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DDMX Codere Online U.S.

Filed: 16 Aug 21, 4:11pm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(MARK ONE)

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2021

 

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: 001-39767

 

DD3 ACQUISITION CORP. II
(Exact name of registrant as specified in its charter) 

 

Delaware 85-3244031

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

   

Pedregal 24, 3rd Floor, Interior 300

Colonia Molino del Rey, Del. Miguel Hidalgo

Mexico City, Mexico

 11040
(Address of principal executive offices) (Zip Code)

 

+52 (55) 4340-1269

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class Trading Symbol(s) Name of each exchange on which registered
Units, each consisting of one share of Class A Common Stock and one-half of one Warrant DDMXU The Nasdaq Stock Market LLC
Class A Common Stock, par value $0.0001 per share DDMX The Nasdaq Stock Market LLC
Warrants, each whole warrant exercisable for one share of Class A Common Stock at an exercise price of $11.50 DDMXW The Nasdaq Stock Market LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 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 (§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. 

 

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 ☒   No ☐ 

 

As of August 16, 2021, there were 12,870,000 shares of Class A common stock, par value $0.0001 per share, and 3,125,000 shares of Class B common stock, par value $0.0001 per share, issued and outstanding.

 

 

 

 

 

DD3 ACQUISITION CORP. II

 

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2021

TABLE OF CONTENTS

 

 Page
Part I. Financial Information 
Item 1. Financial Statements (Unaudited)1
Condensed Balance Sheet as of June 30, 20211
Condensed Statements of Operations for the three months ended June 30, 2021 and for the period from September 30, 2020 (inception) through June 30, 20212
Condensed Statements of Changes in Stockholders’ Equity for the three months ended June 30, 2021 and for the period from September 30, 2020 (inception) through June 30, 20213
Condensed Statement of Cash Flows for the period from September 30, 2020 (inception) through June 30, 20214
Notes to Unaudited Condensed Financial Statements5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations17
Item 3. Quantitative and Qualitative Disclosures About Market Risk23
Item 4. Controls and Procedures23
Part II. Other Information 
Item 1. Legal Proceedings24
Item 1A. Risk Factors24
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds26
Item 3. Defaults Upon Senior Securities27
Item 4. Mine Safety Disclosures27
Item 5. Other Information27
Item 6. Exhibits28
Signatures29

  

i

 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements.

 

DD3 ACQUISITION CORP. II

CONDENSED BALANCE SHEET

JUNE 30, 2021

(UNAUDITED)

 

     
ASSETS    
Current assets    
Cash $385,909 
Prepaid expenses  167,534 
Total Current Assets  553,443 
     
Cash and marketable securities held in Trust Account  125,038,926 
Total Assets $125,592,369 
     
LIABILITIES AND STOCKHOLDERS’ EQUITY    
Current liabilities    
Accrued expenses $163,140 
Accrued offering costs  0 
Total Current Liabilities  163,140 
     
Warrant Liability  286,750 
     
Total Liabilities  449,890 
     
Commitments and contingencies    
     
Class A common stock subject to possible redemption, 12,014,248 shares at redemption value  120,142,476 
     
Stockholders’ Equity    
Preferred stock, $0.0001 par value; 1,000,000 shares authorized; NaN issued and outstanding  0 
Class A common stock, $0.0001 par value; 100,000,000 shares authorized; 855,752 issued and outstanding (excluding 12,014,248 shares subject to possible redemption)  86 
Class B common stock, $0.0001 par value; 10,000,000 shares authorized; 3,125,000 shares issued and outstanding (1)  312 
Additional paid-in capital  5,506,863 
Accumulated deficit  (507,258)
Total Stockholders’ Equity  5,000,003 
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY $125,592,369 

 

(1)On December 7, 2020, the Company effected a stock dividend of 287,500 shares with respect to the Class B common stock. All share and per-share amounts have been retroactively restated to reflect the stock dividend (see Note 5).

 

 1 

 

 

DD3 ACQUISITION CORP. II

CONDENSED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

       
  Three Months
Ended
June 30,
  For the
Period from
September 30,
2020
(Inception)
Through
June 30,
 
  2021  2021 
       
Formation and operating costs $86,248  $368,585 
Loss from operations  (86,248)  (368,585)
         
Other income (expense):        
Change in fair value of warrant liability  (96,200)  (177,600)
Interest income (expense) on marketable securities held in Trust Account  (15,702)  43,864 
Unrealized gain (loss) on marketable securities held in Trust Account  14,517   (4,937)
Other income (expense), net  (97,385)  (138,673)
         
Net loss $(183,633) $(507,258)
         
Basic and diluted weighted average shares outstanding, Class A common stock subject to redemption  12,032,611   12,044,812 
         
Basic and diluted net loss per share, Class A common stock subject to redemption $0.00  $0.00 
         
Basic and diluted weighted average shares outstanding, Non-redeemable common stock  3,962,389   3,683,720 
         
Basic and diluted net loss per share, Non-redeemable common stock $(0.04) $(0.15)

  

 2 

 

  

DD3 ACQUISITION CORP. II

CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

THREE MONTHS ENDED JUNE 30, 2021

FOR THE PERIOD FROM SEPTEMBER 30, 2020 (INCEPTION) THROUGH JUNE 30, 2021

(UNAUDITED)

 

                             
  

Class A

Common Stock

  

Class B

Common Stock

  

Additional

Paid in

  Accumulated  

Total

Stockholders’

 
  Shares  Amount  Shares  Amount  Capital  Deficit  Equity 
Balance — September 30, 2020 (inception)    $     $  $  $  $ 
Issuance of Class B common stock to Sponsor(1)        3,162,500   316   24,684      25,000 
Sale of 12,500,000 Units, net of underwriting discounts and offering costs  12,500,000   1,250         122,032,638      122,033,888 
Sale of 370,000 Private Units, net of warrant liability  370,000   37         3,590,813      3,590,850 
Forfeiture of Founder Shares        (37,500)  (4)  4       
Class A common stock subject to possible redemption  (12,048,820)  (1,205)        (120,485,883)     (120,487,088)
Net loss                 (162,645)  (162,645)
Balance — December 31, 2020  821,180  $82   3,125,000  $312  $5,162,256  $(162,645) $5,000,005 
                             
Change in value of Class A common stock subject to possible redemption  16,209   2         160,976      160,978 
Net loss     ��           (160,980)  (160,980)
Balance — March 31, 2021  837,389  $84   3,125,000  $312  $5,323,232  $(323,625) $5,000,003 
Change in value of Class A common stock subject to possible redemption  18,363   2         183,631      183,633 
Net loss                 (183,633)  (183,633)
Balance — June 30, 2021  855,752  $86   3,125,000  $312  $5,506,863  $(507,258) $5,000,003 

  

(1)On December 7, 2020, the Company effected a stock dividend of 287,500 shares with respect to the Class B common stock (see Note 5).

 

 3 

 

 

DD3 ACQUISITION CORP. II

CONDENSED STATEMENT OF CASH FLOWS

FOR THE PERIOD FROM SEPTEMBER 30, 2020 (INCEPTION) THROUGH JUNE 30, 2021

(UNAUDITED)

 

     
Cash Flows from Operating Activities:    
Net loss $(507,259)
Adjustments to reconcile net loss to net cash used in operating activities:    
Interest earned on marketable securities held in Trust Account  (43,864)
Unrealized loss on marketable securities held in Trust Account  4,937 
Change in change in fair value of warrant liability  177,600 
Offering cost allocable to warrant liability  396 
Changes in operating assets and liabilities:    
Prepaid expenses  (167,534)
Accrued expenses  123,140 
Net cash used in operating activities  (412,583)
     
Cash Flows from Investing Activities:    
Investment of cash in Trust Account  (125,000,000)
Net cash used in investing activities  (125,000,000)
     
Cash Flows from Financing Activities:    
Proceeds from issuance of Class B common stock to the Sponsor  25,000 
Proceeds from sale of Units, net of underwriting discounts paid  122,500,000 
Proceeds from sale of Private Units  3,700,000 
Proceeds from promissory note – related party  211,493 
Repayment of promissory note – related party  (211,493)
Payments of offering costs  (426,508)
Net cash provided by financing activities  125,798,492 
     
Net Change in Cash  385,909 
Cash – Beginning  0 
Cash – Ending $385,909 
     
Non-Cash Investing and Financing Activities:    
Offering costs included in accrued offering costs $40,000 
Reversal of offering costs included in accrued offering costs $(40,000)
Initial classification of Class A common stock subject to possible redemption $120,648,340 
Change in value of Class A common stock subject to possible redemption $(505,864)

 

 4 

 

  

DD3 ACQUISITION CORP. II

NOTES TO CONDENSED FINANCIAL STATEMENTS

JUNE 30, 2021

(Unaudited)

 

NOTE 1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS

 

DD3 Acquisition Corp. II (the “Company”) was incorporated in Delaware on September 30, 2020. The Company was formed for the purpose of entering into a merger, capital stock exchange, asset acquisition, stock purchase, recapitalization, reorganization or similar business combination with one or more businesses or entities (a “Business Combination”).

 

The Company is not limited to a particular industry or geographic region for purposes of consummating a Business Combination. The Company is an early stage and emerging growth company and, as such, the Company is subject to all of the risks associated with early stage and emerging growth companies.

