424B3
Table of Contents

Filed Pursuant to Rule 424(b)(3)
Registration No. 333-262478

PROSPECTUS SUPPLEMENT NO.8

(to Prospectus dated April 13, 2022)

 

LOGO

Dave Inc.

Up to 319,960,376 Shares of Class A Stock

Up to 11,444,364 Shares of Class A Common Stock Issuable Upon Exercise of

Warrants

Up to 5,100,214 Warrants

 

 

This prospectus supplement supplements the prospectus dated April 13, 2022 (the “Prospectus”), which forms a part of our registration statement on Form S-1 (No. 333-262478), that relates to the offer and sale from time to time by the selling securityholders named in the Prospectus (the “Selling Securityholders”) of up to (i) 331,404,740 shares of our Class A common stock, par value $0.0001 per share (the “Class A Common Stock”), which consists of up to (a) 21,000,000 shares of Class A Common Stock issued in a private placement pursuant to subscription agreements entered into on June 7, 2021, (b) 48,450,639 shares of Class A Common Stock that are issuable by us upon conversion of our Class V common stock, par value $0.0001 per share (the “Class V Common Stock”), (c) 5,392,528 shares of Class A Common Stock originally issued in a private placement to VPC Impact Acquisition Holdings Sponsor III, LLC (the “Sponsor”) in connection with the initial public offering (the “IPO”) of our predecessor, VPC Impact Acquisition Holdings III, Inc. (“VPCC”), 51,000 of which were subsequently distributed to certain equityholders of VPCC, (d) 5,100,214 shares of Class A Common Stock that are issuable by us upon the exercise of 5,100,214 warrants originally issued in a private placement to the Sponsor in connection with the IPO at an exercise price of $11,50 per share of Class A Common Stock, (e) 6,344,150 shares of Class A Common Stock that are issuable by us upon the exercise of 6,344,150 warrants originally issued in connection with the IPO at an exercise price of $11,50 per share of Class A Common Stock that were previously registered (the “Public Warrants”), (f) 244,949,074 shares of Class A Common Stock issued upon consummation of our Business Combination (as defined in the Prospectus) and held by certain of our directors and officers and other holders of registration rights, and (g) 168,135 shares of Class A Common Stock underlying the options held by certain former employees of Dave Inc. prior to the Business Combination and (ii) up to 5,100,214 Private Warrants.

Our Class A Common Stock and Public Warrants are listed on the Nasdaq Global Market (“Nasdaq”) under the symbols “DAVE” and “DAVEW”, respectively. On November 11, 2022 the closing sale price as reported on Nasdaq of our Class A Common Stock was $0.34 per share and of our Public Warrants was $0.0341 per warrant.

This prospectus supplement is being filed to update and supplement the information in the Prospectus with the information contained in (i) our Quarterly Report on Form 10-Q for the three and nine months ended September 30, 2022 (“Form 10-Q”) filed with the Securities and Exchange Commission (the “SEC”) on November 14, 2022 and (ii) our Report on Form 8-K, filed with the SEC on August 25, 2022 (“Form 8-K”). Accordingly, we have attached the Form 10-Q and Form 8-K to this prospectus supplement.

This prospectus supplement should be read in conjunction with the Prospectus, which is to be delivered with this prospectus supplement. This prospectus supplement is qualified by reference to the Prospectus, except to the extent that the information in this prospectus supplement updates and supersedes the information contained in the Prospectus.

We are an “emerging growth company” as that term is defined in the Jumpstart Our Business Startups Act of 2012 and, as such, are subject to reduced public company reporting requirements.

 

 

Investing in our securities involves a high degree of risk. Before buying any securities, you should carefully read the discussion of material risks of investing in our securities in “Risk Factors” beginning on page 14 of the Prospectus.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed on the adequacy or accuracy of the Prospectus or this prospectus supplement. Any representation to the contrary is a criminal offense.

 

 

The date of this prospectus supplement is November 14, 2022.


Table of Contents

Annex A

Form 10-Q


Table of Contents

 

 

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 September 30, 2022

or

 

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

For the transition period from                      to                     

 

 

DAVE INC.

(Exact name of registrant as specified in its charter)

 

 

 

Delaware   001-40161   86-1481509
(State or other jurisdiction of   (Commission   (I.R.S Employer
incorporation or organization)   File Number)   Identification No.)

1265 South Cochran Ave

Los Angeles, CA 90019

(Address of principal executive offices, including zip code)

Registrant’s telephone number, including area code: (844) 857-3283

 

 

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

 

Title of each class

 

Trading

Symbol(s)

 

Name of each exchange

on which registered

Common Stock, par value of $0.0001 per share   DAVE   The Nasdaq Stock Market LLC
Redeemable warrants, each whole warrant exercisable for one share of Class A common   DAVEW   The Nasdaq Stock Market LLC
stock, each at an exercise price of $11.50 per share    

Securities registered pursuant to Section 12(g) of the Act: None

 

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.    Yes  ☐    No  ☒

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-2of 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-2of the Act).    Yes  ☐    No  ☒

As of October 31, 2022, the number of outstanding shares of Dave Inc.’s Class A common stock was 329,656,200 and the number of outstanding shares of Dave Inc.’s Class V common stock was 48,450,639.

 

 

 


Table of Contents

TABLE OF CONTENTS

 

PART I – FINANCIAL INFORMATION

     5  

Item 1.

  Unaudited Condensed Consolidated Financial Statements      5  

Item 2.

  Management’s Discussion and Analysis of Financial Condition and Results of Operations      42  

Item 3.

  Quantitative and Qualitative Disclosures About Market Risk      60  

Item 4.

  Controls and Procedures      60  

PART II – OTHER INFORMATION

     62  

Item 1.

  Legal Proceedings      62  

Item 1A.

  Risk Factors      62  

Item 2.

  Unregistered Sales of Equity Securities and Use of Proceeds      63  

Item 3.

  Defaults Upon Senior Securities      63  

Item 4.

  Mine Safety Disclosures      63  

Item 5.

  Other Information      63  

Item 6.

