Daedalus Special Acquisition Corp. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Unless otherwise stated or the context otherwise requires, references in this quarterly report to (i) the “Company,” “us,” or “we” are to Daedalus Special Acquisition Corp., a Cayman Islands exempted company; (ii) “founder shares” are to shares of our Class B ordinary shares initially purchased by our Sponsor in a private placement prior to our Initial Public Offering, and the shares of our Class A ordinary shares issued upon the conversion thereof; and (iii) “Sponsor” are to Daedalus Special Acquisition LLC, a Delaware limited liability company. 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 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, 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 factors listed from time to time as “Risk Factors” in our filings with the U.S. Securities and Exchange Commission (the “SEC”), including without limitation, in our subsequent reports on Form 10-K, Form 10-Q and Form 8-K. 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 incorporated in the Cayman Islands on August 7, 2025 formed for the purpose of merger, amalgamation, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses. We intend to effectuate an initial business combination using cash from the proceeds of our IPO and the sale of the private placement units, the proceeds of the sale of our securities in connection with an initial business combination (pursuant to forward purchase agreements or backstop agreements we may enter), securities issued to the owners of the target of an initial business combination, debt issued to bank or other lenders or the owners of the target of an initial business combination, or a combination of the foregoing or other sources. We expect to continue to incur significant costs in the pursuit of our acquisition plans. We cannot assure you that our plans to complete a business combination will be successful. 21 The issuance of additional ordinary shares or the creation of one or more classes of preference shares during our initial business combination: ● may significantly dilute the equity interest of investors in this offering who would not have pre-emption rights in respect of any such issue; ● may subordinate the rights of holders of ordinary shares if the rights, preferences, designations and limitations attaching to the preference shares are senior to those afforded our ordinary shares; ● could cause a change in control if a substantial number of ordinary shares are issued, which may affect, among other things, our ability to use our net operating loss carry forwards, if any, and could result in the resignation or removal of our present officers and directors; ● may have the effect of delaying or preventing a change of control of us by diluting the share ownership or voting rights of a person seeking to obtain control of us; and ● may adversely affect prevailing market prices for our public shares. Similarly, if we issue debt securities or otherwise incur significant indebtedness, it could result in: ● default and foreclosure on our assets if our operating revenues after our initial business combination are insufficient to repay our debt obligations; ● acceleration of our obligations to repay the indebtedness even if we make all principal and interest payments when due if we breach certain covenants that require the maintenance of certain financial ratios or reserves without a waiver or renegotiation of that covenant; ● our immediate payment of all principal and accrued interest, if any, if the debt is payable on demand; ● our inability to obtain necessary additional financing if any document governing such debt contains covenants restricting our ability to obtain such financing while the debt security is outstanding; ● our inability to pay dividends on our ordinary shares; ● using a substantial portion of our cash flow to pay principal and interest on our debt, which will reduce the funds available for dividends on our ordinary shares if declared, expenses, capital expenditures, acquisitions and other general corporate purposes; ● limitations on our flexibility in planning for and reacting to changes in our business and in the industry in which we operate; ● increased vulnerability to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation; and ● limitations on our ability to borrow additional amounts for expenses, capital expenditures, acquisitions, debt service requirements, execution of our strategy and other purposes and other disadvantages compared to our competitors who have less debt. Results of Operations We have neither engaged in any operations nor generated any revenues to date. Our only activities from August 7, 2025 (inception) through March 31, 2026 were organizational activities, those necessary to prepare for the IPO, described below, and 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 earned on investments held in Trust Account. We incur expenses as a result of being a public company for legal, financial reporting, accounting and auditing compliance. 22 For the three months ended March 31, 2026, we had net income of $2,030,262, which consists of income earned on investments held in Trust Account of $2,225,943 and gain on expiration of over-allotment liability of $77,000, partially offset by formation, general and administrative expenses of $272,681. Liquidity and Capital Resources On December 10, 2025, we consummated the IPO of 25,000,000 units at $10.00 per unit, including 2,500,000 units issued pursuant to the partial exercise by the underwriters of their over-allotment option, generating gross proceeds of $250,000,000. Simultaneously with the closing of the IPO, we consummated the sale of an aggregate of 685,000 private placement units (the “Private Placement Units”) at a price of $10.00 per Private Placement Unit, in a private placement to the Sponsor and the representative of the underwriters of the Initial Public Offering, generating gross proceeds of $6,850,000. Following the IPO, a total of $250,000,000 was placed in the trust account (the “Trust Account”). Upon the underwriters’ partial exercise of the over-allotment option, transaction costs amounted to $14,449,003, consisting of $5,000,000 of cash underwriting fee, $8,750,000 of deferred underwriting fee, and $699,003 of other offering costs. For the three months ended March 31, 2026, cash used in operating activities was $278,253. Net income of $2,030,262 was affected by interest earned on investments held in the Trust Account of $2,225,943 and gain on expiration of over-allotment liability of $77,000. Changes in operating assets and liabilities used $5,572 of cash for operating activities. As of March 31, 2026, we had investments held in the Trust Account of $252,761,757. 