UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒ QUARTERLY REPORT UNDERPURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JuneSeptember 30, 2022
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number 001-40910
FOUNDER SPACRubicon Technologies, Inc.
(Exact nameName of registrantRegistrant as specifiedSpecified in its charter)Its Charter)
| (State or incorporation or organization) | ( | |
| Incorporation or Organization) | Identification | |
| 100 West Main Street Suite #610 | ||
| Lexington, Kentucky | 40507 | |
| (Address of Principal Executive Offices, | (Zip Code) |
11752 Lake Potomac Drive
Potomac, MD, 20854
(Address of principal executive offices and zip code)
(240)(844) 418-2649479-1507
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
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. Yes ☒ No ☐
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 (Section(§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
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:Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-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 ☐ YesNo ☒ No ☐
As of June 30,November 18, 2022, there were shares of the registrant’s Class A ordinary shares,Common Stock, par value $0.0001 per share, and, shares of the registrant’s Class B ordinary shares,V Common Stock, par value $0.0001 per share, were issued and outstanding.
FOUNDER SPAC
FORM 10-Q
FOR THE QUARTER ENDED June 30, 2022
TABLE OF CONTENTSTable of Contents
i
PART I -I. FINANCIAL INFORMATION
Item 1. Financial Statements.Statements
FOUNDER SPACRUBICON TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETSHEETS (UNAUDITED)
(in thousands)
| June 30, 2022 | December 31, 2021 | |||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | $ | 8,999 | $ | 761,605 | ||||
| Prepaid insurance | 511,509 | 511,509 | ||||||
| Total current assets | 520,508 | 1,273,114 | ||||||
| Long-term prepaid insurance | 145,753 | 401,507 | ||||||
| Investment held in Trust Account | 321,264,378 | 321,015,932 | ||||||
| Total Assets | $ | 321,930,639 | $ | 322,690,553 | ||||
| | ||||||||
| LIABILITIES, CLASS A ORDINARY SHARES SUBJECT TO POSSIBLE REDEMPTION AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current Liabilities | ||||||||
| Accrued ordinary expenses | $ | 146,508 | $ | 96,000 | ||||
| Due to Sponsor | 102,667 | 102,667 | ||||||
| Total current liabilities | 249,175 | 198,667 | ||||||
| Deferred underwriting fee payable | 11,068,750 | 11,068,750 | ||||||
| Total Liabilities | 11,317,925 | 11,267,417 | ||||||
| Commitments and Contingencies (Note 6) | ||||||||
| Class A common stock; shares subject to possible redemption at $ per share | 320,993,750 | 320,993,750 | ||||||
| Stockholders’ Deficit | ||||||||
| Preferred Stock - $ par value; shares authorized; issued and outstanding | - | - | ||||||
| Class A Ordinary Shares - $ par value; shares authorized; issued and outstanding (excluding shares subject to possible redemption) | - | - | ||||||
| Class B Ordinary Shares - $ par value; shares authorized; shares issued and outstanding at June 30, 2022 and December 31, 2021 | 791 | 791 | ||||||
| Additional paid-in capital | - | - | ||||||
| Accumulated deficit | (10,381,827 | ) | (9,571,405 | ) | ||||
| Total Stockholders’ Deficit | (10,381,036 | ) | (9,570,614 | ) | ||||
| Total Liabilities, Class A Ordinary Shares subject to Possible Redemption and Stockholders’ Deficit | $ | 321,930,639 | 322,690,553 | |||||
| September 30, | December 31, | |||||||
| 2022 | 2021 | |||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash and cash equivalents | $ | 4,464 | $ | 10,617 | ||||
| Accounts receivable, net | 58,662 | 42,660 | ||||||
| Contract assets | 62,805 | 56,984 | ||||||
| Prepaid expenses | 11,755 | 6,227 | ||||||
| Other current assets | 1,835 | 1,769 | ||||||
| Total Current Assets | 139,521 | 118,257 | ||||||
| Property and equipment, net | 2,741 | 2,611 | ||||||
| Operating right-of-use assets | 3,119 | 3,920 | ||||||
| Other noncurrent assets | 2,661 | 4,558 | ||||||
| Goodwill | 32,132 | 32,132 | ||||||
| Intangible assets, net | 11,685 | 14,163 | ||||||
| Total Assets | $ | 191,859 | $ | 175,641 | ||||
| LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY / MEMBERS’ (DEFICIT) EQUITY | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable | $ | 58,498 | $ | 47,531 | ||||
| Line of credit | 30,095 | 29,916 | ||||||
| Accrued expenses | 162,428 | 65,538 | ||||||
| Deferred compensation expense | 1,250 | 8,321 | ||||||
| Contract liabilities | 4,461 | 4,603 | ||||||
| Operating lease liabilities, current | 1,832 | 1,675 | ||||||
| Warrant liabilities | 100 | 1,380 | ||||||
| Current portion of long-term debt, net of debt issuance costs | - | 22,666 | ||||||
| Total Current Liabilities | 258,664 | 181,630 | ||||||
| Long-Term Liabilities: | ||||||||
| Deferred income taxes | 219 | 178 | ||||||
| Operating lease liabilities, noncurrent | 2,340 | 3,770 | ||||||
| Long-term debt, net of debt issuance costs | 69,543 | 51,000 | ||||||
| Forward purchase option derivative | 8,205 | - | ||||||
| Earn-out liabilities | 7,000 | - | ||||||
| Other long-term liabilities | 517 | 367 | ||||||
| Total Long-Term Liabilities | 87,824 | 55,315 | ||||||
| Total Liabilities | 346,488 | 236,945 | ||||||
| Commitments and Contingencies (Note 16) | ||||||||
| Stockholders’ (Deficit) Equity/Members’ (Deficit) Equity: | ||||||||
| Common stock – Class A, par value of $ per share, shares authorized, shares issued and outstanding as of September 30, 2022 | 5 | - | ||||||
| Common stock – Class V, par value of $ per share, shares authorized, shares issued and outstanding as of September 30, 2022 | 12 | - | ||||||
| Preferred stock – par value of $ per share, shares authorized, issued and outstanding as of September 30, 2022 | - | - | ||||||
| Additional paid-in capital | 11,805 | - | ||||||
| Members’ deficit | - | (61,304 | ) | |||||
| Accumulated deficit | (327,216 | ) | - | |||||
| Total stockholders’ deficit attributable to Rubicon Technologies, Inc. | (315,394 | ) | - | |||||
| Noncontrolling interests | 160,765 | - | ||||||
| Total Stockholders’ Deficit /Members’ Deficit | (154,629 | ) | (61,304 | ) | ||||
| Total Liabilities and Stockholders’ (Deficit) Equity/ Members’ (Deficit) Equity | $ | 191,859 | $ | 175,641 | ||||
The accompanying notes are an integral part ofto the condensed consolidated financial statements.
FOUNDER SPAC
UNAUDITED CONDENSED STATEMENT OF OPERATIONS
Three Months Ended 2022 | Six Months Ended 2022 | For the (inception) through | ||||||||||
| Operating expenses: | ||||||||||||
| Formation costs and other operating expenses | $ | 427,311 | $ | 1,058,869 | $ | 8,529 | ||||||
| Loss from operations | (427,311 | ) | (1,058,869 | ) | (8,529 | ) | ||||||
| Other Income: | ||||||||||||
| Income earned on investments in Trust Account | 187,240 | 248,447 | - | |||||||||
| Net loss | $ | (240,071 | ) | $ | (810,422 | ) | $ | (8,529 | ) | |||
| Weighted average Class A ordinary shares outstanding, basic and diluted | 31,625,000 | 31,625,000 | - | |||||||||
| Basic and diluted net loss per share, Class A | $ | (0.01 | ) | $ | (0.02 | ) | $ | - | ||||
| Weighted average Class B ordinary shares outstanding, basic and diluted | 7,906,250 | 7,906,250 | 6,875,000 | |||||||||
| Basic and diluted net loss per share, Class B | $ | (0.01 | ) | $ | (0.02 | ) | $ | - | ||||
The accompanying notesstatements are an integral part of these financial statements.
1
RUBICON TECHNOLOGIES, INC AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
(in thousands, except per share data)
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Revenue: | ||||||||||||||||
| Service | $ | 162,789 | $ | 127,256 | $ | 437,755 | $ | 365,511 | ||||||||
| Recyclable commodity | 22,194 | 21,952 | 71,640 | 54,251 | ||||||||||||
| Total revenue | 184,983 | 149,208 | 509,395 | 419,762 | ||||||||||||
| Costs and Expenses: | ||||||||||||||||
| Cost of revenue (exclusive of amortization and depreciation): | ||||||||||||||||
| Service | 157,504 | 122,771 | 423,382 | 351,287 | ||||||||||||
| Recyclable commodity | 20,234 | 20,340 | 65,856 | 51,098 | ||||||||||||
| Total cost of revenue (exclusive of amortization and depreciation) | 177,738 | 143,111 | 489,238 | 402,385 | ||||||||||||
| Sales and marketing | 4,840 | 3,808 | 13,336 | 10,604 | ||||||||||||
| Product development | 9,803 | 4,827 | 28,336 | 13,350 | ||||||||||||
| General and administrative | 186,640 | 11,561 | 212,520 | 34,968 | ||||||||||||
| Amortization and depreciation | 1,439 | 1,344 | 4,331 | 4,958 | ||||||||||||
| Total Costs and Expenses | 380,460 | 164,651 | 747,761 | 466,265 | ||||||||||||
| Loss from Operations | (195,477 | ) | (15,443 | ) | (238,366 | ) | (46,503 | ) | ||||||||
| Other Income (Expense): | ||||||||||||||||
| Interest earned | 1 | - | 1 | 2 | ||||||||||||
| Gain on forgiveness of debt | - | - | - | 10,900 | ||||||||||||
| Gain (loss) on change in fair value of warrant liabilities | 74 | - | (436 | ) | - | |||||||||||
| Gain on change in fair value of earn-out liabilities | 67,100 | - | 67,100 | - | ||||||||||||
| Loss on change in fair value of forward purchase option derivative | (76,919 | ) | - | (76,919 | ) | - | ||||||||||
| Excess fair value over the consideration received for SAFE | - | - | (800 | ) | - | |||||||||||
| Other income (expense) | (1,307 | ) | (326 | ) | (1,994 | ) | (730 | ) | ||||||||
| Interest expense | (4,578 | ) | (2,611 | ) | (12,264 | ) | (7,461 | ) | ||||||||
| Total Other Income (Expense) | (15,629 | ) | (2,937 | ) | (25,312 | ) | 2,711 | |||||||||
| Loss Before Income Taxes | (211,106 | ) | (18,380 | ) | (263,678 | ) | (43,792 | ) | ||||||||
| Income tax expense (benefit) | 19 | (252 | ) | 60 | (961 | ) | ||||||||||
| Net Loss | (211,125 | ) | (18,128 | ) | (263,738 | ) | (42,831 | ) | ||||||||
| Net loss attributable to Holdings LLC unitholders prior to the Mergers | (176,384 | ) | (18,128 | ) | (228,997 | ) | (42,831 | ) | ||||||||
| Net loss attributable to noncontrolling interests | (16,933 | ) | - | (16,933 | ) | - | ||||||||||
| Net Loss Attributable to Class A Common Stockholders | $ | (17,808 | ) | $ | - | $ | (17,808 | ) | $ | - | ||||||
| Loss per share - for the period from August 15, 2022 through September 30, 2022: | ||||||||||||||||
| Net loss per Class A Common share – basic and diluted | $ | (0.37 | ) | |||||||||||||
| Weighted average shares outstanding, basic and diluted | 48,670,776 | |||||||||||||||
As a result of the Mergers, the capital structure has changed and loss per share information is only presented for the period after the Closing Date of the Mergers. See Notes 3 and 14.
The accompanying notes to the condensed consolidated financial statements are an integral part of these statements.
2
FOUNDER SPACRUBICON TECHNOLOGIES, INC AND SUBSIDIARIES
UNAUDITED CONDENSED STATEMENTCONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT(DEFICIT) EQUITY (UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022(in thousands, except shares, units, per share, and per unit data)
Class B Ordinary Shares | Additional Paid-In | Accumulated | Total Stockholders’ | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||
| Balance – December 31, 2021 | 7,906,250 | $ | 791 | $ | - | $ | (9,571,405 | ) | $ | (9,570,614 | ) | |||||||||
| Net loss – March 31, 2022 | - | - | - | (570,351 | ) | (570,351 | ) | |||||||||||||
| Balance – March 31, 2022 | 7,906,250 | $ | 791 | $ | - | $ | (10,141,756 | ) | $ | (10,140,965 | ) | |||||||||
| Net loss – June 30, 2022 | - | - | - | $ | (240,071 | ) | $ | (240,071 | ) | |||||||||||
| Balance – June 30, 2022 | 7,906,250 | $ | 791 | $ | - | $ | (10,381,827 | ) | $ | (10,381,036 | ) | |||||||||
| Members’ Units | Common Stock – Class A | Common Stock – Class V | Preferred Stock | Additional Paid-in | Accumulated | Noncontrolling | Total | |||||||||||||||||||||||||||||||||||||||||
| Units | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Interest | Deficit | |||||||||||||||||||||||||||||||||||||
| Balance, January 1, 2022 | 33,509,272 | $ | (61,304 | ) | - | $ | - | - | $ | - | - | $ | - | $ | - | $ | - | $ | - | $ | (61,304 | ) | ||||||||||||||||||||||||||
| Compensation costs related to incentive units | - | 184 | - | - | - | - | - | - | - | - | - | 184 | ||||||||||||||||||||||||||||||||||||
| Net loss | - | (52,613 | ) | - | - | - | - | - | - | - | - | - | (52,613 | ) | ||||||||||||||||||||||||||||||||||
| Balance, June 30, 2022 | 33,509,272 | (113,733 | ) | - | - | - | - | - | - | - | - | - | (113,733 | ) | ||||||||||||||||||||||||||||||||||
| Activities prior to the Mergers: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Compensation costs related to incentive units | - | 46 | - | - | - | - | - | - | - | - | - | 46 | ||||||||||||||||||||||||||||||||||||
| Net loss | - | (176,384 | ) | - | - | - | - | - | - | - | - | - | (176,384 | ) | ||||||||||||||||||||||||||||||||||
| Effects of the Mergers: | ||||||||||||||||||||||||||||||||||||||||||||||||
| Proceeds, net of redemptions | - | - | - | - | - | - | - | - | 196,775 | - | - | 196,775 | ||||||||||||||||||||||||||||||||||||
| Transaction costs related to the Mergers | - | (36,075 | ) | - | - | - | - | - | - | (31,249 | ) | - | - | (67,324 | ) | |||||||||||||||||||||||||||||||||
| Accelerated vesting and conversion of incentive units | 3,070,151 | 77,403 | - | - | - | - | - | - | - | - | - | 77,403 | ||||||||||||||||||||||||||||||||||||
| Exchange of liability classified warrants | 62,003 | 1,717 | - | - | - | - | - | - | - | - | - | 1,717 | ||||||||||||||||||||||||||||||||||||
| Reclassification of SAFE | - | - | - | - | - | - | - | - | 8,800 | - | - | 8,800 | ||||||||||||||||||||||||||||||||||||
| Phantom units rollover | - | - | - | - | - | - | 15,104 | - | - | 15,104 | ||||||||||||||||||||||||||||||||||||||
| Reverse recapitalization | (36,641,426 | ) | 247,026 | - | - | - | - | - | - | (189,430 | ) | (57,596 | ) | - | - | |||||||||||||||||||||||||||||||||
| Issuance of common stock upon the Mergers - Class A and Class V | - | - | 46,300,005 | 5 | 118,677,880 | 12 | - | - | - | (14 | ) | - | 3 | |||||||||||||||||||||||||||||||||||
| Establishment of earn-out liabilities | - | - | - | - | - | - | - | - | - | (74,100 | ) | - | (74,100 | ) | ||||||||||||||||||||||||||||||||||
| Establishment of noncontrolling liability | - | - | - | - | - | - | - | - | - | (177,698 | ) | 177,698 | - | |||||||||||||||||||||||||||||||||||
| Activities subsequent to the Mergers | ||||||||||||||||||||||||||||||||||||||||||||||||
| Equity-based compensation | - | - | - | - | - | - | - | - | 10,913 | - | - | 10,913 | ||||||||||||||||||||||||||||||||||||
| Issuance of common stock in connection with SEPA – Class A | - | - | 200,000 | 0 | - | - | - | - | 892 | - | - | 892 | ||||||||||||||||||||||||||||||||||||
| Exchange of Class V Common Stock to Class A Common Stock | - | - | 3,214,234 | 0 | (3,214,234 | ) | (0 | ) | - | - | - | - | - | - | ||||||||||||||||||||||||||||||||||
| Net loss | - | - | - | - | - | - | - | - | - | (17,808 | ) | (16,933 | ) | (34,741 | ) | |||||||||||||||||||||||||||||||||
| Balance, September 30, 2022 | - | $ | - | 49,714,239 | $ | 5 | 115,463,646 | $ | 12 | - | $ | - | $ | 11,805 | $ | (327,216 | ) | $ | 160,765 | $ | (154,629 | ) | ||||||||||||||||||||||||||
| Members’ Units | Common Stock – Class A | Common Stock – Class V | Preferred Stock | Additional Paid-in | Accumulated | Noncontrolling | Total | |||||||||||||||||||||||||||||||||||||||||
| Units | Amount | Shares | Amount | Shares | Amount | Shares | Amount | Capital | Deficit | Interest | Deficit | |||||||||||||||||||||||||||||||||||||
| Balance, January 1, 2021 | 32,426,264 | $ | (21,186 | ) | - | $ | - | - | $ | - | - | $ | - | $ | - | $ | - | $ | - | $ | (21,186 | ) | ||||||||||||||||||||||||||
| Compensation costs related to incentive units | - | 364 | - | - | - | - | - | - | - | - | - | 364 | ||||||||||||||||||||||||||||||||||||
| Warrants exercised | 1,016,540 | 30,496 | - | - | - | - | - | - | - | - | - | 30,496 | ||||||||||||||||||||||||||||||||||||
| Net loss | - | (24,703 | ) | - | - | - | - | - | - | - | - | - | (24,703 | ) | ||||||||||||||||||||||||||||||||||
| Balance, June 30, 2021 | 33,442,804 | (15,029 | ) | - | - | - | - | - | - | - | - | - | (15,029 | ) | ||||||||||||||||||||||||||||||||||
| Compensation costs related to incentive units | - | 122 | - | - | - | - | - | - | - | - | - | 122 | ||||||||||||||||||||||||||||||||||||
| Warrants exercised | 66,468 | 1,994 | - | - | - | - | - | - | - | - | - | 1,994 | ||||||||||||||||||||||||||||||||||||
| Net loss | - | (18,128 | ) | - | - | - | - | - | - | - | - | - | (18,128 | ) | ||||||||||||||||||||||||||||||||||
| Balance, September 30, 2021 | 33,509,272 | $ | (31,041 | ) | - | $ | - | - | $ | - | - | $ | - | $ | - | $ | - | $ | - | $ | (31,041 | ) | ||||||||||||||||||||||||||
FOR THE PERIOD FROM APRIL 26, 2021 (INCEPTION) THROUGH JUNE 30, 2021
Class B Ordinary Shares | Additional Paid-In | Accumulated | Total Stockholders’ | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||
| Balance – April 26, 2021 (inception) | - | $ | - | $ | - | $ | - | $ | - | |||||||||||
| Issuance of Class B ordinary shares to sponsor | 7,906,250 | 791 | 24,209 | - | 25,000 | |||||||||||||||
| Net loss | - | - | - | (8,529 | ) | (8,529 | ) | |||||||||||||
| Balance – June 30, 2021 | 7,906,250 | $ | 791 | $ | 24,209 | $ | (8,529 | ) | $ | 16,471 | ||||||||||
The accompanying notes to the condensed consolidated financial statements are an integral part of these financial statements.statements.
3
FOUNDER SPACRUBICON TECHNOLOGIES, INC AND SUBSIDIARIES
UNAUDITED CONDENSED STATEMENTCONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
Six Months Ended 2022 | For the Period from April 26, 2021 (inception) through June 30, 2021 | |||||||
| Cash Flow from Operating Activities: | ||||||||
| Net loss | $ | (810,422 | ) | $ | (8,529 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Income earned on investments in Trust Account | (248,446 | ) | - | |||||
| Changes in operating assets and liabilities | ||||||||
| Prepaid insurance | 255,754 | - | ||||||
| Accrued expenses | 50,508 | 8,529 | ||||||
| Net Cash used in Operating Activities | (752,606 | ) | - | |||||
| Net change in cash | (752,606 | ) | - | |||||
| Cash at the beginning of the period | 761,605 | - | ||||||
| Cash at the end of the period | $ | 8,999 | $ | - | ||||
| Non-Cash Investing and financing activities: | ||||||||
| Offering costs paid by Sponsor in exchange for issuance of Class B ordinary shares | - | 25,000 | ||||||
| Offering costs included in Due to Sponsor | - | 246,993 | ||||||
| Offering costs included in accrued offering costs | - | 45,000 | ||||||
| Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | (263,738 | ) | $ | (42,831 | ) | ||
| Adjustments to reconcile net loss to net cash flows from operating activities: | ||||||||
| Loss (Gain) on disposal of property and equipment | 23 | (30 | ) | |||||
| Amortization and depreciation | 4,026 | 4,958 | ||||||
| Amortization of debt issuance costs | 2,378 | 1,018 | ||||||
| Bad debt reserve | (2,366 | ) | 3,143 | |||||
| Loss on change in fair value of warrant liabilities | 436 | - | ||||||
| Loss on change in fair value of forward purchase option derivative | 76,919 | - | ||||||
| Gain on change in fair value of earn-out liabilities | (67,100 | ) | - | |||||
| Excess fair value over the consideration received for SAFE | 800 | - | ||||||
| SEPA commitment fee settled in Class A Common Stock | 892 | - | ||||||
| Equity-based compensation | 88,546 | 486 | ||||||
| Phantom unit expense | 6,783 | 2,907 | ||||||
| Deferred compensation expense | 1,250 | - | ||||||
| Gain on forgiveness of debt | - | (10,900 | ) | |||||
| Deferred income taxes | 41 | (1,006 | ) | |||||
| Change in operating assets and liabilities: | ||||||||
| Accounts receivable | (13,636 | ) | (5,774 | ) | ||||
| Contract assets | (5,821 | ) | (11,819 | ) | ||||
| Prepaid expenses | (5,528 | ) | (1,842 | ) | ||||
| Other current assets | (131 | ) | (328 | ) | ||||
| Operating right-of-use assets | 801 | 633 | ||||||
| Other noncurrent assets | 355 | (67 | ) | |||||
| Accounts payable | 10,967 | 11,773 | ||||||
| Accrued expenses | 52,450 | 5,816 | ||||||
| Contract liabilities | (142 | ) | (399 | ) | ||||
| Operating lease liabilities | (1,273 | ) | (996 | ) | ||||
| Other liabilities | 150 | 148 | ||||||
| Net cash flows from operating activities | (112,918 | ) | (45,110 | ) | ||||
| Cash flows from investing activities: | ||||||||
| Property and equipment purchases | (1,150 | ) | (1,294 | ) | ||||
| Forward purchase option derivative purchase | (68,715 | ) | - | |||||
| Intangible asset purchases | - | (50 | ) | |||||
| Net cash flows from investing activities | (69,865 | ) | (1,344 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Net borrowings(payments) on line of credit | 179 | (4,373 | ) | |||||
| Proceeds from long-term debt | - | 22,254 | ||||||
| Repayments of long-term debt | (4,500 | ) | (1,500 | ) | ||||
| Financing costs paid | (2,000 | ) | (800 | ) | ||||
| Warrants exercised | - | 32,490 | ||||||
| Proceeds from SAFE | 8,000 | - | ||||||
| Proceeds from the Mergers | 196,778 | - | ||||||
| Equity issuance costs | (21,827 | ) | - | |||||
| Net cash flows from financing activities | 176,630 | 48,071 | ||||||
| Net change in cash and cash equivalents | (6,153 | ) | 1,617 | |||||
| Cash, beginning of period | 10,617 | 6,021 | ||||||
| Cash, end of period | $ | 4,464 | $ | 7,638 | ||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid for interest | $ | 9,023 | $ | 6,119 | ||||
| Supplemental disclosures of non-cash investing and financing activities: | ||||||||
| Exchange of warrant liability for Class A and Class V Common Stock | $ | 1,716 | $ | - | ||||
| Conversion of SAFE for Class V Common Stock | $ | 8,000 | $ | - | ||||
| Establishment of earn-out liabilities | $ | 74,100 | $ | - | ||||
| Equity issuance costs accrued but not paid | $ | 44,235 | $ | - | ||||
The accompanying notes to the condensed consolidated financial statements are an integral part of these financial statements.
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FOUNDER SPACRUBICON TECHNOLOGIES, INC AND SUBSIDIARIES
NOTES TO UNUDITEDTHE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. Note 1—DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONSNature of operations and summary of significant accounting policies
Founder SPAC (the “Company”)Description of Business – Rubicon Technologies, Inc. is a blank check companydigital marketplace for waste and recycling services and provides cloud-based waste and recycling solutions to businesses and governments. Rubicon’s sustainable waste and recycling solutions provide comprehensive management of customers’ waste streams through a platform that powers a modern, digital experience and delivers data-driven insights and transparency for the customers and hauling and recycling partners.
Rubicon provides consultation and management services to customers for waste removal, waste management, logistics, and recycling solutions. Consultation and management services include planning, consolidation of billing and administration, cost savings analyses, and vendor performance monitoring and management. The combination of Rubicon’s technology and services provides a holistic audit of customer waste streams. Rubicon also provides logistics services and markets and resells recyclable commodities.
Rubicon Technologies, Inc. and all subsidiaries are hereafter referred to as “Rubicon” or the “Company.”
Mergers– Rubicon Technologies, Inc. was initially incorporated in the Cayman Islands on April 26, 2021. The Company2021 as a special purposes acquisition company under the name “Founder SPAC” (“Founder”). Founder was formed for the purpose of effectuating a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or other similar business combination with one or more businessesbusinesses. On August 15, 2022 (the “Business Combination”“Closing Date”). The Company is an early stage, Founder consummated the mergers described below (collectively the “Mergers”), pursuant to that certain Agreement and emerging growthPlan of Merger, dated December 15, 2021 (the “Merger Agreement”), by and among Founder, Ravenclaw Merger Sub LLC, a Delaware limited liability company and as such,a wholly owned direct subsidiary of Founder (“Merger Sub”), Ravenclaw Merger Sub Corporation 1, a Delaware corporation and wholly owned subsidiary of Founder (“Merger Sub Inc. 1”), Ravenclaw Merger Sub Corporation 2, a Delaware corporation and wholly owned subsidiary of Founder (“Merger Sub Inc. 2”), Ravenclaw Merger Sub Corporation 3, a Delaware corporation and wholly owned subsidiary of Founder (“Merger Sub Inc. 3” and, together with Merger Sub Inc. 1 and Merger Sub Inc. 2, each a “Blocker Merger Sub”), Boom Clover Business Limited, a British Virgin Islands corporation (“Blocker Company 1”), NZSF Frontier Investments Inc., a Delaware corporation (“Blocker Company 2”), PLC Blocker A LLC, a Delaware limited liability company (“Blocker Company 3” and, together with Blocker Company 1 and Blocker Company 2, each a “Blocker Company” and collectively, the Company is subject to all of“Blocker Companies”), and Rubicon Technologies, LLC, a Delaware limited liability company (“Holdings LLC”). On the risks associated with early stageClosing Date, and emerging growth companies.
As of June 30, 2022, the Company had not yet commenced any operations. All activity for the period April 26, 2021 (inception) through June 30, 2022, relates to the Company’s formation and the initial public offering (the “Initial Public Offering”). The Company will not generate any operating revenues until after the completion of its initial Business Combination, at the earliest. The Company will generate non-operating income in the form of interest income from the proceeds derived from the Initial Public Offering. The Company has selected December 31 as its fiscal year end.
The Company’s sponsor is Founder SPAC Sponsor, LLC (the “Sponsor”) and Jefferies LLC simultaneouslyconnection with the closing of the Initial Public Offering. The registration statement for the Company’s Initial Public Offering was declared effective by the Securities and Exchange CommissionMergers (the “SEC”“Closing”) on October 14, 2021. On October 19, 2021, the Company consummated the Initial Public Offering of units (the “Units” and, with respect, pursuant to the sharesMerger Agreement, (a) Founder was domesticated and continues as a Delaware corporation, changing its name to Rubicon Technologies, Inc., (b) Merger Sub merged with and into Holdings LLC (the “Merger”), with Holdings LLC surviving the Merger as a wholly owned subsidiary of Class A ordinary shares includedRubicon, and (c) in a series of sequential two-step mergers (i) each Blocker Merger Sub merged with and into its corresponding Blocker Company, with each Blocker Company surviving as a wholly owned subsidiary of Rubicon, following which (ii) each surviving Blocker Company merged with and into Rubicon, with Rubicon surviving the Units sold,merger (collectively the “Public Shares”“Blocker Mergers”), at $ per Unit, generating gross proceeds of $316,250,000. The total Units offered on IPO date consisted of Class A shares and exercise of over-allotment option by the underwriters of additional Class A ordinary shares (Note 3).