  Exhibits      64  

SIGNATURE

     65  

 

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q (this “Form 10-Q” or this “report”) contains 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 forward looking and as such are not historical facts. All statements contained in this Form 10-Q other than statements of historical fact, including statements regarding our future results of operations, financial position, market size and opportunity, our business strategy and plans, efforts to regain compliance with the listing requirements of the Nasdaq Stock Market (“Nasdaq”), the factors affecting our performance and our objectives for future operations, are forward-looking statements. The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “could,” “should,” “would,” “can,” “expect,” “project,” “outlook,” “forecast,” “objective,” “plan,” “potential,” “seek,” “grow,” “target,” “if” and similar expressions are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and trends that we believe may affect our financial condition, results of operations, business strategy, short-term and long-term business operations and objectives and financial needs. These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including those described in the section titled “Risk Factors” set forth in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission (the “SEC”) on March 25, 2022 (the “Annual Report”) and in our subsequently filed quarterly reports on Form 10-Q and current reports. Moreover, we operate in a very competitive and rapidly changing environment. New risks emerge from time to time. It is not possible for our management to predict all risks, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the future events and trends discussed in this Form 10-Q may not occur, and actual results could differ materially and adversely from those anticipated or implied in the forward-looking statements. Forward-looking statements contained in this Form 10-Q involve a number of judgments, risks and uncertainties, including, without limitation, risks related to:

 

   

the ability of Dave to compete in its highly competitive industry;

 

   

the ability of Dave to keep pace with the rapid technological developments in its industry and the larger financial services industry;

 

   

the ability of Dave to manage its growth as a public company;

 

   

the ability of Dave to protect intellectual property and trade secrets;

 

   

changes in applicable laws or regulations and extensive and evolving government regulations that impact operations and business;

 

   

the ability to attract or maintain a qualified workforce;

 

   

level of product service failures that could lead Dave members (“Members”) to use competitors’ services;

 

   

investigations, claims, disputes, enforcement actions, litigation and/or other regulatory or legal proceedings;

 

   

the ability to maintain the listing of Dave Class A Common Stock on Nasdaq;

 

   

the effects of the COVID-19 pandemic, the Russia-Ukraine war or rising inflation on Dave’s business;

 

   

the possibility that Dave may be adversely affected by other economic, business, and/or competitive factors; and

 

   

other risks and uncertainties described in this Form 10-Q, including those described under Item 1A, “Risk Factors” of the Annual Report.

We caution you that the foregoing list of judgments, risks and uncertainties that may cause actual results to differ materially from those in the forward-looking statements may not be complete. You should not rely upon forward-looking statements as predictions of future events. The events and circumstances reflected in the forward-looking statements may not be achieved or occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by law, we do not intend to update any of these forward-looking statements after the date of this report or to conform these statements to actual results or revised expectations.

As a result of a number of known and unknown risks and uncertainties, including without limitation, the important factors described in Part I, Item 1A, “Risk Factors” in the Annual Report and in our subsequently filed quarterly report on Form 10-A, our actual results or performance may be materially different from those expressed or implied by these forward- looking statements.

This report contains estimates, projections and other information concerning our industry, our business and the markets for our products. We obtained the industry, market and similar data set forth in this report from our own internal estimates and research and from industry research, publications, surveys and studies conducted by third parties, including governmental agencies. Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties, and actual events or circumstances may differ materially from events and circumstances that are assumed in this information. While we believe that the data we use from third parties is reliable, we have not separately verified these data. You are cautioned not to give undue weight to any such information, projections and estimates.

 

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Table of Contents

As used in this report, the “Company,” “Dave,” “we,” “us,” “our” and similar terms refer Dave Inc. (f/k/a VPC Impact Acquisition Holdings III, Inc.) and its consolidated subsidiaries, unless otherwise noted or the context otherwise requires.

 

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Table of Contents

Part I - Financial Information

Item 1. Financial Statements

Dave Inc. and Subsidiary

Condensed Consolidated Balance Sheets

(in thousands; except share data)

(unaudited)

 

     As of September 30,     As of December 31,  
     2022     2021  

Assets

    

Current assets:

    

Cash and cash equivalents

   $ 38,558     $ 32,009  

Marketable securities

     —         8,226  

Member advances, net of allowance for unrecoverable advances of $22,116 and $11,995 as of September 30, 2022 and December 31, 2021, respectively

     87,608       49,013  

Short-term investments

     185,323       —    

Prepaid income taxes

     691       1,381  

Deferred issuance costs

     —         5,131  

Prepaid expenses and other current assets

     10,117       4,443  
  

 

 

   

 

 

 

Total current assets

     322,297       100,203  

Property and equipment, net

     914       685  

Lease right-of-use assets (related-party of $796 and $970 as of September 30, 2022 and December 31, 2021, respectively)

     796       2,702  

Intangible assets, net

     9,430       7,849  

Derivative asset on loans to stockholders

     —         35,253  

Debt facility commitment fee, long-term

     87       131  

Restricted cash

     702       363  
  

 

 

   

 

 

 

Total assets

   $ 334,226     $ 147,186  
  

 

 

   

 

 

 

Liabilities, and stockholders’ equity

    

Current liabilities:

    

Accounts payable

   $ 14,654     $ 13,044  

Accrued expenses

     15,704       13,045  

Lease liabilities, short-term (related-party of $274 and $243 as of September 30, 2022 and December 31, 2021, respectively)

     274       1,920  

Legal settlement accrual

     10,050       3,701  

Note payable

     —         15,051  

Credit facility

     20,000       20,000  

Convertible debt, current

     —         695  

Interest payable, convertible notes, current

     —         25  

Other current liabilities

     2,544       1,153  
  

 

 

   

 

 

 

Total current liabilities

     63,226       68,634  

Lease liabilities, long-term (related-party of $611 and $822 as of September 30, 2022 and December 31, 2021, respectively)

     611       970  

Debt facility, long-term

     45,000       35,000  

Convertible debt, long-term

     101,552       —    

Warrant liabilities

     423       3,726  

Earnout liabilities

     66       —    

Other non-current liabilities

     123       119  
  

 

 

   

 

 

 

Total liabilities

   $ 211,001     $ 108,449  
  

 

 

   

 

 

 

Commitments and contingencies (Note 16)

    

