing”),
(i) each issued and outstanding share of common stock of TradeZero will automatically be converted into a number of shares of Class A
common stock of New TradeZero (as defined below) equal to an exchange ratio (the “Exchange Ratio”) determined by dividing
(A) the quotient of (x) $
7
DUNE ACQUISITION CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In addition, immediately prior to the Closing, the holders of Class A common stock of TradeZero immediately prior to the Closing will receive a cash disbursement from TradeZero equal to the lesser of (i) the difference between the TradeZero’s cash balance at the Closing and $10,000,000 or (ii) $30,000,000. On or as soon as practicable following the Closing, New TradeZero shall grant restricted stock unit awards of New TradeZero to certain TradeZero equityholders (the “RSU Earnout Awards”), and the holders of Class A common stock of TradeZero immediately prior to the Closing and the holders of the RSU Earnout Awards will have the right to receive a pro-rata share of up to 9,000,000 additional shares of New TradeZero Class A common stock upon the occurrence of certain earn-out triggering events, as follows: (i) 3,000,000 shares (the “$12.00 Earn Out Shares”) upon the date on which the volume weighted average closing sale price of New TradeZero’s Class A common stock as reported on the New York Stock Exchange (or the stock exchange on which New TradeZero’s Class A common stock is then listed) (the “Stock Exchange”) for a period of twenty (20) trading days out of thirty (30) consecutive trading days (as equitably adjusted as appropriate to reflect any stock splits, reverse stock splits, stock dividends (including any divided or distribution of securities convertible into New TradeZero Class A common stock), extraordinary cash dividend, reorganization, recapitalization, reclassification, combination, exchange of shares or other like change or transaction with respect to New TradeZero Class A common stock) (such price, the “Share Price”) is equal to or greater than $12.00 per share at any time during the period beginning at the Closing and ending on the three-year anniversary of the Closing date (the “Earn Out Period”); (ii) 3,000,000 shares (the “$15.00 Earn Out Shares”) upon the date on which the Share Price is equal to or greater than $15.00 per share during the Earn Out Period; and (iii) 3,000,000 shares (the “$18.00 Earn Out Shares”) upon the date on which the Share Price is equal to or greater than $18.00 per share during the Earn Out Period.
The Mergers
The Merger Agreement provides that, among other things and upon the terms and subject to the conditions thereof, the following transactions will occur (together with the other agreements and transactions contemplated by the Merger Agreement, the “business combination”): (i) at the Closing, (A) in accordance with the Delaware General Corporation Law, as amended (the “DGCL”), Merger Sub will merge with and into TradeZero with TradeZero surviving the merger as a direct, wholly-owned subsidiary of Dune, and (B) subject to certain exceptions, in accordance with the DGCL and the Limited Liability Company Act of the State of Delaware, TradeZero will merge with and into Merger Sub II, with Merger Sub II surviving the merger as a direct, wholly-owned subsidiary of Dune; and (ii) the Company will be renamed “TradeZero Global Inc.” (“New TradeZero”).
The board of directors of the Company(the “Board”) has unanimously (i) approved and declared advisable the Merger Agreement, the business combination and the other transactions contemplated thereby and (ii) resolved to recommend approval of the Merger Agreement and related matters by the stockholders of Dune. The board of directors of TradeZero has also unanimously (i) approved and declared advisable the Merger Agreement, the business combination and the other transactions contemplated thereby and (ii) resolved to recommend approval of the Merger Agreement and related matters by the stockholders of TradeZero.
The board of directors of TradeZero unanimously approved the Merger Agreement and the transactions contemplated thereby. The Merger Agreement and the transactions contemplated thereby were approved by the TradeZero stockholders following the execution of the Merger Agreement on October 12, 2021.
Conditions to Closing
The obligation of the Company and TradeZero to
consummate the business combination pursuant to the Merger Agreement is subject to the satisfaction or waiver of certain closing conditions,
including, among others: (i) expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act (the
“HSR Act”); (ii) approval by the Financial Industry Regulatory Authority (“FINRA”) and other international regulatory
agencies (if necessary); (iii) approval of the business combination and related agreements and transactions (as more particularly set
forth in the Merger Agreement) by the respective stockholders of the Company and TradeZero; (iv) the aggregate cash proceeds from Dune’s
trust account or other available cash (including any potential financing conducted by the Company as permitted under the Merger Agreement
or the net proceeds obtained by TradeZero as a result of any debt financing arrangements that remain outstanding following the Closing)
equaling or exceeding $
8
DUNE ACQUISITION CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Covenants
The Merger Agreement contains certain covenants, including, among others, providing for: (i) the parties to conduct their respective businesses in the ordinary course through the Closing; (ii) TradeZero to provide to the Company and its representatives reasonable access through the Closing to TradeZero’s properties, books, records and personnel; (iii) TradeZero to prepare and deliver certain of its unaudited interim consolidated financial statements and audited consolidated financial statements; (iv) the parties to use commercially reasonable best efforts to make all required filings pursuant to the HSR Act and to request early termination of all waiting periods applicable under the HSR Act; (v) TradeZero to use its commercially reasonable efforts to prepare and file with FINRA the continuing membership application on Form CMA pursuant to FINRA Rule 1017 with respect to TradeZero America, Inc.; (vi) the Company and TradeZero to prepare, and the Company to file, the proxy statement in connection with the business combination and the Company to take certain other actions to obtain the requisite approval of the Company stockholders of certain proposals regarding the business combination; (viii) the Company to adopt, subject to the approval of its stockholders, the New TradeZero Incentive Plan and an employee stock purchase plan and (ix) the parties to not initiate any negotiations or enter into any agreements for certain alternative transactions.
Representations and Warranties
The Merger Agreement contains customary representations and warranties by the Company, Merger Sub, Merger Sub II, and TradeZero. The representations and warranties of the respective parties to the Merger Agreement will not survive the Closing.
Termination
The Merger Agreement may be terminated under certain
limited circumstances prior to the Closing, including, among others, (i) by mutual written consent of the Company and TradeZero, (ii)
by either the Company or TradeZero if there is in effect any law or final, non-appealable order, judgment, injunction, decree, writ, ruling,
stipulation, determination or award issued, promulgated, made, rendered or entered into by any court or other tribunal of competent jurisdiction
that permanently restrains, enjoins, makes illegal or otherwise prohibits the consummation of the business combination, (iii) by either
the Company or TradeZero if the Closing has not occurred on or before July 12, 2022, (iv) by either the Company or TradeZero if certain
approvals of Dune’s stockholders are not obtained, (v) by the Company in certain circumstances following the Company’s special
meeting if the Available Closing SPAC Cash would be less than $
On April 1, 2022, the Company, along with Merger Sub, Merger Sub II and our Sponsor (collectively, the “Dune Plaintiffs”) filed a four-count complaint in the Delaware Court of Chancery against TradeZero and Messrs. Pipitone, Ferrara, Muscatella, Choi, Koslow, Caruso and Corriveau (together, the “TradeZero Defendants”), each of whom are part of TradeZero’s management team. The Dune Plaintiffs bring claims for breach of contract, fraudulent inducement, fraudulent misrepresentation and unjust enrichment. On April 18, 2022, the Company issued a press release announcing the Dune Plaintiffs’ ongoing litigation against the TradeZero Defendants. On May 3, 2022, after careful consideration and consultation with the Company’s management and outside legal advisors, the Company’s board of directors (the “Board”), who had previously unanimously endorsed and approved of the business combination with TradeZero, announced that it had changed its recommendation to the Company’s stockholders and now unanimously recommends that the Company’s stockholders vote against the business combination with TradeZero. The Company intends to more fully describe the reasons for the Board’s change in recommendation in the next filing of the proxy statement relating to the business combination with TradeZero. On May 5, 2022, the TradeZero Defendants filed a motion to dismiss the Dune Plaintiff ’s lawsuit.