 

As of June 30, 2021, the Company had not commenced any operations. All activity through June 30, 2021 relates to the Company’s formation, the initial public offering (the “Initial Public Offering”), which is described below, and identifying a target for a Business Combination. The Company will not generate any operating revenues until after the completion of its initial Business Combination, at the earliest. The Company generates non-operating income in the form of interest income from the proceeds derived from the Initial Public Offering.

 

The registration statements for the Company’s Initial Public Offering were declared effective on December 7, 2020. On December 10, 2020, the Company consummated the Initial Public Offering of 12,500,000 units (the “Units” and, with respect to the shares of Class A common stock included in the Units sold, the “Public Shares”), which includes the partial exercise by the underwriters of their over-allotment option in the amount of 1,500,000 Units, at $10.00 per Unit, generating gross proceeds of $125,000,000, which is described in Note 3.

 

Simultaneously with the closing of the Initial Public Offering, the Company consummated the sale of an aggregate of 370,000 units (each, a “Private Unit” and, collectively, the “Private Units”) at a price of $10.00 per Private Unit in a private placement to DD3 Sponsor Group, LLC (the “Sponsor”) and the Forward Purchase Investors (as defined in Note 4), generating gross proceeds of $3,700,000, which is described in Note 4.

 

Transaction costs amounted to $2,966,508, consisting of $2,500,000 of underwriting fees and $466,508 of other offering costs.

  

Following the closing of the Initial Public Offering on December 10, 2020, an amount of $125,000,000 ($10.00 per Unit) from the net proceeds of the sale of the Units in the Initial Public Offering and the sale of the Private Units was placed in a trust account (the “Trust Account”), located in the United States and 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 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 funds in 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 Private Units, although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination. There is no assurance that the Company will be able to complete a Business Combination successfully. The Company must complete a Business Combination with one or more target businesses that together have an aggregate fair market value of at least 80% of the assets held in the Trust Account (excluding taxes payable on interest earned on the Trust Account) at the time of the agreement to enter into a Business Combination. The Company will only complete a Business Combination if the post-transaction 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.

  

 5 

 

 

The Company will provide its public stockholders with the opportunity to redeem all or a portion of their Public Shares upon the completion of a Business Combination, either (i) in connection with a stockholder meeting called to approve such Business Combination or (ii) by means of a tender offer. The public stockholders will be entitled to redeem their shares for a pro rata portion of the amount held in the Trust Account, calculated as of two business days prior to the completion of a Business Combination, including any pro rata interest earned on the funds held in the Trust Account and not previously released to the Company to pay its tax obligations. There will be no redemption rights upon the completion of a Business Combination with respect to the Company’s warrants. As a result, shares of common stock are recorded at their redemption amount and classified as temporary equity, in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, “Distinguishing Liabilities from Equity” (“ASC 480”).

 

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 stockholder approval, a majority of the shares voted are voted in favor of the Business Combination. If a stockholder vote is not required by law and the Company does not decide to hold a stockholder vote for business or other reasons, the Company will, pursuant to its Amended and Restated Certificate of Incorporation (the “Amended and Restated Certificate of Incorporation”), conduct the redemptions pursuant to the tender offer rules of the U.S. Securities and Exchange Commission (“SEC”) and file tender offer documents with the SEC prior to completing a Business Combination. If, however, stockholder approval of the transaction is required by law, or the Company decides to obtain stockholder approval for business or other reasons, the Company will offer to redeem shares in conjunction with a proxy solicitation pursuant to the proxy rules and not pursuant to the tender offer rules. If the Company seeks stockholder approval in connection with a Business Combination, the Company’s Sponsor, initial stockholders, officers and directors have agreed to vote their Founder Shares (as defined in Note 5), Private Shares (as defined in Note 4) and any Public Shares purchased during or after the Initial Public Offering in favor of approving a Business Combination. Additionally, each public stockholder may elect to convert their Public Shares irrespective of whether they vote for or against the proposed transaction or do not vote at all.

 

If the Company seeks stockholder approval of a Business Combination and it does not conduct conversions pursuant to the tender offer rules, the Amended and Restated Certificate of Incorporation provides that a public stockholder, together with any affiliate of such stockholder or any other person with whom such stockholder is acting in concert or as a “group” (as defined under Section 13 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), will be restricted from converting its shares with respect to more than an aggregate of 15% or more of the Public Shares, without the prior consent of the Company.

 

The Company’s Sponsor, initial stockholders, officers and directors have agreed (a) to waive their conversion rights with respect to any Founder Shares, Private Shares and Public Shares held by them in connection with the completion of a Business Combination or any amendment to the Amended and Restated Certificate of Incorporation prior thereto and (b) not to propose an amendment to the Amended and Restated Certificate of Incorporation (i) to modify the substance or timing of the Company’s obligations with respect to conversion rights as described in the Company’s final prospectus for its Initial Public Offering or (ii) with respect to any other provision relating to stockholders’ rights or pre-initial Business Combination activity, unless the Company provides the public stockholders with the opportunity to convert their Public Shares upon approval of any such amendment at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest (which interest shall be net of taxes payable), divided by the number of then outstanding Public Shares.

 

The Company will have until December 10, 2022 to complete a Business Combination (the “Combination Period”). If the Company is unable to complete a Business Combination within the Combination Period, the Company will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account including interest earned on the funds held in the Trust Account and not previously released to the Company to pay its tax obligations, divided by the number of then outstanding Public Shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidating distributions, if any), and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the Company’s remaining stockholders and the Company’s board of directors, dissolve and liquidate, subject in each case to the Company’s obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law. There will be no conversion rights or liquidating distributions with respect to the Company’s warrants, which will expire worthless if the Company fails to complete a Business Combination within the Combination Period.

 

 6 

 

 

The Company’s Sponsor, initial stockholders, officers and directors have agreed to waive their liquidation rights with respect to the Founder Shares if the Company fails to complete a Business Combination within the Combination Period. However, if the Company’s Sponsor, initial stockholders, officers or directors acquire Public Shares in or after the Initial Public Offering, such Public Shares will be entitled to liquidating distributions from the Trust Account if the Company fails to complete a Business Combination within the Combination Period. 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 ($10.00).

 

In order to protect the amounts held in the Trust Account, the Sponsor has agreed to 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 discussed entering into a transaction agreement, reduce the amount of funds in the Trust Account to below (1) $10.00 per Public Share or (2) the actual amount per Public Share held in the Trust Account as of the date of the liquidation of the Trust Account due to reductions in the value of the trust assets, in each case net of the interest which may be withdrawn to pay the Company’s taxes. This liability will not apply with respect to any claims by a third party who executed a waiver of any and all rights to seek access to the Trust Account and except as to any claims under the Company’s indemnity of the underwriters of the Initial Public Offering against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the “Securities Act”). Moreover, in the event that an executed waiver is deemed to be unenforceable against a third party, the Sponsor will not be responsible to the extent of any liability for such third-party claims. 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 (except the Company’s independent registered public accounting firm), 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

 

The Company does not believe it will need to raise additional funds in order to meet the expenditures required for operating its business. However, if the Company’s estimate of the costs of identifying a target business, undertaking in-depth due diligence and negotiating a Business Combination are less than the actual amount necessary to do so, the Company may have insufficient funds available to operate its business prior to a Business Combination. Moreover, the Company may need to obtain additional financing either to complete its Business Combination or because the Company become obligated to redeem a significant number of its Public Shares upon consummation of a Business Combination, in which case the Company may issue additional securities or incur debt in connection with such Business Combination. Subject to compliance with applicable securities laws, the Company would only complete such financing simultaneously with the completion of a Business Combination. If the Company is unable to complete a Business Combination because it does not have sufficient funds available to it, the Company will be forced to cease operations and liquidate the Trust Account. In addition, following a Business Combination, if cash on hand is insufficient, the Company may need to obtain additional financing in order to meet its obligations. Based on management’s analysis, the Company believes that it will have sufficient working capital and borrowing capacity to meet its need through the earlier of the consummation of a Business Combination or one year from the date the financial statements are issued.

 

Risks and Uncertainties

 

Management continues to evaluate the impact of the COVID-19 pandemic and has concluded that while it is reasonably possible that the virus could have a negative effect on the Company’s 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.

 

 7 

 

 

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (the “SEC”). Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a complete presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited condensed financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented.

 

The accompanying unaudited condensed financial statements should be read in conjunction with the Company’s final prospectus for its Initial Public Offering as filed with the SEC on December 10, 2020, as well as the Company’s Quarterly Report on Form 10-Q, as filed with the SEC on February 16, 2021, as well as the Company’s Current Reports on Form 8-K, as filed with the SEC on December 11, 2020 and December 16, 2020. The interim results for the three months ended June 30, 2021 and for the period from September 30, 2020 (inception) through June 30, 2021 are not necessarily indicative of the results to be expected for period ended September 30, 2021 or for any future periods.

 

The Company had no activity for the period ended September 30, 2020 (inception). Accordingly, the condensed balance sheet as of September 30, 2020 is not presented.

 

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 stockholder 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 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 election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.

 

Use of Estimates

 

The preparation of the condensed 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.

 

 8 

 

 

Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the 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.

 

Cash and Cash Equivalents

 

The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. The Company did not have any cash equivalents as of June 30, 2021.