Stockholders’ equity:

    

Preferred stock, par value per share $0.0001, 10,000,000 shares authorized; 0 shares issued and outstanding at September 30, 2022 and December 31, 2021

   $ —       $ —    

Class A common stock, par value per share $0.0001, 500,000,000 shares authorized; 329,596,893 and 297,094,254 shares issued at September 30, 2022 and December 31, 2021, respectively; 328,010,856 and 297,094,254 shares outstanding at September 30, 2022 and December 31, 2021, respectively

     32       30  

Class V common stock, par value per share $0.0001, 100,000,000 shares authorized; 48,450,639 shares issued and outstanding at September 30, 2022 and December 31, 2021, respectively;

     5       5  

Treasury stock

     —         (5

Additional paid-in capital

     266,525       86,796  

Accumulated other comprehensive loss

     (3,026     —    

Loans to stockholders

     —         (15,192

Accumulated deficit

     (140,311     (32,897
  

 

 

   

 

 

 

Total stockholders’ equity

   $ 123,225     $ 38,737  
  

 

 

   

 

 

 

Total liabilities, and stockholders’ equity

   $ 334,226     $ 147,186  
  

 

 

   

 

 

 

See accompanying notes to the condensed consolidated financial statements.

 

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Table of Contents

Dave Inc. and Subsidiary

Condensed Consolidated Statements of Operations

(in thousands)

(unaudited)

 

     For the Three Months Ended
September 30,
    For the Nine Months Ended
September 30,
 
     2022     2021     2022     2021  

Operating revenues:

        

Service based revenue, net

   $ 52,795     $ 37,338     $ 135,054     $ 104,142  

Transaction based revenue, net

     4,012       2,860       10,109       7,711  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating revenues, net

     56,807       40,198       145,163       111,853  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating expenses:

        

Provision for unrecoverable advances

     18,353       10,760       45,995       21,693  

Processing and servicing fees

     9,494       6,205       23,627       16,920  

Advertising and marketing

     24,090       12,949       57,087       38,844  

Compensation and benefits

     24,294       15,432       81,326       34,685  

Other operating expenses

     18,498       10,523       50,738       31,987  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     94,729       55,869       258,773       144,129  
  

 

 

   

 

 

   

 

 

   

 

 

 

Other (income) expenses:

        

Interest income

     (1,171     (470     (1,831     (610

Interest expense

     2,403       709       6,246       1,494  

Legal settlement and litigation expenses

     6,845       343       6,845       952  

Other strategic financing and transactional expenses

     2,209       29       5,040       253  

Gain on extinguishment of liability

     —         —         (4,290     —    

Changes in fair value of earnout liabilities

     18       —         (9,616     —    

Changes in fair value of derivative asset on loans to stockholders

     —         (9,001     5,572       (33,043

Changes in fair value of warrant liabilities

     (748     614       (14,232     3,480  
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other expenses (income), net

     9,556       (7,776     (6,266     (27,474
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss before provision (benefit) for income taxes

     (47,478     (7,895     (107,344     (4,802

Provision (benefit) for income taxes

     26       (6     70       (1
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss

   $ (47,504   $ (7,889   $ (107,414   $ (4,801
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share:

        

Basic

   $ (0.13   $ (0.06   $ (0.29   $ (0.04

Diluted

   $ (0.13   $ (0.06   $ (0.29   $ (0.04

Weighted-average shares used to compute net loss per share

        

Basic

     374,507,465       137,833,983       368,843,244       135,678,324  

Diluted

     374,507,465       137,833,983       368,843,244       135,678,324  

See accompanying notes to the condensed consolidated financial statements.

 

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Dave Inc. and Subsidiary

Condensed Consolidated Statements of Comprehensive Income (Loss)

(in thousands)

(unaudited)

 

     For the Three Months Ended
September 30,
    For the Nine Months Ended
September 30,
 
     2022     2021     2022     2021  

Net loss

   $ (47,504   $ (7,889   $ (107,414   $ (4,801

Other comprehensive loss:

        

Unrealized loss on available-for-sale securities, net of tax $0 and $0

     (596     —         (3,026     —    
  

 

 

   

 

 

   

 

 

   

 

 

 

Comprehensive loss

   $ (48,100   $ (7,889   $ (110,440   $ (4,801

See accompanying notes to the condensed consolidated financial statements.

 

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Dave Inc. and Subsidiary

Condensed Consolidated Statement of Stockholders’ Equity

(in thousands, except share data)

(unaudited)

 

                                                       Common stock                                       
     Series A
convertible
preferred stock
    Series B-1
convertible
preferred stock
    Series B-2
convertible
preferred stock
     Common stock      Class A     Class V      Additional
paid-in
capital
    Loans to
stockholders
    Treasury
stock
    Accumulated
other
comprehensive
loss
    Accumulated
deficit
    Total
stockholders’
equity
 
     Shares     Amount     Shares     Amount     Shares     Amount      Shares     Amount      Shares     Amount     Shares      Amount  

Balance at January 1, 2022 (as previously reported)

     133,216,940     $ 9,881       13,326,050     $ 49,675       3,991,610     $ 12,617        104,022,678     $ 0.1        —       $ —         —        $ —        $ 14,658     $ (15,192   $ (5   $ —       $ (32,897   $ (33,436

Retroactive application of recapitalization

     (133,216,940     (9,881     (13,326,050     (49,675     (3,991,610     (12,617      (104,022,678     (0.1      297,094,254       30       48,450,639        5        72,138       —         —         —         —         72,173  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at January 1, 2022 (as adjusted)

     —         —         —         —         —         —          —         —          297,094,254       30       48,450,639        5        86,796       (15,192     (5     —         (32,897     38,737  

Issuance of Class A common stock in connection with stock plans

     —         —         —         —         —         —          —         —          7,324,118       —         —          —          1,655       —         —         —         —         1,655  

Issuance of Class A common stock pursuant to the PIPE financing

     —         —         —         —         —         —          —         —          21,000,000       2       —          —          209,999       —         —         —         —         210,001  

Issuance of Class A common stock pursuant to the Merger Agreement

     —         —         —         —         —         —          —         —          6,765,322       1       —          —          (26,702       —         —         —         (26,701

