QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
(State or other jurisdiction of incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) |
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
one-half of one redeemable warrant |
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| Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-accelerated filer |
☒ | Smaller reporting company | ||||
| Emerging growth company | ||||||
DMY SQUARED TECHNOLOGY GROUP, INC.
TABLE OF CONTENTS
March 31, 2024 |
December 31, 2023 |
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(unaudited) |
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| Assets: |
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| Current assets: |
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| Cash |
$ | $ | ||||||
| Prepaid expenses |
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| Total current assets |
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| Investments held in Trust Account |
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| Total Assets |
$ |
$ |
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| Liabilities and Shareholders’ Deficit: |
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| Current liabilities: |
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| Accounts payable |
$ | $ | ||||||
| Accrued expenses |
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| Convertible note—related parties |
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| Advances from related parties |
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| Corporate tax payable |
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| Income tax payable |
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| Total current liabilities |
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| Overfunding loans |
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| Derivative warrant liabilities |
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| Deferred underwriting commissions |
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| Total Liabilities |
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| Commitments and Contingencies |
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| Class A common stock, $ |
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| Shareholders’ Deficit: |
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| Preferred stock, $ |
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| Class A common stock, $ non-redeemable shares issued or outstanding as of March 31, 2024 and December 31, 2023 |
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| Class B common stock, $ |
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| Additional paid-in capital |
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| Accumulated deficit |
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| Total shareholders’ deficit |
( |
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( |
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| Total Liabilities and Shareholders’ Deficit |
$ |
$ |
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For the three months ended March 31, |
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2024 |
2023 |
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| General and administrative expenses |
$ | $ | ||||||
| Corporate tax expenses |
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| Loss from operations |
( |
) | ( |
) | ||||
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| Other income: |
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| Interest income on operating account |
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| Investment income from investments held in Trust Account |
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| Change in fair value of derivative warrant liabilities |
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| Total other income |
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| Net income (loss) before provision for income taxes |
( |
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| Provision for income taxes |
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| Net income (loss) |
$ |
( |
) |
$ |
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| Weighted average shares outstanding of Class A common stock, basic and diluted |
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| Basic and diluted net income (loss) per share, Class A common stock |
$ | ( |
) | $ | ||||
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| Weighted average shares outstanding of Class B common stock, basic and diluted |
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| Basic and diluted net income (loss) per share, Class B common stock |
$ | ( |
) | $ | ||||
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For the three months ended March 31, 2024 |
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Class B Common Stock |
Additional Paid-In Capital |
Accumulated Deficit |
Total Shareholders’ Deficit |
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Shares |
Amount |
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| Balance—December 31, 2023 |
$ |
$ |
$ |
( |
) |
$ |
( |
) | ||||||||||||
| Increase in redemption value of Class A common stock subject to possible redemption due to extension |
— | — | — | ( |
) | ( |
) | |||||||||||||
| Remeasurement for Class A common stock subject to possible redemption |
— | — | — | |||||||||||||||||
| Net loss |
— | — | — | ( |
) | ( |
) | |||||||||||||
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| Balance—March 31, 2024 (unaudited) |
$ |
$ |
$ |
( |
) |
$ |
( |
) | ||||||||||||
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For the three months ended March 31, 2023 |
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Class B Common Stock |
Additional Paid-In Capital |
Accumulated Deficit |
Total Shareholders’ Deficit |
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Shares |
Amount |
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| Balance—December 31, 2023 |
$ |
$ |
$ |
( |
) |
$ |
( |
) | ||||||||||||
| Remeasurement for Class A common stock subject to possible redemption |
— | — | — | ( |
) | ( |
) | |||||||||||||
| Net income |
— | — | — | |||||||||||||||||
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| Balance—March 31, 2023 (unaudited) |
$ |
$ |
$ |
( |
) |
$ |
( |
) | ||||||||||||
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For the three months ended March 31, |
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2024 |
2023 |
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| Cash Flows from Operating Activities: |
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| Net (loss) income |
$ | ( |
) | $ | ||||
| Adjustments to reconcile net (loss) income to net cash used in operating activities: |
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| Investment income from investments held in Trust Account |
( |
) | ( |
) | ||||
| Change in fair value of derivative warrant liabilities |
( |