 

Marketable Securities Held in Trust Account

 

At June 30, 2021, substantially all of the assets held in the Trust Account were held in U.S. Treasury Bills.

 

Class A Common Stock Subject to Possible Redemption

 

The Company accounts for its Class A common stock subject to possible redemption in accordance with the guidance in ASC 480. Shares of Class A common stock subject to mandatory redemption is classified as a liability instrument and is measured at fair value. Conditionally redeemable common stock (including common stock that features redemption rights that is either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) is classified as temporary equity. At all other times, common stock is classified as stockholders’ equity. The Company’s Class A common stock features certain redemption rights that are considered to be outside of the Company’s control and subject to occurrence of uncertain future events. Accordingly, at June 30, 2021, Class A common stock subject to possible redemption is presented at redemption value as temporary equity, outside of the stockholders’ equity section of the Company’s balance sheet.

 

Warrant Liabilities

 

The Company accounts for the Private Warrants in accordance with the guidance contained in ASC 815-40, under which the Private Warrants do not meet the criteria for equity treatment and must be recorded as liabilities. Under ASC 815-40, the Company’s Private Warrants are not indexed to the Company’s common stock in the manner contemplated by ASC 815-40 because the holder of the instrument is not an input into the pricing of a fixed-for-fixed option on equity shares. Accordingly, the Company classifies the Private Warrants as liabilities at their fair value and adjusts the Private Warrants to fair value at each reporting period. These liabilities are subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the statement of operations. The Private Warrants are valued using a binomial lattice model.

 

Income Taxes

 

The Company follows the asset and liability method of accounting for income taxes under ASC 740, “Income Taxes” (“ASC 740”). Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

 

FASB ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of June 30, 2021. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position.

 

 9 

 

 

The Company may be subject to potential examination by federal, state and city taxing authorities in the areas of income taxes. These potential examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance with federal, state and city tax laws. The Company’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.

 

Net Loss Per Common Share

 

Net loss per share is computed by dividing net loss by the weighted-average number of shares of common stock outstanding during the period, excluding shares of common stock subject to forfeiture. The Company has not considered the effect of the warrants sold in the Initial Public Offering and private placement to purchase an aggregate of 6,435,000 shares in the calculation of diluted loss per share, since the inclusion of such warrants would be anti-dilutive.

 

The Company’s statement of operations includes a presentation of loss per share for common stock subject to possible redemption in a manner similar to the two-class method of net loss per common share. Net loss per common share, basic and diluted, for Class A common stock subject to possible redemption is calculated by dividing the proportionate share of income or loss on marketable securities held by the Trust Account, net of applicable franchise and income taxes, by the weighted average number of Class A common stock subject to possible redemption outstanding since original issuance.

 

Net loss per share, basic and diluted, for non-redeemable common stock is calculated by dividing the net loss, adjusted for income or loss on marketable securities attributable to Class A common stock subject to possible redemption, by the weighted average number of non-redeemable common stock outstanding for the period.

 

Non-redeemable common stock includes Founder Shares and non-redeemable shares of common stock as these shares do not have any redemption features. Non-redeemable common stock participates in the income or loss on marketable securities based on non-redeemable shares’ proportionate interest.

 

The following table reflects the calculation of basic and diluted net loss per common share (in dollars, except per share amounts):

 

Schedule of basic and diluted net income (loss) per common share        
  

Three Months

Ended

June 30,

2021

  For the
Period from
September 30,
2020
(Inception)
Through
June 30,
2021
 
Class A common stock subject to possible redemption        
Numerator: Earnings allocable to Class A common stock subject to possible redemption        
Interest earned on marketable securities held in Trust Account $(11,794) $32,947 
Net income allocable to Class A common stock subject to possible redemption $(11,794) $32,947 
Denominator: Weighted Average Class A common stock subject to possible redemption        
Basic and diluted weighted average shares outstanding, Class A common stock subject to possible redemption  12,040,671   12,044,812 
Basic and diluted net income (loss) per share, Class A common stock subject to possible redemption $0.00  $0.00 
         
Non-Redeemable Common Stock        
Numerator: Net Loss minus Net Earnings        
Net loss $(183,633) $(507,259)
Net income allocable to Class A common stock subject to possible redemption  11,794   (32,947)
Non-Redeemable Net Loss $(171,839) $(540,205)
Denominator: Weighted Average Non-redeemable Common stock        
Basic and diluted weighted average shares outstanding, Non-redeemable Common stock  3,954,329   3,683,720 
Basic and diluted net loss per share, Non-redeemable Common stock $(0.04) $(0.15)

 

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Concentration of Credit Risk

 

Financial instruments that potentially subject the Company to concentrations of credit risk consist of a cash account in a financial institution, which, at times, may exceed the Federal Depository Insurance Coverage of $250,000. The Company has not experienced losses on this account.

  

Fair Value of Financial Instruments

 

The fair value of the Company’s assets and liabilities, which qualify as financial instruments under ASC Topic 820, “Fair Value Measurement” (“ASC 820”), approximates the carrying amounts represented in the condensed balance sheet, primarily due to their short-term nature.

 

Recent Accounting Standards

 

In August 2020, the FASB issued ASU No. 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” (“ASU 2020-06”), which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, with early adoption permitted. The Company is currently assessing the impact, if any, that ASU 2020-06 would have on its financial position, results of operations or cash flows.

 

Management does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s condensed financial statements.

 

NOTE 3. INITIAL PUBLIC OFFERING

 

Pursuant to the Initial Public Offering, the Company sold 12,500,000 Units, which includes a partial exercise by the underwriters of their over-allotment option in the amount of 1,500,000 Units, at a price of $10.00 per Unit. Each Unit consists of one share of Class A common stock and one-half of one redeemable warrant (“Public Warrant”). Each whole Public Warrant entitles the holder to purchase one share of Class A common stock at a price of $11.50 per share, subject to adjustment (see Note 8).

 

NOTE 4. PRIVATE PLACEMENT

 

Simultaneously with the closing of the Initial Public Offering, the Sponsor and the Forward Purchase Investors purchased an aggregate of 370,000 Private Units at a price of $10.00 per Private Unit, for an aggregate purchase price of $3,700,000, in a private placement. The Sponsor purchased an aggregate of 296,000 Private Units and Forward Purchase Investors purchased an aggregate of 74,000 Private Units. Each Private Unit consists of one share of Class A common stock (“Private Share”) and one-half of one redeemable warrant (“Private Warrant”). Each whole Private Warrant entitles the holder to purchase one share of Class A common stock at a price of $11.50 per share, subject to adjustment (see Note 8). A portion of the proceeds from the Private Units were added to the proceeds from the Initial Public Offering held in the Trust Account. The Private Units are identical to the Units sold in the Initial Public Offering, except as described in Note 8. If the Company does not complete a Business Combination within the Combination Period, the proceeds of the sale of the Private Units will be used to fund the redemption of the Public Shares (subject to the requirements of applicable law) and underlying securities will be worthless.

 

Certain funds affiliated with Baron Capital Group, Inc., which are members of the Sponsor, and MG Partners Multi-Strategy Fund LP (collectively, the “Forward Purchase Investors”) have entered into contingent forward purchase agreements with the Company as described in Note 6.

 

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NOTE 5. RELATED PARTY TRANSACTIONS

 

Founder Shares

 

On October 13, 2020, the Sponsor purchased 2,875,000 shares (the “Founder Shares”) of the Company’s Class B common stock for an aggregate price of $25,000. On December 7, 2020, the Company effected a stock dividend of 287,500 shares with respect to the Class B common stock, resulting in an aggregate of 3,162,500 Founder Shares issued and outstanding. All share and per-share amounts have been retroactively restated to reflect the stock dividend effectuated on December 7, 2020. The Founder Shares included an aggregate of up to 412,500 shares subject to forfeiture to the extent that the underwriters’ over-allotment option was not exercised in full or in part, so that the initial stockholders would own, on an as-converted basis, 20.0% of the Company’s issued and outstanding shares after the Initial Public Offering (excluding the Private Shares). As a result of the underwriters’ election to partially exercise their over-allotment option, a total of 375,000 Founder Shares are no longer subject to forfeiture and 37,500 Founder Shares were forfeited, resulting in an aggregate of 3,125,000 Founder Shares issued and outstanding.

 

The Company’s Sponsor, initial stockholders, officers and directors have agreed, subject to certain limited exceptions, not to transfer, assign or sell any of the Founder Shares until the earlier of one year after the date of the consummation of a Business Combination and the date on which the closing price of the Class A common stock equals or exceeds $12.50 per share (as adjusted for stock splits, stock dividends, reorganizations and recapitalizations) for any 20 trading days within a 30-trading day period commencing 150 days after a Business Combination, or earlier if, subsequent to a Business Combination, the Company completes a liquidation, merger, stock exchange or other similar transaction which results in all of the Company’s stockholders having the right to exchange their shares of common stock for cash, securities or other property.

  

Due from Sponsor

 

As of December 10, 2020, the Company advanced the Sponsor an aggregate of $25,000, which is included in prepaid expenses in the accompanying condensed balance sheet. The outstanding balance of the $25,000 due was repaid on January 11, 2021.