SimultaneouslyIn connection with the closingMergers, the Company was reorganized into an Up-C structure, in which substantially all of the Initial Public Offering,assets and business of the Company consummatedare held by Rubicon Technologies Holdings, LLC and continue to operate through Rubicon Technologies Holdings, LLC and its subsidiaries, and Rubicon Technologies, Inc.’s material assets are the saleequity interests of unitsRubicon Technologies Holdings, LLC indirectly held by it. Pursuant to the Merger Agreement, the Mergers were accounted for as a reverse recapitalization in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) (the “Private Placement Units”“Reverse Recapitalization”). Under this method of accounting, Founder was treated as the acquired company and Holdings LLC was treated as the acquirer for financial reporting purposes. Accordingly, for accounting purposes, the Reverse Recapitalization was treated as the equivalent of Holdings LLC issuing stock for the net assets of Founder, accompanied by a recapitalization. Thus, these condensed consolidated financial statements reflect (i) the historical operating results of Holdings LLC prior to the Mergers; (ii) the results of Rubicon Technologies, Inc. following the Mergers; and (iii) the acquired assets and liabilities of Founder stated at a price of $ per Private Placement Unit in a private placement to Sponsor and the underwriters of the Initial Public Offering, generating gross proceeds of $14,204,375, which is described in Note 4.historical cost, with no goodwill or other intangible assets recorded.
Transaction costs amounted to $18,158,033, consisting of $6,325,000 of underwriting fees, $11,068,750 of deferred underwriting fees and $764,283 of other offering costs. In addition, at October 19, 2021, cash of $2,603,980 was held outside ofSee Note 3 for further information regarding the Trust Account (as defined below) and is available for working capital purposes.
Following the closing of the Initial Public Offering on October 19, 2021, an amount of $320,993,750 ($ per Unit) from the net proceeds of the sale of the Units in the Initial Public Offering and the sale of the Private Placement Units was placed in a trust account (the “Trust Account”) located in the United States and will be invested only in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act of 1940, as amended (the “Investment Company Act”), with a maturity of 185 days or less or in any open-ended investment company that holds itself out as a money market fund selected by the Company meeting the conditions of paragraphs (d)(2), (d)(3) and (d)(4) 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 and (ii) the distribution of the Trust Account, as described below.
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 the Private Placement Warrants, although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination. NASDAQ rules provide that the Business Combination must be with one or more target businesses that together have a fair market value equal to at least 80% of the balance in the Trust Account (as defined below) (less any deferred underwriting commissions and taxes payable on interest earned on the Trust Account) at the time of the signing a definitive agreement to enter a Business Combination. The Company will only complete a Business Combination if the post-Business Combination company owns or acquires 50% or more of the outstanding 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 of 1940, as amended (the “Investment Company Act”). There is no assurance that the Company will be able to successfully effect a Business Combination.Mergers.
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Basis of Presentation and Consolidation – The Company will provide its holdersaccompanying unaudited condensed consolidated financial statements have been prepared pursuant to U.S. GAAP and reflect all adjustments which are, in the opinion of management, necessary to a fair presentation of the outstanding Public Shares (the “public shareholders”results of the interim periods presented, under the rules and regulations of the United States Securities and Exchange Commission (“SEC”). These condensed consolidated financial statements include all adjustments consisting of only normal recurring adjustments, necessary for a fair statement of the results of the interim periods presented. The Company’s condensed consolidated financial statements include the accounts of Rubicon Technologies, Inc., and subsidiaries. The Company’s condensed consolidated financial statements reflect the elimination of all significant inter-company accounts and transactions. The results of operations for the interim periods presented are not necessarily indicative of the results to be expected for any subsequent quarter or for the entire year ending December 31, 2022. Certain information and note disclosures normally included in the Company’s annual audited consolidated financial statements and accompanying notes prepared in accordance with U.S. GAAP have been condensed in, or omitted from, these interim financial statements. Accordingly, these unaudited condensed consolidated financial statements should be read in conjunction with the opportunityconsolidated financial statements and related notes to redeem all or a portion of their Public Shares upon the completion of a Business Combination either (i)consolidated financial statements for the fiscal year ended December 31, 2021 included in connectionthe Company’s Registration Statement on Form S-1 filed with a shareholder meeting called to approve the Business Combination or (ii) by means of a tender offer. In connection with a proposed Business Combination, the Company may seek shareholder approval of a Business Combination at a meeting called for such purpose at which shareholder may seek to redeem their shares, regardless of whether they vote for or against a Business Combination. The Company will proceed with a Business Combination only if the Company has net tangible assets of at least $5,000,001 either immediately prior to or upon such consummation of a Business Combination and, if the Company seeks shareholder approval, a majority of the outstanding shares voted are voted in favor of the Business Combination.SEC on August 22, 2022.
NotwithstandingSegments– The Company operates in one operating segment. Operating segments are defined as components of an enterprise about which separate financial information is evaluated regularly by the foregoing,chief operating decision maker (“CODM”) in deciding how to allocate resources and assessing performance. The Company’s CODM role is fulfilled by the Company’s amendedExecutive Leadership Team (“ELT”), who allocates resources and restated memorandum and articles of association (the “Articles”) provide that, a Public Shareholder, together with any affiliate of such shareholder or any other person with whom such shareholder 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 seeking redemption rights with respect to 15% or more of the Public Shares without the Company’s prior written consent.assesses performance based upon consolidated financial information.
Use of Estimates – The Public Shareholders will be entitledpreparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to redeem their shares for a pro rata portionmake certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of any contingent assets and liabilities at the date of the amount then incondensed consolidated financial statements and the Trust Account (initially $10.15 per share, plus any pro rata interest earned onreported amounts of revenues and expenses during the funds held in the Trust Account and not previously released to the Company to pay its tax obligations). The per-share amount to be distributed to shareholders who redeem their shares will not be reduced by the deferred underwriting commissions the Company will pay to the underwriters. There will be no redemption rights upon the completion of a Business Combination with respect to the Company’s warrants. These Public Shares are recorded at a redemption value and classified as temporary equity upon the completion of the Initial Public Offering, in accordance with Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilitiesreporting period. Actual results could differ from Equity.”those estimates.
If theEmerging Growth Company – The Company is not required to conduct redemptions pursuant to the proxy solicitation rulesan emerging growth company (“EGC”), as described above, the Company will, pursuant to its Articles, offer such redemption pursuant to the tender offer rules of the SEC, and file tender offer documents containing substantially the same information as would be included in a proxy statement with the SEC prior to completing a Business Combination.
The Company’s Sponsor, officers, directors and advisors have agreed (a) to vote their Founder Shares (as defined in Note 5) and any Public Shares purchased during or after the Initial Public Offering in favorSection 2(a) of a Business Combination, (b) not to redeem any shares (including the Founder Shares) into the right to receive cash from the Trust Account in connection with a shareholder vote to approve a Business Combination or a vote to amend the provisions of the Articles relating to shareholder’s rights of pre-Business Combination activity and (c) that the Founder Shares shall not participate in any liquidating distributions upon winding up if a Business Combination is not consummated. However, the Sponsor and the Company’s officers, directors and advisors will be entitled to liquidating distributions from the Trust Account with respect to any Public Shares purchased during or after the Initial Public Offering if the Company fails to complete its Business Combination.
If the Company is unable to complete a Business Combination within 15 months (or up to 18 months if we extend the period of time to consummate a business combination) from the closing of the Initial Public Offering (the “Combination Period”), the Company will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but no 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 us to pay taxes (less up to $100,000 of interest to pay dissolution expenses), divided by the number of then outstanding public shares, which redemption will completely extinguish public shareholder’s rights as shareholders (including the right to receive further liquidation 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 Company’s board of directors, proceed to commence a voluntary liquidation and thereby a formal dissolution of the Company, subject in each case to its obligations under Delaware law to provide for claims of creditors and the requirements of applicable law. The underwriter has agreed to waive its rights to the deferred underwriting commission 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 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 assets remaining available for distribution will be less than the Initial Public Offering price per Unit $10.15.
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The Sponsor has agreed that it will be liable to the Company if and to the extent any claims by a third party for services rendered or products sold to the Company, or a prospective target business with which the Company has entered into a written letter of intent, confidentiality or similar agreement or Business Combination agreement, reduce the amount of funds in the Trust Account to below the lesser of (i) $10.15 per Public Share and (ii) the actual amount per Public Share held in the Trust Account as of the day of liquidation of the Trust Account, if less than $10.15 per share due to reductions in the value of the trust assets, less taxes payable, provided that such liability will not apply to any claims by a third party or prospective target business who executed a waiver of any and all rights to monies held in the Trust Account (whether or not such waiver is enforceable) nor will it apply to any claims under the Company’s indemnity of the underwriter of Initial Public Offering against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the “Securities Act”). However, the Company has not asked the Sponsor to reserve for such indemnification obligations, nor has the Company independently verified whether the Sponsor has sufficient funds to satisfy its indemnity obligations and believe that the Sponsor’s only assets are securities of the Company. Therefore, the Company cannot assure its shareholders that the Sponsor would be able to satisfy those obligations. None of the Company’s officers or directors will indemnify the Company for claims by third parties including, without limitation, claims by vendors and prospective target businesses. The Company will seek to reduce the possibility that the Sponsor will have to indemnify the Trust Account due to claims of creditors by endeavoring to have all vendors, service providers, prospective target businesses or other entities with which the Company does business, execute agreements with the Company waiving any right, title, interest or claim of any kind in or to monies held in the Trust Account.
Liquidity and Management’s Plan
As of June 30, 2022, the Company had $8,999 in its operating bank account and working capital of $271,333.
The Company’s liquidity needs up to June 30, 2022 had been satisfied through a payment from the Sponsor of $25,000 (Note 5) for the Founder Shares to cover certain offering costs. In addition, in order to finance transaction costs in connection with a Business Combination, the Company’s Sponsor or an affiliate of the Sponsor or certain of the Company’s officers and directors may, but are not obligated to, provide the Company Working Capital Loans, as defined below (Note 5). As of June 30, 2022, there were no amounts outstanding under any Working Capital Loans.
Prior to the completion of the Initial Public Offering, the Company lacked the liquidity it needed to sustain operations for a reasonable period of time, which is considered to be one year from the issuance date of the financial statements. The Company has since competed its Initial Public Offering at which time capital in excess of the funds deposited in the Trust Account and/or used to fund offering expenses was released to the Company for general working capital purposes totaling $ 2,603,980. As of June 30, 2022, approximately $8,999 remains available to use for general working capital purposes. Management has since reevaluated the Company’s liquidity and financial condition and determined that it may not be sufficient to meet the Company’s obligation over the period of twelve months from the issuance date of the financial statements. The Company’s sponsor has agreed to provide support to enable the Company to continue its operations and meet its potential obligations over a period of one year from the issuance date of these financial statements. Management believes current working capital, and the support from its Sponsor, provides sufficient capital to sustain operations for a reasonable period of time, which is considered to be one year from the issuance date of the financial statements and therefore substantial doubt has been alleviated.
Based on the foregoing, management believes that the Company will have sufficient working capital and borrowing capacity to meet its needs through the earlier of the consummation of a Business Combination or one year from this filing. Over this time period, the Company will be using these funds for paying existing accounts payable, identifying and evaluating prospective initial Business Combination candidates, performing due diligence on prospective target businesses, paying for travel expenditures, selecting the target business to merge with or acquire, and structuring, negotiating and consummating the Business Combination.
Risks and Uncertainties
Management continues to evaluate the impact of the COVID-19 pandemic on the industry and has concluded that while it is reasonably possible that the virus could have a negative effect on the Company’s financial position, results of its operations and/or search for a target company, the specific impact is not readily determinable as of the date of the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
As of June 30, 2022, the Company has sufficient cash in hand and the ability to obtain a working capital loan, to meet its obligations as they become due within one year after the date that the financial statement is issued.
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NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying financial statements are presented in U.S. dollars in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for financial information and pursuant to the rules and regulations of the SEC.
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 independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, 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 shareholder approval of any golden parachute payments not previously approved.
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 Securities Exchange Act)Act of 1934, as amended (the “Exchange Act”)) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such an election to opt out is irrevocable. The Company has electeddid not to opt out of such extended transition period which means that when aan accounting standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, canEGC, will be required to adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison ofstandard becomes applicable to private companies. The effective dates shown in Note 2 below reflect the Company’s financial statements with another public company, which is neither an emerging growth company nor an emerging growth company which has opted out of usingelection to use the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Use of Estimates
The preparation of 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 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 thatRevenue Recognition – The Company recognizes service revenue over time, consistent with efforts performed and when the estimate ofcustomer simultaneously receives and consumes the effect of a condition, situation or set of circumstances that existedbenefits provided by the Company’s services. The Company recognizes recyclable commodity revenue at the datepoint in time when the ownership, risks, and rewards transfer. The Company derives its revenue from waste removal, waste management and consultation services, software subscriptions, and the purchase and sale of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from those estimates.recyclable commodities.
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Service Revenue:
CashService revenues are primarily derived from long-term contracts with waste generator customers including multiple promises delivered through the Company’s digital marketplace platform. The promises include waste removal, consultation services, billing administration and Cash Equivalentsconsolidation, cost savings analyses, and vendor procurement and performance management, each of which constitutes an input to the combined service managed through the digital platform. The digital platform and services are highly interdependent, and accordingly, each contractual promise is not considered a distinct performance obligation in the context of the contract and is combined into a single performance obligation. In general, fees are invoiced, and revenue is recognized over time as control is transferred. Revenue is measured as the amount of consideration the Company expects to receive in exchange for providing the service. The Company invoices for certain services prior to performance. These advance invoices are included in contract liabilities and recognized as revenue in the period service is provided.
Service revenues also include software-as-a-service subscription, maintenance, equipment and other professional services, which represent separate performance obligations. Once the performance obligations and the transaction price are determined, including an estimate of any variable consideration, the Company then allocates the transaction price to each performance obligation in the contract using a relative standalone selling price method. The Company determines standalone selling price based on the price at which the good or service is sold separately.
Recyclable Commodity Revenue:
The Company recognizes recyclable commodity revenue through the purchase and sale of old corrugated cardboard (“OCC”), old newsprint (“ONP”), aluminum, glass, pallets, and other recyclable materials at market prices. The Company purchases recyclable commodities from certain waste generator customers and sells the recyclable materials to recycling and processing facilities. Revenue recognized under these agreements is variable in nature based on the market, type and volume or weight of the materials sold. The amount of revenue recognized is based on commodity prices at the time of sale, which are unknown at contract inception. Fees are billed, and revenue is recognized at a point in time when control is transferred to the recycling and processing facilities.
Management reviews contracts and agreements the Company has with its waste generator customers and hauling and recycling partners, and performs an evaluation to consider the most appropriate manner in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 606-10, Revenue Recognition: Principal Agent Considerations, by which revenue is presented within the condensed consolidated statements of operations.
Judgment is required in evaluating the presentation of revenue on a gross versus net basis based on whether the Company controls the service provided to the end-user and are the principal in the transaction (gross), or the Company arranges for other parties to provide the service to the end-user and are the agent in the transaction (net). Management has concluded that the Company is the principal in most arrangements as it controls the waste removal service and is the primary obligor in the transactions.
Cost of Revenue, exclusive of amortization and depreciation – Cost of service revenues primarily consists of expenses related to delivering the Company’s service and providing support, including third-party hauler costs, costs of data center capacity, certain fees paid to various third parties for the use of their technology, services and data, and employee-related costs such as salaries and benefits.
Cost of recyclable commodity revenues primarily consists of expenses related to purchase of OCC, ONP, aluminum, glass, pallets and other recyclable materials, and any associated transportation fees.
The Company recognizes the cost of revenue exclusive of any amortization or depreciation expenses, which are recognized in operating expense on the condensed consolidated statements of operations.
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Cash and Cash Equivalents – The Company considers all short-termhighly liquid investments purchased with an original maturity of three months or less when purchased to be cash equivalents. The Company had $8,999maintains its cash in bank deposit accounts, which at times exceed the Federal Deposit Insurance Corporation insurance limits. The Company has not experienced losses in such accounts and $761,605 of cash and 0 cash equivalents as of June 30, 2022, and December 31, 2021, respectively.does not believe it is exposed to any significant credit risk.
Cash HeldAccounts Receivable – Accounts receivable consists of trade accounts receivable for services provided to customers. Accounts receivable are stated at the amount the Company expects to collect. The Company maintains an allowance for doubtful accounts for estimated losses resulting from the inability of its customers to make required payments. Management considers the following factors when determining the collectability of specific customer accounts: customer credit-worthiness, past transaction history with the customer, current economic industry trends, and changes in Trust Accountcustomer payment terms. Past-due balances and other higher-risk amounts are reviewed individually for collectability. If the financial condition of the Company’s customers were to deteriorate, adversely affecting their ability to make payments, additional allowances would be required.
On JuneContract Balances – In cases where our customers pay for services in arrears, the Company accrues for revenue in advance of billings as long as the criteria for revenue recognition are met, thus creating a contract asset (unbilled receivable). As of September 30, 2022 and December 31, 2021, the Company hashad unbilled receivables of $321,264,37862.8 million and $321,015,93257.0 million, respectively. These unbilled balances were the result of services provided in cash heldperiod, but not yet billed to the customer. During the nine months ended September 30, 2022, the Company invoiced its customers $50.0 million pertaining to contract assets for services delivered prior to December 31, 2021.
Contract liabilities (deferred revenue) consists of amounts collected prior to having satisfied the performance obligation. The Company periodically invoices customers for recurring front load services in advance on a monthly basis. As of September 30, 2022 and December 31, 2021, the Company had deferred revenue balances of $4.5 million and $4.6 million, respectively. During the nine months ended September 30, 2022, the Company recognized $4.1 million of revenue that was included in the trust account, respectively.contract liabilities balance as of December 31, 2021.
Accrued Hauler Expenses – The Company recognizes hauler costs and the cost of recyclable products when services are performed. Accounting for accrued hauler costs and the cost of recyclable products requires estimates and assumptions regarding the quantity of waste collected by their vendors. The Company estimates quantities using historical transaction and market data based on the waste stream composition, equipment type, and equipment size. Accrued hauler expenses are presented within accrued expenses on the condensed consolidated balance sheets.
Fair Value Measurements – U.S. GAAP establishes a fair value hierarchy which has three levels based on the reliability of the inputs to determine the fair value. These levels include: Level 1, defined as inputs such as unadjusted quoted prices in active markets for identical assets or liabilities; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs for use when little or no market data exists, therefore requiring an entity to develop its own assumptions. See Note 15.
Offering Costs – Offering costs, consisting of legal, accounting, printer and filing fees related to the Mergers, were deferred and offset against proceeds from the Mergers and additional paid-in capital upon consummation of the Mergers. Deferred offering costs capitalized as of September 30, 2022 and December 31, 2021 were $-0- and $1.1 million, respectively, and included in other noncurrent assets on the condensed consolidated balance sheets. The total amount of the offering costs recognized as offset against additional paid-in capital on the accompanying condensed consolidated balance sheet as of September 30, 2022 was $67.3 million, $23.1 million of which has been paid while remaining $44.2 million is included in accrued expenses as of September 30, 2022.
Customer Acquisition Costs – The Company makes certain expenditures related to acquiring contracts for future services. These expenditures are capitalized and amortized in proportion to the expected future revenue from the customer, which in most cases results in straight-line amortization over the life of the customer. Amortization of these customer incentive costs is presented within amortization and depreciation on the condensed consolidated statements of operations.
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Net (Loss)/income Per Ordinary Share
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 ordinary shares and Class B ordinary shares. Income and losses are shared pro rata between the two classes of shares. Net (loss)/income per ordinary share is calculated by dividing the net (loss)/income by the weighted average of ordinary shares outstanding for the respective period. The Company did not consider the effect of the warrants issued in connection with the Initial Public Offering and the Private Placement in the calculation of diluted (loss)/income per share because their exercise is contingent upon future events and since their inclusion would be antidilutive under the treasury stock method.
The following table presents a reconciliation of the numerator and denominator used to compute basic and diluted net (loss)/income per share for each class of ordinary shares:
| Schedule of Earnings Per Share | ||||||||||||
| For the three months ended June 30, 2022 | For the six months ended June 30, 2022 | For the Period from April 26, 2021 (inception) through June 30, 2021 | ||||||||||
| Class B share outstanding | 7,906,250 | 7,906,250 | 7,906,250 | |||||||||
| Class A shares Issued upon IPO | 31,625,000 | 31,625,000 | - | |||||||||
| Net loss available to shareholders | $ | 240,071 | $ | 810,422 | $ | 8,529 | ||||||
Two Class Method
| For the three months ended June 30, 2022 | For the six months ended June 30, 2022 | For the Period from April 26, 2021 (inception) through June 30, 2021 | ||||||||||||||||||
| Class A | Class B | Class A | Class B | Class B | ||||||||||||||||
| Basic and Diluted net loss per share of common stock: | ||||||||||||||||||||
| Numerator: | ||||||||||||||||||||
| Allocation of Net loss | $ | 192,057 | $ | 48,014 | $ | 648,338 | $ | 162,084 | $ | 8,529 | ||||||||||
| Denominator: | ||||||||||||||||||||
| Weighted Average Shares outstanding | 31,625,000 | 7,906,250 | 31,625,000 | 7,906,250 | 7,906,250 | |||||||||||||||
| Basic and diluted net loss per common stock | $ | (0.01 | ) | $ | (0.01 | ) | $ | (0.02 | ) | $ | (0.02 | ) | $ | (0.00 | ) | |||||
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Income Taxes
The Company complies with the accounting and reporting requirements of ASC Topic 740, “Income Taxes,” which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
ASC Topic 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and 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, if any, as income tax expense. There were 0Warrants unrecognized tax benefits and 0 amounts accrued for interest and penalties as of June 30, 2022. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position.
There is currently no taxation imposed on income by the Government of the Cayman Islands. In accordance with Cayman income tax regulations, income taxes are not levied on the Company. Consequently, income taxes are not reflected in the Company’s financial statements. The Company’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.
Warrants
– The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”)ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own ordinary shares,Class A common stock, par value $per share (“Class A Common Stock”), among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.
For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded in liabilities at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the liability-classified warrants are recognized in other income (expense) on the consolidated statement of operations.
As of September 30, 2022, the Company has both liability-classified and equity-classified warrants outstanding. See Note 9 for further information.
Earn-out Liabilities – Pursuant to the Merger Agreement, (i) Blocked Unitholders (as defined in Note 3) immediately before the Closing received a right to receive a pro rata portion of shares of Class A Common Stock (the “Earn-Out Class A Shares”) and (ii) Rubicon Continuing Unitholders (as defined in Note 3) immediately before the Closing received a right to receive a pro rata portion of Class B Units (as defined in Note 3) (“Earn-Out Units”) and an equivalent number of shares of the Company’s Class V common stock, par value $ (“Class V Common Stock”) (“Earn-Out Class V Shares”, and together with Earn-Out Class A Shares and Earn-Out Units, “Earn-Out Interests”), in each case, depending upon the performance of Class A Common Stock during the five (5) year period after the Closing (the “Earn-Out Period”), as set forth below upon satisfaction of any of the following conditions (each, an “Earn-Out Condition”).
| (1) | 50% of the Earn-Out Interests if the volume weighted average price (the “VWAP”) of the Class A Common Stock equals or exceeds $14.00 per share (as adjusted for stock splits, stock dividends, reorganizations, and recapitalizations) for twenty (20) of thirty (30) consecutive trading days during the Earn-Out Period; and |
| (2) | 50% of the Earn-Out Interests if the VWAP of the Class A Common Stock equals or exceeds $16.00 per share (as adjusted for stock splits, stock dividends, reorganizations, and recapitalizations) for twenty (20) of any thirty (30) consecutive trading days during the Earn-Out Period. |
Earn-Out Interests are classified as liability transactions at initial issuance which offset against additional paid-in capital as of the Closing. At each period end, Earn-Out Interests are remeasured to their fair value with the changes during that period recognized in other income (expense) on the consolidated statement of operations. Upon issuance and release of the shares after each Earn-Out Condition is met, the related Earn-Out Interests will be remeasured to their fair value at that time with the changes recognized in other income (expense), and such Earn-Out Interests will be reclassed to stockholders’ equity (deficit) on the consolidated balance sheet. As of the Closing Date, the Earn-Out Interests had a fair value of $74.1 million. As of September 30, 2022, the Earn-out Interests had a fair value of $7.0 million, with the changes in the fair value between the Closing Date and September 30, 2022 of $67.1 million recognized as a non-cash gain or loss on thein fair value of earn-out liabilities under other income (expense) within accompanying condensed consolidated statements of operations.
The equity-linked warrants, both Public and Private warrants, and rights are considered freestanding and outsideNoncontrolling Interest – Noncontrolling interest represents the scope of ASC 480 as theyCompany’s noncontrolling interest in consolidated subsidiaries which are not mandatorily redeemable, are exchanged on a fixed 1:1 ratio and do not obligateattributable, directly or indirectly, to the Company to repurchase equity shares. The Company concluded that the warrants are equity classified under ASC 815 as the warrants and rights are indexed in the Company’scontrolling Class A common stock.Common Stock ownership of the Company.
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Upon completion of the Mergers, Rubicon Technologies, Inc. issued an aggregate shares of Class V Common Stock, each of which is exchangeable into an equal number of Class A Common Stock. Shares of Class V Common Stock are non-economic voting shares in Rubicon Technologies, Inc. where shares of Class V Common Stock each have one vote per share.
Derivative Financial InstrumentsThe financial results of Holdings LLC were consolidated into Rubicon Technologies, Inc. and 70.5% of Holdings LLC’s net loss during the period of August 15, 2022, the Closing Date, through September 30, 2022 was allocated to noncontrolling interests (“NCI”).
Income Taxes – Rubicon Technologies, Inc. is a corporation and is subject to U.S. federal as well as state income tax including the income or loss allocated from its investment in Rubicon Technologies Holdings, LLC. Rubicon Technologies Holdings, LLC is taxed as a partnership for which the taxable income or loss is allocated to its members. Certain of the Rubicon Technologies Holdings, LLC operating subsidiaries are considered taxable Corporations for U.S. income tax purposes. Prior to the Mergers, Holdings LLC was not subject to U.S. Federal and certain state income taxes at the entity level.
The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivativesaccounts for income taxes in accordance with ASC Topic 815, Derivatives740, Accounting for Income Taxes (“ASC Topic 740”), which requires the recognition of tax benefits or expenses on temporary differences between the financial reporting and Hedging. For derivative financial instruments thattax bases of its assets and liabilities by applying the enacted tax rates in effect for the year in which the differences are accounted for as liabilities, the derivative instrument is initially recorded at its fair valueexpected to reverse. Such net tax effects on temporary differences are reflected on the grant dateCompany’s consolidated balance sheets as deferred tax assets and liabilities. Deferred tax assets are reduced by a valuation allowance when the Company believes that it is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilitiesmore-likely-than-not that some portion or as equity, is evaluated at the end of each reporting period. Derivative liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement or conversionall of the instrument coulddeferred tax assets will not be required within 12 monthsrealized. The Company calculates the interim tax provision in accordance with the provisions of ASC Subtopic 740-270, Income Taxes; Interim Reporting. For interim periods, the balance sheet date.Company estimates the annual effective income tax rate (“AETR”) and applies the estimated rate to the year-to-date income or loss before income taxes.
ConcentrationASC Topic 740 prescribes a two-step approach for the recognition and measurement of Credit Risktax benefits associated with the positions taken or expected to be taken in a tax return that affect amounts reported in the financial statements. The Company has reviewed and will continue to review the conclusions reached regarding uncertain tax positions, which may be subject to review and adjustment at a later date based on ongoing analyses of tax laws, regulations and interpretations thereof. To the extent that the Company’s assessment of the conclusions reached regarding uncertain tax positions changes as a result of the evaluation of new information, such change in estimate will be recorded in the period in which such determination is made. The Company reports income tax-related interest and penalties relating to uncertain tax positions, if applicable, as a component of income tax expense.
Financial instrumentsThe Company’s income tax expense (benefit) was $-0- million and $(0.3) million for the three months ended September 30, 2022 and 2021, respectively, with an effective tax rate of (0.0)% and 1.4%, respectively. The Company’s income tax expense (benefit) was $0.1 million and $(1.0) million for the nine months ended September 30, 2022 and 2021, respectively, with an effective tax rate of (0.0)% and 2.2%, respectively. The provision for income taxes differs from the amount that potentially subjectwould result from applying statutory rates because of differences in the deductibility of certain book and tax expenses. Significant book to tax temporary differences that result in taxable income to the Company to concentration of credit risk consist offor the nine months ended September 30, 2022 include accounts receivable allowances not deductible for tax purposes and variations between both amortization and depreciation methods.
During the nine months ended September 30, 2022, the Company recorded a cash account in a financial institution, which at times may exceed the Federal Depository Insurance Corporation coverage limit of $250,000.full valuation allowance against its deferred tax assets. The Company intends to maintain this position until there is sufficient evidence to support the reversal of all or some portion of the allowance. The Company also has certain assets with indefinite lives for which the basis is different for book and tax. In accordance with ASC 740-10-30-18, the deferred tax liability related to these intangible assets cannot be used to offset deferred tax assets when determining the amount of the valuation allowance for deferred tax assets which are not experienced losses on this account and management believesmore-likely-than-not to be realized. As a result, the Company is not exposed to significant risks on such account.in a net deferred tax liability position of $0.2 million as of September 30, 2022.