9
DUNE ACQUISITION CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Certain Related Agreements
Support Agreement
On October 12, 2021, TradeZero’s stockholders entered into a support agreement with the Company (the “Support Agreement”). Under the Support Agreement, TradeZero’s stockholders agreed that they will not transfer their shares of TradeZero capital stock and will continue to support, and refrain from taking certain actions, in each case, subject to the terms and conditions contemplated by the Support Agreement.
Sponsor Agreement
On October 12, 2021, the Company, our Sponsor and TradeZero entered into a sponsor agreement (the “Sponsor Agreement”). Under the Sponsor Agreement, the Sponsor agreed to, among other things, (i) vote in favor of the business combination, (ii) waive the anti-dilution protection afforded under the Company’s amended and restated certificate of incorporation in respect of the shares of Class B common stock of the Company held by the Sponsor in connection with the business combination and (iii) not transfer its shares of the Company capital stock and will continue to support, and refrain from taking certain actions that would negatively affect, the transactions contemplated by the Merger Agreement from occurring, in each case, subject to the terms and conditions contemplated by the Sponsor Agreement. Pursuant to the Sponsor Agreement, the Company agreed to indemnify the Sponsor against certain liabilities it may incur in connection with the business combination, subject to certain exceptions.
Lock-up Agreement
On October 12, 2021, the Company, the Sponsor and TradeZero’s stockholders entered into a lock-up agreement (the “Lock-up Agreement”), which will be effective as of the Closing. Under the Lock-up Agreement, the Sponsor and the TradeZero stockholders agreed to certain restrictions on transfer with respect to the shares of New TradeZero Class A common stock and private placement warrants they hold or will receive upon the Closing, which restrictions amend and supersede the restrictions on transfer the Sponsor agreed to in that certain letter agreement, dated December 17, 2020, entered into by and among the Company, the Sponsor and Dune’s officers and directors in connection with Dune’s initial public offering. The restrictions on transfer contained in the Lock-up Agreement apply to both the Sponsor and TradeZero’s existing stockholders and end: (i) with respect to New TradeZero’s Class A common stock, on the earlier of 180 days after Closing and the date on which New TradeZero completes a liquidation, merger, capital stock exchange, reorganization, bankruptcy or other similar transaction that results in all of the Class A common stock of New TradeZero being converted into cash, securities or other property; and (ii) with respect to New TradeZero’s private placement warrants, on the later of thirty days after the Closing and December 22, 2021.
Nomination Agreement
The Merger Agreement contemplates that, at the Closing, New TradeZero will enter into a nomination agreement (the “Nomination Agreement”) with John Muscatella, Daniel Pipitone, Giovanni Ferrara, John Caruso and Kosta Corriveau (the “TradeZero Members”) and the Sponsor, pursuant to which the TradeZero Members will have the right to nominate members of the board of directors of New TradeZero in the number and subject to the beneficial ownership thresholds and terms and conditions set forth therein. Following the Closing, the board of directors will consist of at least seven (7) directors, with the board to be divided into three (3) classes. The directors shall initially include: (i) Daniel Pipitone and John Muscatella as Class I directors; (ii) two (2) independent director nominees to be designated by TradeZero prior to the Closing; (iii) one (1) independent director nominee to be designated by the Company prior to the Closing (who shall be a Class III director); (iv) two (2) independent director nominees to be designated by Dune, who shall initially be Carter Glatt (who shall be a Class II director) and William Nance (who shall be a Class I director); and (v) such other director nominees to be designated by TradeZero pursuant to written notice to the Company following the date of the Merger Agreement. Carter Glatt, William Nance and the independent director nominee to be designated by the Company prior to the Closing are entitled serve on the Board until the expiration of their initial terms.
Liquidity and Going Concern
As of December 31, 2021, the Company had approximately
$
The Company’s liquidity needs prior to the
consummation of the initial public offering were satisfied through the payment of $
10
DUNE ACQUISITION CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In connection with the Company’s assessment of going concern considerations in accordance with Financial Accounting Standard Board’s Accounting Standards Update (“ASU”) 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” the Company has until June 22, 2022 to consummate a business combination. It is uncertain that the Company will be able to consummate a business combination by this time. If a 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 a business combination not occur, and potential subsequent dissolution, raises substantial doubt about the Company’s ability to continue as a going concern. Management intends to complete the business combination prior to the liquidation date.
No adjustments have been made to the carrying amounts of assets or liabilities should the Company be required to liquidate after June 22, 2022. The Company intends to complete the proposed business combination before the mandatory liquidation date. However, there can be no assurance that the Company will be able to consummate any business combination by June 22, 2022.
Risks and Uncertainties
In February 2022, the Russian Federation and Belarus commenced a military action with the country of Ukraine. As a result of this action, various nations, including the United States, have instituted economic sanctions against the Russian Federation and Belarus. Further, the impact of this action and related sanctions on the world economy are not determinable as of the date of these unaudited condensed consolidated financial statements and the specific impact on the Company’s financial condition, results of operations, and cash flows is also not determinable as of the date of these unaudited condensed consolidated financial statements.
Management continues to evaluate the impact of the COVID-19 pandemic and has concluded that while it is reasonably possible that the virus could have a negative effect on the Company’s, or its target’s, financial position, results of its operations and/or completion of the business combination, the specific impact is not readily determinable as of the date of these unaudited condensed consolidated financial statements. The unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Note 2 - Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements are presented in U.S. dollars in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X and pursuant to the rules and regulations of the SEC. Accordingly, certain disclosures included in the annual consolidated financial statements have been condensed or omitted from these condensed consolidated financial statements as they are not required for interim financial statements under U.S. GAAP and the rules of the SEC. In the opinion of management, the unaudited condensed consolidated financial statements reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the balances and results for the periods presented. Operating results for the three months ended March 31, 2022, and since inception are not necessarily indicative of the results that may be expected through December 31, 2022, or any future period.
The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Annual Report on Form 10-K filed by the Company with the SEC on March 29, 2022.
Emerging Growth Company
The Company is 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 it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, 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 stockholder approval of any golden parachute payments not previously approved.
11
DUNE ACQUISITION CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that an emerging growth company can elect to opt out of the extended transition period and comply with the requirements that apply to nonemerging growth companies but any such an election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard.
This may make comparison of the Company’s unaudited condensed consolidated financial statements with those of another public company that is neither an emerging growth company nor an emerging growth company that has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Use of Estimates
The preparation of unaudited condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the unaudited condensed consolidated financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. One of the more significant accounting estimates included in these unaudited condensed consolidated financial statements is the determination of the fair value of the derivative warrant liabilities. Such estimates may be subject to change as more current information becomes available and accordingly, the actual results could differ significantly from those estimates.
Cash and Cash Equivalents
The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. The Company had no cash equivalents as of March 31, 2022 and December 31, 2021.
Concentration of Credit Risk
Financial instruments that potentially
subject the Company to concentration of credit risk consist of cash accounts in a financial institution which, at times, may exceed
the Federal Deposit Insurance Corporation coverage limit of $
Investments Held in the Trust Account
The Company’s portfolio of investments is comprised of U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act, with a maturity of 185 days or less, or investments in money market funds that invest in U.S. government securities and generally have a readily determinable fair value, or a combination thereof. When the Company’s investments held in the trust account are comprised of U.S. government securities, the investments are classified as trading securities. When the Company’s investments held in the trust account are comprised of money market funds, the investments are recognized at fair value. Trading securities and investments in money market funds are presented on the condensed consolidated balance sheets at fair value at the end of each reporting period. Gains and losses resulting from the change in fair value of these securities is included in income on investments held in the trust account in the accompanying condensed consolidated statements of operations. The estimated fair values of investments held in the trust account are determined using available market information.
