Special Note Regarding Forward-Looking Statements
References to "we", "us", "our" or the "Company" are to Dune Acquisition
Corporation, except where the context requires otherwise. The following
discussion should be read in conjunction with our consolidated financial
statements and related notes thereto included elsewhere in this Annual Report on
Form 10-K. Certain information contained in the discussion and analysis set
forth below includes forward-looking statements that involve risks and
uncertainties.
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Cautionary Note Regarding Forward-Looking Statements
This Annual Report on Form 10-K includes forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Exchange Act. We have based these forward-looking statements on our
current expectations and projections about future events. These forward-looking
statements are subject to known and unknown risks, uncertainties and assumptions
about us that may cause our actual results, levels of activity, performance or
achievements to be materially different from any future results, levels of
activity, performance or achievements expressed or implied by such
forward-looking statements. In some cases, you can identify forward-looking
statements by terminology such as "may," "should," "could," "would," "expect,"
"plan," "anticipate," "believe," "estimate," "continue," or the negative of such
terms or other similar expressions. Such statements include, but are not limited
to, possible business combinations and the financing thereof, and related
matters, as well as all other statements other than statements of historical
fact included in this Form 10-K. Factors that might cause or contribute to such
a discrepancy include, but are not limited to, those described in our other SEC
filings.
Overview
We are a blank check company incorporated in Delaware on June 18, 2020 for the
purpose of effecting a merger, capital stock exchange, asset acquisition, stock
purchase, reorganization or similar business combination with one or more
businesses. Our Sponsor is Dune Acquisition Holdings LLC, a Delaware limited
liability company.
The registration statement for our initial public offering became effective on
December 17, 2020. On December 22, 2020, we consummated the initial public
offering of 17,250,000 units, including 2,250,000 additional units to cover the
over-allotment units, at $10.00 per unit, generating gross proceeds of $172.5
million, and incurring offering costs of approximately $10.0 million, inclusive
of approximately $6.0 million in deferred underwriting commissions.
Simultaneously with the closing of the initial public offering, we consummated
the private placement of 4,850,000 private placement warrants at a price of
$1.00 per private placement warrant to our Sponsor, generating proceeds of
approximately $4.9 million.
Upon the closing of the initial public offering and the private placement,
$172.5 million ($10.00 per unit) of the net proceeds of the initial public
offering and certain of the proceeds of the private placement was held in the
trust account, located in the United States, with Continental Stock Transfer &
Trust Company acting as trustee, and until December 2022 were invested only in
U.S. "government securities," within the meaning of Section 2(a)(16) of the
Investment Company Act, having a maturity of 185 days or less or in money market
funds meeting certain conditions under Rule 2a-7 promulgated under the
Investment Company Act, which invest only in direct U.S. government treasury
obligations, as determined by the Company, until the earlier of: (i) the
completion of a business combination and (ii) the distribution of the trust
account as described below. On December 15, 2022, to mitigate the risk of us
being deemed to have been operating as an unregistered investment company under
the Investment Company Act, we instructed Continental Stock Transfer & Trust
Company, the trustee with respect to the trust account, to liquidate the U.S.
government treasury obligations or money market funds held in the trust account
and thereafter to hold all funds in the trust account in cash (i.e., in one or
more interest-bearing demand deposit accounts) until the earlier of the
consummation of a business combination or our liquidation. As of December 31,
2022, there was $11,970,547 in investments and cash held in the trust account,
which includes interest income available to us for franchise and income tax
obligations of approximately $150,000. As of December 31, 2022, the funds in the
trust account are held solely in an interest-bearing demand deposit account.
If we are unable to complete a business combination within 36 months from the
closing of the initial public offering, or December 22, 2023, (the "Combination
Period") and our stockholders have not amended the Certificate of Incorporation
to further extend such Combination Period, we will (1) cease all operations
except for the purpose of winding up; (2) as promptly as reasonably possible but
not more than 10 business days thereafter, redeem the public shares, at a
per-share price, payable in cash, equal to the aggregate amount then on deposit
in the trust account, including interest (less up to $100,000 of interest to pay
dissolution expenses and which interest shall be net of taxes payable), divided
by the number of then issued and outstanding public shares, which redemption
will completely extinguish public stockholders' rights as stockholders
(including the right to receive further liquidating distributions, if any); and
(3) as promptly as reasonably possible following such redemption, subject to the
approval of the remaining stockholders and our board of directors, liquidate and
dissolve, subject in each case to our obligations under Delaware law to provide
for claims of creditors and the requirements of other applicable law.