Exercise of Series B-1 preferred stock warrants, net of settlement

     —         —         —         —         —         —          —         —          450,841       —         —          —          3,365       —         —         —         —         3,365  

Conversion of 2019 convertible notes and accrued interest to Class A common stock

     —         —         —         —         —         —          —         —          225,330       —         —          —          720       —         —         —         —         720  

Repurchase of Class A common stock

     —         —         —         —         —         —          —         —          (198,505     —         —          —          (1,588     —         5       —         —         (1,583

Exercise of warrant for Class A common stock

     —         —         —         —         —         —          —         —          110       —         —          —          —         —         —         —         —         —    

Stockholder loans interest

     —         —         —         —         —         —          —         —          —         —         —          —          —         (12     —         —         —         (12

Exercise of derivative asset and paydown of stockholder loans

     —         —         —         —         —         —          —         —          (6,014,250     (1     —          —          (44,885     15,204       —         —         —         (29,682

Extinguishment of liability

     —         —         —         —         —         —          —         —          1,363,636       —         —          —          3,150       —         —         —         —         3,150  

Stock-based compensation

     —         —         —         —         —         —          —         —          —         —         —          —          34,015       —         —         —         —         34,015  

Unrealized loss on available-for-sale securities

     —         —         —         —         —         —          —         —          —         —         —          —          —         —         —         (3,026     —         (3,026

Net loss

     —         —         —         —         —         —          —         —          —         —         —          —          —         —         —         —         (107,414     (107,414
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at September 30, 2022

     —       $ —         —       $ —         —       $ —          —       $ —          328,010,856     $ 32       48,450,639      $ 5      $ 266,525     $ —       $ —       $ (3,026   $ (140,311   $ 123,225  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

   

 

 

   

 

 

    

 

 

    

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

 

                                                       Common stock                                         
     Series A
convertible
preferred stock
    Series B-1
convertible
preferred stock
    Series B-2
convertible
preferred stock
     Common stock      Class A      Class V      Additional
paid-in
capital
     Loans to
stockholders
    Treasury
stock
    Accumulated
other
comprehensive
loss
     Accumulated
deficit
    Total
stockholders’
equity
 
     Shares     Amount     Shares     Amount     Shares     Amount      Shares     Amount      Shares      Amount      Shares      Amount  

Balance at January 1, 2021 (as previously reported)

     133,216,940     $ 9,881       13,326,050     $ 49,675       3,991,610     $ 12,617        100,223,194     $ 0.1        —        $ —          —        $ —        $ 5,493      $ (14,764   $ (154   $ —        $ (12,904   $ (22,329

Retroactive application of recapitalization

     (133,216,940     (9,881     (13,326,050     (49,675     (3,991,610     (12,617      (100,223,194     (0.1      291,948,352        29        48,450,639        5        72,139        —         —         —          —         72,173  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Balance at January 1, 2021 (as adjusted)

     —         —         —         —         —         —          —         —          291,948,352        29        48,450,639        5        77,632        (14,764     (154     —          (12,904     49,844  

Issuance of common stock for stock option exercises

     —         —         —         —         —         —          —         —          3,187,574        —          —          —          1,375        —         —         —          —         1,375  

Vesting of stock option early exercises

     —         —         —         —         —         —          —         —          —          —          —          —          75        —         —         —          —         75  

Stockholder loans

     —         —         —         —         —         —          —         —          59,904        —          —          —          —          (357     149       —          —         (208

Stock-based compensation

     —         —         —         —         —         —          —         —          —          —          —          —          6,342        —         —         —          —         6,342  

Netloss

     —         —         —         —         —         —          —         —          —          —          —          —          —          —         —         —          (4,801     (4,801
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Balance at September 30, 2021

     —       $ —         —       $ —         —       $ —          —       $ —          295,195,830      $ 29        48,450,639      $ 5      $ 85,424      $ (15,121   $ (5   $ —        $ (17,705   $ 52,627  
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

 

                                                           Common stock                                          
     Series A
convertible
preferred stock
     Series B-1
convertible
preferred stock
     Series B-2
convertible
preferred stock
     Common stock      Class A      Class V      Additional
paid-in
capital
     Loans to
stockholders
     Treasury
stock
     Accumulated
other
comprehensive
loss
    Accumulated
deficit
    Total
stockholders’
equity
 
     Shares      Amount      Shares      Amount      Shares     Amount      Shares     Amount      Shares      Amount      Shares      Amount  

Balance at June 30, 2022

     —        $ —          —        $ —          —       $ —          —       $ —          324,085,849      $ 32        48,450,639      $ 5      $ 258,472      $ —        $ —        $ (2,430   $ (92,807   $ 163,272  

Issuance of Class A common stock in connection with stock plans

     —          —          —          —          —         —          —         —          3,925,007        —          —          —          87        —          —          —         —         87  

Stock-based compensation

     —          —          —          —          —         —          —         —          —          —          —          —          7,966        —          —          —         —         7,966  

Unrealized loss on available-for-sale securities

     —          —          —          —          —         —          —         —          —          —          —          —          —          —          —          (596     —         (596

Net loss

     —                 —          —          —         —          —         —          —          —          —          —          —          —          —          —         (47,504     (47,504
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Balance at September 30, 2022

     —        $ —               $ —          —       $ —          —       $ —          328,010,856      $ 32        48,450,639      $ 5      $ 266,525      $ —        $ —        $ (3,026   $ (140,311   $ 123,225  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

 

                                                           Common stock                                         
     Series A
convertible
preferred stock
     Series B-1
convertible
preferred stock
     Series B-2
convertible
preferred stock
     Common stock      Class A      Class V      Additional
paid-in
capital
     Loans to
stockholders
    Treasury
stock
    Accumulated
other
comprehensive
loss
     Accumulated
deficit
    Total
stockholders’
equity
 
     Shares      Amount      Shares      Amount      Shares     Amount      Shares     Amount      Shares      Amount      Shares      Amount  

Balance at June 30, 2021

     —        $ —          —        $ —          —       $ —          —       $ —          294,785,673      $ 29        48,450,639      $ 5      $ 81,403      $ (14,901   $ (154   $ —        $ (9,816   $ 56,566  