12
DUNE ACQUISITION CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Fair Value Measurements
Fair value is defined as the price that would be received for sale of an asset or paid for transfer of a liability, in an orderly transaction between market participants at the measurement date. GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers consist of:
| ● | 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. |
In some circumstances, the inputs used to measure fair value might be categorized within different levels of the fair value hierarchy. In those instances, the fair value measurement is categorized in its entirety in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement.
Fair Value of Financial Instruments
The fair value of the Company’s assets and liabilities which qualify as financial instruments under the FASB ASC Topic 820, “Fair Value Measurements,” equal or approximate the carrying amounts represented in the condensed consolidated balance sheets, except for derivative warrant liabilities (see Note 9).
Offering Costs Associated with the Initial Public Offering
Offering costs consisted of legal, accounting, underwriting fees and other costs incurred that were directly related to the initial public offering. Offering costs are allocated to the separable financial instruments issued in the initial public offering based on a relative fair value basis, compared to total proceeds received. Offering costs associated with derivative warrant liabilities were expensed as incurred, presented as non-operating expenses in the condensed consolidated statements of operations. Offering costs associated with the public shares were charged against the carrying value of the shares of Class A common stock upon the completion of the initial public offering. The Company classifies deferred underwriting commissions as non-current liabilities as their liquidation is not reasonably expected to require the use of current assets or require the creation of current liabilities.
Derivative Warrant Liabilities
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its financial instruments, including issued stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 480 and ASC 815-15. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period.
The warrants to purchase Class A common stock issued in connection with the initial public offering (the “public warrants”) and the private placement warrants are recognized as derivative liabilities in accordance with ASC 815. Accordingly, the Company recognizes the warrant instruments as liabilities at fair value and adjust the instruments to fair value at each reporting period. The liabilities are subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the Company’s condensed consolidated statements of operations. The initial fair value of the public warrants has been measured at fair value using a Monte Carlo simulation model. Subsequent to the public warrants being traded on an active market, the fair value of the public warrants has been based on the observable listed prices for such warrants. The fair value of the private placement warrants was estimated using Black-Scholes. The determination of the fair value of the warrant liability may be subject to change as more current information becomes available and accordingly the actual results could differ significantly. Derivative warrant liabilities are classified as non-current liabilities as their liquidation is not reasonably expected to require the use of current assets or require the creation of current liabilities.
13
DUNE ACQUISITION CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Class A Common Stock Subject to Possible Redemption
The Company accounts for its Class A common stock
subject to possible redemption in accordance with the guidance in ASC Topic 480 “Distinguishing Liabilities from Equity.”
Shares of Class A common stock subject to mandatory redemption (if any) are classified as liability instruments and are measured at fair
value. Shares of conditionally redeemable Class A common stock (including Class A common stock that feature redemption rights that are
either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s
control) are classified as temporary equity. At all other times, shares of Class A common stock are classified as stockholders’
equity. The Company’s Class A common stock feature certain redemption rights that are considered to be outside of the Company’s
control and subject to the occurrence of uncertain future events. Accordingly, as of March 31, 2022 and December 31, 2021, a total of
Under ASC 480-10-S99, the Company has elected to recognize changes in the redemption value immediately as they occur and adjust the carrying value of the security to equal the redemption value at the end of the reporting period. This method would view the end of the reporting period as if it were also the redemption date of the security. Effective with the closing of the initial public offering, the Company recognized the accretion from initial book value to redemption amount, which resulted in charges against additional paid-in capital (to the extent available) and accumulated deficit.
Net Income (Loss) Per Share of Common Stock
The Company complies with accounting and disclosure requirements of FASB ASC Topic 260, “Earnings Per Share.” The Company has two classes of shares, which are referred to as Class A common stock and Class B common stock. Income and losses are shared pro rata between the two classes of shares. This presentation assumes a business combination as the most likely outcome. Net income (loss) per share of common stock is calculated by dividing the net income (loss) by the weighted average shares of common stock outstanding for the respective period.
The calculation of diluted net income (loss) does
not consider the effect of the warrants underlying the Units sold in the initial public offering (including the consummation of the over-allotment)
and the private placement warrants to purchase an aggregate of
The table below presents a reconciliation of the numerator and denominator used to compute basic and diluted net loss per share for each class of common stock:
| For the Three Months Ended March 31, | ||||||||||||||||
| 2022 | 2021 | |||||||||||||||
| Class A | Class B | Class A | Class B | |||||||||||||
| Basic and diluted net income per share of common stock: | ||||||||||||||||
| Numerator: | ||||||||||||||||
| Allocation of net income | $ | $ | $ | $ | ||||||||||||
| Denominator: | ||||||||||||||||
| Basic and diluted weighted average common stock outstanding | ||||||||||||||||
| Basic and diluted net income per share of common stock | $ | $ | $ | $ | ||||||||||||
14
DUNE ACQUISITION CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Income Taxes
The Company follows the asset and liability method of accounting for income taxes under FASB ASC 740, which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the unaudited condensed consolidated financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
FASB ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and the measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position. The Company is subject to income tax examinations by major taxing authorities since inception.
Recent Accounting Pronouncements
The Company’s management does not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on the Company’s unaudited condensed consolidated financial statements.
Note 3 - Initial Public Offering
Public Units
In the initial public offering, which closed
December 22, 2020, the Company sold
The Company granted the underwriters a 45-day
option to purchase up to
Note 4 - Related Party Transactions
Founder Shares
On July 10, 2020, the Sponsor purchased
15
DUNE ACQUISITION CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The initial stockholders agreed, subject to limited exceptions, not to transfer, assign or sell any of the Founder Shares until the earlier to occur of: (A) one year after the completion of the initial business combination or earlier if, subsequent to the initial business combination, the closing price of the Class A common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock capitalizations, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days after the initial business combination, and (B) the date following the completion of the initial business combination on which the Company completes a liquidation, merger, capital stock exchange or other similar transaction that results in all of the stockholders having the right to exchange their Class A common stock for cash, securities or other property.
Private Placement Warrants
Simultaneously with the closing of the initial
public offering, the Company consummated the private placement of
The private placement warrants (including the shares of common stock issuable upon exercise of the private placement warrants) are not transferable, assignable or salable until 30 days after the completion of the initial business combination and they are non-redeemable and exercisable on a cashless basis so long as they are held by the initial purchasers of the private placement warrants or their permitted transferees. If the private placement warrants are held by someone other than the initial purchasers of the private placement warrants or their permitted transferees, the private placement warrants will be redeemable for cash by the Company and exercisable by such holders on the same basis as the warrants included in the Units sold in the initial public offering. Otherwise, the private placement warrants have terms and provisions that are identical to those of the Warrants sold as part of the Units in the initial public offering and have no net cash settlement provisions.
If the Company does not complete a business combination, then the proceeds will be part of the liquidating distribution to the public stockholders and the warrants issued to the Sponsor will expire worthless.