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| General and administrative expenses paid by related party under promissory note |
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| Changes in operating assets and liabilities: |
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| Prepaid expenses |
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| Accounts payable |
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| Accrued expenses |
( |
) | ||||||
| Corporate tax payable |
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| Income tax payable |
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| Net cash used in operating activities |
( |
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| Cash Flows from Investing Activities: |
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| Cash deposited in Trust Account for extension |
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| Withdrawal from Trust Account to pay for taxes |
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| Withdrawal from Trust Account to pay for redemption |
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| Net cash provided by investing activities |
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| Cash Flows from Financing Activities: |
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| Repayment of advances to related party |
( |
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| Proceeds received from related parties under convertible note |
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| Redemption of Class A common stock |
( |
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| Net cash used in financing activities |
( |
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| Net change in cash |
( |
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| Cash—Beginning of the period |
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| Cash—End of the period |
$ |
$ |
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| Supplemental disclosure of noncash activities: |
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| Accounts payable paid by related parties |
$ | $ | ||||||
| • | 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. |
| Class A common stock subject to possible redemption—December 31, 2022 |
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| Plus: |
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| Accretion of carrying value to redemption value |
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| Class A common stock subject to possible redemption—December 31, 2023 |
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| Plus: |
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| Increase in redemption value of Class A common stock subject to possible redemption subject to redemption due to extension |
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| Less: |
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| Redemption of Class A common stock subject to possible redemption |
( |
) | ||
| Remeasurement for Class A common stock subject to redemption |
( |
) | ||
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| Class A common stock subject to possible redemption—March 31, 2024 (unaudited) |
$ |
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For the three months ended March 31, |
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2024 |
2023 |
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Class A |
Class B |
Class A |
Class B |
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| Basic and diluted net income (loss) per common share: |
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| Numerator: |
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| Allocation of net income (loss) |
$ | ( |
) | $ | ( |
) | $ | $ | ||||||||
| Denominator: |
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| Basic and diluted weighted average common shares outstanding |
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| Basic and diluted net income (loss) per common share |
$ | ( |
) | $ | ( |
) | $ | $ | ||||||||
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| • | in whole and not in part; |
| • | at a price of $ |
| • | upon a minimum of the 30-day redemption period; and |
| • | if, and only if, the closing price of the Public Shares equals or exceeds $ a day period ending on the third trading day prior to the date on which the Company sends the notice of redemption to the warrant holders. |
| • | in whole and not in part; |
| • | at $ |
| • | if, and only if, the closing price of Public Shares equals or exceeds $ the period ending three trading days before the Company sends notice of redemption to the warrant holders. |
| Description |
Quoted Prices in Active Markets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Other Unobservable Inputs (Level 3) |
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| Assets: |
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| Investments held in Trust Account—U.S. Treasury Securities (1) |
$ | $ | $ | |||||||||
| Liabilities: |
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| Warrants |
$ | $ | $ | |||||||||
| Derivative warrant liabilities—Private Warrants |
$ | $ | $ | |||||||||
| Description |
Quoted Prices in Active Markets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Other Unobservable Inputs (Level 3) |
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| Assets: |
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| Investments held in Trust Account—U.S. Treasury Securities (1) |
$ | $ | $ | |||||||||
| Liabilities: |
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| |
$ | $ | $ | |||||||||
| Derivative warrant liabilities—Private Warrants |
$ | $ | $ | |||||||||
| (1) | Includes $ 31, 2024 and December 31, 2023, . |
As of March 31, 2024 |
As of December 31, 2023 |
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| Exercise price |
$ | $ | ||||||
| Stock price |
$ | $ | ||||||
| Volatility |
% | % | ||||||
| Risk-free rate |
% | % | ||||||
| Dividend yield |
% | % | ||||||
| Balance as of December 31, 2023—Level 3 |
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| Balance as of March 31, 2024— Level 3 |
$ |
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| Balance as of December 31, 2022—Level 3 |
$ |
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( |
) | ||
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| Balance as of March 31, 2023—Level 3 |
$ |
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
References to the “Company,” “our,” “us” or “we” refer to dMY Squared Technology Group, Inc. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited condensed financial statements and the notes thereto contained elsewhere in this quarterly report on Form 10-Q (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 Report includes forward-looking statements. 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. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023, filed with the U.S. Securities and Exchange Commission (the “SEC”) on April 1, 2024. The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.