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June 2022 Extension Special Meeting of Stockholders
On June 14, 2022, the Company held a special meeting of stockholders (the
"Special Meeting"). At the Special Meeting, the Company's stockholders approved
the Charter Amendment to extend the date by which the Company must complete a
business combination from June 22, 2022 to December 22, 2023.
In connection with the Company's Special Meeting, stockholders holding
16,409,033 public shares exercised their right to redeem such shares for a pro
rata portion of the funds held in the trust account, which would have resulted
in (i) approximately $164.1 million (approximately $10.00 per share) being
removed from the trust account to pay such holders, (ii) approximately $8.4
million remaining in the trust account and (iii) 5,153,467 shares of common
stock outstanding (including 840,967 public shares and 4,312,500 founder
shares).
On June 15 and 16, 2022, the Company consented to requests to reverse the
redemptions of an aggregate of 341,087 public shares. As a result of such
redemption reversals, (i) stockholders holding an aggregate of 16,067,946 public
shares exercised and have not reversed their right to redeem such shares for a
pro rata portion of the funds held in the trust account, (ii) approximately
$160.7 million (approximately $10.00 per share) was removed from the trust
account to pay such holders, (iii) approximately $11.8 million remained in the
trust account and (iv) 5,494,554 shares of common stock remained outstanding
(including 1,182,054 public shares and 4,312,500 founder shares).
Proposed Business Combination with TradeZero
On October 12, 2021, we entered into an agreement and plan of merger (the
"Merger Agreement") with Dune Merger Sub, Inc., a Delaware corporation and our
direct wholly-owned subsidiary ("Merger Sub"), Dune Merger Sub II, LLC, a
Delaware limited liability company and our direct, wholly-owned subsidiary
("Merger Sub II"), and TradeZero Holding Corp., a Delaware corporation
("TradeZero").
On April 1, 2022, the Company, along with Merger Sub, Merger Sub II and the
Sponsor (collectively, the "Dune Plaintiffs") filed a four-count complaint in
the Delaware Court of Chancery against TradeZero and Messrs. Pipitone, Ferrara,
Muscatella, Choi, Koslow, Caruso and Corriveau (together, the "TradeZero
Defendants"), each of whom are part of TradeZero's management team. The Dune
Plaintiffs asserted claims for breach of contract, fraudulent inducement,
fraudulent misrepresentation and unjust enrichment against the TradeZero
Defendants. On May 3, 2022, after careful consideration and consultation with
the Company's management and outside legal advisors, the Company's board of
directors (the "Board"), who had previously unanimously endorsed and approved of
the business combination with TradeZero, announced that it had changed its
recommendation to the Company's stockholders and then unanimously recommended
that the Company's stockholders vote against the business combination with
TradeZero. On May 5, 2022, the TradeZero Defendants filed a motion to dismiss
the Dune Plaintiffs' lawsuit; on July 8, 2022, the Company filed an amended
complaint; and on July 22, 2022 TradeZero filed a motion to dismiss the amended
complaint.
On July 13, 2022, the Company received a notice from TradeZero that purported to
terminate the Merger Agreement pursuant to Sections 10.01(c) and 10.01(i)
thereof (the "Purported Termination Notice"). On July 15, 2022, the Company sent
a letter to TradeZero in response to the Purported Termination Notice stating,
among other things, that TradeZero is not permitted to terminate the Merger
Agreement because of TradeZero's breaches of, and failure to perform under, the
Merger Agreement.
On December 28, 2022, the Dune Plaintiffs entered into a Settlement Agreement
and Release (the "Settlement Agreement") with the TradeZero Defendants, pursuant
to which (i) the Company and TradeZero mutually agreed to terminate the Merger
Agreement and (ii) the Dune Plaintiffs and the TradeZero Defendants agreed to a
mutual release of all claims related to the Merger Agreement, the transactions
contemplated thereby, and the lawsuit filed by the Dune Plaintiffs against
TradeZero Defendants in the Delaware Court of Chancery, in each case effective
upon receipt in full by the Dune Plaintiffs from the insurers of the TradeZero
Defendants of $5,000,000 in settlement consideration within 15 business days of
the date of the Settlement Agreement, which the Company received in January
2023.
For additional information regarding the Merger Agreement and the Settlement
Agreement, see the Company's Current Reports on Form 8-K filed with the SEC on
October 12, 2021, January 26, 2022, July 15, 2022 and December 30, 2022 and the
Company's preliminary proxy statement (as amended), initially filed with the SEC
on January 26, 2022.
