Breeze Acquisition (BREZ) - 2022 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Condensed Financial Statements This section presents unaudited condensed financial statements, including balance sheets, statements of operations, changes in stockholders' deficit, and cash flows, along with detailed notes explaining the company's organization, accounting policies, IPO, related party transactions, commitments, warrant details, and fair value measurements. The company reported a net income for the three and six months ended June 30, 2022, primarily driven by changes in the fair value of warrant liabilities, despite a significant reduction in its Trust Account due to shareholder redemptions Condensed Balance Sheets | Metric | June 30, 2022 (Unaudited) | December 31, 2021 | |:------------------------------------------------|:--------------------------|:------------------| | ASSETS | | | | Cash | $1,239 | $5,403 | | Prepaid expenses | $168,369 | $124,157 | | Total Current Assets | $169,608 | $129,560 | | Cash and marketable securities in Trust Account | $49,391,071 | $117,931,556 | | Total Assets | $49,560,679 | $118,061,116 | | LIABILITIES AND STOCKHOLDERS' DEFICIT | | | | Accounts payable and accrued expenses | $857,524 | $598,447 | | Note payable due Sponsor | $886,975 | — | | Due to Sponsor | $2,321,122 | $1,198,315 | | Franchise taxes payable | $99,178 | $200,000 | | Total Current Liabilities | $4,164,799 | $1,996,762 | | Warrant liabilities | $2,762,250 | $7,108,500 | | Total Liabilities | $6,927,049 | $9,105,262 | | Common stock subject to possible redemption | $49,338,585 | $117,875,000 | | Total Stockholders' Deficit | $(6,704,955) | $(8,919,146) | - Total Assets decreased significantly from $118.06 million at December 31, 2021, to $49.56 million at June 30, 2022, primarily due to a reduction in cash and marketable securities held in the Trust Account[7] - Common stock subject to possible redemption decreased from $117.88 million to $49.34 million, reflecting significant shareholder redemptions[7] - Total Liabilities decreased from $9.11 million to $6.93 million, mainly driven by a decrease in warrant liabilities[7] Unaudited Condensed Statements of Operations | Metric | Three Months Ended June 30, 2022 | Three Months Ended June 30, 2021 | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | |:------------------------------------------------|:---------------------------------|:---------------------------------|:-------------------------------|:-------------------------------| | Operating and formation costs | $101,896 | $458,673 | $1,086,990 | $679,021 | | Loss from operations | $101,896 | $458,673 | $1,086,990 | $679,021 | | Interest income | — | $209 | — | $687 | | Unrealized gain (loss) on marketable securities | $66,260 | $(2,597) | $119,144 | $15,591 | | Change in fair value of warrant liabilities | $846,250 | $(1,124,000) | $4,346,250 | $4,854,000 | | Total other income (loss) | $912,510 | $(1,126,388) | $4,465,394 | $4,870,278 | | Net income (loss) | $810,614 | $(1,585,061) | $3,378,404 | $4,191,257 | | Basic and diluted net income (loss) per share | $0.08 | $(0.11) | $0.27 | $0.29 | - The company reported a net income of $810,614 for the three months ended June 30, 2022, a significant improvement from a net loss of $1.59 million in the prior year period, primarily driven by a gain in the fair value of warrant liabilities[10] - For the six months ended June 30, 2022, net income was $3.38 million, compared to $4.19 million in the same period of 2021, with the change in fair value of warrant liabilities being the primary driver[10] Unaudited Condensed Statements of Changes in Stockholders' Deficit | Metric | January 1, 2022 | June 30, 2022 | |:----------------------------------------|:----------------|:--------------| | Total Stockholders' Deficit (Beginning) | $(8,919,146) | $(8,919,146) | | Accretion of Common Stock to redemption | $(1,164,213) | $(1,164,213) | | Net income | $3,378,404 | $3,378,404 | | Total Stockholders' Deficit (Ending) | $(6,704,955) | $(6,704,955) | - The total stockholders' deficit improved from $(8.92 million) at January 1, 2022, to $(6.70 million) at June 30, 2022, primarily due to net income partially offset by accretion of common stock to redemption value[12] Unaudited Condensed Statements of Cash Flows | Cash Flow Activity | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | |:----------------------------------------|:-------------------------------|:-------------------------------| | Net cash used in operating activities | $(1,000,140) | $(526,786) | | Net cash provided by investing activities | $68,659,629 | — | | Net cash used in financing activities | $(67,663,653) | — | | Net Change in Cash | $(4,164) | $(526,786) | | Cash – End of period | $1,239 | $167,032 | - Net cash used in operating activities increased to $(1.00 million) for the six months ended June 30, 2022, from $(526,786) in the prior year[16] - Investing activities provided $68.66 million in cash, primarily from cash withdrawn from the Trust Account for redeeming shareholders, which was zero in the prior year[16] - Financing activities used $(67.66 million) in