 

Administrative Services Agreement

 

The Company entered into an agreement, commencing on December 7, 2020 through the earlier of the Company’s consummation of a Business Combination and its liquidation, to pay the Sponsor a total of up to $10,000 per month for office space, utilities and administrative support. For the three months ended June 30, 2021 and for the period from September 30, 2020 (inception) through June 30, 2021, the Company incurred $30,000 and $70,000, respectively, in fees for these services, of which $50,000 is included in accrued expenses in the accompanying condensed balance sheet at June 30, 2021.

 

Promissory Note — Related Party

 

On October 13, 2020, the Company issued an unsecured promissory note to the Sponsor (the “Promissory Note”), pursuant to which the Company could borrow up to an aggregate principal amount of $150,000. The Promissory Note was non-interest bearing and payable on the earlier of (i) March 31, 2021 or (ii) the consummation of the Initial Public Offering. The outstanding balance under the Promissory Note of $105,747 was repaid at the closing of the Initial Public Offering on December 10, 2020.

 

Related Party Loans

 

In order to finance transaction costs in connection with a Business Combination, the Sponsor or an affiliate of the Sponsor, or certain of the Company’s officers and directors may, but are not obligated to, loan the Company funds as may be required (“Working Capital Loans”). If the Company completes a Business Combination, the Company would repay the Working Capital Loans out of the proceeds of the Trust Account released to the Company. Otherwise, the Working Capital Loans would be repaid only out of funds held outside the Trust Account. In the event that a Business Combination does not close, the Company may use a portion of proceeds held outside the Trust Account to repay the Working Capital Loans, but no proceeds held in the Trust Account would be used to repay the Working Capital Loans. Except for the foregoing, the terms of such Working Capital Loans, if any, have not been determined and no written agreements exist with respect to such loans. The Working Capital Loans would either be repaid upon consummation of a Business Combination, without interest, or, at the lender’s discretion, up to $1,500,000 of such Working Capital Loans may be convertible into units of the post-Business Combination entity at a price of $10.00 per unit. The units would be identical to the Private Units.

 

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NOTE 6. COMMITMENTS AND CONTINGENCIES

 

Registration Rights Agreement

 

Pursuant to a registration rights agreement entered into on December 7, 2020, the holders of the Founder Shares, Private Units, Private Shares, Private Warrants, the units that may be issued upon conversion of Working Capital Loans, the shares of Class A common stock and the warrants issued as part of such units (and any shares of Class A common stock issuable upon the exercise of the Private Warrants and warrants included as part of the units that may be issued upon conversion of Working Capital Loans and upon conversion of the Founder Shares) will be entitled to registration rights. The holders of a majority of these securities are entitled to make up to two demands that the Company register such securities. The holders of the majority of the Founder Shares can elect to exercise these registration rights at any time commencing three months prior to the date on which the Founder Shares are to be released from escrow. The holders of a majority of the Private Units and units issued to the Sponsor, officers, directors, initial stockholders or their affiliates in payment of Working Capital Loans made to the Company (or underlying securities) can elect to exercise these registration rights at any time after the Company consummates a Business Combination. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to the consummation of a Business Combination. The registration rights agreement does not contain liquidated damages or other cash settlement provisions resulting from delays in registering such securities. The Company will bear the expenses incurred in connection with the filing of any such registration statements.

 

Underwriting Agreement

 

The underwriters were paid a cash underwriting discount of $0.20 per Unit, or $2,500,000 in the aggregate, payable upon the closing of the Initial Public Offering.

 

Business Combination Marketing Agreement

 

The Company engaged the underwriters as an advisor in connection with a Business Combination to assist the Company in holding meetings with its shareholders to discuss the potential Business Combination and the target business’ attributes, introduce the Company to potential investors that are interested in purchasing the Company’s securities in connection with a Business Combination, provide financial advisory services to assist the Company in the Company’s efforts to obtain any stockholder approval for the Business Combination and assist the Company with its press releases and public filings in connection with the Business Combination. The Company will pay the underwriters a cash fee for such services upon the consummation of a Business Combination in an amount equal to, in the aggregate, 3.5% of the gross proceeds of Initial Public Offering (exclusive of any applicable finders’ fees which might become payable).

 

Forward Purchase Agreements

 

The Forward Purchase Investors entered into contingent forward purchase agreements with the Company as of November 17, 2020 and November 19, 2020, which provide for the purchase by the Forward Purchase Investors of an aggregate of up to 5,000,000 shares of Class A common stock, at a price of $10.00 per share, for total gross proceeds of up to $50,000,000. These shares would be purchased in a private placement to close simultaneously with the consummation of the Company’s Business Combination. These issuances would be made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act. Such agreements were subsequently amended on June 21, 2021 in connection with the Company’s proposed Business Combination.

 

NOTE 7. STOCKHOLDERS’ EQUITY

 

Preferred Stock — The Company is authorized to issue 1,000,000 shares of preferred stock with a par value of $0.0001 per share with such designations, voting and other rights and preferences as may be determined from time to time by the Company’s board of directors. At June 30, 2021, there were no shares of preferred stock issued or outstanding. 

 

 13 

 

 

Class A Common Stock — The Company is currently authorized to issue up to 100,000,000 shares of Class A common stock with a par value of $0.0001 per share. Holders of Class A common stock are entitled to one vote for each share. At June 30, 2021, there were 855,752 shares of Class A common stock issued and outstanding, excluding 12,014,248 shares of Class A common stock subject to possible redemption. 

 

Class B Common Stock — The Company is currently authorized to issue up to 10,000,000 shares of Class B common stock with a par value of $0.0001 per share. Holders of Class B common stock are entitled to one vote for each share. At June 30, 2021, there were 3,125,000 shares of Class B common stock issued and outstanding. 

 

Only holders of Class B common stock have the right to vote on the election of directors prior to a Business Combination. Holders of Class A common stock and Class B common stock will vote together as a single class on all other matters submitted to a vote of stockholders, except as required by law. 

 

The shares of Class B common stock will automatically convert into shares of Class A common stock at the time of a Business Combination, or at any time prior thereto at the option of the holder, on a one-for-one basis, subject to adjustment. In the case that additional shares of Class A common stock, 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 common stock shall convert into shares of Class A common stock will be adjusted (unless the holders of a majority of the outstanding shares of Class B common stock agree to waive such adjustment with respect to any such issuance or deemed issuance) so that the number of shares of Class A common stock issuable upon conversion of all shares of Class B common stock will equal, in the aggregate, on an as-converted basis, 20% of the sum of the total number of all shares of common stock outstanding upon the completion of the Initial Public Offering (not including the shares of Class A common stock underlying the Private Units) plus all shares of Class A common stock 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 additional units issued to the Sponsor, officers, directors, initial stockholders or their affiliates in payment of Working Capital Loans made to the Company). The Company cannot determine at this time whether a majority of the holders of the Class B common stock at the time of any future issuance would agree to waive such adjustment to the conversion ratio. 

 

NOTE 8. WARRANTS

 

Public 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 become exercisable on the later of (a) 30 days after the consummation of a Business Combination or (b) December 10, 2021. The Public Warrants will expire five years after the consummation of a Business Combination or earlier upon redemption or liquidation. 

 

The Company may redeem the Public Warrants (excluding the Private Warrants and any warrants underlying units issued upon conversion of the Working Capital Loans): 

 

 in whole and not in part; 
 at a price of $0.01 per warrant; 
 at any time after the warrants become exercisable;
 upon not less than 30 days’ prior written notice of redemption to each warrant holder;
 if, and only if, the reported last sale price of the shares of Class A common stock equals or exceeds $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations and recapitalizations), for any 20 trading days within a 30 trading day commencing at any time after the warrants become exercisable and ending on the third business day prior to the notice of redemption to warrant holders; and
 if, and only if, there is a current registration statement in effect with respect to the shares of Class A common stock underlying the warrants.

 

 14 

 

 

If and when the warrants become redeemable by the Company, the Company may exercise its redemption right even if it is unable to register or qualify the underlying securities for sale under all applicable state securities laws. 

 

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 Class A common stock issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, or recapitalization, reorganization, merger or consolidation. However, except as described below, the warrants will not be adjusted for issuances of Class A common stock at a price below its exercise price. Additionally, in no event will the Company be required to net cash settle the 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. 

 

In addition, if (x) the Company issues additional shares of Class A common stock or equity-linked securities for capital raising purposes in connection with the closing of its initial Business Combination at an issue price or effective issue price of less than $9.20 per share of Class A common stock (with such issue price or effective issue price to be determined in good faith by the Company’s board of directors and, in the case of any such issuance to the Sponsor, initial stockholders or their affiliates, without taking into account any Founder Shares held by the Sponsor, initial stockholders or their affiliates, as applicable, prior to such issuance) (the “Newly Issued Price”), (y) the aggregate gross proceeds from such issuances represent more than 60% of the total equity proceeds, and interest thereon, available for the funding of the Company’s initial Business Combination on the date of the consummation of such initial Business Combination (net of redemptions), and (z) the volume weighted average trading price of the Class A common stock during the 20 trading day period starting on the trading day prior to the day on which the Company consummates its initial Business Combination (such price, the “Market Value”) is below $9.20 per share, then the exercise price of the warrants will be adjusted (to the nearest cent) to be equal to 115% of the greater of (i) the Market Value or (ii) the Newly Issued Price, and the $18.00 per share redemption trigger price of the warrants will be adjusted (to the nearest cent) to be equal to 180% of the greater of (i) the Market Value or (ii) the Newly Issued Price.