Related Party Loans
On June 18, 2020, the Sponsor agreed to loan
the Company an aggregate of up to $
In addition, in order to finance transaction
costs in connection with a business combination, the Sponsor or an affiliate of the Sponsor, or certain of the Company’s officers
and directors may, but are not obligated to, loan the Company funds as may be required (the “working capital loans”). If
the Company completes a business combination, the Company will repay the working capital loans out of the proceeds of the trust account
released to the Company. Otherwise, the working capital loans would be repaid only out of funds held outside the trust account. In the
event that a business combination does not close, the Company may use a portion of proceeds held outside the trust account to repay the
working capital loans, but no proceeds held in the trust account would be used to repay the working capital loans. The working capital
loans would either be repaid upon consummation of a business combination or, at the lenders’ discretion, up to $
16
DUNE ACQUISITION CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Administrative Services Agreement
Commencing on the date that the Company’s
securities were first listed on Nasdaq until the earlier of the Company’s consummation of a Business Combination or the Company’s
liquidation, the Company agreed to pay the Sponsor a total of $
The Sponsor, officers and directors, or any of
their respective affiliates will be reimbursed for any out-of-pocket expenses incurred in connection with activities on the Company’s
behalf such as identifying potential target businesses and performing due diligence on suitable business combinations. The Company’s
audit committee will review on a quarterly basis all payments that were made by the Company to the Sponsor, directors, officers or directors
of the Company, or any of their affiliates. As of March 31, 2022 and December 31, 2021, there were $
Note 5 - Commitments and Contingencies
Registration Rights
The holders of Founder Shares, private placement warrants and warrants that may be issued upon conversion of working capital loans, if any, (and any underlying securities) are entitled to registration rights pursuant to a registration rights agreement. These holders 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 the completion of the initial business combination. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
Underwriting Agreement
The Company granted the underwriters a 45-day
option to purchase up to
Note 6 - Derivative Warrant Liabilities
As of March 31, 2022 and December 31, 2021, the
Company had
Public warrants may only be exercised for a whole
number of shares. No fractional public warrants will be issued upon separation of the Units and only whole public warrants will trade.
The public warrants will become exercisable on the later of (a) 30 days after the completion of a business combination or (b) 12 months
from the closing of the initial public offering; provided in each case that the Company has an effective registration statement under
the Securities Act covering the shares of Class A common stock issuable upon exercise of the public warrants and a current prospectus
relating to them is available (or the Company permits holders to exercise their public warrants on a cashless basis and such cashless
exercise is exempt from registration under the Securities Act). The Company has agreed that as soon as practicable, but in no event later
than 15 business days, after the closing of a business combination, the Company will use its best efforts to file with the SEC a registration
statement for the registration, under the Securities Act, of the shares of Class A common stock issuable upon exercise of the public
warrants. The Company will use its best efforts to cause the same to become effective and to maintain the effectiveness of such registration
statement, and a current prospectus relating thereto, until the expiration of the public warrants in accordance with the provisions of
the warrant agreement. Notwithstanding the above, if the Class A common stock is at the time of any exercise of a warrant not listed
on a national securities exchange such that it satisfies the definition of a “covered security” under Section 18(b)(1) of
the Securities Act, the Company may, at its option, require holders of public warrants who exercise their warrants to do so on a “cashless”
basis, and, in the event the Company so elects, the Company will not be required to file or maintain in effect a registration statement,
but the Company will be required to use its best efforts to register or qualify the shares under applicable blue sky laws to the extent
an exemption is not available. The public warrants will expire
17
DUNE ACQUISITION CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
If (x) the Company issues additional shares of Class A common stock or equity-linked securities for capital raising purposes in connection with the closing of its initial business combination at an issue price or effective issue price of less than $9.20 per share of Class A common stock (with such issue price or effective issue price to be determined in good faith by the Company’s board of directors and, in the case of any such issuance to the initial stockholders or their affiliates, without taking into account any Founder Shares held by the initial stockholders or such affiliates, as applicable, prior to such issuance), (y) the aggregate gross proceeds from such issuances represent more than 60% of the total equity proceeds, and interest thereon, available for the funding of the initial business combination (net of redemptions), and (z) the volume weighted average trading price of the Class A common stock during the 20 trading day period starting on the trading day after the day on which the Company consummates the initial business combination (such price, the “Market Value”) is below $9.20 per share, the exercise price of the Warrants will be adjusted (to the nearest cent) to be equal to 115% of the higher of the Market Value and the Newly Issued Price, and the $18.00 per share redemption trigger price of the Warrants will be adjusted (to the nearest cent) to be equal to 180% of the higher of the Market Value and the Newly Issued Price.
The private placement warrants are identical to the public warrants, except that the private placement warrants and the shares of Class A common stock issuable upon exercise of the private placement warrants will not be transferable, assignable or salable until 30 days after the completion of a business combination, subject to certain limited exceptions. Additionally, the private placement warrants will be non-redeemable so long as they are held by the Sponsor or its permitted transferees. If the private placement warrants are held by someone other than the Sponsor or its permitted transferees, the private placement warrants will be redeemable by the Company and exercisable by such holders on the same basis as the public warrants.
The Company may call the Public Warrants for redemption:
| ● | in whole and not in part; |
| ● | at a price of $0.01 per warrant; |
| ● | upon a minimum of 30 days’ prior written notice of redemption; and |
If the Company calls the Public Warrants for redemption, management will have the option to require all holders that wish to exercise the Public Warrants to do so on a “cashless basis,” as described in the warrant agreement.
If the Company is unable to complete a business combination within the Combination Period and the Company liquidates the funds held in the trust account, holders of warrants will not receive any of such funds with respect to their warrants, nor will they receive any distribution from the Company’s assets held outside of the trust account with the respect to such warrants. Accordingly, the warrants may expire worthless.
Note 7 - Class A Common Stock Subject to Possible Redemption
The Company’s Class A common stock feature
certain redemption rights that are considered to be outside of the Company’s control and subject to the occurrence of future events.
The Company is authorized to issue
18
DUNE ACQUISITION CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Class A common stock subject to possible redemption reflected on the condensed consolidated balance sheets is reconciled on the following table:
| Gross proceeds | $ | |||
| Less: | ||||
| Fair value of Public Warrants at issuance | ( | ) | ||
| Offering costs allocated to Class A common stock subject to possible redemption | ( | ) | ||
| Plus: | ||||
| Accretion on Class A common stock subject to possible redemption amount | ||||
| Class A common stock subject to possible redemption | $ |
Note 8 - Stockholders’ Deficit
Preferred Stock - The Company is
authorized to issue
Class A Common Stock - The Company
is authorized to issue
Class B Common Stock (Founder Shares) -
The Company is authorized to issue
Stockholders of record are entitled to one vote for each share held on all matters to be voted on by stockholders. Holders of Class A common stock and holders of Class B common stock will vote together as a single class on all matters submitted to a vote of our stockholders except as required by law.
The Class B common stock will automatically convert
into Class A common stock at the time of the initial business combination on a one-for-one basis, subject to adjustment for stock splits,
stock dividends, reorganizations, recapitalizations and the like, and subject to further adjustment as provided herein. In the case that
additional shares of Class A common stock or equity-linked securities are issued or deemed issued in connection with the initial business
combination, the number of shares of Class A common stock issuable upon conversion of all founder shares will equal, in the aggregate,
on an as-converted basis,
19
DUNE ACQUISITION CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 9 - Fair Value Measurements
The public warrants were initially measured utilizing a Monte Carlo simulation model, and the private placement warrants were measured utilizing a Black-Scholes model. Subsequently when the public warrants were separately listed and traded in an active market, the public warrants have been measured at fair value utilizing their listed trading price.