Overview
Our company, dMY Squared Technology Group, Inc., is a blank check company incorporated in Massachusetts. We were 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. We are an emerging growth company and, as such, we are subject to all of the risks associated with emerging growth companies.
As of March 31, 2024, we had not commenced any operations. All activity for the period from February 15, 2022 (inception) through March 31, 2024 relates to our formation and the Initial Public Offering as described below, and since the closing of the Initial Public Offering, the search for a prospective initial Business Combination. We will not generate any operating revenues until after the completion of our initial Business Combination, at the earliest. We generate non-operating income from the proceeds derived from the Initial Public Offering.
Our sponsor is dMY Squared Sponsor, LLC, a Delaware limited liability company. The registration statement for our Initial Public Offering was declared effective on September 29, 2022. On October 4, 2022, we consummated its Initial Public Offering of 6,000,000 units, at $10.00 per unit, generating gross proceeds of $60.0 million, and incurring offering costs of approximately $3.7 million, of which $2.1 million and approximately $26,000 was for deferred underwriting commissions and offering costs allocated to derivate warrant liabilities, respectively. On October 7, 2022, the underwriter exercised its over-allotment option in part, and on October 11, 2022, the underwriter purchased 319,000 Over-Allotment Units, generating gross proceeds of approximately $3.2 million. The underwriter waived the remainder of its over-allotment option. We incurred additional offering costs of approximately $156,000 in connection with the underwriter’s partial exercise of its over-allotment option (of which approximately $112,000 was for deferred underwriting fees).
Simultaneously with the closing of the Initial Public Offering, we consummated the Private Placement of 2,840,000 Initial Private Placement Warrants, at a price of $1.00 per Initial Private Placement Warrant to our Sponsor, generating proceeds of approximately $2.8 million. On October 11, 2022, simultaneously with the issuance and sale of the Over-Allotment Units, we consummated the sale of 44,660 Additional Private Placement Warrants generating additional gross proceeds of approximately $45,000.
22
In addition, concurrently with the closing of the Initial Public Offering, our Sponsor extended an Initial Overfunding Loan to the Company in the amount of $900,000 at no interest, to be deposited in the Trust Account. On October 11, 2022, simultaneously with the sale of the Over-Allotment Units, our Sponsor extended an Additional Overfunding Loan to the Company in an aggregate amount of $47,850, to be deposited in the Trust Account.
Upon the closing of the Initial Public Offering, the Private Placement and the Overfunding Loans, approximately $64.1 million ($10.15 per unit) of the net proceeds of the sale of the units, Over-Allotment Units, and the Private Placement Warrants and the proceeds from the Overfunding Loans were placed in the Trust Account and were invested in United States 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 in any open-ended investment company that holds itself out as a money market fund meeting certain conditions of Rule 2a-7 of the Investment Company Act, as determined by the Company, until the earlier of: (i) the completion of a Business Combination, (ii) the redemption of Public Shares properly submitted in connection with a shareholder vote to amend our Charter to modify the substance or timing of our of our obligation to redeem 100% of our Public Shares if we do not complete our initial Business Combination within the Combination Period or with respect to any other material provisions relating to shareholders’ rights or pre-initial Business Combination activity, and (iii) our return of the funds held in the Trust Account to our Public Shareholders as part of our redemption of the Public Shares if we do not complete an initial Business Combination during the Combination Period. At the Special Meeting on January 2, 2024, the Company’s shareholders approved an amendment to the Investment Management Trust Agreement, permitting the trustee to, in a timely manner, upon the written instruction of the Company, (i) hold funds uninvested, (ii) hold funds in an interest-bearing bank demand deposit account, or (iii) invest and reinvest the Property in solely United States 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 the conditions of Rule 2a-7 promulgated under the Investment Company Act, which invest only in direct U.S. government treasury obligations. The trustee is not permitted to invest in other securities or assets. Investing in our securities is not intended for persons who are seeking a return on investments in government securities or investment securities. Instead, the Trust Account is intended as a holding place for funds pending the use of such funds upon completion of a Business Combination or distribution upon redemption of our Public Shares.