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, if any), to complete our business combination. To the extent that our share capital or debt is used, in whole or in part, as consideration to complete our Business Combination, the remaining proceeds held in the Trust Account will be used as working capital to finance the operations of the target business or businesses, make other acquisitions and pursue our growth strategies. As of March 31, 2026, we had cash of $774,387. 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 certain of our officers and 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 our Trust Account would be used for such repayment. Up to $1,500,000 of such Working Capital Loans may be convertible into Private Placement Units of the post business combination entity at a price of $10.00 per unit at the option of the lender. At March 31, 2026, no Working Capital Loans were outstanding. 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 23 Off-Balance Sheet Arrangements We have no obligations, assets or liabilities, which would be considered off-balance sheet arrangements as of March 31, 2026 and December 31, 2025. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets. Contractual Obligations We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities. The underwriters had a 45-day option from the effective date of the registration statement for the Initial Public Offering to purchase up to an additional 3,375,000 units to cover over-allotments, if any. On December 10, 2025, the underwriters partially exercised their over-allotment option for an additional 2,500,000 Units, generating additional proceeds to the Company of $25,000,000 (see Note 8). The underwriters were paid a cash underwriting discount of $5,000,000 ($0.20 per Unit offered in the IPO). Additionally, the underwriters are entitled to a contingent, deferred fee of $0.35 per Unit, or $8,750,000. The contingent, deferred fee will become payable to the Underwriter from the amounts held in the Trust Account solely in the event that the Company completes a business combination. Per the underwriting agreement, $0.10 per Unit of such $0.35 per Unit shall be due solely on amounts remaining in the trust account following all properly submitted shareholder redemptions in connection with the consummation of our initial business combination and $0.05 per Unit of such $0.35 per Unit shall be allocable by us to third parties that are members of FINRA, but that are not participating in the IPO, that assist us in consummating our initial business combination. Critical Accounting Estimates The preparation of 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. Making estimates requires management to exercise significant judgement. 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 materially differ from those estimates. Warrant Instruments The Company accounts for the public and private warrants issued in connection with its initial public offering and the private placement in accordance with the guidance contained in FASB ASC Topic 815, “Derivatives and Hedging”. Accordingly, the Company evaluated and classified the warrant instruments under equity treatment at their assigned values. The fair value of public warrants was determined using Black-Scholes Simulation Model. The public warrants have been classified within shareholders’ deficit and will not require remeasurement after issuance. The key inputs used in the valuation of the public warrants are as follows: December 10, 2025 Implied ordinary share price $ 9.91 Exercise price $ 11.50 Simulation term (years) 7.00 Risk-free rate 3.92 % Estimated implied volatility 2.10 % Market adjustment 47.66 % Calculated value per warrant $ 0.56 24 Over-allotment Option The Company reports its over-allotment option at fair value. Changes in the estimated fair value of the over-allotment option are recognized as non-cash gains or losses in the statements of operations. The fair value of our over-allotment option was determined using a Black-Scholes valuation model. The Black-Scholes valuation model uses significant inputs related to expected share-price volatility, expected life and risk-free interest rate. The Company estimates the volatility of its ordinary share based on historical volatility that matches the expected remaining life of the option. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected remaining life of the option. The expected life of the option is assumed to be equivalent to their remaining contractual term. As each of these items are out of the control of management, significant uncertainty exists in the Black-Scholes valuation model and the underlying assumptions. Deviations from these estimates could result in a significate difference to our financial results. As the changes in fair value have no impact to our cash, changes in fair value of the over-allotment option and derivations from our estimates of fair value have no impact on our cash inflows or outflows. Ordinary Shares Subject to Possible Redemption We account for our ordinary shares subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” Ordinary shares subject to mandatory redemption are classified as a liability instrument and measured at fair value. Conditionally redeemable ordinary shares (including ordinary shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control) are classified as temporary equity. At all other times, ordinary shares are classified as shareholders’ equity. Our ordinary shares feature certain redemption rights that are considered to be outside of our control and subject to occurrence of uncertain future events. Accordingly, ordinary shares subject to possible redemption are presented at redemption value as temporary equity, outside of the shareholders’ deficit section of our balance sheets. Net (Loss) Income Per Ordinary Share Net (loss) income per ordinary share is computed by dividing net (loss) income by the weighted average number of ordinary shares outstanding for the period. Subsequent measurement of the redeemable Class A ordinary shares is excluded from (loss) income per ordinary share as the redemption value approximates fair value. We calculate our earnings per share to allocate net income pro rata to Class A and Class B ordinary shares. This presentation contemplates a Business Combination as the most likely outcome, in which case, both classes of ordinary shares share pro rata in the income of our Company. Recent Accounting Standards Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s financial statements. Item 3. Quantitative and Qualitative Disclosures About Market Risk As smaller reporting company, we are not required to make disclosures under this Item. 25