For the three months ended March 31, 2022, the
Company recognized a gain from a decrease in the fair value of liabilities of approximately $
The following table presents information about the Company’s financial assets and liabilities that are measured at fair value on a recurring basis as of March 31, 2022 and December 31, 2021 by level within the fair value hierarchy:
March 31, 2022
| Description | Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Other Unobservable Inputs (Level 3) | |||||||||
| Assets: | ||||||||||||
| Investments held in Trust Account – U.S. Treasury securities | $ | $ | $ | |||||||||
| Liabilities: | ||||||||||||
| Derivative warrant liabilities – Public | $ | $ | $ | |||||||||
| Derivative warrant liabilities – Private Placement | $ | $ | $ | |||||||||
December 31, 2021
| Description | Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Other Unobservable Inputs (Level 3) | |||||||||
| Assets: | ||||||||||||
| Investments held in Trust Account – U.S. Treasury securities | $ | $ | $ | |||||||||
| Liabilities: | ||||||||||||
| Derivative warrant liabilities – Public | $ | $ | $ | |||||||||
| Derivative warrant liabilities – Private Placement | $ | $ | $ | |||||||||
Transfers to/from Levels 1, 2 and 3 are recognized at the beginning of the reporting period. The estimated fair value of public warrants was transferred from a Level 3 fair value measurement to a Level 1 measurement, when the public warrants were separately listed and traded in February 2021. There were no other transfers to/from Levels 1, 2, and 3 during the year ended December 31, 2021. There were no transfers to/from Levels 1, 2, and 3 during the three months ended March 31, 2022.
20
DUNE ACQUISITION CORPORATION
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following table provides quantitative information regarding Level 3 fair value measurements inputs at their measurement dates:
| As of March 31, 2022 | As of December 31, 2021 | |||||||
| Exercise price | $ | $ | ||||||
| Unit price | $ | $ | ||||||
| Volatility | % | % | ||||||
| Stock price | $ | $ | ||||||
| Expected life of the options to convert (years) | ||||||||
| Risk-free rate | % | % | ||||||
The changes in the fair value of the derivative warrant liabilities, measured using Level 3 inputs, for the three months ended March 31, 2022 and 2021 are summarized as follows:
| 2022 | 2021 | |||||||
| Derivative warrant liabilities as of January 1 | $ | $ | ||||||
| Transfer out of Level 3, Public Warrants start separately trading | - | ( | ) | |||||
| Change in fair value of derivative warrant liabilities - Level 3 | ( | ) | ( | ) | ||||
| Derivative warrant liabilities as of March 31 - Level 3 | $ | $ | ||||||
10. Subsequent Events
The Company evaluated subsequent events and transactions that occurred up to the date the unaudited condensed consolidated financial statements were issued. Based upon this review, the Company did not identify any subsequent events that would have required adjustment or disclosure in the unaudited condensed consolidated financial statements.
21
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Special Note Regarding Forward-Looking Statements
References to the “Company,” “our,” “us” or “we” refer to Dune 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 condensed consolidated financial statements and the notes thereto contained elsewhere in this report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” or the negative of such terms or other similar expressions. Such statements include, but are not limited to, possible business combinations and the financing thereof, and related matters, as well as all other statements other than statements of historical fact included in this Form 10-Q. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those described in our other Securities and Exchange Commission (“SEC”) filings.
Overview
We are a blank check company incorporated in Delaware on June 18, 2020 for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. Our Sponsor is Dune Acquisition Holdings LLC, a Delaware limited liability company.
The registration statement for our initial public offering became effective on December 17, 2020. On December 22, 2020, we consummated the initial public offering of 17,250,000 units, including 2,250,000 additional units to cover the over-allotment units, at $10.00 per unit, generating gross proceeds of $172.5 million, and incurring offering costs of approximately $10.0 million, inclusive of approximately $6.0 million in deferred underwriting commissions.
Simultaneously with the closing of the initial public offering, we consummated the private placement of 4,850,000 private placement warrants at a price of $1.00 per private placement warrant to our Sponsor, generating proceeds of approximately $4.9 million.
Upon the closing of the initial public offering and the private placement, $172.5 million ($10.00 per unit) of the net proceeds of the initial public offering and certain of the proceeds of the private placement was held in the trust account, located in the United States, with Continental Stock Transfer & Trust Company acting as trustee, and invested only in U.S. “government securities,” within the meaning of Section 2(a)(16) of 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, as determined by the Company, until the earlier of: (i) the completion of a business combination and (ii) the distribution of the trust account as described below.
If we are unable to complete a business combination within 18 months from the closing of the initial public offering, or June 22, 2022, (the “Combination Period”) and our stockholders have not amended the Certificate of Incorporation to extend such Combination Period, we will (1) cease all operations except for the purpose of winding up; (2) as promptly as reasonably possible but not more than 10 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 (less up to $100,000 of interest to pay dissolution expenses and which interest shall be net of taxes payable), divided by the number of then issued and outstanding public shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidating distributions, if any); and (3) as promptly as reasonably possible following such redemption, subject to the approval of the remaining stockholders and our board of directors, liquidate and dissolve, subject in each case to our obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law.
22
Proposed Business Combination
On October 12, 2021, we entered into the Merger Agreement with Merger Sub, Merger Sub II, and TradeZero. In accordance with the terms and subject to the conditions of the Merger Agreement, at the Closing, (i) each issued and outstanding share of TradeZero Common Stock will automatically be converted into a number of shares of New TradeZero Common Stock equal to the Exchange Ratio, which will be determined by dividing (A) the quotient of (x) $500,000,000 divided by (y) the number of shares of TradeZero Common Stock immediately prior to the Closing (including the shares of TradeZero Common Stock subject to any restricted stock unit awards of TradeZero) by (B) $10.00 per share, (ii) all of the outstanding TradeZero restricted stock unit awards will be converted into New TradeZero restricted unit awards on the same terms and conditions as the existing awards (including with respect to vesting and acceleration, if any) to be governed by the Incentive Plan, and with respect to a number of shares of New TradeZero Common Stock equal to the product of (1) the number of shares of TradeZero Common Stock underlying the original award and (2) the Exchange Ratio and (iii) and all of the outstanding TradeZero stock option awards will be converted into New TradeZero stock option awards on the same terms and conditions as the existing award (including with respect to vesting and acceleration, if any) to be governed by the Incentive Plan and with respect to a number of shares of New TradeZero Common Stock equal to the product of (aa) the number of shares of TradeZero Common Stock underlying the original award and (bb) the Exchange Ratio and an exercise price per share of New TradeZero Common Stock subject to the award equal to (i) the existing exercise price of the award divided by (ii) the Exchange Ratio.
In addition, immediately prior to the Closing, holders of TradeZero Common Stock immediately prior to Closing will receive a cash disbursement from TradeZero’s cash balance at Closing equal to the lesser of (a) the difference between TradeZero’s cash balance at Closing and $10,000,000 and (b) $30,000,000. On or as soon as practicable following the Closing, New TradeZero will grant RSU Earn Out Awards, and the holders of TradeZero Common Stock immediately prior to the Closing and the holders of the RSU Earn Out Awards will have the right to receive a pro-rata share of up to 9,000,000 additional shares of New TradeZero Common Stock upon the occurrence of certain earn-out triggering events, as follows: (i) 3,000,000 shares upon the date on which the volume weighted average closing sale price of the New TradeZero Common Stock as reported on the New York Stock Exchange (or the stock exchange on which the New TradeZero Common Stock is then listed) for a period of 20 trading days out of 30 consecutive trading days (as equitably adjusted as appropriate to reflect any stock splits, reverse stock splits, stock dividends (including any dividend or distribution of securities convertible into New TradeZero Common Stock), extraordinary cash dividend, reorganization, recapitalization, reclassification, combination, exchange of shares or other like change or transaction with respect to New TradeZero Common Stock) is equal to or greater than $12.00 per share at any time during the Earn Out Period; (ii) 3,000,000 shares upon the date on which the Share Price is equal to or greater than $15.00 per share during the Earn Out Period; and (iii) 3,000,000 shares upon the date on which the Share Price is equal to or greater than $18.00 per share during the Earn Out Period.
