(EDGAR Online via COMTEX) -- Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
References in this Quarterly Report on Form 10-Q (this "Quarterly Report") to "we," "us" or the "Company" refer to DD3 Acquisition Corp. II. References to our "management" or our "management team" refer to our officers and directors, and references to the "Sponsor" refer to DD3 Sponsor Group, LLC. The following discussion and analysis of the Company's financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this Quarterly Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Special Note Regarding Forward-Looking Statements
This Quarterly Report includes "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), that are not historical facts, and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Quarterly Report including, without limitation, statements in this "Management's Discussion and Analysis of Financial Condition and Results of Operations" regarding the Company's financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as "expect," "believe," "anticipate," "intend," "estimate," "seek" and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management's current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of the Company's final prospectus for its initial public offering ("Initial Public Offering") filed with the U.S. Securities and Exchange Commission (the "SEC"). The Company's securities filings can be accessed on the EDGAR section of the SEC's website at www.sec.gov . Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.
We are a blank check company formed under the laws of the State of Delaware on September 30, 2020, for the purpose of entering into a merger, capital stock exchange, asset acquisition, stock purchase, recapitalization, reorganization or other similar business combination with one or more businesses or entities ("Business Combination"). Our efforts to identify a prospective target business will not be limited to a particular industry or geographic region. We intend to effectuate our Business Combination using cash from the proceeds of the Initial Public Offering and the sale of the private units ("Private Units") that occurred simultaneously with the consummation of the Initial Public Offering (the "Private Placement"), our securities, debt or a combination of cash, securities and debt.
We expect to continue to incur significant costs in the pursuit of our acquisition plans. We cannot assure you that our plans to raise capital or to complete our initial Business Combination will be successful.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date. Our only activities through March 31, 2021 were organizational activities, those necessary to prepare for the Initial Public Offering, described below, and, after our Initial Public Offering, identifying a target company for a Business Combination. We do not expect to generate any operating revenues until after the completion of our Business Combination. We generate non-operating income in the form of interest income on marketable securities held in the trust account established for the benefit of our public stockholders (the "Trust Account"). We incur expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses in connection with searching for, and completing, a Business Combination.
For the three months ended March 31, 2021, we had a net loss of $160,980, which consisted of interest income on marketable securities held in the Trust Account of $54,719 offset by operating costs of $194,844, a change in fair value of warrant liability of $7,400 and an unrealized loss on marketable securities held in our Trust Account of $13,455.
For the period from September 30, 2020 (inception) through March 31, 2021, we had a net loss of $323,625, which consisted of operating costs of $282,337, a change in fair value of warrant liability of $81,400 and an unrealized loss on marketable securities held in our Trust Account of $19,454, offset by interest income on marketable securities held in the Trust Account of $59,566.
Liquidity and Capital Resources
Until the consummation of the Initial Public Offering, our only source of liquidity was an initial purchase of shares of Class B common stock, par value $0.0001 per share ("Founder Shares"), by the Sponsor and loans from the Sponsor.
On December 10, 2020, we consummated the Initial Public Offering of 12,500,000 units ("Units"), at $10.00 per Unit, which included the partial exercise by the underwriters of their over-allotment option in the amount of 1,500,000 Units, generating gross proceeds of $125,000,000. Simultaneously with the closing of the Initial Public Offering, we consummated the Private Placement of an aggregate of 370,000 Private Units to the Sponsor and the Forward Purchase Investors (as defined below) at a price of $10.00 per Private Unit, generating gross proceeds of $3,700,000.
Following the Initial Public Offering, including the partial exercise of the over-allotment option, and the Private Placement, a total of $125,000,000 was placed in the Trust Account. We incurred $2,966,508 in transaction costs, including $2,500,000 of underwriting fees and $466,508 of other offering costs.
For the period from September 30, 2020 (inception) through March 31, 2021, net cash used in operating activities was $317,766. Net loss of $323,625 was affected by interest earned on marketable securities held in the Trust Account of $59,566, offset by an unrealized loss on marketable securities held in the Trust Account of $19,454, a change in fair value of warrant liability of $81,400 and offering costs allocable to warrant liability of $396. Changes in operating assets and liabilities used $35,825 of cash for the period.
As of March 31, 2021, we had marketable securities held in the Trust Account of $125,040,112 (including approximately $40,000 of interest income, net of unrealized loss) consisting of securities held in a money market fund that invests in U.S. Treasury securities with a maturity of 185 days or less. Interest income on the balance in the Trust Account may be used by us to pay taxes. Through March 31, 2021, we did not withdraw any interest earned on the Trust Account to pay our taxes. We intend to use substantially all of the funds held in the Trust Account, including any amounts representing interest earned on the Trust Account (less income taxes payable), to complete our Business Combination and to pay our expenses relating thereto, including a fee payable to EarlyBirdCapital, Inc. ("EarlyBirdCapital") upon consummation of our Business Combination for assisting us in connection with our Business Combination, as described below. To the extent that our capital stock or debt is used, in whole or in part, as consideration to complete our Business Combination, the remaining proceeds held in the Trust Account will be used as working capital to finance the operations of the target business or businesses, make other acquisitions and pursue our growth strategies.
As of March 31, 2021, we had cash of $480,726 held outside the Trust Account. We intend to use the funds held outside the Trust Account primarily to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, and structure, negotiate and complete a Business Combination.