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Tax Receivable Agreement Obligation – The Company and Holdings LLC entered into a Tax Receivable Agreement (the “Tax Receivable Agreement” or “TRA”) with Rubicon Continuing Unitholders (as defined in Note 3) and Blocked Unitholders (as defined in Note 3) (together, the “TRA Holders”). Pursuant to the Tax Receivable Agreement, among other things, the Company is required to pay to the TRA Holders 85% of certain of the Company’s realized (or in certain cases deemed realized) tax savings as a result of certain tax benefits related to the transactions contemplated by the Merger Agreement and future exchanges of Class B Units for Class A Ordinary Shares Subject to Possible Redemption
AllCommon Stock or cash. The actual tax benefit, as well as the amount and timing of any payments under the TRA, will vary depending on a number of factors, including the price of the shares ofCompany’s Class A ordinary shares sold as partCommon Stock at the time of the Units inexchange; the Initial Public Offering contain a redemption featuretiming of future exchanges; the extent to which allows forexchanges are taxable; the redemptionamount and timing of such sharesthe utilization of Class A ordinary shares in connection withtax attributes; the amount, timing and character of the Company’s liquidation, if there is a shareholder vote or tender offer in connection with our business combinationincome; the U.S. federal, state and in connection with certain amendmentslocal tax rates then applicable; the depreciation and amortization periods that apply to the Company’s second amendedincreases in tax basis; the timing and restated certificateamount of incorporation. In accordance with SECany earlier payments that the Company may have made under the TRA; and its staff’s guidance on redeemable equity instruments, which has been codified in ASC 480-10-S99, redemption provisions not solely within the controlportion of the Company require ordinary shares subjectCompany’s payments under the TRA that constitute imputed interest or give rise to redemption to be classified outside of permanent equity. Therefore, all Class A ordinary shares have been classified outside of permanent equity.depreciable or amortizable tax basis.
The Company recognizes changesaccounts for the effects of these increases in redemption value immediatelytax basis and associated payments under the TRAs if and when exchanges occur as they occur and adjustsfollows:
| a. | recognizes a contingent liability for the TRA obligation when it is deemed probable and estimable, with a corresponding adjustment to additional paid-in-capital, based on the estimate of the aggregate amount that the Company will pay; |
| b. | records an increase in deferred tax assets for the estimated income tax effects of the increases in tax basis based on enacted federal and state tax rates at the date of the exchange; |
| c. | to the extent the Company estimates that the full benefit represented by the deferred tax asset will not be fully realized based on an analysis that will consider, among other things, the expectation of future earnings, the Company reduces the deferred tax asset with a valuation allowance; and |
| d. | the effects of changes in any of the estimates and subsequent changes in the enacted tax rates after the initial recognition will be included in the Company’s net loss. |
As of September 30, 2022, no TRA liability was recorded based on current projections of the carrying value of redeemable ordinary shares to equalCompany’s future taxable income taking into consideration the redemption value at the end of each reporting period. Increases or decreases in the carrying amount of redeemable ordinary shares are affected by chargesCompany’s full valuation allowance against additional paid in capital and accumulated deficit.its deferred tax asset.
Diluted income (loss) per share is computed giving effect to all potential weighted-average dilutive shares for the period. The fair valuedilutive effect of outstanding awards or financial instruments, if any, is reflected in diluted income (loss) per share by application of the Company’s assets and liabilities, which qualifytreasury stock method or if converted method, as financial instruments under ASC Topic 820, Fair Value Measurement, (“ASC 820”) approximatesapplicable. Stock awards are excluded from the carrying amounts representedcalculation of diluted EPS in the accompanying balance sheet, primarily dueevent they are antidilutive or subject to their short-term nature.
The Company applies ASC 820,performance conditions for which establishes a framework for measuring fair value and clarifies the definition of fair value within that framework. ASC 820 defines fair value as an exit price, which isnecessary conditions have not been satisfied by the price that would be received for an asset or paid to transfer a liability in the Company’s principal or most advantageous market in an orderly transaction between market participants on the measurement date. The fair value hierarchy established in ASC 820 generally requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs reflect the assumptions that market participants would use in pricing the asset or liability and are developed based on market data obtained from sources independentend of the reporting entity. Unobservable inputs reflect the entity’s own assumptions basedperiod. See Note 14 for additional information on market data and the entity’s judgments about the assumptions that market participants would use in pricing the asset or liability and are to be developed based on the best information available in the circumstances.
Level 1 - Assets and liabilities with unadjusted, quoted prices listed on active market exchanges. Inputs to the fair value measurement are observable inputs, such as quoted prices in active markets for identical assets or liabilities.
Level 2 - Inputs to the fair value measurement are determined using prices for recently traded assets and liabilities with similar underlying terms, as well as direct or indirect observable inputs, such as interest rates and yield curves that are observable at commonly quoted intervals.
Level 3 - Inputs to the fair value measurement are unobservable inputs, such as estimates, assumptions, and valuation techniques when little or no market data exists for the assets or liabilities.
The investment in Trust account is measured at Level 1 because the amount is invested in US Treasurydilutive securities.
Offering Costs Associated withPrior to the Initial Public Offering
Mergers, the membership structure of Holdings LLC included units which had liquidation preferences. The Company complies withanalyzed the requirementscalculation of the Accounting Standards Codification (“ASC”) 340-10-S99-1 and SEC Staff Accounting Bulletin (“SAB”) Topic 5A - “Expenses of Offering”. Offering costs consist principally of professional and registration fees incurred through the balance sheet date that are relatedloss per unit for periods prior to the IPOMergers and were chargeddetermined that it resulted in values that would not be meaningful to shareholders’ equity upon the completionusers of these condensed consolidated financial statements. As a result, loss per share information has not been presented for periods prior to the IPO. Offering costs that were charged to stockholders’ equity upon the completion of the IPO amounted to $18,158,033, of which $17,393,750 related to underwriting costs and $764,283 of other offering costs.Mergers on August 15, 2022.
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NOTE 3. INITIAL PUBLIC OFFERINGDerivative Financial Instruments – From time to time, the Company utilizes instruments which may contain embedded derivative instruments as part of our overall strategy. The Company’s derivative instruments are recorded at fair value on the consolidated balance sheets. These derivative instruments have not been designated as hedges; therefore, both realized and unrealized gains and losses are recognized in earnings. For the purposes of cash flow presentation, realized and unrealized gains or losses are included within cash flows from operating activities. Upfront cash payments received upon the issuance of derivative instruments are included within cash flows from financing activities, while the prepayments made upon the issuance of derivative instruments are included within cash flows from investing activities within the consolidated statements of cash flows.
NOTE 4. PRIVATE PLACEMENT
Simultaneously with the closing of the Initial Public Offering, the Sponsor and Jefferies have purchased an aggregate of 14,204,375 Private Placement Warrants at a price of $1.00 per warrant, generating total proceeds of $14,204,375performance-based restricted stock units is equal to the Company.
Each Private Placement Warrant is identical to the warrants offered in the Initial Public Offering, except there will be no redemption rights or liquidating distributions from the trust account with respect to Private Placement Warrants, which will expire worthless if the Company does not consummate a Business Combination within the Combination Period.
NOTE 5. RELATED PARTY TRANSACTIONS
Founder Shares
On April 27, 2021, the Sponsor made a capital contribution of $25,000, or approximately $ per share, to cover certain of the Company’s expenses, for which the Company issued founder shares to the Sponsor such that they currently hold an aggregate of founder shares.
The Sponsor has agreed not to transfer, assign or sell any of its Founder Shares until the earlier to occur of: (A) one year after the completion of a Business Combination or (B) the date on which the Company completes a liquidation, merger, capital stock exchange or similar transaction that results in the Company’s shareholders having the right to exchange their shares of ordinary shares for cash, securities or other property. Notwithstanding the foregoing, if the last salemarket price of the Company’s Class A ordinary shares equalsCommon Stock on the date of grant. The liability-classified restricted stock units are recognized at their fair value that is equal to the market price of the Company’s Class A Common Stock on the date of grant and remeasured to the market price of the Company’s Class A Common Stock at each period-end with related changes in the fair value recognized in general and administrative expense on the consolidated statement of operations.
The Company accounts for nonemployee stock-based transactions using the fair value of the consideration received (i.e., the value of the goods or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations andservices) or the like) for any 20 trading days within any 30-trading day period commencing at least 150 days afterfair value of the Business Combination, the Founder Shares will be released from the lock-up.equity instruments issued, whichever is more reliably measurable.
Promissory Note - Related Party2—Recent accounting pronouncements
On April 27, 2021, the Sponsor agreed to loan the Company an aggregate of up to $300,000 to cover expenses related to the Initial Public Offering pursuant to a promissory note (the “Note”). The Note is non-interest bearing and is payable on the earlier of (i) December 31,Accounting pronouncements adopted during 2022 or (ii) the consummation of the Initial Public Offering. As of June 30, 2022, and December 31, 2021, the Company had not drawn on the Note.
Related Party Loans
In orderAugust 2020, the FASB issued ASU 2020-06, Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and hedging – Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and contracts in an Entity’s Own Equity, which reduced the number of models used to finance transaction costsaccount for convertible instruments, amends the accounting for certain contracts in connection withan entity’s own equity that would have been previously been accounted for as derivatives and modifies the diluted per share calculations for convertible instruments. The Company adopted this ASU as of January 1, 2022 using the modified retrospective method. The adoption did not have a Business Combination,material impact on the Company’s Sponsor, an affiliate of the Sponsor, or the Company’s officers and directors have agreed to loan the Company funds as may be required (the “Working Capital Loans”). Such Working Capital Loans would be evidenced by promissory notes. The notes would either be repaid upon consummation of a Business Combination, without interest, or, at the lender’s discretion, up to $1,500,000 of notes may be converted upon consummation of a Business Combination into warrants at a price of $1.00 per warrant. The warrants will be identical to the Private Placement Warrants. 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. As of June 30, 2022, and December 31, 2021, the Company had no such related party loans outstanding.consolidated financial statements.
There are expensesAccounting pronouncements issued, but not adopted as of September 30, 2022
In June 2016, the FASB issued ASU 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires an entity to utilize a new impairment model known as the current expected credit loss (“CECL”) model to estimate its lifetime “expected credit loss” and record an allowance that, are paid bywhen deducted from the Sponsor on behalfamortized cost basis of the Company. Asfinancial asset, presents the net amount expected to be collected on the financial asset. ASU 2016-13 also requires new disclosures for financial assets measured at amortized cost, loans, and available-for-sale debt securities. ASU 2016-13 is effective for the Company at the beginning of June 30, 2022, and December 31,2023, with early adoption permitted. The Company is currently evaluating the impact this ASU will have on the Company’s consolidated financial statements.
In October 2021, the Sponsor spent $102,667FASB issued ASU 2021-08, Business Combination (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers, which are presentedclarifies that an acquirer of a business should recognize and measure contract assets and contract liabilities in a business combination in accordance with ASC Topic 606, Revenue from Contracts with Customers. ASU 2021-08 will be effective for the Company at the beginning of 2024 on a prospective basis, with early adoption permitted. The Company is currently evaluating the impact of this ASU will have on the balance sheet as a Due to Sponsor.Company’s consolidated financial statements.
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NOTE 6. Note 3—COMMITMENTS AND CONTINGENCIESMergers
Registration Rights
The holders ofAs further discussed in Note 1, on August 15, 2022, the Founder Shares, Private Placement Warrants and any warrants that may be issued upon conversion of the Working Capital Loans (and in each case holders of their component securities, as applicable) will be entitled to registration rightsMergers were consummated pursuant to a registration rights agreement to be signed prior to or on the effective date of the Initial Public Offering, requiring the Company to register such securities for resale (in the case of the Founder Shares, only after conversion to the Company’s Class A ordinary shares). The holders of the majority of these securities are entitled to make up to three demands, excluding short form demands, that the Company register such securities. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to the consummation of a Business Combination and rights to require the Company to register for resale such securities pursuant to Rule 415 under the Securities Act. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
Underwriter’s Agreement
The Company granted the underwriter a 45-day option to purchase up to 4,125,000 additional Units to cover over-allotments at the Initial Public Offering price, less the underwriting discounts and commissions. Concurrently with the consummation of the IPO, the underwriters exercised the over-allotment option to purchase an additional units.
The underwriter was paid a cash underwriting discount of 2.00% of the gross proceeds of the Initial Public Offering, or $6,325,000, in connection with the Initial Public Offering. In addition, the underwriter is entitled to a deferred fee of three and half percent (3.50%) of the gross proceeds of the Initial Public Offering, or $11,068,750. The deferred fee will become payable to the underwriter from the amounts held in the Trust Account solely in the event that the Company completes a Business Combination, subject to the terms of the underwriting agreement.
Agreement and Plan of Merger
On December 15, 2021, Founder SPAC, a Cayman Islands exempted company (together with its successors, the “Acquiror”), Ravenclaw Merger Sub LLC, a Delaware limited liability company and wholly owned subsidiary of the Acquiror (“Merger Sub”), Ravenclaw Merger Sub Corporation 1, a Delaware corporation and wholly owned subsidiary of the Acquiror (“Merger Sub Inc. 1”), Ravenclaw Merger Sub Corporation 2, a Delaware corporation and wholly owned subsidiary of the Acquiror (“Merger Sub Inc. 2”), Ravenclaw Merger Sub Corporation 3, a Delaware corporation and wholly owned subsidiary of the Acquiror (“Merger Sub Inc. 3” and, together with Merger Sub Inc. 1 and Merger Sub Inc. 2, each a “Blocker Merger Sub”), Boom Clover Business Limited, a British Virgin Islands corporation (“Blocker Company 1”), NZSF Frontier Investments Inc., a Delaware corporation (“Blocker Company 2”), PLC Blocker A LLC, a Delaware limited liability company (“Blocker Company 3” and, together with Blocker Company 1 and Blocker Company 2, each a “Blocker Company” and collectively, the “Blocker Companies”), entered into an agreement and plan of merger (“Merger Agreement”) with Rubicon Technologies, LLC, a Delaware limited liability company.
The Merger agreement contains customary representations, warranties, and covenants by the parties thereto and is subject to certain conditions as further described in the Merger Agreement. In connection with the foregoingClosing, the following occurred in addition to the disclosures in Note 1:
| - | (a) Each then-issued and outstanding Class A ordinary share, par value $ per share, of Founder (“Founder Class A Shares”) automatically converted into one share of Class A Common Stock, (b) each then-issued and outstanding Class B ordinary share, par value $ per share, of Founder (“Founder Class B Shares” and, together with Founder Class A Shares, “Founder Ordinary Shares”), converted into one share of Class A Common Stock, pursuant to the Sponsor Agreement, dated December 15, 2021, by and among Founder, Founder SPAC Sponsor LLC (“Sponsor”), Holdings LLC, and certain insiders of Founder, (c) each then-issued and outstanding public warrant of Founder, each representing a right to acquire one Founder Class A Share for $11.50 (a “Founder Public Warrant”), converted automatically, on a one-for-one basis, into a public warrant of the Company (a “Public Warrant”) that represents a right to acquire one share of Class A Common Stock for $11.50 pursuant to the Warrant Agreement, dated October 14, 2021, by and between Founder and Continental Stock Transfer and Trust Company (as amended, the “Warrant Agreement”), (d) each then-issued and outstanding private placement warrant of Founder, each representing a right to acquire one Founder Class A Share for $11.50 (a “Founder Private Placement Warrant”), converted automatically, on a one-for-one basis, into a private placement warrant of the Company (the “Private Warrant” and together with the Public Warrants, the “Warrants”) that represents a right to acquire one share of Class A Common Stock for $11.50 pursuant to the Warrant Agreement, and (e) each then-issued and outstanding unit of Founder, each representing a Founder Class A Share and one-half of a Founder Public Warrant (a “Founder Unit”), that had not been previously separated into the underlying Founder Class A Share and one-half of one Founder Public Warrant upon the request of the holder thereof, was separated and automatically converted into one share of Class A Common Stock and one-half of one Public Warrant. No fractional Public Warrants were issued upon separation of the Founder Units. |
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| - | The Company was issued Class A Units in Holdings LLC (“Class A Units”) and all preferred units, common units, and incentive units of Holdings LLC (including such convertible instruments, the “Rubicon Interests”) outstanding as of immediately prior to the Merger were automatically recapitalized into Class A Units and Class B Units of Holdings LLC (“Class B Units”), as authorized by the Eighth Amended and Restated Limited Liability Company Agreement of Holdings LLC (“A&R LLCA”) that was adopted at the time of the Merger. Following the Blocker Mergers, (a) holders of Rubicon Interests immediately before the Closing, other than the Blocker Companies (the “Blocked Unitholders”), were issued Class B Units (the “Rubicon Continuing Unitholders”), (b) Rubicon Continuing Unitholders were issued a number of shares of Class V Common Stock equal to the number of Class B Units issued to the Rubicon Continuing Unitholders, (c) Blocked Unitholders were issued shares of Class A Common Stock (as a result of the Blocker Mergers), and (d) following the adoption of the equity incentive award plan of Rubicon adopted at the Closing (the “2022 Plan”) and the effectiveness of a registration statement on Form S-8 filed on October 19, 2022, holders of phantom units of Holdings LLC immediately prior to the Closing (“Rubicon Phantom Unitholders”) and those current and former directors, officers and employees of Holdings LLC entitled to certain cash bonuses (the “Rubicon Management Rollover Holders”) are to receive restricted stock units (“RSUs”) and deferred stock units (“DSUs”), and such RSUs and DSUs will vest into shares of Class A Common Stock on February 11, 2023, the date that is 180 days following the Closing. $47.6 million of compensation expenses related to the Rubicon Management Rollover Holders’ RSUs and DSUs have been recognized in accrued expenses on the accompanying unaudited condensed consolidated balance sheet as of September 30, 2022. In addition to the securities issuable at the Closing and the RSUs and DSUs, certain of the Rubicon Management Rollover Holders received one-time cash payments (the “Cash Transaction Bonuses”). In addition, pursuant to the Merger Agreement, (i) Blocked Unitholders immediately before the Closing received a right to receive a pro rata portion of the Earn-Out Class A Shares and (ii) Rubicon Continuing Unitholders immediately before the Closing received a right to receive a pro rata portion of the Earn-Out Units and an equivalent number of shares of Class V Common Stock, in each case, depending upon the performance of Class A Common Stock during the five year period after the Closing, as discussed in greater detail in Note 1. |
| - | Certain investors (the “PIPE Investors”) purchased, and the Company sold to such PIPE Investors an aggregate of shares of Class A Common Stock at a price of $ per share pursuant to and as set forth in the subscription agreements against payment by such PIPE Investors of the respective amounts set forth therein. |
| - | Certain investors (the “FPA Sellers”) purchased, and the Company issued and sold to such FPA Sellers, an aggregate of shares of Class A Common Stock pursuant to and as set forth in the Forward Purchase Agreement entered into between Founder and ACM ARRT F LLC (“ACM Seller”) on August 4, 2022, against payment by such FPA Sellers of the respective amounts set forth therein. See Note 11 for further information. |
| - | The Company (a) caused to be issued to certain investors Class B Units pursuant to the Merger Agreement, (b) issued shares of Class A Common Stock to certain investors, and (c) Sponsor forfeited Founder Class B Shares. See Note 10 for further information. |
| - | Blocked Unitholders and Rubicon Continuing Unitholders retained aggregate shares of Class A Common Stock and shares of Class B Common Stock, representing 83.5% of voting power in the Company at the Closing. |
| - | The Company and Holdings LLC entered into the Tax Receivable Agreement with the TRA Holders. See Note 1 for further information. |
| - | The Company contributed approximately $73.8 million of cash to Rubicon Technologies Holdings, LLC, representing the net amount held in the Company’s trust account following the redemption of Class A Common Stock originally sold in Founder’s initial public offering, less (b) cash consideration of $28.9 million paid to Holdings LLC’s certain management members, plus (c) $121.0 million in aggregate proceeds received from the PIPE Investors, less (d) the aggregate amount of transaction expenses incurred by the parties to the Merger Agreement and (e) payment to the FPA Sellers pursuant to the Forward Purchase Agreement. |
| - | The Company incurred $67.3 million in transaction costs relating to the Mergers, $23.1 million of which was paid as of September 30, 2022 and the remaining amount was recognized in accrued expenses on the accompanying condensed consolidated balance sheet as of September 30, 2022. The Company has the option to settle a majority of the transaction costs that were unpaid and accrued as of September 30, 2022 in cash or Class A Common Stock at the Company’s discretion. The transaction costs have been offset against additional paid-in capital in the accompanying condensed consolidated statements of stockholders’ equity (deficit) and noncontrolling interest. |
Note 4—Property and concurrently with the executionequipment
Property and equipment, net is comprised of the Business Combination Agreement, Rubicon Technologiesfollowing as of September 30, 2022 and Founder SPACDecember 31, 2021 (in thousands):
| Schedule of propertyand equipment | ||||||||
September 30, 2022 | December 31, 2021 | |||||||
| Computers, equipment and software | $ | 3,668 | $ | 2,968 | ||||
| Customer equipment | 1,380 | 1,122 | ||||||
| Furniture and fixtures | 1,699 | 1,570 | ||||||
| Leasehold improvements | 3,771 | 3,769 | ||||||
| Total property and equipment | 10,518 | 9,429 | ||||||
| Less accumulated depreciation and amortization | (7,777 | ) | (6,818 | ) | ||||
| Total property and equipment, net | $ | 2,741 | $ | 2,611 | ||||
Depreciation and amortization expense reflected in operating expense for the three months ended September 30, 2022 and 2021 was $0.3 million and $0.4 million, respectively. Depreciation and amortization expense for the nine months ended September 30, 2022 and 2021 was $1.0 million and $1.2 million, respectively.
Note 5—Debt
Revolving Credit Facility – On December 14, 2018, the Company entered into subscription agreements (the “Subscription Agreements”) with certain investors (the “PIPE Investors”) pursuant to which the PIPE Investors agreed to subscribe for and purchase, and Founder SPAC agreed to issue and sell to such PIPE Investors. As of the date of this subscription agreement, the authorized share capitala $60.0 million “Revolving Credit Facility” secured by all assets of the Company consistsincluding accounts receivable, intellectual property, and general intangibles. The Revolving Credit Facility was subsequently amended, and bore SOFR plus 4.6% (7.6% at September 30, 2022) with the maturity date of (i) 479,000,000December 14, 2022 Class A ordinary shares, par value $0.0001 per share, (ii) Class B ordinary shares, par value $ per share. On November 18, 2022, the Company entered into an amendment to the Revolving Credit Facility, extending the maturity date to December 14, 2023 and (iii) modifying the interest rate the Revolving Credit Facility bears to SOFR plus 5.6% (see Note 20). The borrowing capacity of the Revolving Credit Facility is calculated based on qualified billed and unbilled receivables. Interest and fees are payable monthly with principal due upon maturity.
1,000,000 preference shares, par value $
0.0001 per share.The Revolving Credit Facility requires a lockbox arrangement, which provides for receipts to be swept daily to reduce borrowings outstanding at the discretion of the lender. This arrangement, combined with the existence of the subjective acceleration clause, necessitates the Revolving Credit Facility be classified as a current liability on the consolidated balance sheets. The acceleration clause allows for amounts due under the facility to become immediately due in the event of a material adverse change in the Company’s business condition (financial or otherwise), operations, properties or prospects, change of management, or change in control. As of September 30, 2022, the date of this Subscription Agreement, (A) Company’s total outstanding borrowings under the Revolving Credit Facility were $ Class A ordinary sharesmillion and $21.2 million remained available to draw. As of December 31, 2021, the Company’s total outstanding borrowings under the Revolving Credit Facility were $29.9 million and $23.0 million remained available to draw. The Revolving Credit Facility is subject to certain financial covenants. As of September 30, 2022, the Company was in compliance with these financial covenants.
Term Loan Facilities – On March 29, 2019, the Company entered into a $20.0 million “Term Loan” agreement secured by a second lien on all assets of the Company areincluding accounts receivable, intellectual property and general intangibles. The Term Loan agreement was subsequently amended, and currently has the principal amount of $60.0 million, bears an interest rate of LIBOR plus 9.5% (13.1% at September 30, 2022) with the maturity date of the earlier of March 29, 2024 or the maturity date of the Revolving Credit Facility. The Term Loan was amended on November 18, 2022 to, among other things, require the Company to repay the Term Loan with any net proceeds provided by the SEPA until such time that the Term Loan is repaid in full. (see Note 20).
The Term Loan also includes a qualified equity contributions requirement, requiring the Company to raise $50.0 million in equity contribution on or prior to February 28, 2022. The lender had previously waived the requirement through June 30, 2022, but the Company did not meet the minimum equity raise requirement of $50.0 million by June 30, 2022, allowing the lender to reduce the Term Loan collateral by $20.0 million and requiring the use of available funds under the Revolving Credit Facility as additional Term Loan collateral. As a result of the $20.0 million reduction in the Term Loan collateral, the availability under the Revolving Credit Facility was reduced by approximately $8.7 million as of September 30, 2022.
Pursuant to the amended Term Loan agreement, on October 15, 2021, the Company entered into warrant agreements and issued common unit purchase warrants (the “Term Loan Warrants”). The Term Loan Warrants were converted into Class A Common Stock and outstanding, (B) Class B ordinary sharesUnits upon the consummation of the Mergers.
On December 22, 2021, the Company entered into a $20.0 million “Subordinated Term Loan” agreement secured by a third lien on all assets of the Company areincluding accounts receivable, intellectual property and general intangibles. The Subordinated Term Loan was scheduled to mature on December 22, 2022and bears an interest rate of 15.0%. On November 18, 2022, the Company entered into an amendment to the Subordinated Term Loan agreement, extending its maturity date to December 31, 2023 (see Note 20). Pursuant to the Subordinated Term Loan agreement, the Company entered into warrant agreements and issued and outstanding, (C) 15,812,500 redeemable publiccommon unit purchase warrants to purchase(the “Subordinated Term Loan Warrants”). If the Company does not repay the Subordinated Term Loan on or before its maturity, the Subordinated Term Loan Warrants will be exercisable for additional Class A ordinary sharesCommon Stock until the Company fully pays the principal and interest in cash.
See Note 9 for further information regarding the Term Loan Warrants and the Subordinated Term Loan Warrants. See Note 20 for further information regarding the amended agreements entered into for the Revolving Credit Facility, Term Loan, and Subordinated Term Loan on November 18, 2022.
Amortization of deferred debt charges were $0.8 million and $0.1 million for the three months ended September 30, 2022 and 2021, respectively. Amortization of deferred debt charges were $2.5 million and $0.4 million for the nine months ended September 30, 2022 and 2021, respectively.
Components of long-term debt were as follows (in thousands):
| Schedule of components of long-term debt | ||||||||
September 30, 2022 | December 31, 2021 | |||||||
| Term loan balance | $ | 72,500 | $ | 77,000 | ||||
| Less unamortized loan origination costs | (2,957 | ) | (3,334 | ) | ||||
| Total borrowed | 69,543 | 76,666 | ||||||
| Less short-term loan balance | - | (22,666 | ) | |||||
| Long-term loan balance | $ | 69,543 | $ | 51,000 | ||||
At September 30,2022, the aggregate maturities of long-term debt for the remainder of 2022 and subsequent years are issuedas follows (in thousands):
| Schedule of maturities of long-term debt | ||||
| Fiscal Years Ending December 31, | ||||
| 2022 | $ | 1,500 | ||
| 2023 | 71,000 | |||
| Total | $ | 72,500 | ||
PPP Loans – In 2020, the Company received loans under the Paycheck Protection Program (“PPP”) for an amount totaling $10.8 million, which was established under the Coronavirus Aid, Relief, and outstanding, (D) 14,204,375 private placement warrantsEconomic Security Act approved by the U.S. Congress on March 27, 2020 (the “CARES Act”) and administered by the Small Business Administration (“SBA”). The PPP Loans had a maturity date of 2 years from the initial disbursement and carried an interest rate of 1% per year. The application for the PPP Loan required the Company to, purchase Class A ordinary sharesin good faith, certify that the current economic uncertainty made the loan request necessary to support the ongoing operation of the Company. This certification further required the Company are issuedto consider current business activity and outstanding and (E) no preference shares are issued and outstanding.ability to access other sources of liquidity sufficient to support the ongoing operations in a manner that was not significantly detrimental to the business. The Founder SPAC Ordinary Shares to be issued under the Subscription Agreements are being issued in private placement transactions pursuant to an exemption from registration requirementsreceipt of the Securitiesfunds from the PPP Loans and the forgiveness of the PPP Loans were dependent on the Company having initially qualified for the PPP Loans and qualifying for the forgiveness of such PPP Loans based on funds being used for certain expenditures such as payroll costs and rent, as required by the terms of the PPP Loans.
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The PPP Loans were eligible for forgiveness as part of the CARES Act, and have not been, and will not be, registered under the U.S. Securities Act of 1933, as amended. Founder SPAC will grant the PIPE Investorsif certain registration rights in connectionrequirements were met. The Company applied for forgiveness with the PIPE Financing. The PIPE Financing is contingent upon, among other things,SBA in December 2020. On March 30, 2021, the closingSBA forgave the principal balance and associated accumulated interest of one of the Business Combination.
two PPP Loans in full. On June 10, 2021, the SBA forgave the principal balance and associated accumulated interest of the second PPP Loans in full. As a result, the Company recognized $NOTE 7. WARRANTS10.9 million to gain on forgiveness of debt in the condensed consolidated statements of operations in the nine months ended September 30, 2021. Presently, the SBA and other government communications have indicated that all loans in excess of $2.0 million will be subject to audit and that those audits could take up to seven years to complete. If the SBA determines that the PPP Loan was not properly obtained and/or expenditures supporting forgiveness were not appropriate, the Company would be required to repay some or all of the PPP Loan and record additional expense which could have a material adverse effect on the Company’s business, financial condition and results of operations in a future period.