On January 26, 2022, we entered into the First Amendment with Merger Sub, Merger Sub II and TradeZero. Pursuant to the First Amendment, the Merger Agreement was amended to (i) clarify that, upon the occurrence of a sale during the Earn Out Period of more than 50% of the total voting power of New TradeZero or all or substantially all of the assets of New TradeZero, the dilutive effect of any Earn Out Shares to be issued in connection with such sale must be taken into account when calculating the Share Price to determine if any triggering events for Earn Out Shares have been achieved, (ii) provide that if any Earn Out Shares are forfeited pursuant to the terms of any applicable RSU Earn Out Awards, such Earn Out Shares shall not be redistributed to the holders of TradeZero Common Stock and (iii) clarify that each of Charter Amendment Proposal B and Charter Amendment Proposal C from the Merger Agreement are not Condition Precedent Proposals (as such term is defined in the Merger Agreement).
For additional information regarding the Merger Agreement, see the Company’s Current Reports on Form 8-K filed by us on October 12, 2021 and January 26, 2022 and the Company’s preliminary proxy statement (as amended), initially filed with the SEC on January 26, 2022.
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Liquidity and Going Concern
As of March 31, 2022, we had approximately $19,000 in our operating bank account and a working capital deficit of approximately $1.8 million.
Our liquidity needs prior to the consummation of the initial public offering were satisfied through the payment of $25,000 from the Sponsor to purchase founders shares (as defined below), and loan proceeds from the Sponsor of approximately $31,000 under the Note. We repaid the loan in full on December 22, 2020. Subsequent from the consummation of the initial public offering, our liquidity has been satisfied through the net proceeds from the consummation of the initial public offering and the private placement (as defined below) held outside of the trust account.
In connection with our assessment of going concern considerations in accordance with Financial Accounting Standard Board’s Accounting Standards Update (“ASU”) 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” the Company has until June 22, 2022 to consummate a business combination. It is uncertain that we will be able to consummate a business combination by this time. If a 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 a business combination not occur, and potential subsequent dissolution, raises substantial doubt about our ability to continue as a going concern. Management intends to complete the business combination prior to the liquidation date.
No adjustments have been made to the carrying amounts of assets or liabilities should we be required to liquidate after June 22, 2022. We intend to complete the proposed business combination before the mandatory liquidation date. However, there can be no assurance that we will be able to consummate any business combination by June 22, 2022.
In February 2022, the Russian Federation and Belarus commenced a military action with the country of Ukraine. As a result of this action, various nations, including the United States, have instituted economic sanctions against the Russian Federation and Belarus. Further, the impact of this action and related sanctions on the world economy are not determinable as of the date of these unaudited condensed consolidated financial statements and the specific impact on our financial condition, results of operations, and cash flows is also not determinable as of the date of these unaudited condensed consolidated financial statements.
Management continues to evaluate the impact of the COVID-19 pandemic and has concluded that the specific impact is not readily determinable as of March 31, 2022 and December 31, 2021. The unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Results of Operations
Our entire activity from inception through March 31, 2022 related to our formation, the preparation for the initial public offering, and since the closing of the initial public offering, the search for a prospective 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 completion of our initial business combination. We will generate non-operating income in the form of interest earned on cash equivalents held in trust account. We expect to 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.
For the three months ended March 31, 2022, we had a net income of approximately $3.3 million, which consisted of approximately $3.6 million in non-operating gain from changes in fair value of derivative warrant liabilities and approximately $58,000 in income on investments held in the trust account, partially offset by approximately $354,000 in general and administrative expenses, $30,000 in general and administrative expenses – related party, and approximately $49,000 in franchise tax expense.
For the three months ended March 31, 2021, we had a net income of approximately $6.1 million, which consisted of approximately $6.2 million in non-operating gain from changes in fair value of derivative warrant liabilities and approximately $62,000 in income on investments held in the trust account, partially offset by approximately $135,000 in general and administrative expenses, $30,000 in general and administrative expenses – related party, approximately $50,000 in franchise tax expense, and approximately $3,000 in income tax expense.
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Related Party Transactions
Founder Shares
On July 10, 2020, the Sponsor purchased 3,737,500 founder shares for an aggregate price of $25,000. On December 17, 2020, pursuant to the amended and restated certificate of incorporation, each founder share outstanding immediately prior to December 17, 2020 was converted into one and two-thirteenths (12/13) founder shares, resulting in an aggregate of 4,312,500 founder shares outstanding. Our initial stockholders agreed to forfeit up to 562,500 founder shares to the extent that the over-allotment option was not exercised in full by the underwriters, so that the founder shares would represent 20% of our issued and outstanding shares after the initial public offering. The underwriter exercised its over-allotment option in full on December 22, 2020; thus, these 562,500 founder shares were no longer subject to forfeiture.
Our initial stockholders agreed, subject to limited exceptions, not to transfer, assign or sell any of the founder shares until the earlier to occur of: (A) one year after the completion of the initial business combination or earlier if, subsequent to the initial business combination, the closing price of the Class A common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock capitalizations, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days after the initial business combination, and (B) the date following the completion of the initial business combination on which we complete a liquidation, merger, capital stock exchange or other similar transaction that results in all of our stockholders having the right to exchange their Class A common stock for cash, securities or other property. Any permitted transferees will be subject to the same restrictions and other agreements of the initial stockholders with respect to any founder shares.
Private Placement Warrants
Simultaneously with the closing of the initial public offering, we consummated the private placement of 4,850,000 private placement warrants at a price of $1.00 per private placement warrant to the Sponsor, generating proceeds of $4,850,000. Each private placement warrant is exercisable for one whole share of Class A common stock at a price of $11.50 per share. A portion of the proceeds from the sale of the private placement warrants to the Sponsor was added to the proceeds from the initial public offering to be held in the trust account such that at closing of the initial public offering, $172,500,000 was placed in the trust account.
The private placement warrants (including the shares of common stock issuable upon exercise of the private placement warrants) are not transferable, assignable or salable until 30 days after the completion of the initial business combination and they are non-redeemable and exercisable on a cashless basis so long as they are held by the initial purchasers of the private placement warrants or their permitted transferees. If the private placement warrants are held by someone other than the initial purchasers of the private placement warrants or their permitted transferees, the private placement warrants will be redeemable by us and exercisable by such holders on the same basis as the warrants included in the units sold in the initial public offering. Otherwise, the private placement warrants have terms and provisions that are identical to those of the warrants sold as part of the Units in the initial public offering and have no net cash settlement provisions.
If we do not complete a business combination within 18 months of the initial public offering, then the proceeds will be part of the liquidating distribution to the public stockholders and the warrants issued to the Sponsor will expire worthless.
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Related Party Loans
On June 18, 2020, the Sponsor agreed to loan us an aggregate of up to $200,000 to cover expenses related to the initial public offering pursuant to a promissory note (the “Note”). This loan was non-interest bearing and payable upon the completion of the initial public offering. We borrowed approximately $31,000 under the Note and fully repaid the Note in full on December 22, 2020.