In order to fund working capital deficiencies or finance transaction costs in connection with a Business Combination, the Sponsor or our initial stockholders, officers, directors or their affiliates may, but are not obligated to, loan us funds as may be required. If we complete a Business Combination, we would repay such loaned amounts. In the event that a Business Combination does not close, we may use a portion of the working capital held outside the Trust Account to repay such loaned amounts but no proceeds from the Trust Account would be used for such repayment. Up to $1,500,000 of such loans may be convertible into units of the post-Business Combination entity that would be identical to the Private Units, at a price of $10.00 per unit, at the option of the lender.
We do not believe we will need to raise additional funds in order to meet the expenditures required for operating our business. However, if our estimate of the costs of identifying a target business, undertaking in-depth due diligence and negotiating a Business Combination are less than the actual amount necessary to do so, we may have insufficient funds available to operate our business prior to our Business Combination. Moreover, we may need to obtain additional financing either to complete our Business Combination or because we become obligated to redeem a significant number of our public shares upon consummation of our Business Combination, in which case we may issue additional securities or incur debt in connection with such Business Combination. Subject to compliance with applicable securities laws, we would only complete such financing simultaneously with the completion of our Business Combination. If we are unable to complete our Business Combination because we do not have sufficient funds available to us, we will be forced to cease operations and liquidate the Trust Account. In addition, following our Business Combination, if cash on hand is insufficient, we may need to obtain additional financing in order to meet our obligations.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of March 31, 2021.
We do not have any long-term debt obligations, capital lease obligations, operating lease obligations, purchase obligations or other long-term liabilities, other than an agreement to pay the Sponsor a monthly fee of $10,000 for office space, utilities and administrative support. We began incurring these fees on December 7, 2020 and will continue to incur these fees monthly until the earlier of the completion of the Business Combination and our liquidation.
We have engaged EarlyBirdCapital as an advisor in connection with our Business Combination to assist us in holding meetings with our stockholders to discuss the potential Business Combination and the target business' attributes, introduce us to potential investors that are interested in purchasing our securities in connection with our initial Business Combination, assist us in obtaining stockholder approval for the Business Combination and assist us with our press releases and public filings in connection with the Business Combination. We will pay EarlyBirdCapital a cash fee for such services upon the consummation of our initial Business Combination in an amount up to 3.5% of the gross proceeds of the Initial Public Offering, or $4,375,000 (exclusive of any applicable finders' fees which might become payable).
Certain funds affiliated with Baron Capital Group, Inc., which are members of the Sponsor, and MG Partners Multi-Strategy Fund LP (collectively, the "Forward Purchase Investors") have entered into contingent forward purchase agreements (the "Forward Purchase Agreements") with us that provide for the purchase of an aggregate of up to 5,000,000 shares of Class A common stock ("Forward Purchase Shares"), at a price of $10.00 per Forward Purchase Share, in a private placement to close immediately prior to the closing of our initial Business Combination. Each Forward Purchase Investor will have the right to be excused from its purchase obligation in connection with any specific Business Combination if, within five days following written notice delivered by us of our intention to enter into a specific Business Combination, the Forward Purchase Investor notifies us that it has decided not to proceed with the purchase for any reason. If a Forward Purchase Investor exercises such right, or otherwise fails to purchase the Forward Purchase Shares allocated to it, such Forward Purchase Investor will forfeit a pro rata portion of its interest in the Sponsor or its right to purchase Founder Shares from the Sponsor, as applicable. Any funds from the sale of the Forward Purchase Shares may be used as part of the consideration to the sellers in the initial Business Combination, for expenses in connection with the initial Business Combination or for the combined company's working capital needs. This obligation is independent of the percentage of stockholders electing to redeem their public shares and could provide us with a minimum funding level for the initial Business Combination. The Forward Purchase Agreements also provide a right of first refusal for the Forward Purchase Investors to participate in any sale of equity securities by us in connection with our initial Business Combination so long as such Forward Purchase Investor elects to purchase its Forward Purchase Shares.
Critical Accounting Policies
The preparation of 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 financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following critical accounting policies:
We account for the warrants underlying the Private Units sold in the Private Placement (the "Private Warrants") in accordance with the guidance contained in ASC 815 under which the Private Warrants do not meet the criteria for equity treatment and must be recorded as liabilities. Under ASC 815-40, the Private Warrants are not indexed to our common stock in the manner contemplated by ASC 815-40 because the holder of the instrument is not an input into the pricing of a fixed-for-fixed option on equity shares. Accordingly, we classify the Private Warrants as liabilities at their fair value and adjust the Private Warrants to fair value at each reporting period. These liabilities are subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in our statement of operations. The Private Warrants are valued using a binomial lattice model.
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 Accounting Standards Codification ("ASC") Topic
Net Income (Loss) Per Common Share
We apply the two-class method in calculating earnings per share. Net income
Recent Accounting Standards
Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on our condensed financial statements.
Subsequent to the period covered by this Quarterly Report, on May 28, 2021, we received a notice (the "Notice") from the Listing Qualifications Department of The Nasdaq Stock Market LLC ("Nasdaq") indicating that we were not in compliance with Nasdaq Listing Rule 5250(c)(1) (the "Rule") due to a delay in filing this Quarterly Report with the SEC. The Notice had no immediate effect on the listing or trading of our securities on the Nasdaq Capital Market. Upon the filing of this Quarterly Report, we expect to regain compliance with the Rule.
Jun 15, 2021
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