The Company has accountedelected to repay $2.3 million of the PPP Loans during 2020, which the SBA paid back to the Company upon forgiveness of the PPP loan on June 10, 2021. The PPP Loan balances were $-0- as of September 30, 2022 and December 31, 2021.
Interest expense related to the Revolving Credit Facility, the Term Loan, the Subordinated Term Loan, and PPP Loan, as applicable, was $4.6 million and $2.6 million for the three months ended September 30, 2022 and 2021, respectively. Interest expense for the applicable borrowings was $12.3 million and $7.5 million for the nine months ended September 30, 2022 and 2021, respectively.
Note 6—Accrued expenses
Accrued expenses consist of the following as of September 30, 2022 and December 31, 2021 (in thousands):
| Schedule of Accrued expenses | ||||||||
September 30, 2022 | December 31, 2021 | |||||||
| Accrued hauler expenses | $ | 55,773 | $ | 49,607 | ||||
| Accrued compensation | 57,632 | 9,656 | ||||||
| Accrued income taxes | - | 3 | ||||||
| Accrued Mergers transaction expenses | 44,235 | - | ||||||
| Other accrued expenses | 4,788 | 6,272 | ||||||
| Total accrued expenses | $ | 162,428 | $ | 65,538 | ||||
Note 7—Goodwill and other intangibles
There were no additions to goodwill for the year ended December 31, 2021 or the nine months ended September 30, 2022. No impairment of goodwill was identified for the year ended December 31, 2021 or the nine months ended September 30, 2022.
Intangible assets consisted of the following (in thousands, except years):
| Schedule of Intangible Assets and Goodwill | |||||||||||||||
| September 30, 2022 | |||||||||||||||
| Useful Life (in years) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||||
| Trade Name | 5 | $ | 728 | $ | (728 | ) | $ | - | |||||||
| Customer and hauler relationships | 2 to 8 | 20,976 | (11,502 | ) | 9,474 | ||||||||||
| Non-competition agreements | 3 to 4 | 550 | (550 | ) | - | ||||||||||
| Technology | 3 | 3,178 | (1,802 | ) | 1,376 | ||||||||||
| Total finite-lived intangible assets | 25,432 | (14,582 | ) | 10,850 | |||||||||||
| Domain Name | Indefinite | 835 | - | 835 | |||||||||||
| Total intangible assets | $ | 26,267 | $ | (14,582 | ) | $ | 11,685 | ||||||||
| December 31, 2021 | |||||||||||||||
| Useful Life (in years) | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | ||||||||||||
| Trade Name | 5 | $ | 728 | $ | (728 | ) | $ | - | |||||||
| Customer and hauler relationships | 2 to 8 | 20,976 | (9,582 | ) | 11,394 | ||||||||||
| Non-competition agreements | 3 to 4 | 550 | (487 | ) | 63 | ||||||||||
| Technology | 3 | 3,178 | (1,307 | ) | 1,871 | ||||||||||
| Total finite-lived intangible assets | 25,432 | (12,104 | ) | 13,328 | |||||||||||
| Domain Name | Indefinite | 835 | - | 835 | |||||||||||
| Total intangible assets | $ | 26,267 | $ | (12,104 | ) | $ | 14,163 | ||||||||
Amortization expense for intangible assets was $0.8 million and $0.7 million for the three months ended September 30, 2022 and 2021, respectively. Amortization expense for intangible assets was $2.5 million and $2.2 million for the nine months ended September 30, 2022 and 2021, respectively. Future amortization expense for the remainder of fiscal year 2022 and subsequent years is as follows (in thousands):
| Schedule of Finite- Lived Intangible Assets, Future Amortization Expense | ||||
| Fiscal Years Ending December 31, | ||||
| 2022 | $ | 804 | ||
| 2023 | 3,220 | |||
| 2024 | 3,110 | |||
| 2025 | 2,559 | |||
| 2026 | 1,157 | |||
| Total finite-lived intangible assets, net | $ | 10,850 | ||
Note 8—Stockholders’ (deficit) equity
Upon closing of the Mergers on August 15, 2022, as discussed in Note 3, the Company’s capital stock consisted of (i) shares of Class A Common Stock issued as a result of the automatic conversion of Founder Class A Shares on a one-for-one basis, (ii) shares of Class A Common Stock issued to the PIPE Investors, (iii) shares of Class A Common Stock issued to the Blocked Unitholders and (iv) shares of Class V Common Stock issued to the Rubicon Continuing Unitholders.
The table set forth below reflects information about the Company’s equity, as of September 30, 2022. The Earn-Out Interests are considered contingently issuable shares and therefore excluded from the number of shares of Class A Common Stock and Class V Common Stock issued and outstanding in the table below.
| Schedule of Stockholders Equity | ||||||||||||
| Authorized | Issued | Outstanding | ||||||||||
| Class A Common Stock | 690,000,000 | 49,714,239 | 49,714,239 | |||||||||
| Class V Common Stock | 275,000,000 | 115,463,646 | 115,463,646 | |||||||||
| Preferred Stock | 10,000,000 | - | - | |||||||||
| Total shares as of September 30, 2022 | 975,000,000 | 165,177,885 | 165,177,885 | |||||||||
Each share of Class A Common Stock and Class V Common Stock entitles the holder one vote per share. Only holders of Class A Common Stock have the right to receive dividend distributions. In the event of liquidation, dissolution or winding up of the affairs of the Company, only holders of Class A Common Stock have the right to receive liquidation proceeds, while the holders of Class V Common Stock are entitled to only the par value of their shares. The holders of Class V Common Stock have the right to exchange Class V Common Stock for an equal number of shares of Class A Common Stock. The Company’s board of directors has discretion to determine the rights, preferences, privileges and restrictions, including voting rights, dividend rights, conversion rights, redemption privileges and liquidation preferences, of each series of preferred stock.
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Note 9—Warrants
Public Warrants and Private Warrants – In connection with the Closing, on August 15, 2022, the Company assumed a total of 30,016,875 warrantsoutstanding Warrants to purchase one share of the Company’s Class A Common Stock with an exercise price of $11.50 per share. Of these Warrants, the 15,812,500 Public Warrants were originally issued in Founder’s initial public offering (the “IPO”) and 14,204,375 Private Warrants were originally issued in a private placement in connection with the Initial Public Offering (15,812,500IPO. The Private Warrants are identical to the Public Warrants, except the Private Warrants are exercisable on a cashless basis, at the holder’s option, and 14,204,375are non-redeemable by the Company so long as they are held by the initial purchasers or their permitted transferees. If the Private Placement Warrants) inWarrants are held by someone other than the initial purchasers or their permitted transferees, the Private Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.
In accordance with the guidance contained in ASC 815-40. Such guidance provides815-40, Derivatives and Hedging – Contracts in an Entity’s Own Equity, the Company concluded that the warrants described aboveWarrants are not precluded from equity classification. Equity-classified contracts are initially measured at fair value (or allocated value). Subsequent changes in fair value are not recognized as long as the contracts continue to be classified in equity.
PublicThe Warrants may only be exercised for a whole number of shares. No fractional shares will be issued upon exercise of the Public Warrants. The Public Warrants will becomebecame exercisable on September 14, 2022, 30 days after the consummation of a Business Combination.Closing and no Warrant has been exercised through September 30, 2022. The Public Warrants will expire five years from the consummation of a Business CombinationClosing or earlier upon redemption or liquidation.redemption.
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The Company will not be obligated to deliver any Class A ordinary shares pursuant to the exercise of a Public Warrant and will have no obligation to settle such Public Warrant exercise unless a registration statement under the Securities Act covering the issuance of the Class A ordinary shares issuable upon exercise of the Public Warrants is then effective and a prospectus relating thereto is current, subject to the Company satisfying its obligations with respect to registration. No Public Warrant will be exercisable for cash or on a cashless basis, and the Company will not be obligated to issue any shares to holders seeking to exercise their Public Warrants, unless the issuance of the shares upon such exercise is registered or qualified under the securities laws of the state of the exercising holder, or an exemption from registration is available.
The Company has registered our Class A ordinary shares issuable upon exercise of the warrants because the warrants will become exercisable 30 days after the completion of our initial business combination, which may be within one year of this offering. However, because the warrants will be exercisable until their expiration date of up to five years after the completion of our initial business combination, in order to comply with the requirements of Section 10(a)(3) of the Securities Act following the consummation of our initial business combination, the Company has agreed that as soon as practicable, but in no event later than 15 business days after the closing of its initial 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 Class A ordinary shares issuable upon exercise of the 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 warrants in accordance with the provisions of the warrant agreement. If a registration statement covering the Class A ordinary shares issuable upon exercise of the warrants is not effective by the 60th business day after the closing of the Company’s initial business combination, warrant holders may, until such time as there is an effective registration statement and during any period when the Company will have failed to maintain an effective registration statement, exercise warrants on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act or another exemption. Notwithstanding the above, if our Class A ordinary shares are at the time of any exercise of a warrant not listed on a national securities exchange such that they satisfy 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” in accordance with Section 3(a)(9) of the Securities Act and, in the event the Company so elects, it will not be required to file or maintain in effect a registration statement, and in the event the Company does not so elect, it will use our best efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available. In such event, each holder would pay the exercise price by surrendering the warrants for that number or Class A ordinary shares equal to the lesser of (A) the quotient obtained by dividing (x) the product of the number of Class A ordinary shares underlying the warrants, multiplied by the excess of the “fair market value” (defined below) less the exercise price of the warrants by (y) the fair market value and (B) 0.361. The “fair market value” as used in this paragraph shall mean the volume weighted average trading price of the Class A ordinary shares for the 10 trading days immediately following the date on which the notice of exercise is received by the warrant agent.
Redemption of public warrants when the price per Class A ordinary shares equals or exceeds $. Once the public warrants become exercisable, the Company may redeem the Public Warrants for redemption:and any Private Warrants no longer held by the initial purchaser thereof or its permitted transferee:
| in whole and not in part; |
| at a price of $0.01 per |
| upon not less than 30 days’ prior written notice |
| if and only if, the last reported |
The Company determined the initial fair value of its Public Warrants based on the publicly listed trading price as of the valuation date. Accordingly, the Public Warrants are classified as Level 1 financial instruments. As the terms of the Private Warrants are identical to those of the Public Warrants except as otherwise stated above, the Company determined the initial fair value of its Private Warrants based on the publicly listed trading price of the Public Warrants as of the valuation date and have classified the Private Warrants as Level 2 financial instruments.
Warrant Liabilities – Pursuant to the amended Term Loan agreement entered on October 15, 2021 (see Note 5), the Company concurrently entered into warrant agreements and issued the Term Loan Warrants, which granted the lender the right to purchase up to 62,003 of Holdings LLC’s common units at the exercise price of $0.01 any time prior to the earlier of the tenth anniversary of the issuance date of October 15, 2021, or certain triggering events, including a sale of Holdings LLC, Holding LLC’s initial public offering and a merger between Holdings LLC and a special purpose acquisition company (“SPAC”), where the warrants are fully redeemed or exchanged. The Company will not redeemdetermined that the warrantsTerm Loan Warrants required liability classification pursuant to ASC 480 Distinguishing Liabilities from Equity. As such, the outstanding Term Loan Warrants were recognized as described above unless an effective registration statement underwarrant liabilities on the Securities Act coveringconsolidated balance sheets and were measured at their inception date fair value and subsequently re-measured at each reporting period with changes being recorded as a component of other income (expense) on the issuanceconsolidated statements of operations. The Company measured the fair value of the Term Loan Warrants as of the Closing Date and December 31, 2021, and recognized $1.8 million and $1.3 million of warrant liabilities in the Company’s consolidated balance sheets as of such dates, respectively, with the difference of $0.5 million recorded as other expense on the condensed consolidated statement of operations for the nine months ended September 30, 2022. The impact to the condensed consolidated statements of operations from the changes in the fair value of the Term Loan Warrants was insignificant for the three months ended September 30, 2022. The Term Loan Warrants were converted into Class A ordinary shares issuableCommon Stock and Class B Units and reclassified from liability to the stockholders’ deficit upon exercisethe consummation of the warrants is then effective and a current prospectus relating to those Class A ordinary shares is available throughout the 30-day redemption period. If and when the warrants become redeemable by us, the Company may exercise its redemption right even if the Company is unable to register or qualify the underlying securities for sale under all applicable state securities laws.Mergers.
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Pursuant to the Subordinated Term Loan agreement entered on December 22, 2021 (see Note 5), the Company concurrently entered into warrant agreements and issued the Subordinated Term Loan Warrants under the condition that if the Company does not repay the Subordinated Term Loan on or prior to the maturity date, the lender receives right to purchase up to the number of Class A Common Stock worth $2.0 million, at the exercise price of $0.01 any time after the maturity date prior to the earlier of the date principal and interest on all outstanding term loans under this Subordinated Term Loan agreement are repaid or the tenth anniversary of the issuance date. Additionally, if the Company does not repay the Subordinated Term Loan on or prior to the maturity date, the Subordinated Term Loan Warrants will be exercisable for additional $0.2 million of Class A Common Stock each additional full calendar month after the maturity date until the Company fully repays the principal and interest in cash. If the Company repays the Subordinated Term Loan on or prior to the maturity date, the Subordinated Term Loan Warrants will automatically terminate and be voided and no Subordinated Term Loan Warrant will be exercisable. The Company determined that the Subordinated Term Loan Warrants required liability classification pursuant to ASC 480 Distinguishing Liabilities from Equity. The Company measured the fair value of the Subordinated Term Loan Warrants as of September 30, 2022 and December 31, 2021, and recognized $0.1 million and $0.1 million of warrant liabilities in the accompanying condensed consolidated balance sheets, respectively. The impact to the condensed consolidated statements of operations from the changes in the fair value of the Subordinated Term Loan Warrants was insignificant for the three months and the nine months ended September 30, 2022. During the nine months ended September 30, 2022 and the year ended December 31, 2021, none of the Subordinated Term Loan Warrants were exercisable.
See Note 20 regarding the amendment to Subordinated Term Loan Warrants agreements the Company entered into on November 18, 2022.
Note 10—Equity Investment Agreement
On May 25, 2022, the Company entered into the Rubicon Equity Investment Agreement with certain investors, whereby, the investors have agreed to advance to the Company up to $8,000,000 and, upon consummation of the Mergers, and in exchange for the advancements, (a) the Company will cause to be issued up to 880,000 Class B Units of the Company and 160,000 shares of Class A Common Stock to the investors and (b) Sponsor will forfeit up to 160,000 shares of Class A Common Stock, in each case subject to actual amounts advanced by the investors. In accordance with the Rubicon Equity Investment Agreement, on May 25, 2022, the Company received $8,000,000 of cash from the investors. The Company determined that the Rubicon Equity Investment Agreement required liability classification pursuant to ASC 480 Distinguishing Liabilities from Equity. As such, the Rubicon Equity Investment Agreement was recognized as simple agreement for future equity (SAFE) under current liabilities on the consolidated balance sheets, measured at the agreement execution date fair value and subsequently remeasured at each reporting period with changes being recorded as a component of other income (expense) on the consolidated statements of operations. The Company measured its fair value as of the agreement execution and recognized $8.8 million of simple agreement for future equity on the condensed consolidated balance sheets, with the $0.8 million difference between the fair value and the amount of cash received recorded as other expense on the condensed consolidated statements of operations. Between the agreement execution date and the Closing Date, there was no change in the fair value of the Rubicon Equity Investment Agreement. On August 15, 2022, the Mergers closed, and the Company issued Class B Units and shares of Class A Common Stock to the investors and Sponsor forfeited shares of Class A Common Stock.
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If and when the Public Warrants become redeemable by the Company, the Company may not exercise its redemption right if the issuance of shares of ordinary shares upon exercise of the warrants is not exempt from registration or qualification under applicable state blue sky laws or the Company is unable to effect such registration or qualification.
Note 11—
The exercise price and number of shares of Class A ordinary shares issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a share dividend, or recapitalization, reorganization, merger or consolidation. Additionally, in no event will the Company be required to net cash settle the Public Warrants. 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. 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. The exercise price and number of shares of ordinary shares issuable upon exercise of the Public Warrants may be adjusted in certain circumstances including in the event of a stock dividend, extraordinary dividend or recapitalization, reorganization, merger or consolidation. 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 respect to such warrants. Accordingly, the warrants may expire worthless.
The Company accounts for its Class A ordinary shares subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” Class A ordinary shares subject to mandatory redemption are classified as a liability instrument and are measured at fair value. Conditionally redeemable ordinary shares (including ordinary shares 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, ordinary shares are classified as shareholders’ equity. The Company’s Class A ordinary shares feature certain redemption rights that are considered to be outside of the Company’s control and subject to occurrence of uncertain future events. Accordingly, Class A ordinary shares subject to possible redemption are presented at redemption value as temporary equity, outside of the shareholders’ equity section of the Company’s balance sheet.
The Company recognizes changes in redemption value immediately as they occur and adjusts the carrying value of redeemable ordinary shares to equal the redemption value at the end of each reporting period. Increases or decreases in the carrying amount of redeemable ordinary shares are affected by charges against additional paid in capital and accumulated deficit.
At June 30, 2022, and December 31, 2021 the Class A ordinary shares subject to possible redemption reflected in the balance sheet is reconciled in the following table:
| Schedule of shares subject to possible redemption | ||||
| Gross Proceeds | $ | 316,250,000 | ||
| Less: | ||||
| Class A ordinary shares issuance costs | (18,057,563 | ) | ||
| Add: | ||||
| Remeasurement of carrying value to redemption value | 22,801,313 | |||
| Class A ordinary shares subject to possible redemption | $ | 320,993,750 |
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NOTE 9. STOCKHOLDERS’ DEFICIT
Preferred stock - The Company is authorized to issue shares of $ par value preference shares. At June 30, 2022, and December 31, 2021, there were preferred shares issued or outstanding.
Class A ordinary shares - The Company is authorized to issue up to shares of Class A, $ par value ordinary shares. Holders of the Company’s ordinary shares are entitled to one vote for each share. At June 30, 2022, and December 31, 2021, there were shares of Class A ordinary shares issued or outstanding (excluding shares subject to possible redemption).
Class B ordinary shares - The Company is authorized to issue up to shares of Class B, $ par value ordinary shares. Holders of the Company’s ordinary shares are entitled to one vote for each share. At June 30, 2022, and December 31, 2021, there were Class B ordinary shares issued and outstanding.
The shares of Class B ordinary shares will automatically convert into shares of Class A ordinary shares at the time of the Business Combination on a one-for-one basis, subject to adjustment for stock splits, stock dividends, reorganizations, recapitalizations and the like. In the case that additional shares of Class A ordinary shares, or equity linked securities, are issued or deemed issued in excess of the amounts offered in the Initial Public Offering and related to the closing of a Business Combination, the ratio at which shares of Class B ordinary shares shall convert into shares of Class A ordinary shares will be adjusted (unless the holders of a majority of the outstanding shares of Class B ordinary shares agree to waive such adjustment with respect to any such issuance or deemed issuance) so that the number of shares of Class A ordinary shares issuable upon conversion of all shares of Class B ordinary shares will equal, in the aggregate, on an as converted basis, 20% of the sum of the total number of all shares of ordinary shares outstanding upon the completion of the Initial Public Offering plus all shares of Class A ordinary shares and equity linked securities issued or deemed issued in connection with a Business Combination (excluding any shares or equity linked securities issued, or to be issued, to any seller in a Business Combination, and any private placement-equivalent warrants issued to the Sponsor or its affiliates upon conversion of loans made to the Company). Holders of Founder Shares may also elect to convert their shares of Class B ordinary shares into an equal number of shares of Class A ordinary shares, subject to adjustment as provided above, at any time.
The Company may issue additional ordinary shares or preference shares to complete its Business Combination or under an employee incentive plan after completion of its Business Combination.
NOTE 10. SUBSEQUENT EVENTS
Management of the Company evaluated events that have occurred after the balance sheet date through the date the financial statements were issued. Based upon the review, management did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the financial statements.
On August 2, 2022, the Company held an extraordinary general meeting of shareholders (the “Meeting”). At the Meeting, the Company’s shareholders approved the proposals (collectively, the “Proposals”) including a proposal to approve by ordinary resolution the business combination between Founder and Rubicon (the “Business Combination” and such proposal, the “Business Combination Proposal”).
On August 4, 2022, Founder SPAC (the “FOUN”)the Company and ACM ARRT F LLC, a Delaware limited liability company (“Seller”),Seller entered into an agreement (the “Forwardthe Forward Purchase Agreement”)Agreement for an OTC Equity Prepaid Forward Transaction (the “Forward Purchase Transaction”). Pursuant to the terms of the Forward Purchase Agreement, Seller intends,the FPA Sellers intended, but iswere not obligated, to purchase (a) Founder Class A ordinary shares, par value $ per share, of FOUN (the “Shares”)Shares after the date of the Forward Purchase Agreement from holders of the Founder Class A Shares (other than FOUNFounder or affiliates of FOUN)Founder) who have elected to redeem Founder Class A Shares (such purchased Founder Class A Shares, the “Recycled Shares”) pursuant to the redemption rights set forth in FOUN’sFounder’s amended and restated memorandum and articles of association (the “Governing Documents”) in connection with the Business CombinationMergers (such holders, “Redeeming Holders”) and (b) Founder Class A Shares in an issuance from FOUNFounder at a price per Founder Class A Share equal to approximately $10.17 per share, the Per-Share Redemption Price (asper-share redemption price as set forth in Section 1.1 of the Governing Documents)Documents (such Founder Class A Shares, the “Additional Shares” and, together with the Recycled Shares, the “Subject Shares”). Pursuant to the terms of the FPA Agreement, the aggregate number of Subject Shares could not exceed 15 million shares (the “Maximum Number of Shares”). In addition, Seller has agreed to purchase the FPA Sellers purchased an additional 1 million Founder Class A Shares from other Redeeming Holders (the “Separate Shares”). The aggregate total Subject Shares will be (the “Maximum Number of Shares”). Seller alsoFPA Sellers may not beneficially own greater than 9.9% of the SharesCommon Stock on a post-combinationpost-Mergers pro forma basis. Seller has agreed
Pursuant to waive any redemption rights with respect to anythe terms of the Forward Purchase Agreement, the FPA Sellers purchased 7,082,616 Founder Class A Shares, which included 6,082,616 Subject Shares and 1,000,000 Separate Shares, at the per-share redemption price prior to the closing of the Mergers, in exchange for the prepayment by Founder of $68.7 million out of the funds in Founder’s trust account that were to be received by the Company at the Closing. The prepayment amount was calculated as (a) the per-share redemption price multiplied by the 6,082,616 Subject Shares, less (b) 50% of the product of the 6,082,616 Subject Shares multiplied by $1.33 (the “Prepayment Shortfall”) and (c) an amount equal to the product of Separate Shares multiplied by the per-share redemption price. The FPA Sellers did not purchase any Additional Shares.
From time to time following the Closing, the FPA Sellers, in their discretion, may sell the Subject Shares, the effect of which is to terminate the Forward Purchase Agreement in respect of such Subject Shares sold (the “Terminated Shares”) and repay to the Company a portion of the forward price, in amounts corresponding to the number of shares sold. The Forward Purchase Agreement is to mature on the earlier of (a) the third anniversary of the Closing and (b) the date specified by the FPA Sellers at the FPA Sellers’ discretion after the occurrence of a VWAP Trigger Event (the “FPA Maturity Date”). A VWAP Triggering Event occurs if (i) during the first 90 days following the Closing, the VWAP for 20 trading days during any 30 consecutive trading day period is less than $3.00 per share and (ii) from the 91st day following the Closing, the VWAP for 20 trading days during any 30 consecutive trading day period is less than $5.00 per share. At maturity, the Company is obligated to pay to the FPA Sellers an amount equal to the product of (a) (x) the Maximum Number of Shares, less (y) the number of the Terminated Shares, plus (z) the number of the Subject Shares sold whereby the proceeds of such sales were applied as a Prepayment Shortfall, multiplied by (b) $2.00 (the “Maturity Consideration”). The Company is obligated to pay the Maturity Consideration in shares of Class A Common Stock, with the price per share equal to the average daily VWAP for the 30 trading days following the FPA Maturity Date. As of September 30, 2022, the FPA Sellers sold 93,310 shares of Class A Common Stock that were Subject Shares covered by the Forward Purchase Agreement.
In accordance with ASC 815, Derivatives and Hedging, the Company has determined that the forward option within the Forward Purchase Agreement is (i) a freestanding financial instrument and (ii) a derivative. This derivative, referred to throughout as the “forward purchase option derivative” is recorded as a liability on the accompanying condensed consolidated balance sheet as of September 30, 2022. The Company has performed fair value measurements for this derivative as of the Closing and as of September 30, 2022, which is described in Note 15. The Company will remeasure the fair value of the forward purchase option derivative each reporting period.
See Note 20 regarding certain subsequent event related to the Forward Purchase Agreement specific to the occurrence of a VWAP Trigger Event.
Note 12—Standby Equity Purchase Agreement
On August 31, 2022, the Company entered into a Standby Equity Purchase Agreement (“SEPA”) with YA II PN, Ltd. (the “Yorkville Investor”). Pursuant to the SEPA, the Company has the right to sell to the Yorkville Investor, from time to time, up to $200.0 million of shares of Class A Common Stock until the earlier of the 36-month anniversary of the SEPA or until the date on which the facility has been fully utilized, subject to certain limitations and conditions set forth in the SEPA, including the requirement that there be an effective registration statement registering such shares and limitations on the volume of shares that may be sold. Shares will be sold to the Yorkville Investor at a price equal to 97% of the lowest daily VWAP of the Class A Common Stock during the three consecutive trading days immediately prior to any notice to sell such securities provided by the Company. The Yorkville Investor may not beneficially own greater than 9.99% of the outstanding shares of Class A Common Stock. Sales of Class A Common Stock to the Yorkville Investor under the SEPA, and the timing of any such sales, are at the Company’s option, and the Company is under no obligation to sell any securities to the Yorkville Investor under the SEPA. Pursuant to the SEPA, on August 31, 2022, the Company issued the Yorkville Investor shares of Class A Common Stock, which represented an initial up-front commitment fee and was recognized in other income (expense) within the accompanying condensed consolidated statements of operations. The Company did not sell any shares of Class A Common Stock under the SEPA during the period between August 31, 2022 and September 30, 2022.
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2014 Plan
The 2014 Profits Participation Plan and Unit Appreciation Rights Plan (the “2014 Plan”) was a Board-approved plan of Holdings LLC. Under the 2014 Plan, Holdings LLC had the authority to grant incentive and phantom units to acquire common units. Unit awards generally vest at 25% of the units on the one year anniversary of continued employment, with the remaining 75% vesting in equal monthly installments over the next three years, unless otherwise specified.
As further described in Note 3, upon consummation of the Mergers, all incentive units granted under the 2014 Plan vested and converted into the Class V Common Stock and all phantom units granted under the 2014 Plan converted into RSUs and DSUs which will vest into shares of Class A Common Stock on February 11, 2023. The unrecognized compensation cost related to the 2014 Plan that was remaining at the Closing was recognized as expense as of upon consummation of the Mergers.
Incentive Units – Calculating incentive unit compensation expense required the input of highly subjective assumptions pertaining to the fair value of its units. The Company utilized an independent valuation specialist to assist with the Company’s determination of the fair value per unit. The methods used to determine the fair value per unit included discounted cash flow analysis, comparable public company analysis, and comparable acquisition analysis. In addition, the probability-weighted expected return method was used and multiple exit scenarios were considered. The assumptions used in calculating the fair value of incentive unit awards represented the Company’s best estimates, but these estimates involved inherent uncertainties and the application of management’s judgment. The Company estimated volatility based on a comparable market index and calculated the historical volatility for the index for a period of time that corresponded to the expected term of the incentive unit. The expected term was calculated based on the estimated time for which the incentive unit would be held by the awardee. The risk-free rate for periods within the contractual life of the incentive unit was based on the U.S. Treasury yield curve in effect at the time of the grant.
Management utilized the Black-Scholes-Merton option pricing model to determine the fair value of units issued. There were no incentive units granted during the nine months ended September 30, 2022. Compensation expense for all incentive units awarded to date was recognized over the vesting term of the underlying incentive units.
The following represents a summary of the Company’s incentive unit activity and related information during 2022 immediately prior to the consummation of the Mergers:
| Schedule Of Incentive Unit Activity | ||||
| Units | ||||
| Outstanding - January 1, 2022 | 3,084,650 | |||
| Granted | - | |||
| Forfeited | (14,499 | ) | ||
| Outstanding – August 15, 2022 | 3,070,151 | |||
| Vested – August 15, 2022 | 3,070,151 | |||
A summary of nonvested incentive units and changes during 2022 immediately prior to the consummation of the Mergers follows:
| Schedule Of Non vested Incentive Units | ||||||||
| Units | Weighted Average Grant Date Fair Value | |||||||
| Nonvested - January 1, 2022 | 198,210 | $ | 10.25 | |||||
| Granted | - | - | ||||||
| Vested | (183,711 | ) | 10.25 | |||||
| Forfeited | (14,499 | ) | - | |||||
| Nonvested – August 15, 2022 | - | $ | - | |||||
Holdings LLC was authorized to issue phantom units to eligible employees under the terms of the Unit Appreciation Rights Plan. The Company estimated the fair value of the phantom units as of the end of each reporting period and expensed the vested fair market value of each award. The fair value of the phantom units was measured using the same independent valuation assessment as the incentive units.