Our 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 we will be able to complete a Business Combination successfully. We must complete one or more initial Business Combinations having an aggregate fair market value of at least 80% of the net assets held in the Trust Account (net of amounts disbursed to management for working capital purposes and excluding the deferred underwriting commissions and taxes payable on the interest earned on the funds held in the Trust Account) at the time of the agreement to enter into the initial Business Combination. However, we will only complete a Business Combination if the post-transaction company owns or acquires 50% or more of the voting securities of the target or otherwise acquires a controlling interest in the target sufficient for it not to be required to register as an investment company under the Investment Company Act.
We provide our Public Shareholders 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 shareholders’ meeting called to approve the Business Combination or (ii) by means of a tender offer. The decision as to whether we will seek shareholder approval of a Business Combination or conduct a tender offer will be made by us, solely in our discretion. The Public Shareholders will be entitled to redeem their Public Shares for a pro rata portion of the amount then held in the Trust Account. The per-share amount to be distributed to Public Shareholders who redeem their Public Shares will not be reduced by the deferred underwriting commissions we will pay to the underwriter.
We initially had 15 months from the closing of the Initial Public Offering, or January 4, 2024, to consummate an initial Business Combination. On January 2, 2024, the Company held a Special Meeting. At the Special Meeting, the Company’s shareholders approved an amendment of the Company’s Charter to extend the date by which the Company has to consummate a Business Combination up to twenty-three (23) times for an additional one (1) month each time, with the first Extension Period being from January 4, 2024 to January 29, 2024, and each subsequent Extension Period being one calendar month each time, until up to December 29, 2025, only if the Sponsor or its designee would deposit into the Trust Account as a loan, (i) on or before January 4, 2024, with respect to the initial extension, an amount of $41,667, and
23
(ii) one business day following the public announcement by us disclosing that the board of directors has determined to implement an additional monthly extension, with respect to each such Additional Extension, an amount of $50,000. In connection with the shareholder approval of the Extension, an aggregate of 3,980,414 Public Shares were redeemed, and the Company paid approximately $40.4 million accordingly on January 4, 2024.
At the Special Meeting, the Company’s shareholders also approved proposals to (1) amend the Charter to provide for the right of a holder of Class B Shares to convert its Class B Shares into Class A Shares on a one-for-one basis at any time and from time to time at the election of the holder; (2) amend the Charter to eliminate from the Charter (i) the limitation that we may not redeem Public Shares in an amount that would cause our net tangible assets to be less than $5,000,001 and (ii) the limitation that we shall not consummate a Business Combination unless we have net tangible assets of at least $5,000,001; (3) amend the Charter to permit the board of directors, in its sole discretion, to elect to wind up our operations on an earlier date than the Extended Date or Additional Extended Date, as applicable, as determined by the board of directors and included in a public announcement; and (4) amend the Investment Management Trust Agreement to reflect the Extension and the Liquidation Amendment.
In connection with the approval of the Extension, our Sponsor, its affiliates, or its designees are required to deposit into the Trust Account, as a loan, (i) on or before January 4, 2024, with respect to the Initial Extension, an amount of $41,667, and (ii) one business day following the public announcement by us disclosing that the board of directors has determined to implement an additional monthly extension, with respect to each such Additional Extension, an amount of $50,000. In connection with the Contribution and advances our Sponsor may make in the future to us for working capital expenses, on January 2, 2024, we issued a convertible promissory note to Harry L. You, our Chairman and Chief Financial Officer and an affiliate of our Sponsor, with a principal amount up to $1.75 million. The Convertible Note bears no interest and is repayable on the earlier of: (i) the date on which we consummate an initial Business Combination and (ii) the liquidation date. If we do not consummate a Business Combination before the end of the Combination Period, the Convertible Note will be repaid only from funds held outside of the Trust Account or will be forfeited, eliminated or otherwise forgiven. Upon the consummation of our initial Business Combination, the outstanding principal of the Convertible Note may be converted into warrants, at a price of $1.00 per warrant, at the option of the Payee.
Since January 2, 2024, our board of directors has elected to extend our liquidation date five times to May 29, 2024. Accordingly, we have drawn down from the Convertible Note and deposited $241,667 into the Trust Account in connection with such extensions.