cash, mainly due to the redemption of common stock, which was zero in the prior year[16] Notes to Unaudited Condensed Financial Statements Note 1 — Description of Organization and Business Operations - Breeze Holdings Acquisition Corp. is a blank check company (SPAC) incorporated in Delaware on June 11, 2020, formed to effect a business combination[19] - The company has not commenced operations and generates non-operating income from interest on Trust Account proceeds and changes in warrant fair value[21] - The Initial Public Offering (IPO) on November 25, 2020, generated $115 million, with $115 million placed in a Trust Account, along with $1.73 million from Private Placement Warrants[22][24] - On January 26, 2022, the company entered into a Business Combination Agreement with D-Orbit S.p.A., an Italian company, which would result in Holdco becoming the NASDAQ-listed parent company[40][42] - In connection with an extension proposal on May 5, 2022, 6,732,987 shares were redeemed for $69.70 million, leaving approximately $49.3 million in the Trust Account[36][37] - The company faces substantial doubt about its ability to continue as a going concern due to significant costs and the need to complete a business combination by September 26, 2022[38][56] Note 2 — Summary of Significant Accounting Policies - The financial statements are prepared in accordance with GAAP for interim information and SEC Regulation S-X, with certain disclosures condensed or omitted[59][60] - The company is an 'emerging growth company' (EGC) and has elected to use the extended transition period for complying with new or revised financial accounting standards[62][63] - Common stock subject to possible redemption is classified outside of permanent equity, and changes in redemption value are recognized immediately[69][70] - Warrants are classified as derivative liabilities and measured at fair value at inception and each reporting date, with changes recognized in the statements of operations[74] - Net income (loss) per share is computed by dividing net income by the weighted-average number of common shares outstanding, treating redeemable and non-redeemable shares as one class[77] Note 3 — Initial Public Offering - The IPO on November 25, 2020, involved the sale of 11,500,000 units at $10.00 per unit, generating $115,000,000[88] - Each unit included one share of common stock, one right to receive 1/20th of a common share, and one redeemable public warrant exercisable at $11.50 per share[88] - Public Warrants become exercisable 30 days after business combination or 18 months from IPO closing, expiring five years after business combination or earlier upon redemption/liquidation[88] Note 4 — Private Placement - Simultaneously with the IPO, the Sponsor purchased 5,425,000 Private Placement Warrants at $1.00 each, totaling $5.43 million[89] - Proceeds from Private Placement Warrants were added to the Trust Account[89] - If a business combination is not completed, Private Placement Warrants will expire worthless[89] Note 5 — Related Party Transactions - The Sponsor initially purchased 100 Founder Shares for $25,000, which became 2,875,000 shares after a stock split[90] - Four independent directors purchased 100,000 Founder Shares from the Sponsor for $10 total, resulting in a compensation expense of $401,000 recorded on July 6, 2021[94][95] - The company pays an affiliate of the Sponsor $5,000 per month for administrative support, incurring $30,000 for the six months ended June 30, 2022[96] - The Sponsor provided two non-interest bearing promissory notes, each for $1.15 million, to extend the business combination deadline to May 25, 2022, and then to September 26, 2022[100] Note 6 — Commitments - Holders of Founder Shares, Private Placement Warrants, and Working Capital Loan warrants have registration and stockholder rights[104] - The underwriters fully exercised their over-allotment option on November 25, 2020, purchasing an additional 1,500,000 units[107] - The company will pay I-Bankers Securities, Inc. a business combination marketing fee of $3.16 million upon consummation of a business combination[108] Note 7 – Warrants - Public Warrants are exercisable for whole shares at $11.50, becoming exercisable 30 days after business combination or 12 months from IPO, expiring five years after business combination[109] - The company may call Public Warrants for redemption at $0.01 per warrant if the common stock price exceeds $18.00 for 20 trading days within a 30-day period[114] - Private Placement Warrants, purchased by the Sponsor and I-Bankers Securities, are non-transferable and non-redeemable by the company as long as held by original holders or permitted transferees[119][120][122] - As of June 30, 2022, there were 11,500,000 Public Warrants and 5,425,000 Private Placement Warrants outstanding, classified as warrant liabilities[124] - The company recognized gains of $4.35 million and $4.85 million from changes in the fair value of warrant liabilities for the six months ended June 30, 2022 and 2021, respectively[125] Note 8 — Stockholder's Deficit - The company is authorized to issue 1,000,000 shares of