The Company did not award any phantom units during the nine months ended September 30, 2022. At the Closing of the Mergers, all vested and unvested phantom units were exchanged for 970,389 vested RSUs and 540,032 vested DSUs.
2022 Plan
The 2022 Equity Incentive Plan (the “2022 Plan”), which became effective on August 15, 2022 in connection with the Business Combination.Closing, provides for the grant to certain employees, officers, non-employee directors and other services providers of options, stock appreciation rights, RSUs, restricted stock and other stock-based awards, any of which may be performance-based, and for incentive bonuses, which may be paid in cash, Common Stock or a combination thereof, as determined by the Company’s Compensation Committee. Under the 2022 Plan, shares of Class A Common Stock are authorized to be issued. Subject to Board approval, an additional shares of Class A Common Stock will be available for issuance on January 1, 2023 under the 2022 Plan as a result of the plan’s evergreen provision.
The following represents a summary of the Company’s RSU activity and related information during 2022 immediately after the consummation of the Mergers:
| Schedule of RSUs | ||||
| RSUs | ||||
| Outstanding – August 15, 2022 (prior to the Mergers consummation) | - | |||
| Granted – Phantom Unit exchanges | 970,389 | |||
| Granted – Morris Employment Agreement | 4,821,358 | |||
| Granted – Partial settlement of Management Rollover Consideration | 3,561,469 | |||
| Forfeited | - | |||
| Outstanding – August 15, 2022 (subsequent to the Mergers consummation) | 9,353,216 | |||
| Vested – August 15, 2022 (subsequent to the Mergers consummation) | 970,389 | |||
The RSUs exchanged for phantom units vested upon the Closing of the Mergers. The remaining RSUs will vest over the requisite services periods ranging from six to thirty-six months from the grant date.
The Company recognized $ million and $ million in total equity compensation costs during the three months ended September 30, 2022 and 2021, respectively. The Company recognized $ million and $ million in total equity compensation costs during the nine months ended September 30, 2022 and 2021, respectively.
Pursuant to an Employment Agreement with Mr. Nate Morris, the Company’s former Chief Executive Officer, dated February 9, 2021 and amended on April 26, 2022 and August 10, 2022, the Company is obligated to grant Mr. Morris an additional RSU award with a value equal to $ million based on the fair market value of Class A Common Stock on the grant date. Such waiverRSUs shall become fully vested and non-forfeitable on the six-month anniversary of the Closing. The associated liability is presented as deferred compensation expense on the accompanying condensed consolidated balance sheet as of September 30, 2022. See Note 20 for further information.
Deferred compensation cost recognized during the three months ended September 30, 2022 and 2021 was $1.3 million and $-0- million, respectively. Deferred compensation cost recognized during the nine months ended September 30, 2022 and 2021 was $1.3 million and $-0- million, respectively.
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Basic net loss per share of Class A Common Stock is computed by dividing net loss attributable to the Company by the weighted average number of shares of Class A Common Stock outstanding during the period from August 15, 2022 (the Closing Date) to September 30, 2022. Diluted net loss per share of Class A Common Stock is computed dividing net loss attributable to the Company, adjusted for the assumed exchange of all potentially dilutive securities, by weighted average number of shares of Class A Common Stock outstanding adjusted to give effect to potentially dilutive shares.
Prior to the Mergers, the membership structure of Holdings LLC included units which had profit interests. The Company analyzed the calculation of loss per unit for periods prior to the Mergers and determined that it resulted in values that would not be meaningful to the users of these condensed consolidated financial statements. Therefore, net loss per share information has not been presented for periods prior to August 15, 2022. The basic and diluted loss per share for the three and nine months ended September 30, 2022 represent only the period from August 15, 2022 to September 30, 2022. Furthermore, shares of the Company’s Class V Common Stock do not participate in the earnings or losses of the Company and are therefore not participating securities. As such, separate presentation of basic and diluted earnings per share of Class V Common Stock under the two-class method has not been presented.
The computation of net loss per share attributable to Rubicon Technologies, Inc. and weighted-average shares of the Company’s Class A Common Stock outstanding for period from August 15, 2022 (the Closing Date) to September 30, 2022 are as follows (amounts in thousands, except for share and per share amounts):
| Schedule of net loss per share | ||||
| Numerator: | ||||
| Net loss for the period from August 15, 2022 through September 30, 2022 | $ | (34,741 | ) | |
| Less: Net loss attributable to non-controlling interests for the period from August 15, 2022 through September 30, 2022 | (16,933 | ) | ||
| Net loss for the period from August 15, 2022 through September 30, 2022 attributable to Rubicon Technologies, Inc. – Basic and diluted | $ | (17,808 | ) | |
| Denominator: | ||||
| Weighted average shares of Class A Common Stock outstanding – Basic and diluted | 48,670,776 | |||
| Net loss per share attributable to Class A Common Stock – Basic and diluted | $ | (0.37 | ) | |
The Company’s potentially dilutive securities below were excluded from the computation of diluted loss per share as their effect would be anti-dilutive:
| - | Public Warrants and Private Warrants. |
| - | Earn-Out Class A Shares. |
| - | vested RSUs and vested DSUs. |
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Note 15—Fair value measurements
The following tables summarize the Company’s financial assets and liabilities measured at fair value on recurring basis by level within the fair value hierarchy as of the dates indicated (in thousands):
| Schedule of assets and liabilities measured at fair value on recurring basis | ||||||||||||
| September 30, 2022 | ||||||||||||
| Liabilities | Level 1 | Level 2 | Level 3 | |||||||||
| Forward purchase option derivative | - | - | (8,205 | ) | ||||||||
| Earn-out liabilities | - | - | (7,000 | ) | ||||||||
| Warrant liabilities | - | - | (100 | ) | ||||||||
| Total | - | - | (15,305 | ) | ||||||||
| December 31, 2021 | ||||||||||||
| Liabilities | Level 1 | Level 2 | Level 3 | |||||||||
| Warrant liabilities | - | - | (1,380 | ) | ||||||||
| Deferred compensation – phantom units | - | - | (8,321 | ) | ||||||||
| Total | - | - | (9,701 | ) | ||||||||
| Level 3 Rollfoward | Forward purchase option derivative | Earn-out liabilities | Warrant liabilities | Deferred compensation – phantom units | ||||||||||||
| Beginning balances | - | - | (1,380 | ) | (8,321 | ) | ||||||||||
| Additions | 16,615 | (74,100 | ) | - | - | |||||||||||
| Changes in fair value | (24,820 | ) | 67,100 | (436 | ) | (6,783 | ) | |||||||||
| Reclassified to equity | - | - | 1,716 | 15,104 | ||||||||||||
| Ending balances | (8,205 | ) | (7,000 | ) | (100 | ) | - | |||||||||
The carrying amounts of certain financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and contract assets and liabilities, approximate fair value due to their short-term maturities and are excluded from the fair value table above.
The fair value of the forward purchase option derivative was estimated using a Monte-Carlo Simulation in a risk-neutral framework. Specifically, the future stock price is simulated assuming a Geometric Brownian Motion (“GBM”). For each simulated path, the forward purchase value is calculated based on the contractual terms and then discounted at the term-matched risk-free rate. Finally, the value of the forward is calculated as the average present value over all simulated paths. The Company measured the fair value of the forward purchase option derivative as of the Closing Date and September 30, 2022, with the respective fair value adjustments recorded within the accompanying condensed consolidated statement of operations.
For the contingent consideration related to the Earn-Out Interests, the fair value was estimated using a Monte-Carlo Simulation in which the fair value was based on the simulated stock price of the Company over the maturity date of the contingent consideration. The key inputs used in the determination of the fair value included current stock price, volatility, and expected term. The Company measured the fair value of the Earn-Out Interests as of the Closing Date and September 30, 2022, with the respective fair value adjustments recorded within the accompanying condensed consolidated statement of operations.
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Note 16—Commitments and contingencies
Legal Matters
In the ordinary course of business, the Company is or may reducebe involved in various legal or regulatory proceedings, claims or purported class actions related to alleged infringement of third-party patents and other intellectual property rights, commercial, corporate and securities, labor and employment, wage and hour and other claims.
The Company makes a provision for a liability relating to legal matters when it is both probable that a liability has been incurred and the amount of the loss can be reasonably estimated. These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, estimated settlements, legal rulings, advice of legal counsel and other information and events pertaining to a particular matter. The outcomes of legal proceedings and other contingencies are, however, inherently unpredictable and subject to significant uncertainties. At this time, the Company is not able to reasonably estimate the amount or range of possible losses in excess of any amounts accrued, including losses that could arise as a result of application of non-monetary remedies, with respect to the contingencies it faces, and the Company’s estimates may not prove to be accurate.
In management’s opinion, resolution of all current matters is not expected to have a material adverse impact on the Company’s condensed consolidated results of operations, cash flows or financial position. However, depending on the nature and timing of any such dispute or other contingency, an unfavorable resolution of a matter could materially affect the Company’s current or future results of operations or cash flows, or both.
Leases
The Company leases its office facilities under operating lease agreements expiring through 2031. While each of the leases includes renewal options, the Company has only included the base lease term in its calculation of lease assets and liabilities as it is not reasonably certain to utilize the renewal options. The Company does not have any finance leases.
The following table presents information regarding the maturities of the undiscounted remaining operating lease payments, with a reconciliation to the amount of the liabilities representing such payments as presented on the September 30, 2022 condensed consolidated balance sheet (in thousands).
| Schedule of operating lease payments | ||||
| Years Ending December 31, | ||||
| 2022 | $ | 563 | ||
| 2023 | 2,276 | |||
| 2024 | 1,228 | |||
| 2025 | 151 | |||
| 2026 | 152 | |||
| Thereafter | 732 | |||
| Total minimum lease payments | $ | 5,102 | ||
| Less: Imputed interest | (930 | ) | ||
| Total operating lease liabilities | $ | 4,172 | ||
Note 17—Related party transactions
The Company entered into a certain software subscription agreement with Palantir Technologies, Inc., including related support and update services on September 22, 2021. The Company subsequently amended the agreement on December 15, 2021. The term of the agreement is through December 31, 2024. Pursuant to the agreement, as of September 30, 2022, the Company is committed to pay $15.5 million in the next 12 months and $18.8 million thereafter through October 2024. Palantir Technologies, Inc. was a PIPE Investor and purchased $35.0 million of Class A Common Stock at $10.00 per share on the Closing Date.
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Note 18—Concentrations
During the three months ended September 30, 2022 and 2021, the Company had two significant customers that accounted for approximately 24% and 31% of total revenues, respectively. During the nine months ended September 30, 2022 and 2021, the Company had two significant customers that accounted for approximately 27% and 29% of total revenues, respectively. As of September 30, 2022 and December 31, 2021, approximately 22% and 23%, respectively, of the Company’s accounts receivable and contract assets were due from these two customers.
Note 19—Liquidity
During the nine months ended September 30, 2022, and in each fiscal year since the Company’s inception, it has incurred losses from operations and generated negative cash flows from operating activities. The Company also has negative working capital and stockholders’ deficit as of September 30, 2022.
As of September 30, 2022, cash and cash equivalents totaled $4.5 million, accounts receivable totaled $58.7 million and unbilled accounts receivable totaled $62.8 million. Availability under the Revolving Credit Facility, which provides the ability to borrow up to $60.0 million, was $21.2 million. Pursuant to the SEPA, the Company has the right to sell up to $ million of shares of Class A Common Stock to the Yorkville Investor, subject to certain limitations and conditions set forth in the SEPA, including the requirement that there be an effective registration statement registering such shares for resale and limitations on the volume of shares that may be sold. Additionally, because shares issued under the SEPA are sold at a discount to the then-current market price, in light of the current market price and the NYSE rules limiting the number of Shares redeemedshares that can be issued without the approval of the Company’s shareholders, the amount that could currently be raised pursuant to the SEPA is significantly lower than $200.0 million. Furthermore, the amended Term Loan agreement entered into on November 18, 2022 requires the Company to repay the Term Loan with any net proceeds provided by the SEPA until such time that the Term Loan is repaid in full (see Note 20). The Company's outstanding indebtedness includes the Revolving Credit Facility, the Term Loan and the Subordinated Term Loan, under which the principal of $36.2 million, $51.0 million and $20.0 million, respectively, were outstanding as of November 15, 2022 and are scheduled to mature in December 2023.
The Company currently projects that it will not have sufficient cash on hand or available liquidity under existing arrangements to meet the Company’s projected liquidity needs for the next 12 months. In the absence of additional capital, there is substantial doubt about the Company’s ability to continue as a going concern.
To address the Company’s projected liquidity needs for the next 12 months, the Company has negotiated and received a binding commitment for $30.0 million of additional financing (the “Financing Commitment”), pursuant to which certain existing investors agreed to contribute cash up to the $30.0 million commitment amount to the extent other equity capital of an equivalent amount has not been provided to the Company by January 15, 2023 (see Note 20). In addition to the proceeds from the Financing Commitment, the Company has begun to execute its plans to modify its operations to further reduce spending. Initiatives the Company has undertaken in the fourth quarter of 2022 include (i) increased focus on operational efficiencies and cost reduction measures, (ii) eliminating redundancies that have been the byproduct of the Company’s recent growth and expansion, (iii) evaluating the Company’s portfolio and less profitable accounts to better ensure the Company is deploying resources efficiently, and (iv) exercising strict capital discipline for future investments, such as requiring investments to meet minimum hurdle rates.
The Company believes that the extended maturity of the Revolving Credit Facility and the Financing Commitment along with cash on hand and available under the Revolving Credit Facility, and other cash flows from operations are expected to provide sufficient liquidity to meet the Company’s known liquidity needs for the next 12 months. The Company believes this plan is probable of being achieved and alleviates substantial doubt about the Company’s ability to continue as a going concern.
Note 20—Subsequent events
On October 13, 2022 (the “Transition Date”), the Company entered into a CEO Transition Agreement with Mr. Nate Morris, the former Chief Executive Officer (the “CEO”) of the Company. Pursuant to the CEO Transition Agreement, Mr. Morris ceased serving as the Company’s CEO, but continued his role as Chairman of the Board of the Directors of the Company (the “Board”) and was given the title of Founder, Chairman and Strategic Advisor through February 10, 2023 (the “End Date”). Mr. Morris will also continue to serve as a member of the Board until the earlier of (a) the first anniversary of the Transition Date, (b) the date of the Company’s annual shareholder meeting in 2023, and (c) the 10th day following notice by Mr. Morris that he intends to resign from the Board. The Company will make a series of transition payments to Mr. Morris in the aggregate amount of $1.9 million between the Transition Date and the End Date and pay Mr. Morris a $0.7 million bonus on the End Date with respect to his service in 2022. Additionally, in lieu of any obligation to deliver RSUs to the Mr. Morris pursuant to his Employment Agreement described in Note 13, the Company granted Mr. Morris RSUs on October 19, 2022 pursuant to the CEO Transition Agreement.
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In October 2022, a VWAP Trigger Event occurred and the Forward Purchase Agreement could mature on the date specified by the FPA Sellers at the FPA Sellers’ discretion. The FPA Sellers have not specified the Maturity Date of the Forward Purchase Agreement as of the issuance of these unaudited interim condensed consolidated financial statements.
On November 4, 2022, the Company entered into an amended agreement for certain professional services provided in connection with the Business Combination, which reduction could alterMergers. Pursuant to the perceptionamended agreement, the Company agreed to settle the unpaid fees with $1.0 million paid in cash upon execution of the potential strengthamendment, plus the Company will issue the advisor a variable number of shares of Class A Common Stock by November 18, 2022, in such an amount equal to $ million based on the fair market value of Class A Common Stock. The Company had previously recognized $12.7 million for the related professional services within its accrued expenses as of September 30, 2022 on the accompanying unaudited interim condensed consolidated balance sheets. The difference of $10.7 million between the amount recognized in the accrued expense as of September 30, 2022 and the settlement amount in the amended agreement was recognized as other income on the Company’s consolidated statement of operations on the execution date of the Business Combination.amended agreement.
On November 14, 2022, the Company entered into a binding Financing Commitment with certain existing investors, whereby the investors intend to provide $30.0 million of financing to the Company through the issuance by the Company of debt and/or equity securities including, without limitation, shares of capital stock, securities convertible into or exchangeable for shares of capital stock, warrants, options, or other rights for the purchase or acquisition of such shares and other ownership or profit interests of the Company. Any debt issued pursuant to this letter would have a term of at least 12 months and any equity or equity linked securities issued under this letter would have a fixed price such that no other shareholder or other exchange approvals would be required. The amount the investors agreed to contribute under the Financing Commitment will be reduced on a dollar-for-dollar basis by the amount of any other equity capital the Company receives through January 15, 2023.
On November 17, 2022, the Company’s Board of Directors committed to a reduction in force plan (the “Plan”) as part of the Company’s measures to reduce spending and preserve cash available for the Company’s operations. The Plan involves a reduction of 55 employees, which is approximately 11% of the Company’s workforce. The Company currently estimates that it will incur one-time cash charges of approximately $0.6 million, primarily consisting of an estimated $0.5 million in severance payments, and $0.1 million in related costs. The Company expects that most of these charges will be incurred in the fourth quarter of 2022, and that the reduction in force will be substantially complete by the end of 2022. In aggregate, over the next twelve months, the reduction in force is expected to result in approximately $5.5 million in annual cash savings for the Company. The Company may incur other charges or cash expenditures not currently contemplated due to unanticipated events that may occur as a result of or in connection with the implementation of the Plan.
On November 18, 2022, the Company entered into an amendment to the Revolving Credit Facility agreement, in which the lender consented to the amendment to the Subordinated Term Loan agreement. The amendment also extended its term through December 14, 2023 and modified the interest rate the Revolving Credit Facility bears to SOFR plus 5.6%. Additionally, the Company committed to raise $5.0 million from the Financing Commitment or a similar commitment by November 23, 2022, and additional $25.0 million from the issuance of equity by the earlier of (i) 5 business days after the date the Company’s S-1 filed with the SEC on August 22, 2022 becomes effective, or (ii) January 31, 2023.
On November 18, 2022, the Company entered into an amendment to the Term Loan agreement, in which the lender consented to the amendments to the Revolving Credit Facility agreement and the Subordinated Term Loan agreement. Additionally, the Company committed to raise $5.0 million from the Financing Commitment or a similar commitment by November 23, 2022, and additional $25.0 million from the issuance of equity by the earlier of (i) 5 business days after the date the Company’s S-1 filed with the SEC on August 22, 2022 becomes effective, or (ii) January 31, 2023. The amended Term Loan agreement also requires the Company to cause the Yorkville Investor to purchase the maximum amount of the Company’s equity interests available under the SEPA and to utilize the net proceeds from such drawdowns to repay the Term Loan until it is fully repaid. If the Company does not repay the Term Loan in full by March 27, 2023, the Company will be liable for an additional fee in the amount of $2.0 million, out of which $1.0 million will be due in cash on March 27, 2023, and the other $1.0 million will accrue to the principal balance of the Term Loan. Furthermore, beginning on March 27, 2023, an additional $0.15 million fee will accrue to the principal balance of the Term Loan each week thereafter until the Term Loan is fully repaid.
The Company may not use the SEPA to fund the new equity financing commitments it agreed to in the amendments to the Revolving Credit Facility and the Term Loan, and the financings used to satisfy the commitments under the Revolving Credit Facility amendment may be used to also satisfy the commitments under the Term Loan amendment.
On November 18, 2022, the Company entered into an amendment to the Subordinated Term Loan agreement. The amendment extended the Subordinated Term Loan maturity through December 31, 2023. Concurrently, the Company entered into an amendment to the Subordinated Term Loan Warrants agreements, which (i) increased the number of Class A Common Stock the lender has the right to purchase with the Subordinated Term Loan Warrants to such number of Class A Common Stock worth $2.6 million ($2.0 million prior to the amendment), (ii) caused the Subordinated Term Loan Warrants to be immediately exercisable upon execution of the amended Subordinated Term Loan Warrants agreements, and (iii) increased the value of Class A Common Stock the Subordinated Term Loan Warrants will earn each additional full calendar month after March 22, 2023 to $0.25 million ($0.2 million prior to the amendment) until the Company repays the Subordinated Term Loan in full.
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ITEMItem 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSManagement’s Discussion and Analysis of Financial Condition and Results of Operations
ReferencesUnless the context otherwise requires, all references in this report (the “Quarterly Report”)section to “Holdings LLC” refer to the business and operations of Rubicon Technologies Holdings, LLC (formerly known as Rubicon Technologies, LLC) and its subsidiaries, including those periods prior to the consummation of the Mergers. References to “Rubicon” or “the Company” refer to the business and operations of Rubicon Technologies, Inc., following the consummation of the Mergers. References to “we,” “us” or the “Company”“our” refer to Founder SPAC. References to our “management” or our “management team” refer to our officersRubicon and directors, and references toHoldings LLC collectively. You should read the “Sponsor” refer to Founder SPAC Sponsor LLC. The following discussion and analysis of the Company’sour financial condition and results of operations should be read in conjunctiontogether with the unaudited interim condensed consolidated financial statements and the related notes thereto containedappearing elsewhere in this Quarterly Report. CertainReport on Form 10-Q. In addition to historical information, containedcertain statements in this discussion are forward-looking statements. These forward-looking statements are subject to numerous risks, uncertainties and assumptions that could cause Rubicon’s actual results to differ materially from management’s expectations, including, but not limited to, the risks and uncertainties discussed herein and under the caption “Cautionary Note Regarding Forward-Looking Statements.”
Overview
We are a digital marketplace for waste and recycling services. Underpinning this marketplace is a cutting-edge, modular platform that powers a modern, digital experience and delivers data-driven insights and transparency for our customers and hauling and recycling partners. We provide our waste generator customers with a platform that delivers pricing transparency, self-service capabilities, and a seamless customer experience while helping them achieve their environmental goals; we enhance our hauling and recycling partners’ economic opportunities and help them optimize their businesses; and we help governments provide more advanced waste and recycling services that allow them to serve their local communities more effectively.
Over the past decade, this value proposition has allowed us to scale our platform considerably. Our digital marketplace now services over 8,000 customers, including numerous large, blue-chip customers such as Apple, Dollar General, Starbucks, Walmart, Chipotle, and FedEx, and encompasses over 8,000 hauling and recycling partners across North America. We have also deployed our technology in over 70 municipalities within the United States and operate in 20 countries. Furthermore, we have secured a robust portfolio of intellectual property, having been awarded more than 50 patents, with over 100 pending, and 20 trademarks.
We operate as one segment. See Note 1, Nature of operations and summary of significant accounting policies, to our unaudited interim condensed consolidated financial statements included in Item 1 of Part I, “Financial Statements” of this Quarterly Report on Form 10-Q for our discussion about segments.
Mergers
On August 15, 2022, we consummated the Mergers. The Mergers were accounted for akin to a reverse recapitalization, with no goodwill or other intangible assets recorded, in accordance with U.S. GAAP. The Mergers had several significant impacts on our reported financial position and results, as a consequence of the reverse recapitalization treatment.
At the consummation of the Mergers, holders of 24,178,161 Founder Class A Shares (or approximately 76.5% of the issued and outstanding Founder Class A Shares on such date) exercised their right to redeem those shares for cash at a price of approximately $10.176 per share, resulting in an aggregate redemption payment of approximately $246.0 million from Founder’s trust account. Following these redemptions, at the Closing, we received approximately $75.8 million from Founder’s trust account, without accounting for the payments of transaction costs, payments under the Forward Purchase Agreement and Cash Transaction Bonuses. As a result of consummation of the Mergers, and accounting for the foregoing redemption payments and receipt of funds from Founder’s trust account, the most significant changes in our financial position was a net increase in cash of approximately $73.8 million after accounting for payments of transaction and other costs of $25.3 million, aggregate payments of $68.7 million to the FPA Sellers under the Forward Purchase Agreement, net proceeds of $121.0 million from the PIPE Investment, and the payments by us of aggregate Cash Transaction Bonuses of $28.9 million. See Note 3, Mergers, to our unaudited interim condensed consolidated financial statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q for further information.
We expect to incur additional general and administrative expenses as a result of operating as a public company, including costs to comply with the rules and regulations applicable to companies listed on a national securities exchange, costs related to compliance and reporting obligations pursuant to the rules and regulations of the SEC, and increased expenses for insurance, investor relations, professional and other similar services. General and administrative expenses may fluctuate further as a result of acquisitions or other strategic transactions we undertake in the future.
In connection with the Mergers, we entered into a Tax Receivable Agreement with certain of our legacy investors. We may be required to make significant payments in the future under this agreement depending on the extent of certain tax benefits and other factors and these payments could have a material impact on our results of operations and liquidity. See “—Tax Receivable Agreement” below for additional information.
Prior to and following the Closing, we entered into the Forward Purchase Agreement and the SEPA to provide for certain equity financing arrangements. See “—Liquidity and Capital Resources—Other Financing Arrangement” below for additional information regarding these facilities.
COVID-19
The COVID-19 pandemic created significant global economic uncertainty, adversely impacted the business of our customers and partners, impacted our business, results of operations and cash flows and in the future could further impact our business, results of operations and our cash flows. In response to the COVID-19 pandemic, we proactively took steps to put our employees’, customers’ and partners’ needs first to ensure that we could provide our services safely and efficiently.
As a result of the pandemic, we experienced customer attrition during the second half of 2020 which caused a decline in service revenue during the first half of 2021 as compared to the same prior-year period; however, our revenues subsequently began to recover and for the second half of 2021, our service revenue increased by $21.7 million as compared to the second half of 2020. This trend has continued into 2022 with our service revenue increasing by $72.2 million for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021. Additionally, our sales and marketing activities and spend decreased during 2021 and 2020 as a result of pandemic-related cost-saving initiatives. Some sales and marketing activities, including hiring in the sales and marketing teams and team members’ attendance at business development conferences and meetings, resumed beginning in the first quarter of 2022, contributing to an additional $2.7 million in sales and marketing expense for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021. See “—Liquidity and Capital Resources—Debt” below for information regarding loans we received and that were forgiven under the Paycheck Protection Program.
Key Factors Affecting Our Performance
Financial results from our operations and the growth and future success of our business are dependent upon many factors. While each of these factors presents significant opportunities for us, these factors also pose challenges that we must successfully address to sustain and grow our business. See also “—Key Metrics and Non-GAAP Financial Measures” below for a discussion of key business and non-GAAP metrics that we use to help manage and evaluate our business, identify trends affecting our business, formulate business plans, and make strategic decisions.
Industry trends and customers preference
The waste and recycling industry is highly regulated and complex, and public policy is increasingly focused on improving diversion from landfills and reducing emissions. Current policies tend to encourage and reward reductions in carbon dioxide emissions, and many major cities in the United States have promulgated climate action plans committing to achieve emissions reductions in line with the Paris Climate Accords. Additionally, the waste generators’ awareness of benefits achieved by improved diversion from landfills has been increasing which we believe is and will continue driving preference for recycling over landfills. We view these trends as an opportunity to accelerate the growth of our business, including our revenue and profitability.
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Commodity nature of our recycling program
Through our recycling program, we market a variety of materials, including fibers such as old corrugated cardboard, old newsprint, aluminum, glass, pallets and other materials. Currently, old corrugated cardboard is the most significant material in our recycling program. Our recyclable commodity revenue is influenced by fluctuations in prices of the recyclable commodities. Periods of increasing prices generally provide the opportunity for higher revenue while periods of declining prices may result in declines in sales. For the reporting periods, the trend of the recyclable commodity prices was overall upward and contributed to higher recyclable commodity revenue in the current year periods as compared to the prior year, though some commodities’ prices, including old corrugated cardboard, have declined during more recent periods. For the three months ended September 30, 2022 and 2021, our recyclable commodity revenue was $22.2 million and $22.0 million, respectively, and for the nine months ended September 30, 2022 and 2021, our recyclable commodity revenue was $71.6 million and $54.3 million, respectively.
See Item 3 of Part I, “Quantitative and Qualitative Disclosures About Market Risk” and Analysis of Financial Condition and Results of Operations and Item 1A of Part II, “Risk Factors” included in elsewhere in this Quarterly Report on Form 10-Q for further discussion regarding recyclable commodity price risk.
Investment in products
We are actively investing in our business to support future growth and we expect this investment to continue. We have built a leading cloud-based digital marketplace that provides a transformational customer experience through an easy-to-use interface, where customers can manage services, track invoices, and view environmental outcomes. We believe that our platform is highly differentiated, and we expect to continue to invest in product development to further develop and enhance our platform’s features and functionality to further extend the adoption of our platform. For the three months ended September 30, 2022 and 2021, our product development cost was $9.8 million and $4.8 million, respectively, and for the nine months ended September 30, 2022 and 2021, our product development cost was $28.3 million and $13.4 million, respectively. While we continue to invest in product development, we are focusing on operational efficiencies and cost reduction measures, such as rationalizing redundancies across the organization. We expect product development costs to stay consistent as a percentage of total revenue in the next twelve months.