If we are unable to complete a Business Combination within the Combination Period, we will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter subject to lawfully available funds therefor, redeem one hundred percent (100%) of the Offering Shares in consideration of a per-share price, payable in cash, equal to the quotient obtained by dividing (A) the aggregate amount then on deposit in the Trust Account, including interest not previously released to the Company to pay its taxes (less up to $100,000 of interest to pay dissolution expenses), by (B) the total number of then outstanding Offering Shares, which redemption will completely extinguish rights of the Public Shareholders (including the right to receive further liquidating distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the remaining shareholders and the board of directors in accordance with applicable law, dissolve and liquidate, subject in each case to the Company’s obligations under the MBCA to provide for claims of creditors and other requirements of applicable law.
Liquidity and Capital Resources; Going Concern Consideration
As of March 31, 2024, we had approximately $626,000 in cash and working capital deficit of approximately $1.9 million (including tax obligations of approximately $1.0 million that may be paid using investment income earned in Trust Account). Further, the Company has incurred and expects to continue to incur significant costs in pursuit of its acquisition plans.
On March 3, 2022, the Sponsor agreed to loan the Company an aggregate amount of up to $200,000 to cover expenses related to the Initial Public Offering pursuant to a promissory note (the “Note”). Prior to the consummation of the Initial Public Offering, our liquidity needs were satisfied through the payment of $25,000 from our Sponsor to purchase Founder Shares and a loan under the Note in the amount of approximately $145,000. The Company fully repaid the Note balance on October 4, 2022. The Note was no longer available to the Company after closing of its initial public
24
offering. Subsequent to the closing of the Initial Public Offering, our liquidity needs have been satisfied through the net proceeds from the consummation of the Initial Public Offering and the Private Placement Warrants held outside of the Trust Account and advances from related parties (approximately $173,000 outstanding as of March 31, 2024). Subsequent to March 31, 2024, we borrowed an additional amount of approximately $5,000 from related parties, increasing the total outstanding amount of advances to approximately $178,000.
In addition, in order to provide the Contribution and to finance transaction costs in connection with a Business Combination, the Company issued the Convertible Note to an affiliate of the Sponsor with a principal amount up to $1.75 million on January 2, 2024 as discussed above. We borrowed $191,667 under the Convertible Note from January through March 2024, and an additional amount of $50,000 in April 2024, increasing the total amount outstanding under the Convertible Note to $241,667. All proceeds received under the Convertible Note were contributed into the Trust Account in connection with extensions to extend the Combination Period to May 29, 2024.
In connection with our management’s assessment of going concern considerations in accordance with FASB’s ASU 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” our management has determined that the liquidity condition, mandatory liquidation, should a Business Combination not occur, and potential subsequent dissolution raises substantial doubt about our ability to continue as a going concern through the earlier of the liquidation date or the completion of the initial Business Combination. There is no assurance that our plans to consummate the initial Business Combination will be successful or successful within the Combination Period. These unaudited condensed financial statements do not include any adjustments that might result from the outcome of this uncertainty.
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 financial statements. 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 financial statements.
On October 7, 2023, Hamas militants and members of other terrorist organizations infiltrated Israel’s southern border from the Gaza Strip and conducted a series of terror attacks on civilian and military targets. The intensity and duration of Israel’s current war against Hamas is difficult to predict, and as are such war’s economic implications on the Company’s business and operations and on Israel’s economy in general. 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 financial statements.