In addition, in order to finance transaction costs in connection with a business combination, the Sponsor or an affiliate of the Sponsor, or certain of our officers and directors may, but are not obligated to, loan us working capital loans. If we complete a business combination, we will repay the working capital loans out of the proceeds of the trust account released to us. Otherwise, the working capital loans would be repaid only out of funds held outside the trust account. In the event that a business combination does not close, we may use a portion of proceeds held outside the trust account to repay the working capital loans, but no proceeds held in the trust account would be used to repay the working capital loans. The working capital loans would either be repaid upon consummation of a business combination or, at the lender’s discretion, up to $1,500,000 of such working capital loans may be convertible into warrants of the post business combination entity at a price of $1.00 per warrant. The warrants would be identical to the private placement warrants. Except for the foregoing, the terms of such working capital loans, if any, have not been determined and no written agreements exist with respect to such loans. As of March 31, 2022 and December 31, 2021, we had no borrowings under working capital loans.
Administrative Services Agreement
Commencing on the date that our securities were first listed on Nasdaq until the earlier of our consummation of a Business Combination or our liquidation, we agreed to pay the Sponsor a total of $10,000 per month for office space, secretarial and administrative services provided to members of our management team. For the three months ended March 31, 2022 and 2021, we had incurred $30,000 and $30,000 in administrative services expenses under this agreement, respectively. As of March 31, 2022 and December 31, 2021, we had $20,000, outstanding for services in connection with such agreement in due to related parties on the accompanying condensed consolidated balance sheets.
The Sponsor, officers and directors, or any of their respective affiliates will be reimbursed for any out-of-pocket expenses incurred in connection with activities on our behalf such as identifying potential target businesses and performing due diligence on suitable business combinations. Our audit committee will review on a quarterly basis all payments that were made by us to the Sponsor, directors, officers or directors, or any of their affiliates. There were approximately $31,000 due to related parties as of December 31, 2021. As of March 31, 2022 and December 31, 2021, there were $21,500 and $30,811 due to related parties, respectively.
Contractual Obligations
Registration Rights
The holders of founder shares, private placement warrants and warrants that may be issued upon conversion of working capital loans, if any, (and any underlying securities) are entitled to registration rights pursuant to a registration rights agreement. These holders are entitled to make up to three demands, excluding short form demands, that we register such securities for sale under the Securities Act. In addition, these holders will have “piggyback” registration rights to include their securities in other registration statements filed by us. We will bear the expenses incurred in connection with the filing of any such registration statements.
Underwriting Agreement
We granted the underwriters a 45-day option to purchase up to 2,250,000 additional units to cover any over-allotments, at the initial public offering price less the underwriting discounts and commissions. On December 22, 2020 we issued 2,250,000 units in connection with the underwriters’ exercise of the over-allotment option in full. We paid an underwriting discount of $3,450,000 ($0.20 per unit sold) to the underwriters at the closing of the initial public offering on December 22, 2020, with an additional fee (the “Deferred Discount”) of $6,037,500 ($0.35 per unit sold) payable upon our completion of an initial business combination. The Deferred Discount will become payable to the underwriters from the amounts held in the trust account solely in the event we complete our initial business combination, subject to the terms of the underwriting agreement.
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Critical Accounting Policies and Estimates
This management’s discussion and analysis of our financial condition and results of operations is based on our unaudited condensed consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these unaudited condensed consolidated 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 consolidated 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 our critical accounting policies:
Investments Held in the Trust Account
Our portfolio of investments is comprised of U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act, with a maturity of 185 days or less, or investments in money market funds that invest in U.S. government securities and generally have a readily determinable fair value, or a combination thereof. When our investments held in the trust account are comprised of U.S. government securities, the investments are classified as trading securities. When our investments held in the trust account are comprised of money market funds, the investments are recognized at fair value. Trading securities and investments in money market funds are presented on the condensed consolidated balance sheets at fair value at the end of each reporting period. Gains and losses resulting from the change in fair value of these securities is included in income on investments held in the trust account in the accompanying condensed consolidated statements of operations. The estimated fair values of investments held in the trust account are determined using available market information.
Class A Common Stock Subject to Possible Redemption
We account for our Class A common stock subject to possible redemption in accordance with the guidance in ASC Topic 480 “Distinguishing Liabilities from Equity.” Shares of Class A common stock subject to mandatory redemption (if any) are classified as liability instruments and are measured at fair value. Shares of conditionally redeemable Class A common stock (including Class A common stock that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control) are classified as temporary equity. At all other times, shares of Class A common stock are classified as stockholders’ equity. Our Class A common stock features certain redemption rights that are considered to be outside of our control and subject to the occurrence of uncertain future events. Accordingly, as of March 31, 2022 and December 31, 2021, a total of 17,250,000 shares of Class A common stock subject to possible redemption are presented at redemption value as temporary equity, outside of the stockholders’ deficit section of our condensed consolidated balance sheets.
Under ASC 480-10-S99, we have elected to recognize changes in the redemption value immediately as they occur and adjust the carrying value of the security to equal the redemption value at the end of the reporting period. This method would view the end of the reporting period as if it were also the redemption date of the security. Effective with the closing of the initial public offering, we recognized the accretion from initial book value to redemption amount, which resulted in charges against additional paid-in capital (to the extent available) and accumulated deficit.
Net Income (Loss) Per Share of Common Stock
We comply with accounting and disclosure requirements of FASB ASC Topic 260, “Earnings Per Share.” We have two classes of shares, which are referred to as Class A common stock and Class B common stock. Income and losses are shared pro rata between the two classes of shares. This presentation assumes a business combination as the most likely outcome. Net income (loss) per share of common stock is calculated by dividing the net income (loss) by the weighted average number of shares of common stock outstanding for the respective period.
The calculation of diluted net income per common stock does not consider the effect of the warrants issued in connection with the Initial Public Offering and the Private Placement to purchase an aggregate of 13,475,000 shares of common stock in the calculation of diluted income per share, because their exercise is contingent upon future events. As a result, diluted net income per share is the same as basic net income per share for the three months ended March 31, 2022 and 2021. Accretion associated with the redeemable Class A common stock is excluded from earnings per share as the redemption value approximates fair value.
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Derivative Warrant Liabilities
We do not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. We evaluate all of our financial instruments, including issued stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 480 and ASC 815-15. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period.
The public warrants and the private placement warrants are recognized as derivative liabilities in accordance with ASC 815. Accordingly, we recognize the warrant instruments as liabilities at fair value and adjust the instruments to fair value at each reporting period. The liabilities are subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in our condensed consolidated statements of operations. The initial fair value of the public warrants has been measured at fair value using a Monte Carlo simulation model. Subsequent to the public warrants being traded on an active market, the fair value of the public warrants has been based on the observable listed prices for such warrants. The fair value of the private placement warrants was estimated using Black-Scholes. The determination of the fair value of the warrant liability may be subject to change as more current information becomes available and accordingly the actual results could differ significantly. Derivative warrant liabilities are classified as non-current liabilities as their liquidation is not reasonably expected to require the use of current assets or require the creation of current liabilities.
JOBS Act
The Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) contains provisions that, among other things, relax certain reporting requirements for qualifying public companies. We qualify as an “emerging growth company” and under the JOBS Act are allowed to comply with new or revised accounting pronouncements based on the effective date for private (not publicly traded) companies. We are electing to delay the adoption of new or revised accounting standards, and as a result, we may not comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. As a result, the unaudited condensed consolidated financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
Additionally, we are in the process of evaluating the benefits of relying on the other reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, if, as an “emerging growth company,” we choose to rely on such exemptions we may not be required to, among other things, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the unaudited condensed consolidated financial statements (auditor discussion and analysis) and (iv) disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the CEO’s compensation to median employee compensation. These exemptions will apply for a period of five years following the completion of our initial public offering or until we are no longer an “emerging growth company,” whichever is earlier.