Components of Results of Operations
Revenue
We generate our revenue from waste removal, waste management and consultation services, platform subscriptions, and the purchase and sale of recyclable commodities.
Service revenue:
Service revenues are comprised of waste removal and consultation services provided to customers for waste, recycling and logistics solutions. Services include planning, consolidation of billing and administration, cost savings analyses, vendor procurement and performance management, and a suite of solutions providing insights into the customers’ waste streams.
Recyclable commodity revenue:
We recognize recyclable commodity revenue through the purchase and sale of old corrugated cardboard, old newsprint, aluminum, glass, pallets and other recyclable materials.
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Cost of revenue, exclusive of amortization and depreciation
Cost of service revenues primarily consist of expenses related to delivering our service and providing support, including third-party hauler costs, costs of data center capacity, certain fees paid to various third parties for the use of their technology, services and data, and employee-related costs such as salaries and benefits.
As part of our services, we work with our customers to locate opportunities to reduce waste volume and service frequency with the intention to reduce costs for the customers which in turn leads to reduced costs for us. We are typically entitled to bill for a portion of such savings the customers realize as a result of our services in accordance with the terms with our customer contracts.
Cost of recyclable commodity revenues primarily consist of expenses related to purchase of old corrugated cardboard, old newsprint, aluminum, glass, pallets and other recyclable materials, and any associated transportation fees.
Sales and marketing
Sales and marketing expenses consist primarily of compensation costs, including salaries, bonuses, benefits and other incentives to our sales and marketing personnel, advertising expenses, digital marketing expenses, sales commissions and other promotional expenditures.
Product development
Product development expenses consist primarily of compensation costs, including salaries, bonuses and other benefits to our product development team, contract labor expenses and fees for software licenses, consulting, legal, and other services.
General and administrative
General and administrative expenses consist primarily of compensation and benefits related costs, including equity-based compensation expense for our general corporate functions. General and administrative costs also consist of third-party professional service fees for external legal, accounting, and other consulting services, insurance charges, hosting fees and overhead costs.
We expect that general and administrative expenses will decrease as a percentage of total revenues over the next several years as a result of our increased focus on operational efficiencies and planned cost reduction measures across the organization. We plan to eliminate redundancies across the organization, which were a byproduct of our growth and expansion phase the past few years. However, we expect certain incremental costs to incur as a result of operating as a public company, including expenses to comply with the rules and regulations applicable to companies listed on a national securities exchange and expenses related to compliance and reporting obligations pursuant to the rules and regulations of the SEC.
Equity-based compensation expense in the three and nine months ended September 30, 2022 was approximately $91.0 million and $95.8 million, respectively, an increase of $90.2 million and $92.4 million compared to the three and nine months ended September 30, 2021, respectively. At the consummation of the Mergers, we incurred approximately $79.7 million of equity-based compensation expense due to the modification and vesting of the “Legacy Rubicon Incentive Units and Phantom Units,” which are those units we granted pursuant to the Holdings LLC Profits Participation Plan and Unit Appreciation Rights Plan (the “2014 Plan”) and additional $10.9 million for the RSUs granted to certain management members.
At the consummation of the Mergers, we also incurred approximately $47.6 million of one-time compensation costs associated with certain Rubicon management rollover consideration, which is payable in cash or equity at our discretion. It is expected we will make certain RSU and deferred stock unit (“DSU”) awards as replacement awards for Rubicon management rollover consideration under the Merger Agreement. We expect to issue a variable number of RSUs and DSUs in such an amount equal to $47.6 million based on the fair market value of Class A Common Stock at the time of the awards. These RSUs and DSUs would be subject to certain vesting conditions and will vest into an equivalent number of shares of Class A Common Stock. While the terms of these awards have not yet been finalized, the anticipated equity-based compensation expense for these RSUs and DSUs issued in connection with the replacement awards is expected to be $47.6 million and offset the accrued compensation expenses associated with Rubicon management rollover consideration under the Merger Agreement.
On October 19, 2022, we granted certain RSU and DSU awards pursuant to the Merger Agreement as replacement awards for the Holdings LLC Phantom Units. The number of RSUs and DSUs issuable in exchange of Legacy Rubicon Phantom Units is expected to be approximately 970,389 and 540,032, respectively. These RSUs and DSUs will vest on February 11, 2023 into an equivalent number of Class A Common Stock. The equity-based compensation expense for the RSUs and DSUs issued in exchange for the Legacy Rubicon Phantom Units was approximately $2.2 million and recognized in general and administrative expense for the three months ended September 30, 2022. Accounting rules require immediate recognition of the equity-based compensation expense as a result of the non-substantive vesting period.
Additionally, certain of our employees received a one-time incentive cash payment upon closing of the Mergers. The aggregate Cash Transaction Bonuses paid by us in connection with the Mergers was approximately $28.9 million, as well as additional discretionary bonuses in the amount of $2.8 million paid following the Closing. Historically, we have paid annual cash-based bonuses to our employees. For the years ended December 31, 2021 and 2020, the annual cash-based bonuses we incurred were $6.8 million and $6.0 million, respectively. We expect that annual cash-based bonuses will continue to be a component of our employee compensation practices to ensure that we are able to attract and retain employee talent; however, we do not expect that additional cash-based bonuses of a size comparable to the Cash Transaction Bonuses will be awarded or payable in the ordinary course, outside of a change of control or similar significant transaction. Accordingly, our general and administrative expenses increased by the payment of the Cash Transaction Bonuses during the three- and nine-month periods ended September 30, 2022 (the periods in which the Mergers were consummated).
Additionally, pursuant to the CEO Transition Agreement, we will make a series of transition payments to Mr. Nate Morris, the Company’s former CEO, in the aggregate amount of $1.9 million through February 10, 2023 and a $0.7 million bonus with respect to his service in 2022 that will be paid by February 10, 2023. In lieu of any obligation to deliver RSUs to Mr. Morris pursuant to his employment agreement, we granted to Mr. Morris an award of 8,378,986 RSUs that will vest on February 10, 2023. See Note 20, Subsequent Events, to our unaudited interim condensed consolidated financial statements included in Item 1 of this Part I of this Quarterly Report on Form 10-Q for further information.
We expect that equity-based compensation will continue to be a substantial component of employee compensation practices of Rubicon; however, we do not expect that additional equity-based compensation of a size comparable to the grants made in respect of the Legacy Rubicon Incentive Units and Phantom Units or the CEO Transition Agreement will be awarded in the ordinary course, outside of a change of control or similar significant transaction or comparable management transitions. It is anticipated that such equity-based compensation expenses will likely increase our general and administrative expenses, dilute existing Rubicon stockholders, and reduce our earnings per share.
Amortization and depreciation
Amortization and depreciation consist of all depreciation and amortization expenses associated with our property and equipment, acquired intangible assets and customer acquisition costs.
Interest expense
Interest expense consists primarily of interest expense associated with our outstanding debt, including accretion of debt issuance costs.
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Results of Operations
The following tables show our results of operations for the periods presented. The period-to-period comparison of financial results is not necessarily indicative of future results.
Comparison of the three months ended September 30, 2022 and 2021
| Three Months Ended September 30, | ||||||||||||||||
| 2022 | 2021 | Change $ | Change % | |||||||||||||
| (in thousands, except changes in percentage) | ||||||||||||||||
| Revenue | ||||||||||||||||
| Service | $ | 162,789 | $ | 127,256 | $ | 35,533 | 27.9 | % | ||||||||
| Recyclable commodity | 22,194 | 21,952 | 242 | 1.1 | % | |||||||||||
| Total revenue | 184,983 | 149,208 | 35,775 | 24.0 | % | |||||||||||
| Costs and expenses: | ||||||||||||||||
| Cost of revenue (exclusive of amortization and depreciation) | ||||||||||||||||
| Service | 157,504 | 122,771 | 34,733 | 28.3 | % | |||||||||||
| Recyclable commodity | 20,234 | 20,340 | (106 | ) | (0.5 | )% | ||||||||||
| Total cost of revenue (exclusive of amortization and depreciation) | 177,738 | 143,111 | 34,627 | 24.2 | % | |||||||||||
| Sales and marketing | 4,840 | 3,808 | 1,032 | 27.1 | % | |||||||||||
| Product development | 9,803 | 4,827 | 4,976 | 103.1 | % | |||||||||||
| General and administrative | 186,640 | 11,561 | 175,079 | NM | % | |||||||||||
| Amortization and depreciation | 1,439 | 1,344 | 95 | 7.1 | % | |||||||||||
| Total costs and expenses | 380,460 | 164,651 | 215,809 | 131.1 | % | |||||||||||
| Loss from operations | (195,477 | ) | (15,443 | ) | (180,034 | ) | NM | % | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest earned | 1 | - | 1 | NM | % | |||||||||||
| Gain on change in fair value of warrants | 74 | - | 74 | NM | % | |||||||||||
| Gain on change in fair value of earn-out liabilities | 67,100 | - | 67,100 | NM | % | |||||||||||
| Loss on change in fair value of forward purchase option derivative | (76,919 | ) | - | (76,919 | ) | NM | % | |||||||||
| Excess fair value over the consideration received for SAFE | - | - | - | NM | % | |||||||||||
| Other expense | (1,307 | ) | (326 | ) | (981 | ) | 300.9 | % | ||||||||
| Interest expense | (4,578 | ) | (2,611 | ) | (1,967 | ) | 75.3 | % | ||||||||
| Total other income (expense) | (15,629 | ) | (2,937 | ) | (12,692 | ) | 432.1 | % | ||||||||
| Loss before income taxes | (211,106 | ) | (18,380 | ) | (192,726 | ) | NM | % | ||||||||
| Income tax expense (benefit) | 19 | (252 | ) | 271 | (107.5 | )% | ||||||||||
| Net loss | (211,125 | ) | (18,128 | ) | (192,997 | ) | NM | % | ||||||||
| Net loss attributable to Holdings LLC unitholders prior to the Mergers | (176,384 | ) | (18,128 | ) | (158,256 | ) | 873.0 | % | ||||||||
| Net loss attributable to noncontrolling interests | (16,933 | ) | - | (16,933 | ) | NM | % | |||||||||
| Net Loss Attributable to Class A Common Stockholders | (17,808 | ) | - | (17,808 | ) | NM | % | |||||||||
NM – not meaningful
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Revenue
Total revenue increased by $35.8 million, or 24.0%, for the three months ended September 30, 2022, compared to the three months ended September 30, 2021.
Service revenue increased by $35.5 million, or 27.9%, primarily due to $22.5 million generated from our new customers since the end of the prior year quarter and a $17.1 million increase driven by higher prices charged for the services provided to our existing customers, partially offset by a $3.9 million decrease as a result of lower volume and frequency of the services provided for the existing customers.
Revenues from sales of recyclable commodities increased by $0.2 million, or 1.1%, primarily due to a 64.2% increase in the sales price per unit for pallets compared to the three months ended September 30, 2021, which was partially offset by a 14.2% decrease in the price per ton of old corrugated cardboard.
Cost of revenue, exclusive of amortization and depreciation
Total cost of revenue increased by $34.6 million, or 24.2%, for the three months ended September 30, 2022, compared to the three months ended September 30, 2021.
Cost of service revenue increased by $34.7 million or 28.3%, primarily attributable to a $20.8 million increase in connection with servicing our new customers including nonrecurring costs incurred for onboarding a new significant customer, and a $16.2 million increase driven by price increase for the services provided to our existing customers, partially offset by a $2.5 million decrease as a result of lower volume and frequency of the services provided to the existing customers.
Cost of recyclable commodity revenue decreased by $0.1 million or 0.5% primarily due to a decrease in prices of certain commodities, including old corrugated cardboard, during the three-month ended September 30, 2022 as compared to prior year quarter.
Sales and marketing
Sales and marketing expenses increased by $1.0 million or 27.1% for the three months ended September 30, 2022, compared to the three months ended September 30, 2021. The increase was primarily attributable to higher costs of $0.9 million for sales and marketing activities that we recommenced in 2022 following a temporary suspension as a result of the pandemic, including meetings, conferences and other business development activities.
Product development
Product development expenses increased by $5.0 million, or 103.1%, for the three months ended September 30, 2022, compared to the three months ended September 30, 2021. The increase was primarily attributable to higher product development support costs of $4.3 million, which was mainly driven by higher software subscription costs to support our product development team, and higher payroll related costs of $0.6 million, which increased primarily due to the headcount increase in our product development team to support our growth.
We expect product development costs to continue to be higher for next twelve months. The increase is expected to be driven by the Palantir Technologies, Inc. software services subscription, which provides advanced data analytics capabilities to enhance the data security, visibility, models, and algorithms of our digital platform. See “Contractual Obligations.” However, the increase from the Palantir Technologies, Inc. software services agreement is expected to be offset, at least partially, by planned cost reduction measures as a result of our increased focus on operational efficiencies. We also plan to eliminate any redundancies within the organization, including in product development, which were a byproduct of our growth and expansion phase the past few years.
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General and administrative
General and administrative of $186.6 million expenses increased by $175.1 million for the three months ended September 30, 2022, compared to the three months ended September 30, 2021. The increase was primarily attributable to an increase of stock-based compensation expense by $90.2 million and cash payments and RSU and DSU issuances in connection with Rubicon management rollover consideration under the Merger Agreement increasing expense by $82.1 million. The majority of these stock-based compensation expenses were incurred in connection with vesting of Holdings LLC’s incentive units and phantom units granted under the 2014 Plan as well as bonuses and incentives in connection with the consummation of the Mergers. Additionally, payroll cost increased by $1.3 million due to headcount increases.
Amortization and depreciation
Amortization and depreciation expenses for the three months ended September 30, 2022 were relatively unchanged compared to the three months ended September 30, 2021.
Other income (expense)
Other expense increased by $12.7 million or 432.1% for the three months ended September 30, 2022, compared to the three months ended September 30, 2021. The increase was primarily attributable to a $76.9 million loss from change in fair value of forward purchase option derivative incurred in connection with the Forward Purchase Agreement and a $2.0 million increase in interest expense, partially offset by a $67.1 million gain from change in fair value of earn-out liabilities.
See Note 15, Fair Value Measurements, to our unaudited interim condensed consolidated financial statements included in Item 1 of Part I, “Financial Statements” of this Quarterly Report on Form 10-Q for further information regarding the changes in fair value.
Income tax expense (benefit)
Income tax expense for the three months ended September 30, 2022 increased by $0.3 million compared to the three months ended September 30, 2021. The increase was primarily attributable to the current state tax expenses.
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Comparison of the nine months ended September 30, 2022 and 2021
| Nine Months Ended September 30, | ||||||||||||||||
| 2022 | 2021 | Change $ | Change % | |||||||||||||
| (in thousands, except changes in percentage) | ||||||||||||||||
| Revenue | ||||||||||||||||
| Service | $ | 437,755 | $ | 365,511 | $ | 72,244 | 19.8 | % | ||||||||
| Recyclable commodity | 71,640 | 54,251 | 17,389 | 32.1 | % | |||||||||||
| Total revenue | 509,395 | 419,762 | 89,633 | 21.4 | % | |||||||||||
| Costs and expenses: | ||||||||||||||||
| Cost of revenue (exclusive of amortization and depreciation) | ||||||||||||||||
| Service | 423,382 | 351,287 | 72,095 | 20.5 | % | |||||||||||
| Recyclable commodity | 65,856 | 51,098 | 14,758 | 28.9 | % | |||||||||||
| Total cost of revenue (exclusive of amortization and depreciation) | 489,238 | 402,385 | 86,853 | 21.6 | % | |||||||||||
| Sales and marketing | 13,336 | 10,604 | 2,732 | 25.8 | % | |||||||||||
| Product development | 28,336 | 13,350 | 14,986 | 112.3 | % | |||||||||||
| General and administrative | 212,520 | 34,968 | 177,552 | 507.8 | % | |||||||||||
| Amortization and depreciation | 4,331 | 4,958 | (627 | ) | (12.6 | )% | ||||||||||
| Total costs and expenses | 747,761 | 466,265 | 281,496 | 60.4 | % | |||||||||||
| Loss from operations | (238,366 | ) | (46,503 | ) | (191,863 | ) | 412.6 | % | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest earned | 1 | 2 | (1 | ) | (50.0 | )% | ||||||||||
| Gain on forgiveness of debt | - | 10,900 | 10,900 | (100.0 | )% | |||||||||||
| Loss on change in fair value of warrants | (436 | ) | - | (436 | ) | NM | % | |||||||||
| Gain on change in fair value of earn-out liabilities | 67,100 | - | 67,100 | NM | % | |||||||||||
| Loss on change in fair value of forward purchase option derivative | (76,919 | ) | - | (76,919 | ) | NM | % | |||||||||
| Excess fair value over the consideration received for SAFE | (800 | ) | - | (800 | ) | NM | % | |||||||||
| Other expense | (1,994 | ) | (730 | ) | (1,264 | ) | 173.2 | % | ||||||||
| Interest expense | (12,264 | ) | (7,461 | ) | (4,803 | ) | 64.4 | % | ||||||||
| Total other income (expense) | (25,312 | ) | 2,711 | (28,023 | ) | NM | % | |||||||||
| Loss before income taxes | (263,678 | ) | (43,792 | ) | (219,886 | ) | 502.1 | % | ||||||||
| Income tax expense (benefit) | 60 | (961 | ) | 1,021 | (106.2 | )% | ||||||||||
| Net loss | (263,738 | ) | (42,831 | ) | (220,907 | ) | 515.8 | % | ||||||||
| Net loss attributable to Holdings LLC unitholders prior to the Mergers | (228,997 | ) | (42,831 | ) | (186,166 | ) | 434.7 | % | ||||||||
| Net loss attributable to noncontrolling interests | (16,933 | ) | - | (16,933 | ) | NM | % | |||||||||
| Net Loss Attributable to Class A Common Stockholders | (17,808 | ) | - | (17,808 | ) | NM | % | |||||||||
NM – not meaningful
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Revenue
Total revenue increased by $89.6 million, or 21.4%, for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021.
Service revenue increased by $72.2 million, or 19.8%, primarily due to $41.1 million generated from our new customers since the end of the prior year period and an increase of $64.0 million driven by higher prices charged for the services provided to our existing customers, partially offset by a $32.9 million decrease as a result of lower volume and frequency of the services provided to the existing customers.
Revenues from sales of recyclable commodities increased by $17.4 million, or 32.1%, primarily due to an increase in the sales prices for recyclable commodities, especially old corrugated cardboard, which contributed to a $10.3 million increase driven by the higher average price per ton by 26.2%, and pallets, which contributed to a $6.0 million increase as a result of the higher average price per unit by 49.3%, in each case as compared to the average price in the prior year period.
Cost of revenue, exclusive of amortization and depreciation
Total cost of revenue increased by $86.9 million, or 21.6%, for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021.
Cost of service revenue increased by $72.1 million or 20.5%, primarily attributable to a $40.9 million increase in connection with servicing our new customers, including nonrecurring costs for onboarding a new significant customer, and a $63.6 million increase driven by price increase from our hauling and recycling partners for servicing our existing customers, partially offset by a $31.4 million decrease as a result of lower volume and frequency of the services provided for the existing customers.
Cost of recyclable commodity revenue increased by $14.8 million or 28.9% primarily attributable to cost increases driven by higher prices of recyclable commodities sold, especially old corrugated cardboard by $10.3 million and pallets by $4.8 million.
Sales and marketing
Sales and marketing expenses increased by $2.7 million or 25.8% for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021. The increase was primarily attributable to higher costs for sales and marketing activities that we recommenced in 2022 following a temporary suspension as a result of the pandemic, including meetings, conferences and other business development activities in the amount of $1.5 million and higher payroll related costs of $0.9 million due to headcount increases.
Product development
Product development expenses increased by $15.0 million, or 112.3%, for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021. The increase was primarily attributable to higher product development support costs of $12.9 million, which was mainly driven by higher software subscription costs to support our product development team, and higher payroll related costs of $1.9 million, which increased primarily due to the headcount increases in our product development team to support our growth.
We expect product development costs to continue to be higher for next twelve months. The increase is expected to be driven by the Palantir Technologies, Inc. software services subscription, which provides advanced data analytics capabilities to enhance the data security, visibility, models, and algorithms of our digital platform. See “Contractual Obligations.” However, the increase from the Palantir Technologies, Inc. software services agreement is expected to be offset, at least partially, by planned cost reduction measures as a result of our increased focus on operational efficiencies. We also plan to eliminate any redundancies within the organization, including in product development, which were a byproduct of our growth and expansion phase the past few years.
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General and administrative
General and administrative expenses increased by $177.6 million, or 507.8%, for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021. The increase was primarily attributable to an increase of stock-based compensation expense by $92.4 million and cash payments and RSU and DSU issuances in connection with Rubicon management rollover consideration under the Merger Agreement increasing expense by $82.3 million. The majority of these stock-based compensation expenses were incurred in connection with vesting of Holdings LLC’s incentive units and phantom units granted under the 2014 Plan as well as bonuses and incentives in connection with the consummation of the Mergers. Additionally, an increase of outside services by $3.0 million including professional service fees to operate as a publicly traded company, an increase of $3.5 million in payroll cost due to the headcount increase, partially offset by a $5.2 million decrease in bad debt expense due to improved cash collection of amounts for which reserves had previously been established.
Amortization and depreciation
Amortization and depreciation expenses for the nine months ended September 30, 2022 were relatively unchanged compared to the nine months ended September 30, 2021.
Other income (expense)
Other expense of $25.3 million increased by $28.0 million for the nine months ended September 30, 2022, compared to the nine months ended September 30, 2021. The increase was primarily attributable to a $76.9 million loss on change in fair value of forward purchase option derivative incurred in connection with the Forward Purchase Agreement, a $10.9 million debt forgiveness in 2021 which did not repeat, a $4.8 million increase in interest expense, an $0.8 million loss related to the excess fair value over the consideration received for the SAFE executed in May 2022 and an $0.8 million expense incurred for commitment shares issued in connection of SEPA, partially offset by a $67.1 million gain on change in fair value of earn-out liabilities.
See Note 15, Fair Value Measurements, to our unaudited interim condensed consolidated financial statements included in Item 1 of Part I, “Financial Statements” of this Quarterly Report on Form 10-Q for further information regarding the changes in fair value and “Liquidity and Capital Resources – Other Financing Arrangements below” for further information regarding the SAFE.
Income tax expense (benefit)
Income tax expense for the nine months ended September 30, 2022 increased by $1.0 million compared to the nine months ended September 30, 2021. The increase was primarily attributable to the deferred tax expenses related to book and tax basis difference in goodwill and the current state tax expenses.
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Key Metrics and Non-GAAP Financial Measures
In addition to the measures presented in our condensed consolidated financial statements, we use the following key business and non-GAAP metrics to help us evaluate our business, identify trends affecting our business, formulate business plans, and make strategic decisions.
Revenue net retention
We believe our ability to retain customers is an indicator of the stability of our revenue base and the long-term value of our customer relationships. We calculate revenue net retention as a year-over-year comparison that measures the percentage of revenue recognized in the current quarter from customers retained from the corresponding quarter in the prior year. We believe that our revenue net retention rate is an important metric to measure overall client satisfaction and the general quality of our service offerings as it is a composition of revenue expansion or contraction within our customer accounts.
Our revenue net retention rate was 118.3% and 109.0% as of September 30, 2022 and 2021, respectively.
Adjusted gross profit and adjusted gross profit margin
Adjusted gross profit is a non-GAAP financial measure which is calculated by adding back amortization and depreciation for revenue generating activities and platform support costs to GAAP gross profit, the most comparable GAAP measurement. Adjusted gross profit margin is calculated as adjusted gross profit divided by total GAAP revenue.
We believe adjusted gross profit and adjusted gross profit margin are important measures and useful to investors because they show the progress in scaling our digital platform by quantifying the markup and margin we charge our customers that are incremental to our marketplace vendor costs. These measures demonstrate this progress because changes in these measures are driven primarily by our ability to optimize services for our customers, improve our hauling and recycling partners’ efficiency and achieve economies of scale on both sides of the marketplace. Our management team uses these non-GAAP measures as one of the means to evaluate the profitability of our customer accounts, exclusive of certain costs that are generally fixed in nature, and to assess how successful we are in achieving our pricing strategies. However, it is important to note that other companies, including companies in our industry, may calculate and use these measures differently or not at all, which may reduce their usefulness as a comparative measure. Further, these measures should not be read in isolation from or without reference to our results prepared in accordance with GAAP.
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The following table shows the calculation of GAAP gross profit and a reconciliation of (i) GAAP gross profit to non-GAAP adjusted gross profit and GAAP gross profit margin to non-GAAP adjusted gross profit margin, (ii) amortization and depreciation for revenue generating activities to total amortization and depreciation and (iii) platform support costs to total cost of revenue (exclusive of amortization and depreciation) for each of the periods presented:
Three Months Ended | Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| (in thousands, except percentages) | ||||||||||||||||
| Total revenue | $ | 184,983 | $ | 149,208 | $ | 509,395 | $ | 419,762 | ||||||||
| Less: total cost of revenue (exclusive of amortization and depreciation) | 177,738 | 143,111 | 489,238 | 402,385 | ||||||||||||
| Less: amortization and depreciation for revenue generating activities | 657 | 450 | 1,886 | 2,012 | ||||||||||||
| Gross profit | $ | 6,588 | $ | 5,647 | $ | 18,271 | $ | 15,365 | ||||||||
| Gross profit margin | 3.6 | % | 3.8 | % | 3.6 | % | 3.7 | % | ||||||||
| Gross profit | $ | 6,588 | $ | 5,647 | $ | 18,271 | $ | 15,365 | ||||||||
| Add: amortization and depreciation for revenue generating activities | 657 | 450 | 1,886 | 2,012 | ||||||||||||
| Add: platform support costs(1) | 6,884 | 5,787 | 19,761 | 16,026 | ||||||||||||
| Adjusted gross profit | $ | 14,129 | $ | 11,884 | $ | 39,918 | $ | 33,403 | ||||||||
| Adjusted gross profit margin | 7.6 | % | 8.0 | % | 7.8 | % | 8.0 | % | ||||||||
| Amortization and depreciation for revenue generating activities | $ | 657 | $ | 450 | $ | 1,886 | $ | 2,012 | ||||||||
| Amortization and depreciation for sales, marketing, general and administrative activities | 782 | 894 | 2,445 | 2,946 | ||||||||||||
| Total amortization and depreciation | $ | 1,439 | $ | 1,344 | $ | 4,331 | $ | 4,958 | ||||||||
| Platform support costs(1) | $ | 6,884 | $ | 5,787 | $ | 19,761 | $ | 16,026 | ||||||||
| Marketplace vendor costs(2) | 170,854 | 137,324 | 469,477 | 386,359 | ||||||||||||
| Total cost of revenue (exclusive of amortization and depreciation) | $ | 177,738 | $ | 143,111 | $ | 489,238 | $ | 402,385 | ||||||||
| (1) | We define platform support costs as costs to operate our revenue generating platforms that do not directly correlate with volume of sales transactions procured through our digital marketplace. Such costs include employee costs, data costs, platform hosting costs and other overhead costs. |
| (2) | We define marketplace vendor costs as direct costs charged by our hauling and recycling partners for services procured through our digital marketplace. |
Adjusted EBITDA
Adjusted EBITDA is a non-GAAP financial measure and GAAP net loss is its most comparable GAAP measurement. We define adjusted EBITDA as GAAP net loss adjusted to exclude interest expense and income, income tax expense and benefit, amortization and depreciation, equity-based compensation, phantom unit expense, gain or loss on change in fair value of warrant liabilities, gain or loss on change in fair value of earn-out liabilities, gain or loss on change in fair value of forward purchase option derivative, excess fair value over the consideration received for SAFE, other non-operating income and expenses, and unique non-recurring income and expenses.
We have included adjusted EBITDA because it is a key measure used by our management team to evaluate our operating performance, generate future operating plans, and make strategic decisions, including those relating to operating expenses. Further, we believe it is helpful in highlighting trends in our operating results because it allows for more consistent comparisons of financial performance between periods by excluding gains and losses that are non-operational in nature or outside the control of management, as well as items that may differ significantly depending on long-term strategic decisions regarding capital structure, the tax jurisdictions in which we operate and capital investments. It is also often used by analysts, investors and other interested parties in evaluating and comparing our results to other companies within our industry. Accordingly, we believe that adjusted EBITDA provides useful information to investors and others in understanding and evaluating our operating results in the same manner as our management team and board of directors.