preferred stock, but none were issued or outstanding as of June 30, 2022, and December 31, 2021[126] - 100,000,000 shares of common stock are authorized, with 3,140,000 shares issued and outstanding (excluding redeemable shares) as of June 30, 2022, and December 31, 2021[127] - Each holder of a Right will automatically receive one-twentieth (1/20) of a common stock share upon consummation of a Business Combination, provided the company is the surviving entity[128] Note 9 — Fair Value Measurements | Description | June 30, 2022 (Level 1) | June 30, 2022 (Level 3) | December 31, 2021 (Level 1) | December 31, 2021 (Level 3) | |:------------------------------------------------|:------------------------|:------------------------|:----------------------------|:----------------------------| | Marketable securities in Trust Account | $49,391,071 | — | $117,931,556 | — | | Warrant liability - Public Warrants | $1,840,000 | — | $4,830,000 | — | | Warrant liability - Private Placement Warrants | — | $922,250 | — | $2,278,500 | - Public Warrants are classified as Level 1 fair value measurements due to observable market quotes, while Private Placement Warrants are Level 3, valued using a Modified Black-Scholes model with unobservable inputs[132][133] Private Placement Warrants Valuation Inputs | Input | June 30, 2022 | December 31, 2021 | |:-------------------------------------------|:--------------|:------------------| | Stock price | $10.27 | $10.21 | | Strike price | $11.50 | $11.50 | | Probability of completing Business Combination | 21.5% | 100% | | Term (in years) | 5.25 | 5.40 | | Volatility | 6.0% | 6.7% | | Risk-free rate | 3.01% | 1.3% | | Fair value of warrants | $0.17 | $0.42 | Note 10 — Interim Income Tax - The company's effective tax rate for the three and six months ended June 30, 2022, and 2021 was 0.0%[137] - The 0.0% effective tax rate differs from the statutory 21% due to non-taxable gains/losses from warrant liabilities, non-deductible transaction costs, and a full valuation allowance on deferred tax assets[137] - The company used a discrete effective tax rate method for the three and six months ended June 30, 2022, due to uncertainty in estimating annual pretax earnings[137] Note 11 — Subsequent Events - On July 28, 2022, the Securities Purchase Agreement for a $30 million Original Issue Discount Convertible Debenture financing with ATW Partners, LLC was terminated[140][141] - In connection with the termination, the Debenture Investor refunded a portion of a commitment fee to D-Orbit[141] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and operational results, highlighting its status as a blank check company, the impact of the D-Orbit business combination, and liquidity challenges. It reiterates the financial performance drivers and outlines the critical accounting policies Special Note Regarding Forward-Looking Statements - The report includes forward-looking statements subject to risks and uncertainties that could cause actual results to differ materially[144] - Readers are advised to refer to the Risk Factors section of the Annual Report on Form 10-K for important factors affecting actual results[144] Overview - Breeze Holdings Acquisition Corp. is a blank check company formed to effect a business combination[145] - As of June 30, 2022, the company had $1,239 in cash and a negative working capital deficit of $3.90 million, raising concerns about its ability to successfully complete an initial business combination[146] Results of Operations - The company has not generated operating revenues to date, with activities focused on organizational tasks, IPO preparation, and identifying a target for a business combination[147] - For the three months ended June 30, 2022, net income was $810,614, primarily due to an $846,250 gain on change in fair value of warrant liabilities[148] - For the six months ended June 30, 2022, net income was $3.38 million, driven by a $4.35 million gain on change in fair value of warrant liabilities[151] Liquidity and Capital Resources - Following the IPO and private placement, $116.73 million was placed in the Trust Account[154] - As of June 30, 2022, the Trust Account held $49.39 million after $69.70 million in shareholder redemptions and $109,000 for tax payments[155] - The company had $1,239 in cash outside the Trust Account and a working capital deficit of $3.90 million as of June 30, 2022[159] - The Sponsor provided two non-interest bearing promissory notes totaling $2.30 million to extend the business combination deadline[162][163] - The company's ability to continue as a going concern is in substantial doubt, requiring additional funds or successful completion of a business combination[164] Off-Balance Sheet Arrangements - The company did not have any off-balance sheet arrangements as of June 30, 2022, and December 31, 2021[165] Contractual obligations - The company has two unsecured, non-interest bearing promissory notes from the Sponsor, each for $1.15 million, due upon business combination or September 26, 2022[166][167] - The company pays $5,000 monthly for administrative services and incurred D&O insurance premiums of $11,697 