Issuance of Class A common stock for stock option exercises

     —          —          —          —          —         —          —         —          350,253        —          —          —          465        —         —         —          —         465  

Vesting of stock option early exercises

     —          —          —          —          —         —          —         —          —          —          —          —          —          —         —         —          —         —    

Stockholder loans

     —          —          —          —          —         —          —         —          59,904        —          —          —          —          (220     149       —          —         (71

Stock-based compensation

     —          —          —          —          —         —          —         —          —          —          —          —          3,556        —         —         —          —         3,556  

Net loss

     —          —          —          —          —         —          —         —          —          —          —          —          —          —         —         —          (7,889     (7,889
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

Balance at September 30, 2021

     —        $ —          —        $ —          —       $ —          —       $ —          295,195,830      $ 29        48,450,639      $ 5      $ 85,424      $ (15,121   $ (5   $ —        $ (17,705   $ 52,627  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

   

 

 

    

 

 

   

 

 

 

See accompanying notes to the condensed consolidated financial statements.

 

8


Table of Contents

Dave Inc. and Subsidiary

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 

     For the Nine Months
Ended September 30,
 
     2022     2021  
           As Restated  

Operating activities

    

Net loss

   $ (107,414   $ (4,801

Adjustments to reconcile net loss to net cash used in operating activities:

    

Depreciation and amortization

     5,549       2,089  

Provision for unrecoverable advances

     45,995       21,693  

Changes in fair value of derivative asset on loans to stockholders

     5,572       (33,043

Changes in fair value of earnout liabilities

     (9,616     —    

Changes in fair value of warrant liabilities

     (14,232     3,480  

Gain on extinguishment of liability

     (4,290     —    

Stock-based compensation

     34,074       6,342  

Non-cash interest

     1,534       (605

Non-cash lease expense

     (99     103  

Changes in fair value of marketable securities and short-term investments

     (776     —    

Changes in operating assets and liabilities:

    

Member advances, service revenue

     (5,351     (1,688

Prepaid income taxes

     690       1,307  

Prepaid expenses and other current assets

     (5,276     635  

Accounts payable

     3,565       6,038  

Accrued expenses

     3,057       4,512  

Legal settlement accrual

     6,349       —    

Other current liabilities

     (275     (2,001

Other non-current liabilities

     —         (40

Interest payable, convertible notes

     —         9  
  

 

 

   

 

 

 

Net cash (used in) provided by operating activities

     (40,944 )      4,030  
  

 

 

   

 

 

 

Investing activities

    

Payments for internally developed software costs

     (6,442     (3,915

Purchase of property and equipment

     (510     (216

Net disbursements and collections of Member advances

     (77,629     (26,129

Purchase of short-term investments

     (197,799     —    

Sale and maturity of short-term investments

     10,249       —    

Purchase of marketable securities

     (300,641     (4

Sale of marketable securities

     308,844       3,915  
  

 

 

   

 

 

 

Net cash used in investing activities

     (263,928 )      (26,349 ) 
  

 

 

   

 

 

 

Financing activities

    

Repayment on line of credit

     —         (3,910

Proceeds from PIPE offering

     195,000       —    

Proceeds from escrow account

     29,688       —    

Payment of issuance costs

     (23,005     (3,589

Proceeds from issuance of common stock for stock option exercises

     1,660       1,375  

Repurchase of common stock

     (1,583     —    

Proceeds from borrowings on convertible debt

     100,000       45,000  

Proceeds from borrowings on debt and credit facilities

     10,000       —    
  

 

 

   

 

 

 

Net cash provided by financing activities

     311,760       38,876  
  

 

 

   

 

 

 

Net increase in cash and cash equivalents and restricted cash

     6,888       16,557  

Cash and cash equivalents and restricted cash, beginning of the period

     32,372       5,069  
  

 

 

   

 

 

 

Cash and cash equivalents and restricted cash, end of the period

   $ 39,260     $ 21,626  
  

 

 

   

 

 

 

Supplemental disclosure of non-cash investing and financing activities:

    

Operating lease right of use assets recognized

   $ —       $ 2,514  

Operating lease liabilities recognized

   $ —       $ 2,514  

Property and equipment purchases in accounts payable

   $ 4     $ 47  

Conversion of convertible preferred stock to Class A common stock in connection with the reverse recapitalization

   $ 72,173     $ —    

Recapitalization transaction costs liability incurred

   $ 7,500     $ —    

Conversion of convertible notes and accrued interest to Class A common stock in connection with the reverse recapitalization

   $ 720     $ —    

Conversion of B-1 Warrants to Class A common stock in connection with the reverse recapitalization

   $ 3,365     $ —    

Discharge of PIPE promissory note in connection with the reverse recapitalization

   $ 15,000     $ —    

Vesting of common stock exercised early

   $ —       $ 75  

Amendment to loan to stockholder

   $ —       $ 145  

Supplemental disclosure of cash (received) paid for:

    

Income taxes

   $ (644   $ (1,271

Interest

   $ 3,761     $ 1,222  

The following table provides a reconciliation of cash and cash equivalents, and restricted cash reported within the condensed consolidated balance sheet with the same as shown in the condensed consolidated statement of cash flows.

    

Cash and cash equivalents

   $ 38,558     $ 21,307  

Restricted cash

     702       319  
  

 

 

   

 

 

 

Total cash, cash equivalents, and restricted cash, end of period

   $ 39,260     $ 21,626  
  

 

 

   

 

 

 

See accompanying notes to the condensed consolidated financial statements.

 

9


Table of Contents

Dave Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

 

Note 1 Organization and Nature of Business

Overview

Dave Inc. (“Dave” or the “Company”), a Delaware corporation, with headquarters located in Los Angeles, California, is a financial services company. Dave was originally incorporated in the State of Delaware on January 14, 2021 as a special purpose acquisition company under the name VPC Impact Acquisition Holdings III, Inc. (“VPCC”) and formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more business.