Adjusted EBITDA has limitations as an analytical tool, and you should not consider it in isolation or as a substitute for analysis of net loss or our other results as reported under GAAP. Some of these limitations are:
| ● | adjusted EBITDA does not reflect our cash expenditures, future requirements for capital expenditures, or contractual commitments; | |
| ● | adjusted EBITDA does not reflect changes in, or cash requirements for, our working capital needs; | |
| ● | adjusted EBITDA does not reflect our tax expense or the cash requirements to pay our taxes; | |
| ● | although amortization and depreciation are non-cash charges, the assets being amortized and depreciated will often have to be replaced in the future and adjusted EBITDA does not reflect any cash requirements for such replacements; | |
| ● | adjusted EBITDA should not be construed as an inference that our future results will be unaffected by unusual or non-recurring items for which we may make adjustments in historical periods; and | |
| ● | other companies in our industry may calculate adjusted EBITDA differently than we do, limiting its usefulness as a comparative measure. |
The following table presents a reconciliation of net loss, the most directly comparable financial measure calculated in accordance with GAAP, to adjusted EBITDA for each of the periods presented:
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| (in thousands, except percentages) | ||||||||||||||||
| Total revenue | $ | 184,983 | $ | 149,208 | $ | 509,395 | $ | 419,762 | ||||||||
| Net loss | $ | (211,125 | ) | $ | (18,128 | ) | $ | (263,738 | ) | $ | (42,831 | ) | ||||
| Adjustments: | ||||||||||||||||
| Interest expense | 4.578 | 2,611 | 12,264 | 7,461 | ||||||||||||
| Interest earned | (1 | ) | - | (1 | ) | (2 | ) | |||||||||
| Income tax expense (benefit) | 19 | (252 | ) | 60 | (961 | ) | ||||||||||
| Amortization and depreciation | 1,439 | 1,344 | 4,331 | 4,958 | ||||||||||||
| Equity-based compensation | 88,793 | 122 | 88,977 | 486 | ||||||||||||
| Phantom unit expense | 2,213 | 641 | 6,783 | 2,907 | ||||||||||||
| Deferred compensation expense | 1,250 | - | 1,250 | - | ||||||||||||
| (Gain) Loss on change in fair value of warrant liabilities | (74 | ) | - | 436 | - | |||||||||||
| Gain on change in fair value of earn-out liabilities | (67,100 | ) | - | (67,100 | ) | - | ||||||||||
| Loss on change in fair value of forward purchase option derivative | 76,919 | - | 76,919 | - | ||||||||||||
| Excess fair value over the consideration received for SAFE | - | - | 800 | - | ||||||||||||
| Nonrecurring merger transaction expenses(3) | 80,712 | - | 80,712 | - | ||||||||||||
| Other expenses(4) | 1,307 | 326 | 1,994 | 730 | ||||||||||||
| Gain on forgiveness of debt | - | - | - | (10,900 | ) | |||||||||||
| Adjusted EBITDA | $ | (21,070 | ) | $ | (13,336 | ) | $ | (56,313 | ) | $ | (38,152 | ) | ||||
| Net loss as a percentage of total revenue | (114.1 | )% | (12.1 | )% | (51.8 | )% | (10.2 | )% | ||||||||
| Adjusted EBITDA as a percentage of total revenue | (11.4 | )% | (8.9 | )% | (11.1 | )% | (9.1 | )% | ||||||||
| (3) | Nonrecurring merger transaction expenses primarily consist of management bonus payments of $31.7 million, including $2.8 million bonuses paid subsequent to the Closing Date, accrual for Rubicon management rollover consideration under the Merger Agreement of $47.6 million, and related payroll tax expense of $1.2 million in connection with the Mergers. |
| (4) | Other expenses primarily consist of foreign currency exchange gains and losses, taxes, penalties, commitment fee for SEPA, and gains and losses on sale of property and equipment. |
Liquidity and Capital Resources
Liquidity describes the ability of a company to generate sufficient cash flows in the short- and long-term to meet the cash requirements of its business operations, including working capital needs, debt service, acquisitions and investments, and other commitments and contractual obligations. We consider liquidity in terms of cash flows from operations and other sources, and their sufficiency to fund our operating and investing activities.
Our principal sources of liquidity have been borrowings under our current and prior credit facilities, proceeds from the issuance of equity and warrant exercises and cash generated by operating activities. More recently, we received cash proceeds from the Mergers and the PIPE Investment, and have entered into the SEPA to provide additional liquidity (see “—Other Financing Arrangements” below). Our primary cash needs are for day-to-day operations, to fund working capital requirements, to fund our growth strategy, including investments and acquisitions, to pay interest and principal on our indebtedness and to pay $34.3 million under our software subscription agreement with Palantir Technologies, Inc., through October 2024 (see “—Contractual Obligations” below).
Our principal uses of cash in recent periods have been funding operations and paying expenses associated with the Mergers, including amounts paid under the Forward Purchase Agreement. Our long-term future capital requirements will depend on many factors, including revenue growth rate, achieving higher profitability on our revenue contracts, the timing and the amount of cash received from customers, the expansion of sales and marketing activities, the timing and extent of spending to support investments, including research and development efforts and the continuing market adoption of our products, and the terms on which we refinance our existing indebtedness.
During the nine months ended September 30, 2022, and in each fiscal year since the Company’s inception, we have incurred losses from operations and generated negative cash flows from operating activities. We also have negative working capital and stockholders’ deficit as of September 30, 2022. Our total current liabilities as of September 30, 2022 are $258.7 million.
As of September 30, 2022, cash and cash equivalents totaled $4.5 million, accounts receivable totaled $58.7 million and unbilled accounts receivable totaled $62.8 million. Availability under our Revolving Credit Facility, which provides the ability to borrow up to $60.0 million, was $21.2 million. As of November 15, 2022, we had approximately $5.1 million in cash and cash equivalents and $23.8 million available under our Revolving Credit Facility. Our outstanding indebtedness includes the Revolving Credit Facility, the Term Loan and the Subordinated Term Loan, under which the principal of $36.2 million, $51.0 million and $20.0 million, respectively, were outstanding as of November 15, 2022 and are scheduled to mature in December 2023. Pursuant to the SEPA, we have the right to sell up to $200.0 million of shares of Class A Common Stock to the Yorkville Investor, subject to certain limitations and conditions set forth in the SEPA. However, because shares issued under the SEPA are sold at a discount to the then-current market price, in light of the current market price and the NYSE rules limiting the number of shares that can be issued without shareholder approval, the amount that could be raised pursuant to the SEPA is significantly lower than $200.0 million without first obtaining shareholder approval. Furthermore, the amended Term Loan agreement entered into on November 18, 2022 requires us to repay the Term Loan with any net proceeds provided by the SEPA until such time that the Term Loan is repaid in full.
We currently project that we will not have sufficient cash on hand or available liquidity under existing arrangements to meet our projected liquidity needs for the next 12 months. In the absence of additional capital, there is substantial doubt about our ability to continue as a going concern.
To address projected liquidity needs for the next 12 months, we have negotiated and received a binding commitment for $30.0 million of additional financing (the “Financing Commitment”), pursuant to which certain existing investors have agreed to contribute cash up to the $30.0 million commitment amount to the extent other equity capital of an equivalent amount has not been provided to the Company by January 15, 2023. See “—Financing Arrangements” below for additional information regarding the Financing Commitment. In addition to the proceeds from the Financing Commitment, we have begun to execute our plan to modify our operations to further reduce spending. Initiatives we have undertaken in the fourth quarter of 2022 include (i) increased focus on operational efficiencies and cost reduction measures, (ii) eliminating redundancies that have been the natural byproduct of our recent growth and expansion, (iii) evaluating our portfolio and less profitable accounts to better ensure we are deploying resources efficiently, and (iv) exercising strict capital discipline for future investments, such as requiring investments to meet minimum hurdle rates.
We believe that the extended maturity of the Revolving Credit Facility, the Financing Commitment, cash on hand and available under the Revolving Credit Facility, and other cash flows from operations are expected to provide sufficient liquidity to meet our known liquidity needs for the next 12 months. We believe this plan is probable of being achieved and alleviates substantial doubt about our ability to continue as a going concern. In the longer-term, we intend to refinance all of the indebtedness maturing in 2023 with new, longer-term debt facilities (the “New Debt Facilities”).
We may receive additional capital from the cash exercise of the Public and Private Warrants. However, the exercise price of our Warrants is $11.50 per warrant and the last reported sales price of our Class A Common Stock on November 18, 2022 was $2.19. The likelihood that Warrant holders will exercise their Warrants, and therefore the likelihood of any amount of cash proceeds that we may receive, is dependent upon the trading price of our Class A Common Stock and we do not currently expect to receive any cash proceeds from the exercise of Warrants in the short- to medium-term due to the trading price of our Class A Common Stock. If the trading price for our Class A Common Stock continues to be less than $11.50 per share, we do not expect Warrant holders to exercise their Warrants. Similarly, the Private Warrants may be exercised on a cashless basis and we will not receive any proceeds from such exercise, even if the Private Warrants are in-the-money. We will have broad discretion over the use of any proceeds from the exercise of such securities. Any proceeds from the exercise of such securities would increase our liquidity, but we are not currently budgeting for any cash proceeds from the exercise of Warrants when planning for our operational funding needs.
If we raise funds by issuing equity securities, including under the SEPA, dilution to stockholders will occur and may be substantial. Any equity securities issued may also provide for rights, preferences, or privileges senior to those of holders of common stock. If we raise funds by issuing debt securities, including the convertible notes proposed to be entered into as part of the Financing Commitment and the New Debt Facilities, these debt securities could have rights, preferences, and privileges senior to those of common stockholders. The terms of debt securities or borrowings, including the terms of the Financing Commitment and the New Debt Facilities, could impose significant restrictions on our operations and will increase the cost of capital due to interest payment requirements. The capital markets have been very difficult and expensive to access in recent periods, which could impact the availability and cost of equity and debt financing under the Financing Commitment, the New Debt Facilities or otherwise. It is possible that we will not enter into all of financing contemplated with respect to the New Debt Facilities and that no additional funding will be available at all in the capital markets. In addition, recent and anticipated future increases in federal fund rates set by the Federal Reserve, which serve as a benchmark for rates on borrowing, will impact the cost and availability of debt financing.
If we are unable to obtain adequate capital resources to fund operations, we will not be able to continue to operate our business pursuant to our current business plan, which would require us to modify our operations to reduce spending to a sustainable level by, among other things, delaying, scaling back or eliminating some or all of our ongoing or planned investments in corporate infrastructure, business development, sales and marketing, product development and other activities, which could have a material adverse impact on our operations and our ability to increase revenues, or we may be forced to discontinue our operations entirely. Similarly, in the longer-term, any inability to repay or refinance our indebtedness maturing in 2023 through the New Debt Facilities or otherwise would have similar effects on our business.
See “—Contractual Obligations” below for a discussion of other obligations with respect to which we will be required to make significant future payments or under which we have significant financial contractual obligations.
Cash Flows
The following table summarizes our cash flows for the periods indicated:
| Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Net cash used in operating activities | $ | (112,918 | ) | $ | (45,110 | ) | ||
| Net cash used in investing activities | (69,865 | ) | (1,344 | ) | ||||
| Net cash provided by financing activities | 176,630 | 48,071 | ||||||
| Net increase (decrease) in cash and cash equivalents | $ | (6,153 | ) | $ | 1,617 | |||
Cash flows used in operating activities
Net cash used in operating activities increased by $67.8 million to $112.9 million for the nine months ended September 30, 2022 compared to $45.1 million for the nine months ended September 30, 2021. The increase in cash used in operating activities was driven by:
| ● | a $220.9 million increase in net loss. | |
| ● | a $112.1 million increase in non-cash charges which was primarily attributable to a $88.1 million increase in equity-based compensation, an increase of $76.9 million in loss from change in fair value of forward purchase option derivative, a $10.9 million decrease in gain of forgiveness of debt, a $3.9 million increase in phantom unit expense, a $1.4 million increase in amortization of debt issuance costs, a $1.3 million increase in deferred compensation expense, a $1.0 million increase in deferred tax income expense, partially offset by a $67.1 million increase in gain from change in fair value of earn-out liabilities and a $5.5 decrease in bad debt reserve. | |
| ● | a $41.0 million favorable impact attributable to changes in operating assets and liabilities, primarily driven by an increase in favorable impact from accrued expenses by $46.6 million and contract assets by $6.0 million, partially offset by an increase in unfavorable impact from accounts receivable by $7.9 million and prepaid expense by $3.7 million. |
Cash flows used in investing activities
Net cash used in investing activities increased by $68.5 million to $69.9 million for the nine months ended September 30, 2022 compared to $1.3 million for the nine months ended September 30, 2021. The increase in cash used in investing activities was primarily driven by payments made under the Forward Purchase Agreement.
Cash flows from financing activities
Net cash provided by financing activities was $176.6 million for the nine months ended September 30, 2022, compared to $48.1 million for the nine months ended September 30, 2021. Net cash provided by financing activities for the nine months ended September 30, 2022 resulted primarily from net proceeds from the Mergers of $175.0 million and proceeds of $8.0 million from the SAFE, offset in part by $4.5 million repayments of long-term debt, and $2.0 million payments of financing costs. Net cash provided by financing activities was $48.1 million for the nine months ended September 30, 2021 resulted primarily from proceeds of $32.5 million from warrants exercised and $22.3 million from long-term debt, offset in part by net payment on line of credit of $4.4 million, repayments of long-term debt in the amount of $1.5 million and $0.8 million payments of financing costs.
Tax Receivable Agreement
In connection with the consummation of the Mergers, we entered into the Tax Receivable Agreement with the common and preferred unitholders of Holdings LLC (“TRA Holders”), whereby following the Mergers, we are obligated to make payments under the Tax Receivable Agreement equal to 85% of certain of our realized (or in certain cases, deemed realized) tax savings as a result of certain tax benefits related to the transactions contemplated by the Merger Agreement and future exchanges of Class B Units for Class A Common Stock or cash. Rubicon will benefit from the remaining 15% of such tax savings.
The actual future payments to the TRA Holders will vary, and estimating the amount of payments that may be made under the Tax Receivable Agreement is by its nature imprecise, insofar as the calculation of amounts payable depends on a variety of factors and future events. The actual future payments under the Tax Receivable Agreement are dependent on a number of factors, including the price of Class A Common Stock at the time of the exchange; the timing of future exchanges; the extent to which exchanges are taxable; the amount and timing of the utilization of tax attributes; the amount, timing and character of our income; the U.S. federal, state and local tax rates then applicable; the depreciation and amortization periods that apply to the increases in tax basis; the timing and amount of any earlier payments that we may have made under the TRA; and the portion of our payments under the TRA that constitutes imputed interest or gives rise to depreciable or amortizable tax basis.
A significant portion of any potential future payments under the Tax Receivable Agreement is anticipated to be payable over 15 years, consistent with the period over which the associated tax deductions would be realized by us, assuming Holdings LLC generates sufficient income to utilize the deductions. If sufficient income is not generated by Holdings LLC, our associated taxable income will be affected and the associated tax benefits to be realized will be limited, thereby similarly reducing the associated Tax Receivable Agreement payments to be made. We may however still need to seek additional sources of financing depending on the given circumstances at the time any payments will be made.
While many of the factors that will determine the amount of payments that we will make under the Tax Receivable Agreement are outside of its control, we expect that the payments we will make under the Tax Receivable Agreement will be substantial. We generally expect to fund such distributions out of available cash of Holdings LLC, and as a result, such payments will reduce the cash provided by the tax savings generated from the relevant transactions that would otherwise have been available to us and Holdings LLC for other uses, including repayment of debt, funding day-to-day operations, reinvestment in the business or returning capital to holders of Class A Common Stock in the form of dividends or otherwise.
We may incur significant costs in addition to the due course obligations arising under the Tax Receivable Agreement described above. In particular, in the event that (a) we undergo certain change of control events (e.g., certain mergers, dispositions and other similar transactions), (b) there is a material uncured breach under the Tax Receivable Agreement, or (c) we elect to terminate the Tax Receivable Agreement early, in each case, our obligations under the Tax Receivable Agreement would accelerate and become payable in a lump sum amount equal to the present value of the anticipated future tax savings calculated based on certain assumptions, as set forth in the Tax Receivable Agreement. In addition, the interest on the payments made pursuant to the Tax Receivable Agreement may significantly exceed our other costs of capital. In certain situations, including upon the occurrence of the events described above, we could be required to make payments under the Tax Receivable Agreement that exceed its actual cash savings, requiring it to seek funding from other sources, including incurring additional debt. Thus, our obligations under the Tax Receivable Agreement could have a substantial negative effect on its financial condition and liquidity.
Despite these potential costs, we do not believe that that the Tax Receivable Agreement will be a material detriment to our future results of operations and liquidity, as any payments required under the Tax Receivable Agreement will arise directly from our realized (or in certain cases, deemed realized) tax savings as a result of certain tax benefits related to the Mergers and future exchanges of Class B Units for Class A Common Stock or cash and are expected to be made in lieu of income taxes otherwise payable by us. Additionally, we will receive the benefit of 15% of any such tax savings.
See Note 1, Nature of operations and summary of significant accounting policies, to our unaudited interim condensed consolidated financial statements included in Item 1 of Part I, “Financial Statements” of this Quarterly Report on Form 10-Q for further information regarding the Tax Receivable Agreement.
Debt
On December 14, 2018, we entered into a Revolving Credit Facility, which was subsequently amended, and which provides for borrowings of up to $60.0 million and, as recently amended, matures in December 2023. As of September 30, 2022, we had approximately $30.1 million of borrowings under the Revolving Credit Facility, resulting in an unused borrowing capacity of approximately $21.2 million. We may use the proceeds of future borrowings under the Revolving Credit Facility to finance our acquisition strategy and for other general corporate purposes. The Revolving Credit Facility bore interest at LIBOR plus 4.5% until an amended agreement entered on April 26, 2022, and since the amendment, it bore interest at SOFR plus 4.6%. We entered into an amended agreement on November 18, 2022, which extended the maturity of the Revolving Credit Facility and increased the interest rate thereafter to SOFR plus 5.6%. Additionally, pursuant to the amendment, we committed to raise $5.0 million from the Financing Commitment or a similar commitment by November 23, 2022, and additional $25.0 million from the issuance of equity by the earlier of (i) 5 business days after the date our S-1 filed with the SEC on August 22, 2022 becomes effective, or (ii) January 31, 2023. Our Revolving Credit Facility also includes forward-lookinga lockbox arrangement, which provides for receipts to be swept daily to reduce borrowings outstanding at the discretion of the lender.
On March 29, 2019, we entered into a Term Loan agreement, which was subsequently amended, and which provides for $60.0 million of term loan secured by a second lien on all of our assets at an interest rate of LIBOR plus 9.5%. The Term Loan matures on the earlier of March 2024 or the maturity date under the Revolving Credit Facility. We did not meet the minimum equity raise requirement of $50.0 million by June 30, 2022, which if not met, the lender could reduce the Term Loan collateral by $20.0 million and require the use of available funds under the Revolving Credit Facility as additional Term Loan collateral. As a result of the $20.0 million reduction in the Term Loan collateral, the availability under the Revolving Credit Facility was reduced by approximately $8.7 million as of September 30, 2022. As of September 30, 2022, we had loans outstanding under the Term Loan agreement with a total carrying value of $49.9 million. On November 18, 2022, we entered into an amendment to the Term Loan agreement, in which the lender consented to the amendments to the Revolving Credit Facility agreement and the Subordinated Term Loan agreement. Additionally, we committed to raise $5.0 million from the Financing Commitment or a similar commitment by November 23, 2022, and additional $25.0 million from the issuance of equity by the earlier of (i) 5 business days after the date our S-1 filed with the SEC on August 22, 2022 becomes effective, or (ii) January 31, 2023. The amended Term Loan agreement also requires us to cause the Yorkville Investor to purchase the maximum amount of our equity interests available under the SEPA and to utilize the net proceeds from such drawdowns to repay the Term Loan until it is fully repaid. If we do not repay the Term Loan in full by March 27, 2023, we will be liable for an additional fee in the amount of $2.0 million, out of which $1.0 million will be due in cash on March 27, 2023, and the other $1.0 million will accrue to the principal balance of the Term Loan. Furthermore, beginning on March 27, 2023, an additional $0.15 million fee will accrue to the principal balance of the Term Loan each week thereafter until the Term Loan is fully repaid.
We may not use the SEPA to fund the new equity financing commitments we agreed to in the amendments to the Revolving Credit Facility and Term Loan, and the financings used to satisfy the commitments under the Revolving Credit Facility amendment may be used to also satisfy the commitments under the Term Loan amendment.
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On December 22, 2021, we entered into a Subordinated Term Loan agreement which provides for $20.0 million of term loan secured by a third lien on all of our assets at an interest rate of 15.0%. The Subordinated Term Loan, as recently amended, matures on December 31, 2023. As of September 30, 2022, we had term loans outstanding under the Subordinated Term Loan agreement with a total carrying value of $19.6 million. If we do not repay the Subordinated Term Loan on or before its maturity, the Subordinated Term Loan Warrants will become exercisable for additional Class A Common Stock until such time that the principal and interest are fully paid in cash. On November 18, 2022, we entered into an amendment to the Subordinated Term Loan agreement. The amendment extended the Subordinated Term Loan maturity through December 31, 2023. Concurrently, we entered into an amendment to the Subordinated Term Loan Warrants agreements, which (i) increased the number of Class A Common Stock the lender has the right to purchase with the Subordinated Term Loan Warrants to such number of Class A Common Stock worth $2.6 million ($2.0 million prior to the amendment), (ii) caused the Subordinated Term Loan Warrants to be immediately exercisable upon execution of the amended Subordinated Term Loan Warrants agreements, and (iii) increased the value of Class A Common Stock the Subordinated Term Loan Warrants will earn each additional full calendar month after March 22, 2023 to $0.25 million ($0.2 million prior to the amendment) until we repay the Subordinated Term Loan in full.
In addition, we received loans under the PPP, which was established under the CARES Act and is administered by the SBA, for an amount totaling $10.8 million. We elected to repay $2.3 million of the PPP loans during the year ended December 31, 2020. The SBA forgave the PPP loans in the full amount of $10.8 million along with associated accumulated interest during the year ended December 31, 2021, resulting in a refund of the $2.3 million of the PPP loans repaid. As of September 30, 2022 and December 31, 2021, we had no outstanding PPP loan balances. The SBA and other government communications have however indicated that all loans in excess of $2.0 million will be subject to audit and that those audits could take up to seven years to complete.
See Note 5, Debt, and Note 20, Subsequent Events, to our unaudited interim condensed consolidated financial statements included in Item 1 of Part I, “Financial Statements” of this Quarterly Report on Form 10-Q for a more detailed description of our indebtedness and the recent amendments thereto.
We do not have any special purpose entities and we do not engage in off-balance sheet financing arrangements.
Other Financing Arrangements
On May 25, 2022, we entered into the Rubicon Equity Investment Agreement (Simple Agreement for Future Equity or “SAFE”) with certain investors, whereby, the investors advanced us $8,000,000 and, in connection with the consummation of the Mergers and in exchange for the advancements, (a) Holdings LLC issued 880,000 of its Class B Units to such investors, (b) Rubicon issued 160,000 shares of Class A Common Stock to such investors, and (c) Founder SPAC Sponsor LLC forfeited 160,000 shares of Class A Common Stock. All the obligations thereunder were satisfied upon the Closing and the exchanges for the advancements discussed above. See Note 10, Equity Investment Agreement, to our unaudited interim condensed consolidated financial statements included in Item 1 of Part I, “Financial Statements” of this Quarterly Report on Form 10-Q for more information regarding the SAFE.
On August 4, 2022, we entered into the Forward Purchase Agreement for an OTC Equity Prepaid Forward Transaction with the FPA Sellers. Pursuant to the Forward Purchase Agreement, prior to the Closing, the FPA Sellers purchased an aggregate of 7,082,616 shares of Class A Common Stock from Founder shareholders who, pursuant to the governing documents of Founder, elected to redeem such shares in connection with the Closing, and upon such purchase, the FPA Sellers waived their redemption rights to such securities. The Forward Purchase Agreement resulted in an additional $4.0 million of cash at the Closing. Pursuant to the terms therein, we are entitled to receive certain additional payments in the future periods in connection with certain sales of Class A Common Stock by the FPA Sellers, if any. In addition, we may be required to issue additional shares of Class A Common Stock pursuant to the FPA Agreement. See Note 11, Forward-Purchase Agreement, and Note 20, Subsequent Events, to our unaudited interim condensed consolidated financial statements included in Item 1 of Part I, “Financial Statements” of this Quarterly Report on Form 10-Q for more information regarding the Forward Purchase Agreement and for discussion of the occurrence of a VWAP Trigger Event, which could allow the FPA Sellers to accelerate the maturity date of the Forward Purchase Agreement.
On August 31, 2022, we entered into the SEPA with the Yorkville Investor. Pursuant to the SEPA, we have the right to sell to the Yorkville Investor, from time to time, up to $200.0 million of shares of Class A Common Stock at a discounted per share price until the earlier of the 36-month anniversary of the SEPA or until the date on which the facility has been fully utilized, subject to certain limitations and conditions set forth in the SEPA. Sales of Class A Common Stock to the Yorkville Investor under the SEPA, and the timing of any such sales, are at our option, and we are under no obligation to sell any securities to the Yorkville Investor under the SEPA. Pursuant to the SEPA, on August 31, 2022, the Company issued the Yorkville Investor 200,000 shares of Class A Common Stock, which represented an initial up-front commitment fee. The Company has not sold any shares of Class A Common Stock during the period from August 31, 2022 and September 30, 2022. See Note 12, Standby Equity Purchase Agreement, to our unaudited interim condensed consolidated financial statements included in Item 1 of Part I, “Financial Statements” of this Quarterly Report on Form 10-Q for more information regarding the SEPA.
On November 14, 2022, we entered into a binding Financing Commitment with certain existing investors, whereby the investors intend to provide us with up to $30.0 million of financing through the issuance by us of debt and/or equity securities including, without limitation, shares of capital stock, securities convertible into or exchangeable for shares of capital stock, warrants, options, or other rights for the purchase or acquisition of such shares and other ownership or profit interests of the Company. Any debt issued pursuant to this letter would have a term of at least 12 months and any equity or equity linked securities issued under this letter would have a fixed price such that involveno other shareholder or other exchange approvals would be required. The amount the investors agreed to contribute under the Financing Commitment will be reduced on a dollar-for-dollar basis by the amount of any other equity capital we receive through January 15, 2023. See Note 20, Subsequent Events, to our unaudited interim condensed consolidated financial statements included in Item 1 of Part I, “Financial Statements” of this Quarterly Report on Form 10-Q for more information regarding the Financing Commitment.
Contractual Obligations
Our principal commitments consist of obligations under debt agreements and leases for office facilities. We have a substantial level of debt. For more information regarding our debt service obligations and our lease obligations, see Note 5, Debt and Note 16, Commitments and contingencies, to our unaudited interim condensed consolidated financial statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q, respectively. As of September 30, 2022, our agreement with Palantir Technologies, Inc. requires us to pay an aggregate of $34.3 million through October 2024, $15.5 million of which is due through September 30, 2023. See Note 17, Related party transactions, to our unaudited interim condensed consolidated financial statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q for more information regarding our agreement with Palantir Technologies, Inc. We could also be required to make certain significant payments under the Tax Receivables Agreement discussed above. Additionally, in connection with the Mergers, as of September 30, 2022, $44.2 million of fees for certain advisors have been recognized as accrued expenses on our unaudited interim condensed consolidated balance sheet included in Item 1 of Part I, “Financial Statements” of this Quarterly Report on Form 10-Q. As disclosed in Note 20, Subsequent Events, included in Item 1 of Part I, “Financial Statements” of this Quarterly Report on Form 10-Q, we settled with an advisor on the fees for certain professional services provided in connection with the Mergers on November 4, 2022, which reduced the total transaction costs by $10.7 million. These advisory fees are due on various dates on or before February 15, 2023, most of which are to be paid in cash or Class A Common Stock at our discretion, in accordance with the terms of the agreements with each of the advisors.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States. The preparation of these consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, costs and expenses and related disclosures. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates under different assumptions or conditions.
We believe that the following critical accounting policies reflect the more significant estimates and assumptions used in the preparation of our consolidated financial statements.
Revenue recognition
We derive our revenue principally from waste removal, waste management and consultation services, platform subscriptions, and the purchase and sale of recyclable commodities. We recognize service revenue over time, consistent with efforts performed and when the customer simultaneously receives and consumes the benefits provided by our services. We recognize recyclable commodity revenue at the point in time when the ownership, risks and rewards are transferred.
Further, judgment is required in evaluating the presentation of revenue on a gross versus net basis based on whether we control the service provided to the end-user and are the principal in the transaction (gross), or we arrange for other parties to provide the service to the end-user and are the agent in the transaction (net). We have concluded that we are the principal in most arrangements as we control the waste removal service and are the primary obligor in the transactions. The assessment of whether we are considered the principal or the agent in a transaction could impact the timing and amount of revenue recognized.
Customer acquisition costs
We make certain expenditures related to acquiring contracts for future services. These expenditures are capitalized as customer acquisition costs and amortized in proportion to the expected future revenue from the customer, which in most cases results in straight-line amortization over the life of the customer. Amortization of these customer acquisition costs is presented within amortization and depreciation on our consolidated statements of operations. Subsequent adjustments to customer acquisition costs estimates are possible because actual results may differ from these estimates if conditions dictate the need to enhance or reduce customer acquisition costs.
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Equity-based compensation
We account for equity-based compensation under the fair value recognition and measurement provisions, in accordance with applicable accounting standards, which require compensation expense for the grant-date fair value of equity-based awards to be recognized over the requisite service period.
Warrants
We have issued warrants to purchase shares of our Class A Common Stock. Warrants may be accounted for as either liability or equity instruments depending on the terms of the warrant agreements. We determine whether each of the warrants issued require liability or equity classification at their issuance dates. Warrants classified as equity are recorded at fair value as of the date of the issuance on our consolidated balance sheets and no further adjustments to their valuation are made. Warrants classified as liability are recorded at fair value as of the date of the issuance on our consolidated balance sheets and subsequently remeasured at each reporting period with changes being recorded as a component of other income (expense) on our consolidated statements of operations.