 

The Private Warrants are identical to the Public Warrants underlying the Units sold in the Initial Public Offering, except that the Private Warrants and the shares of Class A common stock issuable upon the exercise of the Private Warrants will not be transferable, assignable or salable until after the completion of a Business Combination, subject to certain limited exceptions. Additionally, the Private Warrants will be exercisable on a cashless basis and will be non-redeemable so long as they are held by the initial purchasers or their permitted transferees. If the Private Warrants 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.

 

NOTE 9. FAIR VALUE MEASUREMENTS 

 

The Company follows the guidance in ASC 820 for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually. 

 

The fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:

 

 Level 1:Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
   
 Level 2:Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active.
   
 Level 3:Unobservable inputs based on the Company’s assessment of the assumptions that market participants would use in pricing the asset or liability.

 

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The following table presents information about the Company’s assets and liabilities that are measured at fair value on a recurring basis at June 30, 2021, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:

 

Schedule of fair value on a recurring basis      
Description Level June 30,
2021
 
Assets:      
Marketable securities held in Trust Account 1 $125,038,926 
       
Liabilities:      
Warrant Liability – Private Warrants 3 $286,750 

 

The Private Warrants are accounted for as liabilities in accordance with ASC 815-40 and are presented within warrant liabilities on the accompanying condensed balance sheet. The Private Warrants are measured at fair value at inception and on a recurring basis, with changes in fair value presented in the condensed statement of operations.

 

The Private Warrants were valued using a binomial lattice model, which is considered to be a Level 3 fair value measurement. The binomial lattice model’s primary unobservable input utilized in determining the fair value is the expected volatility of the common stock. The expected volatility as of the valuation dates was implied from the Company’s own Public Warrant pricing.

 

The following table presents the quantitative information regarding Level 3 fair value measurements of the warrant liability as of June 30, 2021:

 

Schedule of quantitative information regarding level 3 fair value measurements of the warrant liability    
Risk-free interest rate  0.87%
Effective expiration date  12/07/2026 
Dividend yield  0.00%
Expected volatility  22.25%
Exercise price $11.50 
One-touch hurdle $18.15 
Unit Price $9.92 

 

The following table presents the changes in the fair value of Private Warrants:

 

Schedule of changes in the fair value of private warrants    
Fair value as of September 30, 2020 (inception) $ 
Initial classification on December 10, 2020 (Initial Public Offering)  109,150 
Change in fair value  74,000 
Fair value as of December 31, 2020  183,150 
Change in fair value  7,400 
Fair value as of March 31, 2021 $190,550 
Change in fair value  96,200 
Fair value as of June 30, 2021 $286,750 

 

There were no transfers in or out of Level 3 from other levels in the fair value hierarchy during the three months ended June 30, 2021.

 

NOTE 10. SUBSEQUENT EVENTS

 

The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the condensed financial statements were issued. Based upon this review, the Company did not identify any subsequent events that would have required adjustment or disclosure in the condensed financial statements.

 

On August 12, 2021, Codere Online Luxembourg, S.A. filed with the SEC a registration statement on Form F-4 (File No. 333-258759), which contains a preliminary proxy statement/prospectus, in connection with the Company’s previously announced proposed Business Combination with Codere Online. There can be no assurance as to whether or when such proposed Business Combination will be completed.

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

References in this Quarterly Report on Form 10-Q (this “Quarterly Report”) to “we,” “us” or the “Company” refer to DD3 Acquisition Corp. II. References to our “management” or our “management team” refer to our officers and directors, and references to the “Sponsor” refer to DD3 Sponsor Group, LLC. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this Quarterly Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.

 

Special Note Regarding Forward-Looking Statements

 

This Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that are not historical facts, and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Quarterly Report including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the completion of the Proposed Business Combination (as defined and described below), the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements, including that the conditions of the Proposed Business Combination are not satisfied. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of the Company’s final prospectus for its initial public offering (“Initial Public Offering”) filed with the U.S. Securities and Exchange Commission (the “SEC”). The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

 

Overview

 

We are a blank check company formed under the laws of the State of Delaware on September 30, 2020, for the purpose of entering into a merger, capital stock exchange, asset acquisition, stock purchase, recapitalization, reorganization or other similar business combination with one or more businesses or entities (“Business Combination”). We may consummate a Business Combination with a target business in any geographic location or industry, although we initially focused our search for target businesses in Mexico and Hispanic businesses in the United States. We intend to effectuate our Business Combination using cash from the proceeds of the Initial Public Offering and the sale of the private units (“Private Units”) that occurred simultaneously with the consummation of the Initial Public Offering (the “Private Placement”), our securities, debt or a combination of cash, securities and debt.

 

We have incurred, and in the event the Proposed Business Combination is not consummated, expect to continue to incur significant costs in the pursuit of our acquisition plans. We cannot assure you that our plans to complete our initial Business Combination, including the Proposed Business Combination, will be successful.

 

Recent Developments

 

Proposed Business Combination

 

On June 21, 2021, we entered into the Business Combination Agreement (as may be amended, supplemented, or otherwise modified from time to time, the “Business Combination Agreement”) with Codere Newco, S.A.U., a corporation (sociedad anónima unipersonal) registered and incorporated under the laws of Spain (“Codere Newco”), Servicios de Juego Online S.A.U., a corporation (sociedad anónima unipersonal) registered and incorporated under the laws of Spain (“SEJO”) whose sole shareholder is Codere Newco, Codere Online Luxembourg, S.A., a limited liability company (société anonyme) governed by the laws of the Grand Duchy of Luxembourg (“Holdco”) whose sole shareholder is Codere Newco, and Codere Online U.S. Corp., a Delaware corporation (“Merger Sub”) whose sole stockholder is Holdco, which provides for the Proposed Business Combination that will result in the Company and SEJO becoming wholly-owned subsidiaries of Holdco.

 

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In connection with the Proposed Business Combination, Holdco filed a registration statement on Form F-4 (File No. 333-258759) with the SEC on August 12, 2021 (the “Form F-4”) that includes a preliminary proxy statement with respect to our special meeting of stockholders to approve the Business Combination Agreement, among other matters, as well as a preliminary prospectus of Holdco relating to the offer of the securities to be issued in connection with the completion of the Proposed Business Combination. There can be no assurance as to whether or when the Proposed Business Combination will be completed.

 

Business Combination Agreement

 

Pursuant to the Business Combination Agreement, each of the following transactions will occur in the following order: (i) pursuant to that certain Contribution and Exchange Agreement, dated as of June 21, 2021, by and among Holdco, SEJO and Codere Newco, effective on the effective time of the Exchange (as defined below), Codere Newco will contribute its ordinary shares of SEJO (“SEJO Ordinary Shares”), constituting all the issued and outstanding share capital of SEJO, to Holdco in exchange for additional ordinary shares of Holdco (“Holdco Ordinary Shares”), to be subscribed for by Codere Newco (such contribution and exchange of SEJO Ordinary Shares for Holdco Ordinary Shares, collectively, the “Exchange”); as a result of the Exchange, SEJO will become a wholly-owned subsidiary of Holdco and Holdco will continue to be a wholly-owned subsidiary of Codere Newco; (ii) after the Exchange and immediately prior to the effective time of the Merger (as defined below) (the “Merger Effective Time”), each share of our Class B common stock, par value $0.0001 per share (“Founder Shares”), issued and outstanding immediately prior to the Merger Effective Time will automatically be converted into and exchanged for one share of our Class A common stock, par value $0.0001 per share (“Class A common stock,” and such conversion, the “Class B Conversion”); (iii) not earlier than one Business Day (as defined in the Business Combination Agreement) following the consummation of the Exchange, Merger Sub will merge with and into the Company, with the Company surviving such merger and becoming a direct wholly-owned subsidiary of Holdco (the “Merger”) and, in connection therewith, the Company’s corporate name will change to “Codere Online U.S. Corp.”; (iv) in connection with the Merger, all shares of Class A common stock issued and outstanding immediately prior to the Merger Effective Time, but after the Class B Conversion, will be contributed to Holdco in exchange for one Holdco Ordinary Share for each share of Class A common stock pursuant to a share capital increase of Holdco; and (v) as of the Merger Effective Time, each of our warrants that is outstanding immediately prior to the Merger Effective Time will no longer represent a right to acquire one share of Class A common stock and will instead represent the right to acquire one Holdco Ordinary Share on substantially the same terms (together with the other transactions related thereto, the “Proposed Business Combination”).

 

The Business Combination Agreement contains customary representations and warranties, covenants and closing conditions, including, but not limited to, approval by our stockholders of the Business Combination Agreement. The terms of the Business Combination Agreement and other related ancillary agreements to be entered into in connection with the closing of the Proposed Business Combination (the “Closing”) are summarized in more detail in our Current Report on Form 8-K filed with the SEC on June 22, 2021 and in the Form F-4.