Dave offers a suite of innovative financial products aimed at helping Members improve their financial health. The Company’s budgeting tool helps Members manage their upcoming bills to avoid overspending. To help Members avoid punitive overdraft fees and access short-term liquidity, Dave offers cash advances through its flagship 0% interest ExtraCash product. Dave also helps Members generate extra income for spending or emergencies through Dave’s Side Hustle product, where Dave presents Members with supplemental work opportunities. Through Dave Banking, the Company provides a modern checking account experience with valuable tools for building long-term financial health.

Insights:

As spending and earning dynamics have become more complex over time, the Company offers a personal financial management tool to support Members with budgeting, wherever someone banks. These insights help people to manage their income and expenses between paychecks, helping them to spend and save in a smarter way and avoid liquidity jams that may cause them to overdraft.

ExtraCash:

Many Americans are often unable to maintain a positive balance between paychecks, driving a reliance on overdraft, payday loans, auto title loans and other forms of expensive credit to put food on the table, gas in their car or pay for unexpected emergencies. For example, traditional banks charge up to $34 for access to as little as $5 of overdraft, whereas many others in the financial services sector do not allow for overdraft at all. Dave invented a free overdraft and short-term credit alternative called ExtraCash, which allows Members to advance funds to their account and avoid a fee altogether. Members may now receive an advance of up to $500 and may only have one advance outstanding at any given time.

Side Hustle:

Dave seeks to help Members improve their financial health by presenting new job opportunities to them. Through Dave’s partnership with leading employers, Members can quickly submit applications and improve their income with flexible employment.

Dave Banking:

Dave offers a full-service digital checking account through its partnership with Evolve Bank and Trust (“Evolve”). The Dave Spending Account does not have overdraft or minimum balance fees.

 

10


Table of Contents

Dave Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

 

Business Combination

On January 5, 2022 (the “Closing Date”), the Company consummated the previously announced transaction (pursuant to that certain Agreement and Plan of Merger, dated June 7, 2021 (the “Business Combination Agreement”), by and among Dave Inc. (prior to the Mergers (as defined below), hereinafter referred to as “Legacy Dave”), VPCC, Bear Merger Company I Inc., a Delaware corporation and a direct, wholly owned Subsidiaries of VPCC (“First Merger Sub”), and Bear Merger Company II LLC, a Delaware limited liability company and a direct wholly owned Subsidiaries of VPCC (“Second Merger Sub”).

On January 5, 2022, pursuant to the Business Combination Agreement, First Merger Sub merged with and into Legacy Dave (the “First Merger”), with Legacy Dave surviving the First Merger as a wholly owned subsidiary of VPCC (such company, in its capacity as the surviving corporation of the First Merger, the “Surviving Corporation”), immediately followed by the Surviving Corporation merging with and into Second Merger Sub (the “Second Merger”, the Second Merger together with the First Merger, the “Mergers” and the Mergers together with the other transactions contemplated by the Business Combination Agreement, the “Business Combination” or the “Transactions”), with Second Merger Sub (such entity, following the Second Merger, the “Surviving Entity”) surviving the Second Merger as a wholly owned subsidiary of VPCC. Following the Mergers, “VPC Impact Acquisition Holdings III, Inc.” was renamed “Dave Inc.” and the Surviving Entity was renamed “Dave Operating LLC”.

On January 5, 2022, the holders of (a) Legacy Dave capital stock and (b) Legacy Dave’s options to purchase Legacy Dave capital stock pursuant to Legacy Dave’s stock plan (the “Legacy Dave Options”), received aggregate merger consideration, consisting of 327,255,618 shares of Class A common stock of the Company, par value $0.0001 per share (the “Class A Common Stock”) and 48,450,639 shares of Class V common stock of the Company, par value $0.0001 per share (the “Class V Common Stock”, and together with the Class A Common Stock, the “Common Stock”).

The Company’s Class A Common Stock is now listed on the Nasdaq Global Market under the symbol “DAVE”, and warrants to purchase the Class A Common Stock at an exercise price of $11.50 per share are listed on Nasdaq under the symbol “DAVEW”. The audited consolidated financial statements included in Dave’s Annual Report on Form 10-K filed with the SEC on March 25, 2022 are those of VPCC prior to the consummation of the Business Combination and the name change. The audited consolidated financial statements of Legacy Dave are included in Form 8-K/A filed with the SEC on March 25, 2022 prior to the consummation of the Business Combination and the name change. Prior to the Business Combination, VPCC neither engaged in any operations nor generated any revenue. Until the Business Combination, based on VPCC’s business activities, VPCC was a “shell company” as defined under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). The audited Consolidated Financial Statements as of and for the years ended December 31, 2021 and 2020 for Legacy Dave were included in Exhibit 99.3 of Amendment No. 1 to the Current Report on Form 8-K (the “Form 8-K/A”) filed with the Securities and Exchange Commission (“SEC”) on March 25, 2022.

COVID-19

There are many uncertainties regarding the current global pandemic involving a novel strain of coronavirus (“COVID-19”), and the Company continues to closely monitor the impact of the pandemic on all aspects of the business, including how it has and may in the future impact Members, employees, suppliers, vendors, and business partners. The duration and magnitude of the continuing effects of COVID-19 on Members remain uncertain and dependent on various factors, including new variants of the virus and their severity and transmission rates, the nature of and duration for which preventive and containment measures are taken and remain in place and the extent and effectiveness of such measures, including vaccination programs, and the type of stimulus measures and other policy responses that the U.S. government may further adopt. Moreover, the global macroeconomic effects of the COVID-19 pandemic and related impacts on Members and their demand for our products and services may persist for an indefinite period, even after the effects of the pandemic have subsided.

Non-Compliance with Nasdaq Listing Requirements

On July 27, 2022, the Company received written notice (the “Notice”) from the Nasdaq Listing Qualifications Department notifying the Company that, based on the closing bid price of the Company’s Class A Common Stock, for the last 30 consecutive trading days, the Company no longer complies with the minimum bid price requirement for continued listing on The Nasdaq Global Market. Nasdaq Listing Rule 5450(a)(1) requires listed securities to maintain a minimum bid price of $1.00 per share (the “Minimum Bid Price Requirement”), and Nasdaq Listing Rule 5810(c)(3)(A) provides that a failure to meet the Minimum Bid Price Requirement exists if the deficiency continues for a period of 30 consecutive trading days.