On August 16, 2022, the IR Act was signed into federal law. The IR Act provides for, among other things, a U.S. federal 1% excise tax on certain repurchases of stock by publicly traded U.S. domestic corporations and certain U.S. domestic subsidiaries of publicly traded foreign corporations occurring on or after January 1, 2023. The excise tax is imposed on the repurchasing corporation itself, not its shareholders from which shares are repurchased. The amount of the excise tax is generally 1% of the fair market value of the shares repurchased at the time of the repurchase. However, for purposes of calculating the excise tax, repurchasing corporations are permitted to net the fair market value of certain new stock issuances against the fair market value of stock repurchases during the same taxable year. In addition, certain exceptions apply to the excise tax. The Treasury has been given authority to provide regulations and other guidance to carry out and prevent the abuse or avoidance of the excise tax. Any share redemption or other share repurchase that occurs after December 31, 2023, in connection with a Business Combination, extension vote or otherwise, may be subject to the excise tax. Whether and to what extent the Company would be subject to the excise tax on a redemption of Public Shares or other stock of the Company in connection with a Business Combination, extension vote or otherwise will depend on a number of factors, including (i) whether the redemption is treated as a repurchase of stock for purposes of the excise tax, (ii) the fair market value of the redemption treated as a repurchase of stock in connection with the Business Combination, extension or otherwise, (ii) the structure of a Business Combination, (iii) the nature and amount of any private investment in public equity (PIPE) financing or other equity issuances in connection with a Business Combination (or otherwise issued not in connection with a Business Combination but issued within the same taxable year of a redemption treated as a repurchase of stock) and
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(iv) the content of regulations and other guidance from the Treasury. As noted above, because the excise tax would be payable by the Company and not by the redeeming holder. The imposition of the excise tax has not been determined. The foregoing could cause a reduction in the cash available on hand to complete a Business Combination or for effecting redemptions and may affect in the Company’s ability to complete a Business Combination.
On December 27, 2022, the Treasury and Internal Revenue Service (“IRS”) issued a Notice 2023-2, which provided interim guidance regarding the application of the corporate stock repurchase excise tax until the issuance of proposed regulations. The Notice excluded the distributions upon complete liquidation of a corporation from the base of the excise tax. The Notice also excludes from the scope of the excise tax any distribution made during the taxable year in which a corporation fully liquidates and dissolves, even if a distribution precedes the formal decision to liquidate. Although such Notice clarifies certain aspects of the excise tax, the interpretation and operation of other aspects of the excise tax remain unclear, and such interim operating rules are subject to change.
Results of Operations
Our entire activity from February 15, 2022 (inception) through March 31, 2024 is related to our formation and the preparation for our Initial Public Offering, and since the closing of our Initial Public Offering, the search for a prospective initial Business Combination. We will not generate any operating revenues until after the completion of our initial Business Combination. We generate non-operating income in the form of investment income from the Trust Account. We will continue 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. Additionally, we recognize non-cash gains and losses within other income (expense) related to changes in recurring fair value measurement of our derivative liabilities at each reporting period.
For the three months ended March 31, 2024, we had net loss of approximately $168,000, which consisted of approximately $377,000 of general and administrative expenses (of which $30,000 was for administrative expenses paid to our Sponsor) and approximately $137,000 of tax expenses, partially offset by approximately $346,000 of interest income from operating account and investments held in Trust Account.
For the three months ended March 31, 2023, we had net income of approximately $527,000, which consisted of approximately $604,000 of the change in fair value of the derivative warrant liabilities and approximately $684,000 of interest income from operating account and investments held in Trust Account, partially offset by approximately $530,000 of general and administrative expenses, approximately $80,000 of corporate tax expense, approximately $152,000 in income tax expense.
Contractual Obligations
Administrative Services Agreement
On October 4, 2022, we entered into an agreement pursuant to which we agreed to pay our Sponsor $10,000 per month for office space, administrative and support services. Upon completion of a Business Combination or our liquidation, we will cease paying these monthly fees. We recorded $30,000 and $30,000 in connection with such fees during the three months ended March 31, 2024 and March 31, 2023 in the accompanying unaudited condensed statements of operations. We recorded an outstanding balance of $100,000 and $70,000 in connection with such fees in accrued expenses in the accompanying unaudited condensed balance sheets.
Our Sponsor, executive 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 to our Sponsor, executive officers or directors, or our or their affiliates.
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Registration Rights
The holders of Founder Shares, Private Placement Warrants and warrants that may be issued upon conversion of working capital loans and the Contributions (and any shares of common stock issuable upon the exercise of the Private Placement Warrants or warrants issued upon conversion of the Working Capital Loans and the Contributions and upon conversion of the Founder Shares and the Overfunding Loans), will be entitled to registration rights pursuant to a registration and shareholder rights agreement signed upon the consummation of the Initial Public Offering. These holders will be entitled to certain demand and “piggyback” registration rights. We will bear the expenses incurred in connection with the filing of any such registration statements.