 

Subscription Agreements 

 

Contemporaneously with the execution and delivery of the Business Combination Agreement, we entered into two separate Subscription Agreements (collectively, the “Subscription Agreements”) with DD3 Capital Partners S.A. de C.V. (“DD3 Capital”) and Larrain Investment Inc. (“Larrain”, and together with DD3 Capital, the “Susbcribers”), in each case to which Holdco is also a party, pursuant to which we have agreed to issue and sell, in a private placement to close immediately prior to the Closing, (i) an aggregate of 500,000 shares of Class A common stock, for an aggregate purchase price of $5,000,000, at a price of $10.00 per each share of Class A common stock, to DD3 Capital, and (ii) an aggregate of 1,224,000 shares of Class A common stock, for an aggregate purchase price of $12,240,000, at a price of $10.00 per each share of Class A common stock, to Larrain (collectively, the “PIPE”), in each case which shares of Class A common stock will become Holdco Ordinary Shares as a result of the Merger (the “PIPE Shares”).

 

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The closing of the PIPE (the “PIPE Closing”) is contingent upon the substantially concurrent consummation of the Proposed Business Combination. The PIPE Closing will occur on the date of, and immediately prior to, the consummation of the Proposed Business Combination, and will be subject to customary conditions.

 

Pursuant to the Subscription Agreements, Holdco agreed that, within 30 calendar days after the Closing, Holdco will file with the SEC a registration statement registering the Holdco Ordinary Shares received by the Subscribers in connection with the Proposed Business Combination (the “PIPE Registration Statement”), and Holdco shall use its commercially reasonable efforts to have the PIPE Registration Statement declared effective as soon as practicable after the filing thereof; provided, however, that Holdco’s obligations to include the Holdco Ordinary Shares held by a Subscriber in the PIPE Registration Statement will be contingent upon the respective Subscriber furnishing in writing to Holdco such information regarding the Subscriber, such Holdco Ordinary Shares held by such Subscriber and the intended method of disposition of such shares as shall be reasonably requested by Holdco to effect the registration, and will execute such documents in connection with such registration as Holdco may reasonably request that are customary of a selling stockholder in similar situations.

 

Each Subscriber also agreed to certain transfer restrictions with respect to its PIPE Shares during the period commencing on the date of the Closing and continuing until the earlier of 90 days after the date of the Closing and the date when the PIPE Registration Statement is declared effective by the SEC.

 

Each Subscription Agreement will terminate upon the earlier to occur of (i) such date and time as the Business Combination Agreement is terminated in accordance with its terms without the Proposed Business Combination being consummated, (ii) upon the mutual written agreement of each of the parties to the Subscription Agreement or (iii) any of the conditions to the PIPE Closing are not satisfied or waived on or prior to the PIPE Closing and, as a result thereof, the transactions contemplated by the Subscription Agreement are not consummated at the PIPE Closing.

 

Forward Purchase Agreements

 

In connection with the Proposed Business Combination, certain funds affiliated with Baron Capital Group, Inc., which are members of the Sponsor (collectively, “Baron”), and MG Partners Multi-Strategy Fund LP (“MG”, and together with Baron, the “Forward Purchase Investors”) have elected to purchase an aggregate of 5,000,000 shares of Class A common stock (“Forward Purchase Shares”) for an aggregate purchase price of $50,000,000, at a price of $10.00 per Forward Purchase Share, in a private placement to close immediately prior to the Closing, pursuant to the terms of the contingent Forward Purchase Agreements that we entered into with Baron and MG on November 17, 2020 and November 19, 2020, respectively, in connection with the Initial Public Offering, in each case as amended on June 21, 2021 (as amended, the “Forward Purchase Agreements”). Pursuant to such amendments, among other matters, (i) we agreed not to enter into any agreement with any other investor or prospective investor on terms that are more favorable to such other investor or prospective investor than the terms provided to Baron or MG, as applicable, and (ii) certain closing conditions were amended in part to align with the closing conditions in the Business Combination Agreement, including that the terms of the Business Combination Agreement (as the same existed on the date of such amendments) shall not have been amended or modified in a manner, and no waiver thereunder shall have occurred, that would reasonably be expected to be materially adverse to the economic benefits that Baron or MG would reasonably expect to receive under their respective Forward Purchase Agreement, without Baron’s or MG’s written consent, as applicable.

 

Baron Support Agreement

 

Contemporaneously with the execution and delivery of the Business Combination Agreement, we entered into the Investor Support Agreement with Baron (the “Baron Support Agreement”), pursuant to which Baron irrevocably waived its redemption rights with respect to 996,069 public shares acquired by Baron in the Initial Public Offering (the “Baron IPO Shares”) and agreed (a) that it will not redeem, or exercise any of its redemption rights with respect to, any Baron IPO Shares in connection with our special meeting of stockholders to approve the Business Combination Agreement and the Proposed Business Combination and (b) to certain transfer restrictions with respect to the Baron IPO Shares. The Baron Support Agreement and the obligations of Baron under the Baron Support Agreement will automatically terminate upon the earliest of the Closing and the termination of the Business Combination Agreement in accordance with its terms. The Baron Support Agreement is subject to customary conditions, covenants, representations and warranties.

 

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Nasdaq Notice 

 

On May 28, 2021, we received a notice (the “Notice”) from the Listing Qualifications Department of Nasdaq indicating that we were not then in compliance with Nasdaq Listing Rule 5250(c)(1) due to a delay in filing our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2021 (the “Q2 Form 10-Q”) with the SEC. The Notice had no immediate effect on the listing or trading of our securities on the Nasdaq Capital Market, and the Q2 Form 10-Q was subsequently filed with the SEC on June 15, 2021.

 

Results of Operations

 

We have neither engaged in any operations nor generated any revenues to date. Our only activities through June 30, 2021 were organizational activities, those necessary to prepare for the Initial Public Offering, described below, and, after the Initial Public Offering, identifying a target company for a Business Combination. We do not expect to generate any operating revenues until after the completion of our Business Combination. We generate non-operating income in the form of interest income on marketable securities held in the trust account established for the benefit of our public stockholders (the “Trust Account”). We incur expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses in connection with searching for, and completing, a Business Combination. We are also incurring expenses in connection with the Proposed Business Combination.

 

For the three months ended June 30, 2021, we had a net loss of $183,633, which consisted of operating costs of $86,248, a change in fair value of warrant liability of $96,200 and interest expense on marketable securities held in the Trust Account of $15,702, offset by unrealized gain on marketable securities held in our Trust Account of $14,517. 

 

For the period from September 30, 2020 (inception) through June 30, 2021, we had a net loss of $507,259, which consisted of operating costs of $368,585, a change in fair value of warrant liability of $177,600 and an unrealized loss on marketable securities held in our Trust Account of $4,937, offset by interest income on marketable securities held in the Trust Account of $43,864.

 

Liquidity and Capital Resources

 

Until the consummation of the Initial Public Offering, our only source of liquidity was an initial purchase of Founder Shares by the Sponsor and loans from the Sponsor.

 

On December 10, 2020, we consummated the Initial Public Offering of 12,500,000 units (“Units”), at $10.00 per Unit, which included the partial exercise by the underwriters of their over-allotment option in the amount of 1,500,000 Units, generating gross proceeds of $125,000,000. Simultaneously with the closing of the Initial Public Offering, we consummated the Private Placement of an aggregate of 370,000 Private Units to the Sponsor and the Forward Purchase Investors (as defined below) at a price of $10.00 per Private Unit, generating gross proceeds of $3,700,000.

 

Following the Initial Public Offering, including the partial exercise of the over-allotment option, and the Private Placement, a total of $125,000,000 was placed in the Trust Account. We incurred $2,966,508 in transaction costs, including $2,500,000 of underwriting fees and $466,508 of other offering costs.

 

For the period from September 30, 2020 (inception) through June 30, 2021, net cash used in operating activities was $412,583. Net loss of $507,259 was affected by interest earned on marketable securities held in the Trust Account of $43,864, offset by an unrealized loss on marketable securities held in the Trust Account of $4,937, a change in fair value of warrant liability of $177,600 and offering costs allocable to warrant liability of $396. Changes in operating assets and liabilities used $44,394 of cash for the period.

 

As of June 30, 2021, we had marketable securities held in the Trust Account of $125,038,926 (including approximately $39,000 of interest expense, net of unrealized loss) consisting of securities held in a money market fund that invests in U.S. Treasury securities with a maturity of 185 days or less. Interest income on the balance in the Trust Account may be used by us to pay taxes. Through June 30, 2021, we did not withdraw any interest earned on the Trust Account to pay our taxes. We intend to use substantially all of the funds held in the Trust Account, including any amounts representing interest earned on the Trust Account (less income taxes payable), to complete our Business Combination and to pay our expenses relating thereto, including a fee payable to EarlyBirdCapital, Inc. (“EarlyBirdCapital”) upon consummation of our Business Combination for assisting us in connection with our Business Combination, as described below. To the extent that our capital stock or debt is used, in whole or in part, as consideration to complete our Business Combination, the remaining proceeds held in the Trust Account will be used as working capital to finance the operations of the target business or businesses, make other acquisitions and pursue our growth strategies.

 

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As of June 30, 2021, we had cash of $385,909 held outside the Trust Account. We intend to use the funds held outside the Trust Account primarily to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, and structure, negotiate and complete a Business Combination.

 

In order to fund working capital deficiencies or finance transaction costs in connection with a Business Combination, the Sponsor or our initial stockholders, officers, directors or their affiliates may, but are not obligated to, loan us funds as may be required. If we complete a Business Combination, we would repay such loaned amounts. In the event that a Business Combination does not close, we may use a portion of the working capital held outside the Trust Account to repay such loaned amounts but no proceeds from the Trust Account would be used for such repayment. Up to $1,500,000 of such loans may be convertible into units of the post-Business Combination entity that would be identical to the Private Units, at a price of $10.00 per unit, at the option of the lender.