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Liquidity and Capital Resources and Going Concern
As of December 31, 2022, we had approximately $300 in our operating bank account
and working capital of approximately $1.7 million (excluding tax obligations of
approximately $295,000 that may be paid using investment income earned from the
trust account).
Our liquidity needs prior to the consummation of the initial public offering
were satisfied through the payment of $25,000 from the Sponsor to purchase
founders shares (as defined below), and loan proceeds from the Sponsor of
approximately $31,000 under the Note. We repaid the loan in full on December 22,
2020. Subsequent from the consummation of the initial public offering, our
liquidity has been satisfied through the net proceeds from the consummation of
the initial public offering and the private placement (as defined below) held
outside of the trust account. In addition, the Company's portion of the
settlement of lawsuit in the amount of $2.75 million was received in January
2023.
In connection with our assessment of going concern considerations in accordance
with ASU 2014-15, "Disclosures of Uncertainties about an Entity's Ability to
Continue as a Going Concern," the Company has until December 22, 2023 to
consummate a business combination. It is uncertain that we will be able to
consummate a business combination by this time. Management has determined that
the liquidity condition, mandatory liquidation and subsequent dissolution raises
substantial doubt about the Company's ability to continue as a going concern.
Management intends to complete a business combination prior to the liquidation
date.
On June 14, 2022, the Company held the Special Meeting. At the Special Meeting,
the Company's stockholders approved the Charter Amendment to extend the date by
which the Company must complete a business combination from June 22, 2022 to
December 22, 2023.
In connection with the Company's Special Meeting, stockholders holding
16,409,033 public shares exercised their right to redeem such shares for a pro
rata portion of the funds held in the trust account, which would have resulted
in (i) approximately $164.1 million (approximately $10.00 per share) being
removed from the trust account to pay such holders, (ii) approximately $8.4
million remaining in the trust account and (iii) 5,153,467 shares of common
stock outstanding (including 840,967 public shares and 4,312,500 founder shares.
On June 15 and 16, 2022, the Company consented to requests to reverse the
redemptions of an aggregate of 341,087 public shares. As a result of such
redemption reversals, (i) stockholders holding an aggregate of 16,067,946 public
shares exercised and have not reversed their right to redeem such shares for a
pro rata portion of the funds held in the trust account, (ii) approximately
$160.7 million (approximately $10.00 per share) was removed from the trust
account to pay such holders, (iii) approximately $11.8 million remained in the
trust account and (iv) 5,494,554 shares of common stock remained outstanding
(including 1,182,054 public shares and 4,312,500 founder shares).
No adjustments have been made to the carrying amounts of assets or liabilities
should we be required to liquidate after December 22, 2023. We intend to
complete the proposed business combination before the mandatory liquidation
date. However, there can be no assurance that we will be able to consummate any
business combination by December 22, 2023.
Management continues to evaluate the impact of the COVID-19 pandemic and has
concluded that the specific impact is not readily determinable as of December
31, 2022 and 2021. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
In February 2022, the Russian Federation and Belarus commenced a military action
with the country of Ukraine. As a result of this action, various nations,
including the United States, have instituted economic sanctions against the
Russian Federation and Belarus. Further, the impact of this action and related
sanctions on the world economy are not determinable as of the date of these
financial statements and the specific impact on our financial condition, results
of operations, and cash flows is also not determinable as of the date of these
financial statements.
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On August 16, 2022, President Biden signed into law the IR Act, which, among
other things, imposes the Excise Tax. The Excise Tax is imposed on the
repurchasing corporation itself, not its stockholders from which the stock is
repurchased. Because we are a Delaware corporation and our securities are
trading on Nasdaq, we are a "covered corporation" for this purpose. The amount
of the Excise Tax is generally 1% of the fair market value of the shares
repurchased at the time of the repurchase. However, for purposes of calculating
the Excise Tax, repurchasing corporations are permitted to net the fair market
value of certain new stock issuances against the fair market value of stock
repurchases during the same taxable year.
On December 27, 2022, the Treasury published Notice 2023-2, which provided
clarification on some aspects of the application of the Excise Tax. The notice
generally provides that if a publicly traded U.S. corporation completely
liquidates and dissolves, distributions in such complete liquidation and other
distributions by such corporation in the same taxable year in which the final
distribution in complete liquidation and dissolution is made are not subject to
the Excise Tax. Although such notice clarifies certain aspects of the Excise
Tax, the interpretation and operation of aspects of the Excise Tax (including
its application and operation with respect to SPACs) remain unclear and such
interim operating rules are subject to change.