Pursuant to the Nasdaq listing rules, the Company has been provided an initial compliance period of 180 calendar days to regain compliance with the Minimum Bid Price Requirement. To regain compliance, the closing bid price of the Class A Common Stock must be at least $1.00 per share for a minimum of 10 consecutive trading days prior to January 23, 2023, and the Company must otherwise satisfy The Nasdaq Global Market’s requirements for continued listing.

If the Company does not regain compliance by January 23, 2023, it may be eligible for an additional 180 calendar day compliance period if it elects (and meets the listing standards) to transfer to The Nasdaq Capital Market to take advantage of the additional compliance period offered on that market. To qualify, the Company would be required, among other things, to meet the continued listing requirement for market value of publicly held shares as well as all other standards for initial listing on The Nasdaq Capital Market, with the exception of the Minimum Bid Price Requirement, and would need to provide written notice of its intention to cure the bid price deficiency during the second compliance period. If the Company does not regain compliance within the compliance period(s), including any extensions that may be granted by Nasdaq, the Class A Common Stock will be subject to delisting.

The Company intends to monitor the closing bid price of the Class A Common Stock and consider its available options to resolve the noncompliance with the Minimum Bid Price Requirement, including effecting a reverse stock split. There can be no assurance that the Company will be able to regain compliance with The Nasdaq Global Market’s continued listing requirements or that Nasdaq will grant us a further extension of time to regain compliance, if applicable.

 

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Dave Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

 

Note 2 Restatement of Previously-Issued Financial Statements

In connection with the preparation of the Company’s unaudited condensed consolidated financial statements for the quarter ended June 30, 2022, management became aware of a classification error in the condensed consolidated statements of cash flows for the nine months ended September 30, 2021.

The Company previously presented cash flow from Member advances, which includes disbursements, collections and service revenue, as operating activities. The Company identified that disbursements and collections of Member advances should be part of investing activities while service revenue should remain under operating activities. The Company corrected this error by reclassifying the net disbursements and collections portion of the Member advances cash flow from operating activities to “Net disbursements and collections of Member advances” under investing activities in the condensed consolidated statements of cash flows. The Company also updated the financial line item for the service revenue portion in operating activities from “Member advances” to “Member advances, service revenue”. This error only impacted the condensed consolidated statements of cash flows.

The following table presents the impact of this error correction in the condensed consolidated statements of cash flows for the nine months ended September 30, 2021 (in thousands):

 

     For the Nine Months Ended
 September 30, 2021
 
     As Reported      Adjustment      As Restated  

Operating activities

        

Member advances, service revenue

   $ (27,817    $ 26,129      $ (1,688

Net cash (used in) provided by operating activities

   $ (22,099    $ 26,129      $ 4,030  
  

 

 

    

 

 

    

 

 

 

Investing activities

        

Net disbursements and collections of Member advances

   $ —        $ (26,129    $ (26,129

Net cash used in investing activities

   $ (220    $ (26,129    $ (26,349
  

 

 

    

 

 

    

 

 

 

Note 3 Summary of Significant Accounting Policies

Basis of Presentation

These unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information and are unaudited.

These unaudited condensed consolidated financial statements do not include all disclosures that are normally included in annual audited financial statements prepared in accordance with U.S. GAAP and should be read in conjunction with the Company’s consolidated financial statements.

The accompanying (a) unaudited condensed consolidated balance sheet as of December 31, 2021, which has been derived from audited financial statements, and (b) the unaudited interim condensed financial statements for the quarter ended September 30, 2022 have been prepared pursuant to the rules and regulations of the SEC regarding interim financial reporting. Certain information and note disclosures normally included in annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to those rules and regulations, although the Company believes that the disclosures made are adequate to make the information not misleading. Therefore, it is suggested that these unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes included in the Company’s Annual Report on Form 10-K filed with the SEC on March 25, 2022 and the Form 8-K/A filed with the SEC on August 22, 2022.

In addition to the adjustments to record the Business Combination between VPCC and Legacy Dave, the accompanying unaudited condensed consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, comprehensive loss, cash flows, and stockholders’ equity for the interim periods, but are not necessarily indicative of the results to be anticipated for the full year 2022 or any future period.

Retroactive Application of Reverse Recapitalization

As discussed in Note 4, The Reverse Recapitalization and Related Transactions, the Business Combination is accounted for as a reverse recapitalization of equity structure. Pursuant to U.S. GAAP, the Company recasts its Consolidated Statements of Stockholders’ Equity from December 31, 2020 to the Closing Date, the total stockholder’s equity within the Company’s Consolidated Balance Sheet as of December 31, 2021, and the weighted average outstanding shares basic and diluted for the year ended December 31, 2021 by applying the recapitalization retroactively.

 

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Dave Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

 

In addition, the Company recasts the stock class and issued and outstanding number of shares, exercise prices of options, and warrants for each balance sheet period presented in these condensed consolidated financial statements and the accompanying notes.

Retroactive Application of Reverse Recapitalization to the Condensed Consolidated Statements of Stockholders’ Equity

Pursuant to the terms of the Business Combination Agreement, as part of the Closing, all of the issued and outstanding Series A preferred stock Legacy Dave were automatically converted into Legacy Dave common stock at a 1:1 ratio and Series B-1 and Series B-2 convertible preferred stock of Legacy Dave were automatically converted into Legacy Dave common stock at a 1:1.033076 ratio, which were all converted again, along with all other issued and outstanding common stock of Legacy Dave, into 342,649,141 shares of Class A Common Stock and Class V Common Stock at an exchange ratio of 1.354387513 (the “Exchange Ratio”). Additionally, each of the Company’s options that were outstanding immediately prior to the closing of the Business Combination remained outstanding and converted into options for Class A Common Stock and Class V Common Stock equal to the number of the Company’s Common Stock, subject to such options multiplied by the Exchange Ratio at an exercise price per share equal to the current exercise price per share for such options divided by the Exchange Ratio, with the aggregate amount of shares of Class A Common Stock and Class V Common Stock issuable upon exercise of such options to be 32,078,481.