 

We do not believe we will need to raise additional funds in order to meet the expenditures required for operating our business. However, if our estimate of the costs of identifying a target business, undertaking in-depth due diligence and negotiating a Business Combination are less than the actual amount necessary to do so, we may have insufficient funds available to operate our business prior to our Business Combination. Moreover, we may need to obtain additional financing either to complete our Business Combination or because we become obligated to redeem a significant number of our public shares upon consummation of our Business Combination, in which case we may issue additional securities or incur debt in connection with such Business Combination. Subject to compliance with applicable securities laws, we would only complete such financing simultaneously with the completion of our Business Combination. If we are unable to complete our Business Combination because we do not have sufficient funds available to us, we will be forced to cease operations and liquidate the Trust Account. In addition, following our Business Combination, if cash on hand is insufficient, we may need to obtain additional financing in order to meet our obligations.

 

Off-Balance Sheet Arrangements

 

We did not have any off-balance sheet arrangements as of June 30, 2021.

 

Contractual Obligations

 

We do not have any long-term debt obligations, capital lease obligations, operating lease obligations, purchase obligations or other long-term liabilities, other than an agreement to pay the Sponsor a monthly fee of $10,000 for office space, utilities and administrative support. We began incurring these fees on December 7, 2020 and will continue to incur these fees monthly until the earlier of the completion of the Business Combination and our liquidation.

 

We have engaged EarlyBirdCapital as an advisor in connection with our Business Combination to assist us in holding meetings with our stockholders to discuss the potential Business Combination and the target business’ attributes, introduce us to potential investors that are interested in purchasing our securities in connection with our initial Business Combination, assist us in obtaining stockholder approval for the Business Combination and assist us with our press releases and public filings in connection with the Business Combination. We will pay EarlyBirdCapital a cash fee for such services upon the consummation of our initial Business Combination in an amount up to 3.5% of the gross proceeds of the Initial Public Offering, or $4,375,000 (exclusive of any applicable finders’ fees which might become payable).

 

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We are also party to the Forward Purchase Agreements and have entered into the Business Combination Agreement, the Subscription Agreements and the Baron Support Agreement in connection with the Proposed Business Combination, as described above. 

 

Critical Accounting Policies

 

The preparation of condensed financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following critical accounting policies:

 

Warrant Liabilities

 

We account for the warrants underlying the Private Units sold in the Private Placement (the “Private Warrants”) in accordance with the guidance contained in ASC 815 under which the Private Warrants do not meet the criteria for equity treatment and must be recorded as liabilities. Under ASC 815-40, the Private Warrants are not indexed to our common stock in the manner contemplated by ASC 815-40 because the holder of the instrument is not an input into the pricing of a fixed-for-fixed option on equity shares. Accordingly, we classify the Private Warrants as liabilities at their fair value and adjust the Private Warrants to fair value at each reporting period. These liabilities are subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in our statement of operations. The Private Warrants are valued using a binomial lattice model.

 

Class A Common Stock Subject to Possible Redemption

 

We account for our Class A common stock subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” Shares of Class A common stock subject to mandatory redemption is classified as a liability instrument and is measured at fair value. Conditionally redeemable common stock (including common stock that features redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control) is classified as temporary equity. At all other times, common stock is classified as stockholders’ equity. Our Class A common stock features certain redemption rights that are considered to be outside of our control and subject to occurrence of uncertain future events. Accordingly, Class A common stock subject to possible redemption is presented at redemption value as temporary equity, outside of the stockholders’ equity section of our condensed balance sheet.

 

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Net Income (Loss) Per Common Share

 

We apply the two-class method in calculating earnings per share. Net income (loss) per common share, basic and diluted, for Class A common stock subject to possible redemption is calculated by dividing the interest income earned on the Trust Account, net of applicable taxes, if any, by the weighted average number of shares of Class A common stock subject to possible redemption outstanding for the period. Net income (loss) per common share, basic and diluted, for and non-redeemable common stock is calculated by dividing net income (loss) less income attributable to Class A common stock subject to possible redemption, by the weighted average number of shares of non-redeemable common stock outstanding for the period presented.

 

Recent Accounting Standards

 

In August 2020, the Financial Accounting Standards Board issued ASU No. 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” (“ASU 2020-06”), which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, with early adoption permitted. We are currently assessing the impact, if any, that ASU 2020-06 would have on our financial position, results of operations or cash flows. 

 

Management does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on our condensed financial statements.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.

 

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.

 

Item 4. Controls and Procedures.

 

Evaluation of Disclosure Controls and Procedures

 

Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial and accounting officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

Under the supervision and with the participation of our management, including our principal executive officer and principal financial and accounting officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the fiscal quarter ended June 30, 2021. Based on this evaluation, our principal executive officer and principal financial and accounting officer have concluded that during the period covered by this Quarterly Report our disclosure controls and procedures were not effective, due solely to the material weakness in our internal control over financial reporting described below.

 

On April 12, 2021, the staff of the SEC released a statement regarding the accounting and reporting considerations for warrants issued by special purpose acquisition companies entitled “Staff Statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (“SPACs”)” (the “Staff Statement”). In light of the Staff Statement, we undertook a process to re-evaluate the equity classification of our outstanding warrants issued in connection with the Initial Public Offering, including the Private Warrants. As a result of such re-evaluation, the audit committee of our board of directors, in consultation with our management, determined that the Private Warrants should have been classified as derivative liabilities, which led to the revision of our previously issued financial statements to reclassify the Private Warrants as liabilities in the Q2 Form 10-Q. Our internal control over financial reporting therefore did not result in the proper accounting classification of the Private Warrants, which, due to its impact on our financial statements, we determined to be a material weakness.

 

Changes in Internal Control over Financial Reporting

 

Except as set forth below, there was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fiscal quarter of 2021 covered by this Quarterly Report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

Due solely to the events that led to the revision of our previously issued financial statements, our management identified a material weakness in our internal control over financial reporting related to the accounting for the Private Warrants, as described above. Following the identification of such material weakness, our principal executive officer and principal financial and accounting officer performed additional accounting and financial analyses related to the accounting for our warrants, including consulting with subject matter experts. Management has expended, and will continue to expend, a substantial amount of effort and resources for the remediation and improvement of our internal control over financial reporting. Although we have processes to identify and appropriately apply applicable accounting requirements, we plan to continue to enhance our system of evaluating and implementing the accounting standards that apply to our financial statements, including through enhanced analyses by our personnel and third-party professionals with whom we consult regarding complex accounting applications. The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects.

 

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PART II - OTHER INFORMATION

 

Item 1. Legal Proceedings.

 

None.

 

Item 1A. Risk Factors.

 

Factors that could cause our actual results to differ materially from those in this Quarterly Report are any of the risks described in our final prospectus for the Initial Public Offering filed with the SEC on December 10, 2020. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. Except as set forth below, as of the date of this Quarterly Report, there have been no material changes with respect to those risk factors previously disclosed in our final prospectus for the Initial Public Offering filed with the SEC, except we may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC. For information regarding risk factors related to the Proposed Business Combination, see the “Risk Factors” section of the Form F-4.

 

Our Private Warrants are accounted for as liabilities and the changes in value of our Private Warrants could have a material effect on our financial results.

 

On April 12, 2021, the staff of the SEC (the “SEC Staff”) issued the Staff Statement entitled “Staff Statement on Accounting and Reporting Considerations for Warrants issued by Special Purpose Acquisition Companies (“SPACs”)”, wherein the SEC Staff expressed its view that certain terms and conditions common to SPAC warrants may require the warrants to be classified as liabilities on the SPAC’s balance sheet as opposed to being treated as equity. In light of the Staff Statement, we undertook a process to re-evaluate the equity classification of our outstanding warrants issued in connection with the Initial Public Offering, including the Private Warrants. As a result of such re-evaluation and pursuant to the guidance in ASC 815-40, the audit committee of our board of directors, in consultation with our management, determined that the Private Warrants should have been classified as derivative liabilities measured at fair value on our balance sheet, with any changes in fair value to be reported each period in earnings on our statement of operations.

 

As a result of the recurring fair value measurement, our financial statements may fluctuate quarterly based on factors which are outside of our control. Due to the recurring fair value measurement, we expect that we will recognize non-cash gains or losses on our Private Warrants each reporting period and that the amount of such gains or losses could be material.

 

We have identified a material weakness in our internal control over financial reporting. If we are unable to develop and maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results in a timely manner, which may adversely affect investor confidence in us and materially and adversely affect our business and operating results.

 

Following the issuance of the Staff Statement, the audit committee of our board of directors, in consultation with our management, concluded that, in light of the Staff Statement, it was appropriate to revise our previously issued balance sheet as of December 10, 2020 and our financial statements as of December 31, 2020 and for the period from September 30, 2020 (inception) through December 31, 2020. See “—Our Private Warrants are accounted for as liabilities and the changes in value of our Private Warrants could have a material effect on our financial results.” As part of such process, we identified a material weakness in our internal control over financial reporting.

 

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented, or detected and corrected on a timely basis.