Underwriting Agreement
The underwriter was entitled to an underwriting discount of $0.14 per unit, or approximately $0.8 million in the aggregate, paid upon the closing of the Initial Public Offering. An additional fee of $0.35 per unit, or $2.1 million in the aggregate will be payable to the underwriter for deferred underwriting commissions. The deferred fee will become payable to the underwriter from the amounts held in the Trust Account solely in the event that we complete a Business Combination, subject to the terms of the underwriting agreement.
The underwriter was entitled to an additional fee of approximately $45,000, which was paid upon closing of the over-allotment option, and approximately $112,000 in deferred underwriting commissions in connection with the consummation of the underwriter’s partial exercise of its over-allotment option.
Overfunding Loans
Simultaneously with the closing of the Initial Public Offering, the Sponsor extended the Overfunding Loan to the Company in an aggregate amount of $900,000. On October 11, 2022, simultaneously with the sale of the Over-Allotment Units, the Sponsor extended the Additional Overfunding Loan to the Company in an amount of $47,850, for an aggregate outstanding principal amount of $947,850 to be deposited in the Trust Account. Upon the closing of the initial Business Combination, the Overfunding Loans will be repaid or converted into Class A Shares at a conversion price of $10.00 per share (or a combination of both), at the Sponsor’s discretion. If the Company does not complete an initial Business Combination, it will not repay the Overfunding Loans from amounts held in the Trust Account, and its proceeds will be distributed to the Public Shareholders; however, the Company may repay the Overfunding Loans if there are funds available outside the Trust Account to do so.
Convertible Promissory Note
In connection with the Contribution and advances our Sponsor may make in the future to our Company for working capital expenses, on January 2, 2024, we issued a Convertible Note to an affiliate of our Sponsor with a principal amount up to $1.75 million. The Convertible Note bears no interest and is repayable in full upon the earlier of (a) the date of the consummation of our initial Business Combination, or (b) the date of our liquidation. If we do not consummate an initial Business Combination by the end of the Combination Period, the Convertible Note will be repaid only from funds held outside of the Trust Account or will be forfeited, eliminated or otherwise forgiven. Upon the consummation of our initial Business Combination, the outstanding principal of the Convertible Note may be converted into warrants, at a price of $1.00 per warrant, at the option of the Sponsor. Such warrants will have terms identical to the Private Placement Warrants.
We borrowed $191,667 under the Convertible Note from January through March 2024, and an additional amount of $50,000 in April 2024, increasing the total amount outstanding under the Convertible Note to $241,667. All proceeds received under the Convertible Note were contributed into the Trust Account in connection with extensions to extend the Combination Period to May 29, 2024.
The option to convert the Convertible Note into warrants qualifies as an embedded derivative under ASC 815 and is required to be recognized at fair value with subsequent changes in fair value recognized in our statements of operations each reporting period until the Convertible Note is repaid or converted. As of the funding date and March 31, 2024, the fair value of the embedded conversion option had a de minimis value.
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Critical Accounting Estimates
The preparation of the unaudited condensed financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the unaudited condensed financial statements, and the reported amounts of income and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following critical accounting policies:
Warrant Liabilities
The warrants issued in connection with Public Warrants and the Private Placement Warrants were recognized as derivative liabilities in accordance with ASC 815. Accordingly, we recognized the warrant instruments as liabilities at fair value and will 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 will be recognized in the statements of operations. The fair value of the Public Warrants and Private Placement Warrants were initially measured at fair value using the Black-Scholes model and the Monte Carlo simulation model, respectively. Beginning in December 2022, the fair value of Public Warrants has been measured based on the listed market price of such Public Warrants. The estimated fair value of the Private Placement Warrants was subsequently determined using the Monte Carlo simulation method with Level 3 inputs. The determination of the fair value of the derivative warrant liabilities may be subject to change as more current information becomes available and accordingly the actual results could differ significantly.
Off-Balance Sheet Arrangements and Contractual Obligations
As of March 31, 2024, we did not have any off-balance sheet arrangements as defined in Item 303(b)(1) of Regulation S-K and did not have any commitments or contractual obligations.