Following the consummation of the Mergers on August 15, 2022, we have both liability-classified and equity-classified warrants outstanding. See Note 9, Warrants, of the unaudited condensed consolidated financial statements included in Item 1 of Part I, “Financial Statements” of this Quarterly Report on Form 10-Q for further information.
Income taxes
Rubicon Technologies, Inc. is a corporation and is subject to U.S. federal as well as state income taxes including the income or loss allocated from its investment in Rubicon Technologies Holdings, LLC. Rubicon Technologies Holdings, LLC is taxed as a partnership for which the taxable income or loss is allocated to its members. Certain of the Rubicon Technologies Holdings, LLC operating subsidiaries are considered taxable Corporations for U.S. income tax purposes. Prior to the Mergers, Holdings LLC was not subject to U.S. Federal and certain state income taxes at the entity level.
We account for income taxes using the asset and liability method. This approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of assets and liabilities.
Valuation allowances are established when necessary to reduce deferred tax assets to the amounts that are more likely than not expected to be realized based on the weighting of positive and negative evidence. We regularly review the deferred tax assets for recoverability based on historical taxable income, projected future taxable income, the expected timing of the reversals of existing temporary differences and tax planning strategies. Our judgment regarding future profitability may change due to many factors, including future market conditions and the ability to successfully execute our business plans and tax planning strategies. Should there be a change in the ability to recover deferred tax assets, our income tax provision would increase or decrease in the period in which the assessment is changed.
We recognize the tax benefit of an uncertain tax position only if it is more likely than not that the position is sustainable upon examination by the taxing authority, based on the technical merits. The tax benefit recognized is measured as the largest amount of benefit which is greater than 50 percent likely to be realized upon settlement with the taxing authority. Those tax positions failing to qualify for initial recognition are recognized in the first interim period in which they meet the more likely than not standard, or are resolved through negotiation or litigation with the taxing authority, or upon expiration of the statute of limitations. The tax positions are reviewed on an ongoing basis and are adjusted as additional facts and information become available, including progress on tax audits, changes in interpretation of tax laws, developments in case law and closing of statutes of limitations. At September 30, 2022 or December 31, 2021, we have no tax positions that meet this threshold and, therefore, have not recognized any adjustments. While we believe our tax positions are fully supportable, they may be challenged by various tax authorities. If actual results were to be materially different than estimated, it could result in a material impact on our consolidated financial statements in future periods.
The provision for income taxes includes the impact of reserve provisions and changes to reserves as well as the related net interest and penalties. In addition, we are subject to the continuous examination of our income tax returns by the tax authorities which may assert assessments against us. We regularly assess the likelihood of adverse outcomes resulting from these examinations and assessments to determine the adequacy of our provision for income taxes.
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Loss contingencies
In the ordinary course of business, we are or may be involved in various legal or regulatory proceedings, claims or purported class actions related to alleged infringement of third-party patents and other intellectual property rights, commercial, corporate and securities, labor and employment, wage and hour and other claims. We record a provision for a liability when we believe that it is both probable that a loss has been incurred and the amount can be reasonably estimated. If we determine that a loss is reasonably possible and the loss or range of loss can be reasonably estimated, we disclose the possible loss in the accompanying notes to the consolidated financial statements.
We review the developments in our contingencies that could affect the amount of the provisions that have been previously recorded, and the matters and related reasonably possible losses disclosed. These provisions are reviewed at least quarterly and adjusted to reflect the impacts of negotiations, estimated settlements, legal rulings, advice of legal counsel and other information and events pertaining to a particular matter. Significant judgment is required to determine both the probability and the estimated amount of loss. These estimates have been based on our assessment of the facts and circumstances at each balance sheet date and are subject to change based on new information and future events.
The outcomes of litigation and other disputes are inherently uncertain and subject to significant uncertainties. Therefore, if one or more of these matters were resolved against us for amounts in excess of management’s expectations, our results of operations and financial condition, including in a particular reporting period in which any such outcome becomes probable and estimable, could be materially adversely affected.
Leases
Leases with a term greater than one year are recognized on the consolidated balance sheet as right-of-use (“ROU”) assets and lease liabilities. Lease liabilities and their corresponding ROU assets are recorded based on the present value of lease payments over the expected lease term. As the interest rate implicit in lease contracts is typically not readily determinable, we utilize the appropriate incremental borrowing rate, which is the rate incurred to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment.
Recent Accounting Pronouncements
For information regarding recently accounting pronouncements, see Note 2, Recent accounting pronouncements, to our unaudited interim condensed consolidated financial statements included in Item 1 of Part I of this Quarterly Report on Form 10-Q.
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. We have basedAct of 1934, as amended (the “Exchange Act”), regarding, among other things, the plans, strategies and prospects, both business and financial, of the Company. Although the Company believes that its plans, intentions and expectations reflected in or suggested by these forward-looking statements on our current expectationsare reasonable, the Company cannot assure you that it will achieve or realize these plans, intentions or expectations. All statements, other than statements of present or historical fact included in this Quarterly Report, are forward-looking statements. These statements may be preceded by, followed by or include the words “believes,” “estimates,” “expects,” “projects,” “forecasts,” “may,” “will,” “could,” “would,” “should,” “seeks,” “plans,” “scheduled,” “anticipates,” “intends,” the negative of such terms and projections about future events. Thesesimilar expressions, although not all forward-looking statements contain such identifying words. Forward-looking statements are inherently subject to known and unknown risks, uncertainties and assumptions about us that mayand other factors which could cause our actual results levels of activity, performance or achievements to bediffer materially different from any future results, levels of activity, performance or achievementsthose expressed or implied by such forward-looking statements. In some cases, you can identifystatement. These forward-looking statements are based upon current expectations, estimates, projections, and assumptions that, while considered reasonable by terminology such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” or the negative of such terms or other similar expressions. FactorsCompany and its management, are inherently uncertain; factors that mightmay cause or contributeactual results to such a discrepancydiffer materially from current expectations include, but are not limited to, those described in our other SEC filings.
Overview
We are a blank check company incorporated on April 26, 2021, as a Cayman Islands exempted company and formed forto: 1) the purposeoutcome of effectuating a merger, capital stock exchange, asset acquisition, stock purchase, reorganizationany legal proceedings that may be instituted against the Company or similar business combination with one or more businesses, which we refer to throughout this Annual Report as our “initial business combination”. We intend to effectuate our initial business combination using cash fromothers following the proceeds of our initial public offering that occurred on October 19, 2021, (the “Initial Public Offering”) and the private placementclosing of the Private Placement Warrants (as defined below),business combination; 2) the proceeds ofCompany’s ability to meet the sale of our shares in connection with our initial business combination (pursuant to forward purchase agreements or backstop agreements we may enter intoNYSE’s listing standards following the consummation of the Initial Public Offering or otherwise), shares issued tobusiness combination; 3) the ownersrisk that the business combination disrupts current plans and operations of the target, debt issued to bank or other lenders or the owners of the target, or a combination of the foregoing.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date. Our only activities for the period from April 26, 2021 (inception) through June 30, 2022, were organizational activities, those necessary to prepare for the Initial Public Offering, described below, and after our Initial Public Offering, identifying target companies for a business combination. We do not expect to generate any operating revenues until after the completion of our initial business combination. We generate non-operating income in the form of interest income on cash and cash equivalents held after the Initial Public Offering. We incur expensesCompany as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as due diligence expenses.
For the three months ended June 30, 2022, we had a net loss of $240,071, which consisted of $427,311 of operating costs and $187,240 of income earned on investments in Trust Account. For the six months ended June 30, 2022, we had a net loss of $810,422, which consisted of $1,058,869 of operating costs and $248,447 of income earned on investments in Trust Account.
Liquidity and Capital Resources
As of June 30, 2022, the Company had $8,999 in its operating bank account and working capital of $271,333.
The Company’s liquidity needs up to June 30, 2022 had been satisfied through a payment from the Sponsor of $25,000 (Note 5) for the Founder Shares to cover certain offering costs. In addition, in order to finance transaction costs in connection with a Business Combination, the Company’s Sponsor or an affiliateconsummation of the Sponsor or certainbusiness combination; 4) the ability to recognize the anticipated benefits of the Company’s officersbusiness combination, which may be affected by, among other things, the ability of the combined company to grow and directors may, but are not obligated to, provide the Company Working Capital Loans, as defined above (Notemanage growth profitably, maintain relationships with customers and suppliers and retain its management and key employees; 5). As of June 30, 2022, there were no amounts outstanding under any Working Capital Loans.
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Prior costs related to the completion ofbusiness combination; 6) changes in applicable laws or regulations; 7) the Initial Public Offering, the Company lacked the liquidity it needed to sustain operations for a reasonable period of time, which is considered to be one year from the issuance date of the financial statements. The Company has since competed its Initial Public Offering at which time capital in excess of the funds deposited in the Trust Account and/or used to fund offering expenses was released to the Company for general working capital purposes totaling $ 2,603,980. As of June 30, 2022, approximately $8,999 remains available to use for general working capital purposes. Management has since reevaluated the Company’s liquidity and financial condition and determined that it may not be sufficient to meet the Company’s obligation over the period of twelve months from the issuance date of the financial statements. The Company’s sponsor has agreed to provide support to enable the Company to continue its operations and meet its potential obligations over a period of one year from the issuance date of these financial statements. Management believes current working capital, and the support from its Sponsor, provides sufficient capital to sustain operations for a reasonable period of time, which is considered to be one year from the issuance date of the financial statements and therefore substantial doubt has been alleviated.
Based on the foregoing, management believespossibility that the Company will have sufficient working capital and borrowing capacity to meet its needs throughmay be adversely affected by other economic, business and/or competitive factors, including the earlierimpacts of the consummationCOVID-19 pandemic, geopolitical conflicts, such as the conflict between Russia and Ukraine, the effects of a Business Combination or one yearinflation and potential recessionary conditions; 8) the Company’s execution of anticipated operational efficiency initiatives, cost reduction measures and financing arrangements; and 9) other risks and uncertainties. More information regarding the risks and uncertainties and other important factors that could cause actual results to differ materially from those in the forward-looking statements is set forth under the heading “Risk Factors” in our Registration Statement on Form S-1, as filed with the SEC on August 22,2022, and as may be updated in this filing. Over this time period,and other subsequent Quarterly Reports on Form 10-Q and the Company’s other filings with the SEC. There may be additional risks that the Company will be using these funds for paying existing accounts payable, identifyingpresently does not know of or that the Company currently believes are immaterial that could also cause actual results to differ from those contained in the forward-looking statements, many of which are beyond the Company’s control. Forward-looking statements are not guarantees of future performance and evaluating prospective initial Business Combination candidates, performing due diligence on prospective target businesses, paying for travel expenditures, selectingspeak only as of the target business to merge with or acquire, and structuring, negotiating and consummating the Business Combination.
Off-Balance Sheet Arrangements
As of June 30, 2022, and December 31, 2021, we did not have any off-balance sheet.
Contractual Obligations
date hereof. We do not haveundertake, and expressly disclaim, any long-term debt obligations, capital lease obligations, operating lease obligations, purchase obligationsobligation to update or other long-term liabilities, other than described below.
Registration Rights
The holdersrevise publicly any forward-looking statements, whether because of the Founder Shares, Private Placement Warrants and warrants that may be issued upon conversion of Working Capital Loans (and any Class A ordinary shares issuable upon the exercise of the Private Placement Warrants) will have registration rights to require the Company to register a sale of any of its securities held by them pursuant to a registration rights agreement. The holders of these securities are entitled to make up to three demands, excluding short form demands, that the Company register such securities. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to the completion of a business combination. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
Promissory Note-Related Party
On April 27, 2021, the Sponsor agreed to loan the Company an aggregate of up to $300,000 to cover expenses related to the Initial Public Offering pursuant to a promissory note (the “Note”). The Note is non-interest bearing and is payable on the earlier of (i) December 31, 2022, or (ii) the consummation of the Initial Public Offering. As of June 30, 2022, and December 31, 2021, the Company had not drawn on the Note.
Underwriter’s Agreement
The Company granted the underwriter a 45-day option to purchase up to 4,125,000 additional Units to cover over-allotments at the Initial Public Offering price, less the underwriting discounts and commissions. Concurrently with the consummation of the IPO, the underwriters exercised the over-allotment option to purchase an additional 4,125,000 units.
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Deferred Fees
The underwriter will be entitled to a cash underwriting discount of 2.00% of the gross proceeds of the Initial Public Offering, $6,325,000. In addition, the underwriter will be entitled to a deferred fee of 3.50% of the gross proceeds of the Initial Public Offering, or $11,068,750. The deferred fee will become payable to the underwriter from the amounts held in the Trust Account solely in the event that the Company completes a Business Combination, subject to the terms of the underwriting agreement.
Critical Accounting Policies and Estimates
This management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with GAAP. The preparation of our 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 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. The Company has identified the following as its critical accounting estimates:
Warrants
The Company accounts for the Warrants as either equity-classified or liability-classified instruments based on an assessment of the specific terms of the Warrants and the applicable authoritative guidance in Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, “Distinguishing Liabilities from Equity” (“ASC 480”), and ASC 815, “Derivatives and Hedging” (“ASC 815”). The assessment considers whether they are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and meet all of the requirements for equity classification under ASC 815, including whether the Warrants are indexed to the Company’s own common shares and whether the holders of the Warrants could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of issuance of the Warrants and as of each subsequent quarterly period end date while the Warrants are outstanding.
For issued or modified warrants that meet all of the criteria for equity classification, such warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, such warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of liability-classified warrants are recognized as a non-cash gain or loss on the statements of operations.
Ordinary Shares Subject to Possible Redemption
All of the 31,625,000 shares of Class A ordinary shares sold as part of the Units in the Initial Public Offering contain a redemption feature which allows for the redemption of such shares of Class A ordinary shares in connection with the Company’s liquidation, if there is a shareholder vote or tender offer in connection with our business combination and in connection with certain amendments to the Company’s second amended and restated certificate of incorporation. In accordance with SEC and its staff’s guidance on redeemable equity instruments, which has been codified in ASC 480-10-S99, redemption provisions not solely within the control of the Company require ordinary shares subject to redemption to be classified outside of permanent equity. Therefore, all Class A ordinary shares have been classified outside of permanent equity.
The Company recognizes changes in redemption value immediately as they occur and adjusts the carrying value of redeemable ordinary shares to equal the redemption value at the end of each reporting period. Increases or decreases in the carrying amount of redeemable ordinary shares are affected by charges against additional paid in capital and accumulated deficit.
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Net (Loss)/Income Per Ordinary Share
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 ordinary shares and Class B ordinary shares. Income and losses are shared pro rata between the two classes of shares. Net (loss)/income per ordinary share is calculated by dividing the net (loss)/income by the weighted average of ordinary shares outstanding for the respective period. The Company did not consider the effect of the warrants issued in connection with the Initial Public Offering and the Private Placement in the calculation of diluted (loss)/income per share because their exercise is contingent uponnew information, future events, and since their inclusion would be antidilutive under the treasury stock method.or otherwise, except as required by law.
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 will qualify as an “emerging growth company” and under the JOBS Act will be 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 such, our unaudited condensed financial statements may not be comparable to companies that comply with 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 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 Aboutabout Market Risk
WeIn the normal course of business, we are a smaller reporting company as defined by Rule 12b-2 of the Exchange Actexposed to market risks, including changes in interest rates, certain commodity prices and are not requiredforeign currency rates. Information relating to provide the information otherwise required under this item.quantitative and qualitative disclosures about these market risks is described below.
The net proceeds of the Initial Public Offering, including amounts in the Trust Account, will be invested in U.S. government securities with a maturity of 185 days or less or in money market funds that meet certain conditions under Rule 2a-7 under the Investment Company Act of 1940, as amended, that invest only in direct U.S. government treasury obligations. Due to the short-term nature of these investments, we believe there will be no associated material exposure to interestInterest rate risk.risk
Our exposures to market risk for changes in interest rates relate primarily to our Term Loan Facility and our Revolving Credit Facility. The Term Loan Facility and Revolving Credit Facility are floating rate loans and bear interest subject to LIBOR or SOFR. Therefore, fluctuations in interest rates will impact our consolidated financial statements. A rising interest rate environment will increase the amount of interest paid on these loans. A hypothetical 100 basis point increase or decrease in interest rates would not have a material effect on the results of our operations.
Recyclable commodity price risk
Through our recycling program, we market a variety of materials, including fibers such as old corrugated cardboard, old newsprint, aluminum, glass, pallets and other recyclable materials. We may use a number of strategies to mitigate impacts from recyclable commodity price fluctuations including, entering into purchase contracts indexed to the recyclable commodity price such that we mitigate the variability in cash flows generated from the sales of recycled materials at floating prices. We do not use financial instruments for trading purposes and are not a party to any leveraged derivatives. As of September 30, 2022, we were not a party to any recyclable commodity hedging agreements. In the event of a decline in recyclable commodity prices, a 10% decrease in average recyclable commodity prices from the average prices in effect would have impacted our revenues by $7.2 million and $4.6 million for the nine months ended September 30, 2022 and 2021, respectively. A 10% decrease in average recyclable commodity prices from the average prices in effect would have impacted our operating loss by $0.6 million and $0.3 million for the nine months ended September 30, 2022 and 2021, respectively.
Foreign currency risk
To date, foreign currency transaction gains and losses have not engagedbeen material to our consolidated financial statements as the majority of our revenue has been generated in the United States. As we expand our presence in international markets, to the extent we are required to enter into agreements denominated in a currency other than the US dollar, our results of operations and cash flows may increasingly be subject to fluctuations due to changes in foreign currency exchange rates and may be adversely affected in the future due to changes in foreign exchange rates. To date, we have not entered into any hedging activities since our inception, and we do not expect to engage in any hedging activitiesarrangements with respect to foreign currency risk. As our international operations grow, we will continue to reassess our approach to manage our risk relating to fluctuations in currency rates.
Inflation
To date, the market riskimpact of inflation on our business results has been primarily limited to whichincreases of revenue and cost of revenue, such that the net effect has been insignificant to our gross profit, adjusted gross profit and net loss. We expect this trend to continue as most contracts with our waste generator customers allow us to adjust the applicable prices without any significant advanced notice requirement based on the economic environment where fees charged by our hauling and recycling partners are increasing, and recyclable commodity price fluctuations tend to impact both selling and purchasing sides in a similar manner. However, we are exposed.may not be able to adjust prices quickly enough or sufficiently to offset the effect of certain other cost increases, such as labor costs, without negatively impacting customer demand.
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Item 4. Controls and Procedures
Management’s Evaluation of Disclosure Controls and Procedures
Our management evaluated, withBased on our management’s evaluation (with the participation of our current chiefprincipal executive officer and chiefprincipal financial officer), as of the end of the period covered by this report, our principal executive officer and principal financial officer (our “Certifying Officers”), the effectiveness of our disclosure controls and procedures as of June 30, 2022, pursuant to Rule 13a-15(b) under the Exchange Act. Based upon that evaluation, our Certifying Officershave concluded that our disclosure controls and procedures were(as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) are effective as of June 30, 2022.
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Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by us in our reports filedthat we file or submittedsubmit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controlsforms and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in company reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our chiefprincipal executive officer and chiefprincipal financial officer, as appropriate to allow timely decisions regarding required disclosure.
As required by Rule 13a-15(b) and Rule 15d-15(b) under the Exchange Act, our management, including our President and Chief Financial Officer, evaluated, as of December 31, 2021, the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e) and Rule 15d-15(e). Based on that evaluation, our President and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2021, to provide reasonable assurance that information required to be disclosed by us in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the Exchange Act and is accumulated and communicated to management, including the Chief Executive officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.
We believe, however, that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls systems are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, within a company have been detected.
Changes in Internal Control over Financial Reporting
There was no change inDuring the quarter ended September 30, 2022, we completed the Mergers and the internal controls of Rubicon Technologies Holdings, LLC became our internal controls. Management has added resources and implemented a number of process changes to improve the design and implementation of our internal control over financial reporting, that occurred duringas such term is defined in Rules 13a-15(f) and 15d-15(f) of the fiscal quarter ended June 30, 2022, covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likelyExchange Act, in a manner commensurate with the scale of our operations subsequent to materially affect, our internal control over financial reporting.the Mergers.
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PART II -II. OTHER INFORMATION
ITEMItem 1. LEGAL PROCEEDINGSLegal Proceedings
None.See Item 1 of Part I, “Financial Statements – Note 16, Commitments and contingencies – Legal Matters.”
ITEMItem 1A. RISK FACTORSRisk Factors
As
Factors that could materially and adversely affect our business, financial condition and/or results of operations are described in our Registration Statement on Form S-1, as filed with the SEC on August 22, 2022. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business, financial condition and/or results of operations. Other than the risk factor set forth below, there have been no material changes in our risk factors since our Registration Statement on Form S-1, as filed with the SEC on August 22, 2022.
Our current liquidity, including negative cash flows and a lack of existing financial resources, raises substantial doubt about our ability to continue as a going concern, which may materially and adversely affect our business, financial condition, results of operations and prospects.
Pursuant to ASC 205, Presentation of Financial Statements, we are required to and do evaluate at each annual and interim financial statement period whether there are conditions or events, considered in the aggregate, that raise substantial doubt about our ability to continue as a going concern within one year after the date that the consolidated financial statements are issued. Based on the definitions in the relevant accounting standards and our history of operating losses and negative cash flows, we currently project that we will not have sufficient cash on hand or available liquidity under existing arrangements to meet our projected liquidity needs for the next 12 months, which raises substantial doubt about our ability to continue as a going concern.
Although we have taken, and plan to continue to take, proactive measures to enhance our liquidity position and provide additional financial flexibility, including, among other things, negotiation with respect to the New Debt Facilities and receipt of binding commitments for the Financing Commitment, there can be no assurance that these measures, including the timing and terms thereof, will be successful or sufficient. Any new financing may also lead to increased costs, increased interest rates, additional and more restrictive financial covenants and other lender protections, and whether we will be able to successfully complete any such refinancing will depend on market conditions, the negotiations with those lenders and investors, and our financial performance. The Financing Commitment and the New Debt Facilities are also proposed to include potential equity financing, the terms of which could cause substantial dilution to existing stockholders. In addition, we are formulating additional plans to extend cash availability, including modifying our operations to further reduce spending, but these steps may not produce the anticipated results or provide any benefit at all. While management believes that our plan to address the pending debt maturities is probable of being achieved, and our financial statements have accordingly been prepared assuming that we will continue as a going concern, there can be no assurance the necessary financing will be available on terms acceptable to us, or at all. See Item 2 of Part I, “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources” and Note 19, Liquidity, and Note 20, Subsequent Events, to our unaudited interim condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q there have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K filed with the SEC on March 29, 2022, as supplemented by our Quarterly Report on Form 10-Q for the three months ended March 31, 2022, filed with the SEC on May 12, 2022. We may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC. further information.
If we are unable to obtain adequate additional capital resources to fund our liquidity needs, we will not be able to continue to operate our business pursuant to our current business plan, which would require us to further modify our operations to reduce spending to a sustainable level by, among other things, delaying, scaling back or eliminating some or all of our ongoing or planned investments in corporate infrastructure, business development, sales and marketing, product development and other activities, selling certain business lines or assets or we may be forced to discontinue our operations entirely and/or liquidate our assets, in which case it is likely that equity investors would lose most or all of their investment. The substantial doubt about our ability to continue as a going concern may also affect the price of our common stock and our credit rating, negatively impact relationships with third parties with whom we do business, including customers, vendors, lenders and employees, prevent us from identifying, hiring or retaining the key personnel that may be necessary to operate and grow our business and limit our ability to raise additional capital. Any of the foregoing factors could have a material adverse effect on our business, financial condition, results of operations and prospects.
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ITEMItem 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDSUnregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Equity Securities
On April 27, 2021, our Sponsor purchased 7,906,250 Class B ordinary shares, par value $0.0001 (the “Founder Shares”), for an aggregate price of $25,000. The Initial Stockholders agreed to forfeit up to 1,031,250 Founder Shares to the extent that the over-allotment option was not exercisedExcept as previously disclosed in full by the underwriters, so that the Founder Shares would represent 20.0%a Current Report on Form 8-K, no unregistered sales of the Company’s issued and outstanding shares afterequity securities were made during the Initial Public Offering. The underwriters fully exercised the over-allotment on October 19, 2021; thus, these 1,031,250 Founder Shares were no longer subject to forfeiture.
Simultaneously with the closing of the Initial Public Offering, pursuant to the Private Placement Warrants Purchase Agreements, the Company completed the private sale of 12,623,125 warrants (the “Private Placement Warrants”) to the Sponsor at a purchase price of $1.00 per Private Placement Warrant, and 1,581,250 warrants to Jefferies LLC, generating gross proceeds to the Company of $14,204,375. The Private Placement Warrants are identical to the Warrants included as part of the Units sold in the IPO.
No underwriting discounts or commissions were paid with respect to such sale. 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.fiscal quarter ended September 30, 2022.
Use of Proceeds
In connection with theits Initial Public Offering, weFounder incurred offering costs of $18,158,034,$18.2 million, consisting of $6,325,000$6.3 million of underwriting fees, $11,068,750$11.1 million of deferred underwriting fees and $764,284$0.8 million of other offering costs. After deducting the underwriting discounts and commissions (excluding the deferred portion, which amount will bewas payable upon consummation of the Initial Business Combination, if consummated)Mergers) and the Initial Public Offering expenses, $320,993,750$321.0 million of the net proceeds from our Initial Public Offering and from the Private Placement of the Private Placement Warrants was placed in the Trust Account. The net proceedsAfter deducting payments to existing shareholders of $246.0 million in connection with their exercise of redemption rights, the remainder of the Initial Public Offering and certain proceeds fromtrust account was used to fund the sale of the Private Placement Warrants are held in the Trust Account and invested as described elsewhere in this Quarterly Report on Form 10-Q.Mergers.
There has been no material change in the planned use of the proceeds from the Initial Public Offering and Private Placement as is described in the Company’s final prospectus related to the Initial Public Offering.
ITEMItem 3. DEFAULTS UPON SENIOR SECURITIESDefaults Upon Senior Securities
None.
ITEMItem 4. MINE SAFETY DISCLOSURESMine Safety Disclosures
Not applicable.
ITEMItem 5. OTHER INFORMATIONOther Information
None.
Deadlines for Stockholder Proposals and Director Nominations to Be Considered at the 2023 Annual Meeting of Stockholders
In accordance with Rule 14a-8 under the Exchange Act (“Rule 14a-8”) and the Bylaws (the “Bylaws”) of the Company, the deadlines for the receipt of any stockholder proposals and director nominations to be considered at the 2023 Annual Meeting of Stockholders (the “2023 Annual Meeting”) are set forth below.
Any stockholder proposal submitted pursuant to Rule 14a-8 for inclusion in the Company’s proxy materials for the 2023 Annual Meeting must be received by our corporate secretary at our principal executive offices no later than the close of business on December 27, 2022. Any such proposal also needs to comply with the SEC’s stockholder proposal rules, including the eligibility requirements set forth in Rule 14a-8.
In addition, any stockholder seeking to nominate a director or to bring other business before the 2023 Annual Meeting outside of Rule 14a-8 under the advance notice provisions included in the Bylaws must provide timely notice, as set forth in the Bylaws. Specifically, written notice of any such proposed business or nomination must be received by our corporate secretary at our principal executive offices no earlier than the close of business on February 1, 2023 and no later than the close of business on March 3, 2023. Any notice of proposed business or nomination also must comply with the notice and other requirements set forth in the Bylaws and with any applicable law.
For purposes of stockholder proposals, the “close of business” shall mean 6:00 p.m. local time at the principal executive offices of the Company on any calendar day, whether or not the day is a business day.
Results of Operations and Financial Condition
On November 9, 2022, the Company filed with the SEC a Current Report on Form 8-K (the “Form 8-K”), including as Exhibit 99.1 thereto a press release that announced earnings results for the quarter ended September 30, 2022 (the “Earnings Release”). On November 18, 2022, the Company (1) entered into an amendment to the Revolving Credit Facility agreement and extended its term through December 14, 2023 and (2) entered into an amendment to the Subordinated Term Loan agreement and extended its term through December 31, 2023 (collectively, the “Amendments”).
As a result of the Amendments, the Company has reclassified $69.5 million of indebtedness, previously presented under “Current portion of long-term debt, net of issuance costs” in the Company’s unaudited condensed consolidated balance sheets at September 30, 2022 included in the Earnings Release, as “Long-term debt, net of issuance costs,” as presented in the Company’s unaudited condensed consolidated balance sheets at September 30, 2022 included elsewhere in this Quarterly Report on Form 10-Q. The Company is not revising the Earnings Release previously filed with the Form 8-K as a result of this subsequent update.
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ITEMItem 6. EXHIBITSExhibits
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
| * |
| ** | Furnished herewith. |
| # | Schedule and exhibits to this Exhibit omitted pursuant to Regulation S-K Item 601(b)(2). A copy of any omitted schedule and/or exhibit will be furnished to the SEC |
| ^ | Indicates management contract or compensatory plan or arrangement. |
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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.
| Date: | By: | /s/ |
| Chief Financial Officer (Principal Financial and Accounting Officer and Authorized Signatory) | ||
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