Stardust Power Inc. 10-Q/A

ITEM 4. CONTROLS AND PROCEDURES Warrant liability – On April 12, 2021, the staff at the Securities and Exchange Commission (the “SEC”) issued a statement on Accounting and Reporting Considerations for Warrants Issued by Special Purpose Acquisition Companies (“SPACs”) (the “SEC Statement”). In the SEC Statement, the SEC staff noted that certain provisions in the typical SPAC warrant agreement may require that the warrants be classified as a liability measured at fair value, with changes in fair value reported each period in earnings, as compared to the historical treatment of the warrants as equity, which has been the practice of most SPACs, including us. We had previously classified our private placement warrants and public warrants, which we issued on January 14, 2021, as equity (for a full description of our private placement warrants and public warrants, refer to the registration statement on Form S-1 (File No. 333- 251558 and 333-252033), filed in connection with the Company’s initial public offering, declared effective by the SEC on January 11, 2021). 24 Based on the guidance in Accounting Standards Codification (“ASC”) 815-40, “Derivatives and Hedging — Contracts in Entity’s Own Equity”, we have since concluded that provisions in the warrant agreement preclude the warrants from being accounted for as components of equity. As the warrants meet the definition of a derivative as contemplated in ASC 815, the warrants should have been recorded as derivative liabilities on the balance sheet and measured at fair value at issuance and reported as such at each subsequent reporting date in accordance with ASC 820, “Fair Value Measurement,” with changes in fair value recognized in the subsequent statements of operations for a period that included the change. Further, ASC 815 requires that upfront costs and fees related to items for which fair value accounting is applied (in this case, our warrant liabilities) should have been recognized as expense as incurred. Class A Ordinary Shares Subject to Redemption – In the course of preparing the Original Filing, the Company had determined, in consultation with its accounting consultants that a change was required to be made in the manner in which the Company had previously reported the value of the redeemable Class A ordinary shares issued in connection with the Company’s initial public offering (“IPO”) [NOTE TO PRINTER – UNBOLD “IPO”]. The Company had previously determined that the aggregate value of such redeemable Class A ordinary shares was equal to their aggregate redemption value after taking into account the prohibition, under the Company’s Amended and Restated Memorandum and Articles of Association, against the Company repurchasing or redeeming Class A ordinary shares or entering into a business combination if such transaction would cause the Company’s net tangible assets to fall below $5,000,001. However, in the course of preparing the Original Filing, the Company determined, in consultation with its advisors that, because each Class A ordinary share was, by its terms, redeemable, the aggregate value of the Class A ordinary shares should be equal to their aggregate redemption value without taking into account the prohibition against transactions that would reduce net tangible assets below $5,000,001. The Company adopted this change in the Original Filing by reclassifying the requisite amount of Class A ordinary shares from permanent to temporary equity, with the offset recorded to additional paid-in capital (to the extent available), accumulated deficit and ordinary shares. Also, in the Original Filing, the Company revised its earnings per share calculation to allocate net income (loss) pro rata among its Class A and Class B ordinary shares. This presentation contemplates an initial business combination as the most likely outcome of the Company’s operations, in which case, both classes of ordinary shares share pro rata in the income (loss) of the Company. The Company presented the reclassification, and the change in earnings (loss) per share, as revisions that did not require the restatement of previously issued financial statements and presented the effect of the reclassification on its previously filed financial statements in Note 7 to the condensed financial statements in the Original Filing. After filing the Original Filing, in November 2021, the Company determined that such revisions, because of their quantitative materiality, should be considered restatements rather than revisions. Upon further review, and in consultation with its accounting consultants and Audit Committee, the Company has updated Note 7 in this Form 10Q/A to indicate that the reclassification, and the change in earnings (loss) per share, constitute a restatement and not a revision and also to include in such Note 7 the effect of the restatement n earnings (loss) per share on its previously issued financial statements. In addition, the Company’s management has concluded that, during the periods referred to above, to the extent that the Company’s internal control over financial reporting did not result in the classification of the entire aggregate value of the Class A ordinary shares as temporary equity, and did not allocate net income (loss) pro rata among Class A and Class B ordinary shares for the purpose of presenting earnings (loss) per share, the Company’s disclosure controls and procedures were not effective, which represents a material weakness. Evaluation of Disclosure Controls and Procedures We will be required to comply with the internal control requirements of the Sarbanes- Oxley Act for the fiscal year ending December 31, 2021. Only in the event that we are deemed to be a large accelerated filer or an accelerated filer and no longer qualify as an emerging growth company would we be required to comply with the independent registered public accounting firm attestation requirement on internal control over financial reporting. Further, for as long as we remain an emerging growth company as defined in the JOBS Act, we intend to 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 requirement. Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in company reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure. Our management evaluated, with the participation of our chief executive officer and chief financial officer (our “Certifying Officers”), the effectiveness of our disclosure controls and procedures as of September 30, 2021, pursuant to Rule 13a-15(b) under the Exchange Act. Based upon that evaluation, our Certifying Officers concluded that our disclosure controls and procedures were not effective as of September 30, 2021 due to the material weakness in our internal controls over financial reporting relating to our accounting for complex financial instruments. In light of this material weakness, we performed additional analyses as deemed necessary to ensure that our unaudited interim financial statements were prepared in accordance with U.S. generally accepted accounting principles. Accordingly, management believes that the financial statements included in this Quarterly Report on Form 10-Q/A present fairly in all material respects our financial position, results of operations and cash flows for the periods presented. We note that the non-cash adjustments to our financial statements made as a result of the restatement do not impact the amounts previously reported for our cash and cash equivalents or total assets. 25 We expect to assess the internal controls of our target business or businesses prior to the completion of our initial business combination and, if necessary, to implement and test additional controls as we may determine are necessary in order to state that we maintain an effective system of internal controls. A target business may not be in compliance with the provisions of the Sarbanes-Oxley Act regarding the adequacy of internal controls. Many small and mid-sized target businesses we may consider for our initial business combination may have internal controls that need improvement in areas such as: ➤ staffing for financial, accounting and external reporting areas, including segregation of duties; ➤ reconciliation of accounts; ➤ proper recording of expenses and liabilities in the period to which they relate; ➤ evidence of internal review and approval of accounting transactions; ➤ documentation of processes, assumptions and conclusions underlying significant estimates; and ➤ documentation of accounting policies and procedures. Because it will take time, management involvement and perhaps outside resources to determine what internal control improvements are necessary for us to meet regulatory requirements and market expectations for our operation of a target business, we may incur significant expenses in meeting our public reporting responsibilities, particularly in the areas of designing, enhancing, or remediating internal and disclosure controls. Doing so effectively may also take longer than we expect, thus increasing our exposure to financial fraud or erroneous financing reporting. Changes in Internal Control over Financial Reporting No change in our internal control over financial reporting occurred during the fiscal quarter of 2021 covered by this Quarterly Report on Form 10-Q/A that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. In light of the material weakness in our internal controls over financial reporting relating to our accounting for complex financial instruments, we have enhanced our processes to identify and appropriately apply applicable accounting requirements to better evaluate and understand the nuances of the complex accounting standards that apply to our financial statements including making greater use of 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. We believe our efforts will enhance our controls relating to accounting for complex financial transactions, but we can offer no assurance that our controls will not require additional review and modification in the future, including to the extent industry accounting practices may evolve over time. 26 PART II — OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None.