Results of Operations
Our entire activity since inception through December 31, 2022 related to our
formation, the preparation for the initial public offering, and since the
closing of the initial public offering, the search for a prospective initial
business combination. We have neither engaged in any operations nor generated
any revenues to date. We will not generate any operating revenues until after
completion of our initial business combination. We will generate non-operating
income in the form of interest earned on cash equivalents held in trust account.
We expect to incur increased expenses as a result of being a public company (for
legal, financial reporting, accounting and auditing compliance), as well as for
due diligence expenses.
For the year ended December 31, 2022, we had a net income of approximately $6.7
million, which consisted of approximately $6.5 million in non-operating gain
from the change in fair value of derivative warrant liabilities, approximately
$288,000 in non-operating gain from the forgiveness of deferred underwriting
commissions, $2.8 million in non-operating gain from the settlement with
TradeZero and approximately $363,000 in income on investments held in Trust
Account, partially offset by approximately $2.9 million in general and
administrative expenses, $120,000 in general and administrative expenses -
related party, approximately $200,000 in franchise tax expenses and
approximately $7,000 in income tax expenses.
For the year ended December 31, 2021, we had a net income of approximately $5.5
million, which consisted of approximately $8.0 million in non-operating gain
from changes in fair value of derivative warrant liabilities and approximately
$110,000 in income on investments held in the trust account, partially offset by
approximately $2.2 million in general and administrative expenses, $120,000 in
general and administrative expenses - related party, and approximately $204,000
in franchise tax.
Related Party Transactions
Founder Shares
On July 10, 2020, the Sponsor purchased 3,737,500 founder shares for an
aggregate price of $25,000. On December 17, 2020, pursuant to the amended and
restated certificate of incorporation, each founder share outstanding
immediately prior to December 17, 2020 was converted into one and
two-thirteenths (12/13) founder shares, resulting in an aggregate of 4,312,500
founder shares outstanding. Our initial stockholders agreed to forfeit up to
562,500 founder shares to the extent that the over-allotment option was not
exercised in full by the underwriters, so that the founder shares would
represent 20% of our issued and outstanding shares after the initial public
offering. The underwriter exercised its over-allotment option in full on
December 22, 2020; thus, these 562,500 founder shares were no longer subject to
forfeiture.
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Our initial stockholders agreed, subject to limited exceptions, not to transfer,
assign or sell any of the founder shares until the earlier to occur of (A) one
year after the completion of the initial business combination or earlier if,
subsequent to the initial business combination, the closing price of the Class A
common stock equals or exceeds $12.00 per share (as adjusted for stock splits,
stock capitalizations, reorganizations, recapitalizations and the like) for any
20 trading days within any 30-trading day period commencing at least 150 days
after the initial business combination, and (B) the date following the
completion of the initial business combination on which we complete a
liquidation, merger, capital stock exchange or other similar transaction that
results in all of our stockholders having the right to exchange their Class A
common stock for cash, securities or other property. Any permitted transferees
will be subject to the same restrictions and other agreements of the initial
stockholders with respect to any founder shares.
Private Placement Warrants
Simultaneously with the closing of the initial public offering, we consummated
the private placement of 4,850,000 private placement warrants at a price of
$1.00 per private placement warrant to the Sponsor, generating proceeds of
$4,850,000. Each private placement warrant is exercisable for one whole share of
Class A common stock at a price of $11.50 per share. A portion of the proceeds
from the sale of the private placement warrants to the Sponsor was added to the
proceeds from the initial public offering to be held in the trust account such
that at closing of the initial public offering, $172,500,000 was placed in the
trust account.
The private placement warrants (including the shares of common stock issuable
upon exercise of the private placement warrants) are not transferable,
assignable or salable until 30 days after the completion of the initial business
combination and they are non-redeemable and exercisable on a cashless basis so
long as they are held by the initial purchasers of the private placement
warrants or their permitted transferees. If the private placement warrants are
held by someone other than the initial purchasers of the private placement
warrants or their permitted transferees, the private placement warrants will be
redeemable by us and exercisable by such holders on the same basis as the
warrants included in the units sold in the initial public offering. Otherwise,
the private placement warrants have terms and provisions that are identical to
those of the warrants sold as part of the Units in the initial public offering
and have no net cash settlement provisions.
If we do not complete a business combination by December 22, 2023, then the
proceeds will be part of the liquidating distribution to the public stockholders
and the warrants issued to the Sponsor will expire worthless.