JOBS Act
On April 5, 2012, the JOBS Act was signed into law. The JOBS Act contains provisions that, among other things, relax certain reporting requirements for qualifying public companies. We qualify as an “emerging growth company” under the JOBS Act and are allowed to comply with new or revised accounting pronouncements based on the effective date for private (not publicly traded) companies. We elected to delay the adoption of new or revised accounting standards, and as a result, we may not comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
As an “emerging growth company”, we are not 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 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.
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.
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Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
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 period 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.
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 March 31, 2024, 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 have concluded that during the period covered by this Report, our disclosure controls and procedures were effective.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the fiscal quarter ended March 31, 2024 covered by this Report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II—OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
Factors that could cause our actual results to differ materially from those in this Report are any of the risks described in our Annual Report on Form 10-K filed with the SEC on April 1, 2024. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. As of the date of this Report, there have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on April 1, 2024. We may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On March 16, 2022, we issued to our Sponsor an aggregate of 2,875,000 Founder Shares for a total purchase price of $25,000, or approximately $0.009 per share. On September 8, 2022, our Sponsor surrendered to us 718,750 Founder Shares for no consideration, resulting in our Sponsor owning 2,156,250 Founder Shares and increasing the approximate price paid per Founder Share to $0.012. On September 29, 2022, our Sponsor surrendered to us an additional 431,250 Founder Shares for no consideration, resulting in our Sponsor owning 1,725,000 Founder Shares and increasing the approximate price paid per Founder Share to $0.015. On October 7, 2022, the underwriter exercised its over-allotment option in part, and on October 11, 2022, the underwriter purchased 319,000 Over-Allotment Units, generating gross proceeds of approximately $3.2 million. The underwriter waived the remainder of its over-allotment option. Accordingly, the Sponsor forfeited 145,250 Founder Shares on October 11, 2022. No underwriting discounts or commissions were paid with respect to such sales of Founder Shares. This issuance was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act.
On October 4, 2022, we consummated our Initial Public Offering of 6,000,000 units at a price of $10.00 per unit, generating net proceeds to the Company of $59,135,000 (after giving effect to the reimbursement of certain of the Company’s expenses and the upfront portion of the underwriter’s discount, equal to $0.14 per unit). The securities sold in our Initial Public Offering were registered under the Securities Act on a registration statement on Form S-1 (File No. 333-267381). The SEC declared the registration statement effective on September 29, 2022.
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Simultaneously with the consummation of the Initial Public Offering, we completed an Initial Private Placement of an aggregate of 2,840,000 Initial Private Placement Warrants to our Sponsor at a purchase price of $1.00 per Initial Private Placement Warrant, generating gross proceeds of $8,840,000. On October 11, 2022, simultaneously with the sale of the underwriter’s Over-Allotment Units, the Company completed an Additional Private Placement with our Sponsor for 44,660 Additional Private Placement Warrants at a price of $1.00 per Additional Private Placement Warrant, generating proceeds to the Company of $44,660. In addition, concurrently with the closing of the Initial Public Offering, our Sponsor extended an Initial Overfunding Loan to the Company in the amount of $900,000 at no interest, to be deposited in the Trust Account. On October 11, 2022, simultaneously with the sale of the Over-Allotment Units, our Sponsor extended an Additional Overfunding Loan to the Company in an aggregate amount of $47,850, to be deposited in the Trust Account. No underwriting discounts or commissions were paid with respect to the Private Placement or Overfunding Loans. These issuances were made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act.
Upon the closing of the Initial Public Offering, the Private Placement and the Overfunding Loans, approximately $64.1 million ($10.15 per unit) of the net proceeds of the sale of the units, Over-Allotment Units, and the Private Placement Warrants and the proceeds from the Overfunding Loans were placed in the Trust Account.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
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Item 6. Exhibits
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
| * | Filed herewith. |
| ** | These certifications are furnished to the SEC pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall they be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference in such filing. |
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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.
| DMY SQUARED TECHNOLOGY GROUP, INC. | ||||||
| Date: May 15, 2024 | By: | /s/ Niccolo de Masi | ||||
| Name: | Niccolo de Masi | |||||
| Title: | Chief Executive Officer | |||||
| (Principal Executive Officer) | ||||||
| Date: May 15, 2024 | By: | /s/ Harry L. You | ||||
| Name: | Harry L. You | |||||
| Title: | Chief Financial Officer | |||||
| (Principal Financial Officer) | ||||||
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