monthly until February 28, 2022[168] - A business combination marketing fee of $3.16 million is payable to underwriters upon completion of a business combination[170] Critical Accounting Policies - Key accounting policies include the treatment of warrant liabilities as derivatives measured at fair value, representative and consultant shares as deferred offering costs, and common stock subject to redemption as temporary equity[172][173][174] - Net income per share calculation treats redeemable and non-redeemable common stock as one class[175] - As an Emerging Growth Company, the company has elected the extended transition period for new accounting standards[177] - The company is evaluating the impact of ASU 2020-06, which simplifies accounting for certain financial instruments, but does not anticipate initial changes to financial statements[179] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, Breeze Holdings Acquisition Corp. is not required to provide quantitative and qualitative disclosures about market risk - The company is a smaller reporting company and is not required to provide quantitative and qualitative disclosures about market risk[180] Item 4. Controls and Procedures This section addresses the effectiveness of the company's disclosure controls and procedures and internal control over financial reporting. Management concluded that disclosure controls were not effective due to a material weakness in accounting for complex financial instruments, and plans to enhance processes to address this Evaluation of Disclosure Controls and Procedures - As of June 30, 2022, the Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were not effective[182] - The ineffectiveness is attributed to a material weakness in internal control over financial reporting related to the accounting for complex financial instruments[182][184] Management's Report on Internal Controls Over Financial Reporting - Management assessed the effectiveness of internal control over financial reporting as of June 30, 2022, using COSO criteria[186] - Management determined that the company did not maintain effective internal control over financial reporting due to the identified material weakness[186] - This report does not include an attestation report from the independent registered public accounting firm due to the company's emerging growth company status[187] Changes in Internal Control over Financial Reporting - No material changes in internal control over financial reporting occurred during the most recently completed fiscal quarter[188] - The company plans to enhance processes, including improved access to accounting literature and increased communication, to address the material weakness in accounting for complex financial instruments[188] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company reported no legal proceedings as of the reporting date - There are no legal proceedings[192] Item 1A. Risk Factors This section highlights new and existing risk factors, including the potential impact of global conflicts (Ukraine and Russia) on the company's ability to complete a business combination, and the adverse effects of proposed SEC rules on SPAC transactions - The conflict between Ukraine and Russia may impact global capital markets, money transfer, currency exchange rates, and infrastructure, potentially hindering the completion of a business combination[194] - Proposed SEC rules (issued March 30, 2022) could impose additional disclosure requirements, amend financial statement requirements, and increase potential liability for SPAC transactions, potentially adversely affecting the business and increasing costs[197] - No other material changes to risk factors were disclosed since the annual report on Form 10-K filed on March 11, 2022[198] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company reported no unregistered sales of equity securities or use of proceeds during the period - There were no unregistered sales of equity securities and use of proceeds[200] Item 3. Defaults Upon Senior Securities The company reported no defaults upon senior securities - There were no defaults upon senior securities[201] Item 4. Mine Safety Disclosures This item is not applicable to the company - Mine Safety Disclosures are not applicable to the company[203] Item 5. Other Information The company reported no other information - There is no other information to report[205] Item 6. Exhibits This section lists the exhibits filed as part of, or incorporated by reference into, the Quarterly Report on Form 10-Q, including certifications and XBRL taxonomy documents - Key exhibits include certifications of the Principal Executive Officer and Principal Financial Officer (31.1, 32.1) and Inline XBRL Instance Document and Taxonomy Extension Documents (101.INS, 101.CAL, 101.SCH, 101.DEF, 101.LAB, 101.PRE)[207] PART III. SIGNATURES SIGNATURES The report was signed on August 10, 2022, by J. Douglas Ramsey, Chief Executive Officer and Chief Financial Officer of Breeze Holdings Acquisition Corp - The report was signed on August 10, 2022, by J. Douglas Ramsey, Chief Executive Officer and Chief Financial Officer[213]