Related Party Loans
On June 18, 2020, the Sponsor agreed to loan us an aggregate of up to $200,000
to cover expenses related to the initial public offering pursuant to a
promissory note (the "Note"). This loan was non-interest bearing and payable
upon the completion of the initial public offering. We borrowed approximately
$31,000 under the Note and fully repaid the Note in full on December 22, 2020.
In addition, in order to finance transaction costs in connection with a business
combination, the Sponsor or an affiliate of the Sponsor, or certain of our
officers and directors may, but are not obligated to, loan us working capital
loans. If we complete a business combination, we will repay the working capital
loans out of the proceeds of the trust account released to us. Otherwise, the
working capital loans would be repaid only out of funds held outside the trust
account. In the event that a business combination does not close, we may use a
portion of proceeds held outside the trust account to repay the working capital
loans, but no proceeds held in the trust account would be used to repay the
working capital loans. The working capital loans would either be repaid upon
consummation of a business combination or, at the lender's discretion, up to
$1,500,000 of such working capital loans may be convertible into warrants of the
post business combination entity at a price of $1.00 per warrant. The warrants
would be identical to the private placement warrants. Except for the foregoing,
the terms of such working capital loans, if any, have not been determined and no
written agreements exist with respect to such loans. As of December 31, 2022 and
2021, we had no borrowings under working capital loans.
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Administrative Services Agreement
Commencing on the date that our securities were first listed on Nasdaq until the
earlier of our consummation of a Business Combination or our liquidation, we
agreed to pay the Sponsor a total of $10,000 per month for office space,
secretarial and administrative services provided to members of our management
team. For the year ended December 31, 2022 and 2021, we had incurred $120,000
and $120,000 in administrative services expenses under this agreement,
respectively. As of December 31, 2022 and 2021, we had $0 and $20,000
outstanding, respectively, for services in connection with such agreement on the
accompanying consolidated balance sheets.
The Sponsor, officers and directors, or any of their respective affiliates will
be reimbursed for any out-of-pocket expenses incurred in connection with
activities on our behalf such as identifying potential target businesses and
performing due diligence on suitable business combinations. Our audit committee
will review on a quarterly basis all payments that were made by us to the
Sponsor, directors, officers or directors, or any of their affiliates. As of
December 31, 2022 and 2021, there were approximately $1,500 and $30,811 due to
related parties, respectively.
Contractual Obligations
Registration Rights
The holders of founder shares, private placement warrants and warrants that may
be issued upon conversion of working capital loans, if any (and any underlying
securities), are entitled to registration rights pursuant to a registration
rights agreement. These holders are entitled to make up to three demands,
excluding short form demands, that the Company registers such securities for
sale under the Securities Act. In addition, these holders will have "piggyback"
registration rights to include their securities in other registration statements
filed by us. We will bear the expenses incurred in connection with the filing of
any such registration statements.
Underwriting Agreement
We granted the underwriters a 45-day option to purchase up to 2,250,000
additional units to cover any over-allotments, at the initial public offering
price less the underwriting discounts and commissions. On December 22, 2020 we
issued 2,250,000 units in connection with the underwriters' exercise of the
over-allotment option in full. We paid an underwriting discount of $3,450,000
($0.20 per unit sold) to the underwriters at the closing of the initial public
offering on December 22, 2020, with an additional fee (the "Deferred Discount")
of $6,037,500 ($0.35 per unit sold) payable upon our completion of an initial
business combination.
On June 14, 2022, the Company entered into the Amendment Letter with Cantor
Fitzgerald & Co. ("Cantor") to amend the Underwriting Agreement, dated December
17, 2020, by and between the Company and Cantor, as representative of the
Underwriters, pursuant to which Cantor agreed to waive in full the Deferred
Discount. Pursuant to the Amendment Letter, the Company agreed to grant Cantor
with a right of first refusal to act as the Company's capital markets advisor
with an advisory fee of $3,800,000, subject to the conditions described therein.
Critical Accounting Estimates
This management's discussion and analysis of our financial condition and results
of operations is based on our consolidated financial statements, which have been
prepared in accordance with U.S. GAAP. The preparation of these consolidated
financial statements requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses and the
disclosure of contingent assets and liabilities in our consolidated financial
statements. On an ongoing basis, we evaluate our estimates and judgments,
including those related to fair value of financial instruments and accrued
expenses. We base our estimates on historical experience, known trends and
events and various other factors that we believe to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions. We have not identified any critical accounting
estimates.
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