 

Effective internal controls are necessary for us to provide reliable financial reports and prevent fraud. As of June 30, 2021, we continue to evaluate steps to remediate the material weakness. These remediation measures may be time consuming and costly and there is no assurance that these initiatives will ultimately have the intended effects.

 

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If we identify any new material weaknesses in the future, any such newly identified material weakness could limit our ability to prevent or detect a misstatement of our accounts or disclosures that could result in a material misstatement of our annual or interim financial statements. In such case, we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements, investors may lose confidence in our financial reporting and our stock price may decline as a result. We cannot assure you that the measures we have taken to date, or any measures we may take in the future, will be sufficient to avoid potential future material weaknesses.

 

We, and following our initial business combination, the post-business combination company, may face litigation and other risks as a result of the material weakness in our internal control over financial reporting.

 

As part of the revision of our previously issued balance sheet as of December 10, 2020 and our financial statements as of December 31, 2020 and for the period from September 30, 2020 (inception) through December 31, 2020, we identified a material weakness in our internal control over financial reporting. As a result of such material weakness, the change in accounting for our Private Warrants and other matters raised or that may in the future be raised by the SEC, we face potential for litigation or other disputes which may include, among others, claims invoking the federal and state securities laws, contractual claims or other claims arising from the material weakness in our internal control over financial reporting and the preparation of our financial statements. As of the date of this report, we have no knowledge of any such litigation or dispute. However, we can provide no assurance that such litigation or dispute will not arise in the future. Any such litigation or dispute, whether successful or not, could have a material adverse effect on our business, results of operations and financial condition or our ability to complete a business combination.

 

As the number of special purpose acquisition companies increases, there may be more competition to find an attractive target for an initial business combination. This could increase the costs associated with completing our initial business combination and may result in our inability to find a suitable target for our initial business combination. 

 

In recent years, the number of special purpose acquisition companies that have been formed has increased substantially. Many companies have entered into business combinations with special purpose acquisition companies, and there are still many special purpose acquisition companies seeking targets for their initial business combination, as well as many additional special purpose acquisition companies currently in registration. As a result, at times, fewer attractive targets may be available, and it may require more time, effort and resources to identify a suitable target for an initial business combination. 

 

In addition, because there are more special purpose acquisition companies seeking to enter into an initial business combination with available targets, the competition for available targets with attractive fundamentals or business models may increase, which could cause target companies to demand improved financial terms. Attractive deals could also become scarcer for other reasons, such as economic or industry sector downturns, geopolitical tensions or increases in the cost of additional capital needed to close business combinations or operate targets post-business combination. This could increase the cost of, delay or otherwise complicate or frustrate our ability to find a suitable target for and/or complete our initial business combination. 

 

Changes in the market for directors and officers liability insurance could make it more difficult and more expensive for us to negotiate and complete an initial business combination. 

 

In recent months, the market for directors and officers liability insurance for special purpose acquisition companies has changed in ways adverse to us and our management team. Fewer insurance companies are offering quotes for directors and officers liability coverage, the premiums charged for such policies have generally increased and the terms of such policies have generally become less favorable. These trends may continue into the future. 

 

The increased cost and decreased availability of directors and officers liability insurance could make it more difficult and more expensive for us to negotiate and complete an initial business combination. In order to obtain directors and officers liability insurance or modify its coverage as a result of becoming a public company, the post-business combination entity might need to incur greater expense and/or accept less favorable terms. Furthermore, any failure to obtain adequate directors and officers liability insurance could have an adverse impact on the post-business combination’s ability to attract and retain qualified officers and directors. 

 

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In addition, after completion of any initial business combination, our directors and officers could be subject to potential liability from claims arising from conduct alleged to have occurred prior to such initial business combination. As a result, in order to protect our directors and officers, the post-business combination entity may need to purchase additional insurance with respect to any such claims (“run-off insurance”). The need for run-off insurance would be an added expense for the post-business combination entity and could interfere with or frustrate our ability to consummate an initial business combination on terms favorable to our investors.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

On October 13, 2020, we issued 2,875,000 Founder Shares to the Sponsor for an aggregate purchase price of $25,000, or approximately $0.009 per share, pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act. On December 7, 2020, we effected a stock dividend of 287,500 shares with respect to our Class B common stock, resulting in there being an aggregate of 3,162,500 Founder Shares outstanding. No underwriting discounts or commissions were paid with respect to such issuances. On December 10, 2020, in connection with the underwriters’ partial exercise of their over-allotment option and waiver of the remaining portion of such option, simultaneously with the consummation of the Initial Public Offering, the Sponsor forfeited an aggregate of 37,500 Founder Shares to us at no cost, and 3,125,000 Founder Shares remain outstanding.

 

On December 10, 2020, we consummated the Initial Public Offering of 12,500,000 Units, inclusive of 1,500,000 Units sold to the underwriters upon the underwriters’ election to partially exercise their over-allotment option at a price of $10.00 per Unit, generating total gross proceeds of $125,000,000. Each Unit consists of one share of Class A common stock and one-half of one redeemable warrant, each whole warrant entitling the holder thereof to purchase one share of Class A common stock at an exercise price of $11.50 per share, subject to adjustment. The warrants will become exercisable on the later of 30 days after the consummation of our initial Business Combination or December 10, 2021, and will expire five years after the consummation of our initial Business Combination, or earlier upon redemption or liquidation.

 

EarlyBirdCapital acted as sole book-running manager of the Initial Public Offering. The securities in the offering were registered under the Securities Act on registration statements on Form S-1 (File Nos. 333-250212 and 333-251190). The registration statements became effective on December 7, 2020.

 

Simultaneously with the consummation of the Initial Public Offering, including the partial exercise of the over-allotment option, we consummated the Private Placement of an aggregate of 370,000 Private Units to the Sponsor and the Forward Purchase Investors at a price of $10.00 per Private Unit, generating total proceeds of $3,700,000. The issuance was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act. No underwriting discounts or commissions were paid with respect to the Private Placement.

 

The Private Units are identical to the Units sold in the Initial Public Offering, except that if held by the initial purchasers or their permitted transferees, the underlying Private Warrants (i) may be exercised on a cashless basis and (ii) are not subject to redemption. If the Private Units are held by holders other than the initial purchasers or their permitted transferees, then the Private Warrants will be redeemable by us and exercisable by the holders on the same basis as the warrants included in the Units sold in the Initial Public Offering. In addition, the Private Units (and the securities underlying the Private Units) are not transferable, assignable or salable until after the completion of a Business Combination, subject to certain limited exceptions.

 

We paid a total of $2,500,000 in underwriting discounts and commissions and $466,508 for other costs and expenses related to the Initial Public Offering.

 

After deducting the underwriting discounts and commissions and the offering expenses, the total net proceeds from the Initial Public Offering, including the partial exercise of the over-allotment option, and the Private Placement was $125,733,492, of which $125,000,000 was placed in the Trust Account.

 

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

 

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Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosures.

 

Not Applicable.

 

Item 5. Other Information.

 

None.

 

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Item 6. Exhibits.

 

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

 

No. Description of Exhibit
2.1 Business Combination Agreement, dated as of June 21, 2021, by and among the Company, Codere Newco, S.A.U., Servicios de Juego Online S.A.U., Codere Online Luxembourg, S.A. and Codere Online U.S. Corp. (1)
3.1 Amended and Restated Certificate of Incorporation of the Company (2)
3.2 Bylaws (3)
10.1 Investor Support Agreement, dated as of June 21, 2021, by and among the Company, Baron Global Advantage Fund, Baron Emerging Markets Fund and Destinations International Equity Fund (1)
10.2 Form of Subscription Agreement (1)
10.3 Amendment No. 1 to Forward Purchase Agreement, dated as of June 21, 2021, by and among the Company, Baron Global Advantage Fund, Baron Emerging Markets Fund and Destinations International Equity Fund (1)
10.4 Amendment No. 1 to Forward Purchase Agreement, dated as of June 21, 2021, by and between the Company and MG Partners Multi-Strategy Fund LP (1)
31.1* Certification of Principal Executive Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2* Certification of Principal Financial Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1** Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2** Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS* Inline XBRL Instance Document
101.SCH* Inline XBRL Taxonomy Extension Schema Document
101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF* Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB* Inline XBRL Taxonomy Extension Labels Linkbase Document
101.PRE* Inline XBRL Taxonomy Extension Presentation Linkbase Document
104* Cover Page Interactive Data file (formatted as inline XBRL)

 

*Filed herewith.
**Furnished.
(1)Previously filed as an exhibit to our Current Report on Form 8-K filed on June 22, 2021 and incorporated by reference herein.
(2)Previously filed as an exhibit to our Current Report on Form 8-K filed on December 11, 2020 and incorporated by reference herein.
(3)Previously filed as an exhibit to our Registration Statement on Form S-1 filed on November 19, 2020 and incorporated by reference herein.

 

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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.

 

 DD3 ACQUISITION CORP. II
   
Date: August 16, 2021By:/s/ Dr. Martin M. Werner
 Name:Dr. Martin M. Werner
 Title:Chief Executive Officer
  (Principal Executive Officer)
   
Date: August 16, 2021By:/s/ Daniel Salim
 Name:  Daniel Salim
 Title:Chief Financial Officer
  (Principal Financial and Accounting Officer)

 

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