Recent Accounting Pronouncements
Our management does not believe there are any other recently issued, but not yet effective, accounting pronouncements, if currently adopted, that would have a material effect on our unaudited condensed consolidated financial statements.
Off-Balance Sheet Arrangement
As of March 31, 2022 and December 31, 2021, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K and did not have any commitments or contractual obligations.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.
We have not engaged in any hedging activities since our inception. We do not expect to engage in any hedging activities with respect to the market risk to which we are exposed.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the fiscal quarter ended March 31, 2022, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer, concluded that during the period covered by this report, our disclosure controls and procedures were not effective as of March 31, 2022, because of a material weakness in our internal control over financial reporting relating to the accounting for complex financial instruments. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim condensed consolidated financial statements will not be prevented or detected on a timely basis. Specifically, the Company’s management has concluded that our internal control around the interpretation and accounting for certain complex equity and equity-linked instruments issued by the Company and the presentation of earnings per share was not effectively designed or maintained. This material weakness resulted in the restatement of the Company’s balance sheet as of December 22, 2020, its annual financial statements for the period ended December 31, 2020 in the Company’s Form 10-K/A Amendment No. 2 for the year ended December 31, 2020 as filed with the SEC on December 3, 2021, and its interim financial statements for the quarters ended March 31, 2021, June 30, 2021, and September 30, 2021. Additionally, this material weakness could result in a misstatement of the carrying value of equity, equity-linked instruments and related accounts and disclosures, and presentation of earnings per share that would result in a material misstatement of the unaudited condensed consolidated financial statements that would not be prevented or detected on a timely basis. As a result, our management performed additional analysis as deemed necessary to ensure that our unaudited condensed consolidated financial statements were prepared in accordance with generally accepted accounting principles in the United States of America. Accordingly, management believes that the unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q present fairly, in all material respects, our financial position, result of operations and cash flows of the periods presented. Management understands that the accounting standards applicable to our unaudited condensed consolidated financial statements are complex and has since the inception of the Company benefited from the support of experienced third-party professionals with whom management has regularly consulted with respect to accounting issues. Management intends to continue to further consult with such professionals in connection with accounting matters.
Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting, other than the circumstances that led to the restatement of our unaudited condensed consolidated financial statements as noted below.
Our Chief Executive Officer and Chief Financial Officer performed additional accounting and financial analyses and other post-closing procedures including consulting with subject matter experts related to the accounting for certain complex equity and equity-linked instruments issued by the Company and the presentation of earnings per share. The Company’s management has expended, and will continue to expend, a substantial amount of effort and resources for the remediation and improvement of our internal control over financial reporting. While we have processes to properly identify and evaluate the appropriate accounting technical pronouncements and other literature for all significant or unusual transactions, we have expanded and will continue to improve these processes to ensure that the nuances of such transactions are effectively evaluated in the context of the increasingly complex accounting standards.
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PART II-OTHER INFORMATION
Item 1. Legal Proceedings.
On April 1, 2022, the Dune Plaintiffs filed a four-count complaint in the Delaware Court of Chancery against the TradeZero Defendants. The Dune Plaintiffs bring claims for breach of contract, fraudulent inducement, fraudulent misrepresentation and unjust enrichment. On April 18, 2022, the Company issued a press release announcing the Dune Plaintiffs’ ongoing litigation against the TradeZero Defendants. On May 3, 2022, after careful consideration and consultation with the Company’s management and outside legal advisors, the Company’s Board, who had previously unanimously endorsed and approved of the business combination with TradeZero, announced that it had changed its recommendation to the Company’s stockholders and now unanimously recommends that the Company’s stockholders vote against the business combination with TradeZero. The Company intends to more fully describe the reasons for the Board’s change in recommendation in the next filing of the proxy statement relating to the business combination with TradeZero. On May 5, 2022, the TradeZero Defendants filed a motion to dismiss the Dune Plaintiff ’s lawsuit.
Item 1A. Risk Factors.
Factors that could cause our actual results to differ materially from those in this Quarterly Report are any of the risks described in our Annual Report on Form 10-K filed with the SEC on March 29, 2022. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. As of the date of this Quarterly Report, there have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K filed with the SEC March 29, 2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Unregistered Sales of Equity Securities
Simultaneously with the closing of the Public Offering, pursuant to the Private Placement Warrants Purchase Agreement, the Company completed the private sale (the “Private Placement”) of 4,850,000 warrants (each, a “Private Placement Warrant” and collectively, the “Private Placement Warrants”) to Dune Acquisition Holdings LLC (the “Sponsor”) at a purchase price of $1.00 per Private Placement Warrant, generating gross proceeds to the Company of $4,850,000. The Private Placement Warrants are identical to the Warrants sold as part of the Units in the Public Offering, except that the Private Placement Warrants, so long as they are held by the Sponsor or its permitted transferees, (i) are not redeemable by the Company for cash, (ii) may not (including the Class A Common Stock issuable upon exercise of the Private Placement Warrants), subject to certain limited exceptions, be transferred, assigned or sold by such holders until 30 days after the completion of the Company’s initial Business Combination, (iii) may be exercised by the holders on a cashless basis and (iv) will be entitled to registration rights. No underwriting discounts or commissions were paid with respect to such sales. The issuance of the Private Placement Warrants was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended.
Use of Proceeds
In July 2020, we issued to the Sponsor an aggregate of 3,737,500 founder shares in exchange for a capital contribution of $25,000. On December 17, 2020, each share of our Class B common stock outstanding was converted into one and two-thirteenths (12/13) shares of Class B common stock, resulting in the Sponsor holding 4,312,500 founder shares. The foregoing issuance was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended (“Securities Act”).
On December 22, 2020, we consummated our initial public offering of 17,250,000 units, including the issuance of 2,250,000 units as a result of the underwriters’ exercise of their over-allotment option in full. The units were sold at an offering price of $10.00 per unit, generating total gross proceeds of $172,500,000. Cantor Fitzgerald & Co. acted as sole book-runner and Needham & Company as co-manager of the offering. The securities sold in the offering were registered under the Securities Act on registration statement on Form S-1 (No. 333-248698). The SEC declared the registration statement effective on December 17, 2020.
Simultaneously with the consummation of the initial public offering, we consummated the private placement of 4,850,000 Private Placement Warrants to the Sponsor at a purchase price of $1.00 per Private Placement Warrant, generating gross proceeds of $4,850,000. Such securities were issued pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act.
The Private Placement Warrants are the same as the warrants sold as part of the units sold in the initial public offering, except that the private placement warrants are not transferable, assignable or salable until 30 days after the completion of a business combination, subject to certain limited exceptions. Additionally, the private warrants are exercisable on a cashless basis and are non-redeemable so long as they are held by the initial purchasers or their permitted transferees.
Of the gross proceeds received from the initial public offering and private placement of private placement warrants, $172,500,000 was placed in a trust account.
We paid a total of $3,450,000 in underwriting fees and $525,567 for other costs and expenses related to the initial public offering. In addition, the underwriters agreed to defer $6,037,500 in underwriting fees.
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Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits.
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
Exhibit Index
| * | Filed herewith |
| ** | Furnished herewith |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| DUNE ACQUISITION CORPORATION | |||
| Date: May 16, 2022 | By: | /s/ Carter Glatt | |
| Name: | Carter Glatt | ||
| Title: | Chief Executive Officer | ||
| (Principal Executive Officer) | |||
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