Retroactive Application of Reverse Recapitalization to the Condensed Consolidated Statements of Operations

Furthermore, based on the retroactive application of the reverse recapitalization to the Company’s Condensed Consolidated Statements of Stockholders’ Equity, the Company recalculated the weighted average shares for the year ended December 31, 2021. The basic and diluted weighted-average Legacy Dave Common Stock were retroactively converted to Class A Common Stock and Class V Common Stock using the Exchange Ratio to conform to the recast period (see Note 3, Net Loss Per Share Attributable to Stockholders, for additional information).

Retroactive Application of Reverse Recapitalization to the Condensed Consolidated Balance Sheets

Finally, to conform to the retroactive application of recapitalization to the Company’s Condensed Consolidated Statements of Stockholders’ Equity, the Company reclassified the $9,881 of Legacy Dave Series A convertible preferred stock, $49,675 of Legacy Dave Series B-1 convertible preferred stock, and the $12,617 of Legacy Dave Series B-2 convertible preferred stock to the additional paid-in capital (“APIC”), less amounts attributable to the par value of the common stock as recast, as of December 31, 2021.

Principles of Consolidation

The Company consolidates financial statements of all entities in which the Company has a controlling financial interest, including the accounts of any Variable Interest Entity (“VIE”) in which the Company has a controlling financial interest and for which it is the primary beneficiary. All intercompany transactions and balances have been eliminated upon consolidation.

Variable Interest Entities

The Company is considered the primary beneficiary of Dave OD Funding I, LLC (“Dave OD”), as it has the power over the activities that most significantly impact the economic performance of Dave OD and has the obligation to absorb expected losses and the right to receive expected benefits that could be significant, in accordance with accounting guidance. As a result, the Company consolidated Dave OD and all intercompany accounts have been eliminated.

 

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Dave Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

 

The carrying value of Dave OD’s assets and liabilities, after elimination of any intercompany transactions and balances, in the unaudited condensed consolidated balance sheet are as follows:

 

     As of September 30,
2022
     As of December 31,
2021
 

Assets

     

Cash and cash equivalents

   $ 14,736      $ 26,239  

Member advances, net of allowance for unrecoverable advances of $1,373 and $1,315 as of September 30, 2022 and December 31, 2021, respectively

     44,874        35,835  

Debt and credit facility commitment fee, current

     117        470  

Debt facility commitment fee, long-term

     87        131  
  

 

 

    

 

 

 

Total assets

   $ 59,814      $ 62,675  
  

 

 

    

 

 

 

Liabilities

     

Accounts payable

   $ 531      $ 411  

Credit facility

     20,000        20,000  

Debt facility

     45,000        35,000  

Other current liability

     —          400  

Warrant liability

     —          3,726  
  

 

 

    

 

 

 

Total liabilities

   $ 65,531      $ 59,537  
  

 

 

    

 

 

 

Use of Estimates

The preparation of these condensed consolidated financial statements requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities as of the date of the condensed consolidated financial statements, as well as the reported revenues and expenses incurred during the reporting periods. The Company’s estimates are based on its historical experience and on various other factors that the Company believes are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. The Company’s critical accounting estimates and assumptions are evaluated on an ongoing basis including those related to the: (i) allowance for unrecoverable advances; (ii) realization of tax assets and estimates of tax liabilities; (iii) valuation of equity securities; (iv) fair value of derivatives; (v) valuation of note payable; (vi) fair value of warrant liabilities and (vii) fair value of the earnout liability. Actual results may differ from these estimates under different assumptions or conditions.

Revenue Recognition

Below is detail of operating revenues (in thousands):

 

     For the Three Months Ended      For the Nine Months Ended  
     September 30,      September 30,  
     2022      2021      2022      2021  

Service based revenue, net

           

Processing fees, net

   $ 29,793      $ 21,032      $ 74,624      $ 57,410  

Tips

     17,496        12,005        45,991        33,067  

Subscriptions

     5,192        4,059        13,691        13,055  

Other

     314        242        748        610  

Transaction based revenue, net

     4,012        2,860        10,109        7,711  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 56,807      $ 40,198      $ 145,163      $ 111,853  
  

 

 

    

 

 

    

 

 

    

 

 

 

Service Based Revenue, Net:

Service based revenue, net primarily consists of tips, express processing fees, and subscriptions charged to Members, net of processor costs associated with advance disbursements. Member advances are treated as financial receivables under Accounting Standards Codification (“ASC”) 310 Receivables (“ASC 310”).

Processing Fees, Net

Express processing fees apply when a Member requests an expedited cash advance. At the Member’s election, the Company expedites the funding of advance funds within eight hours of the advance request, as opposed to the customary three business days. Express fees are nonrefundable loan origination fees and are recognized as revenues over the expected contractual term of the advance.

Costs incurred by the Company to fund cash advances are treated as direct loan origination costs. These direct loan origination costs are netted against advance-related income over the expected contractual term of the advance. Direct origination costs recognized as a reduction of advance-related income during the three and nine months ended September 30, 2022 was approximately $1.5 million and $3.6 million, respectively. During the three and nine months ended September 30, 2021 we recognized direct origination costs as a reduction of advance-related income of approximately $1.1 million and $2.9 million, respectively.

Tips

The Company encourages but does not contractually require its Members who receive a cash advance to leave a discretionary tip. The Company treats tips as an adjustment of yield to the advances and are recognized over the average term of advances.

Subscriptions

The Company accounts for subscriptions in accordance with ASC 606, Revenue from Contracts with Customers (“ASC 606”). Under ASC 606, the Company must identify the contract with a Member, identify the performance obligations in the contract, determine the transaction price, allocate the transaction price to the performance obligations in the contract, and recognize revenue when (or as) the Company satisfies the performance obligations. The Company has evaluated the nature of its contracts with Members and determined that further disaggregation of revenue from contracts with Members into categories beyond what is presented in the condensed consolidated statements of operations was not necessary. For revenue sources that are within the scope of Topic 606, the Company fully satisfies its performance obligations and recognizes revenue in the period it is earned as services are rendered. Transaction prices are typically fixed, charged on a periodic basis or based on activity. Because performance obligations are satisfied as services are rendered and the transaction prices are fixed, there is little judgment involved in applying ASC 606 that significantly affects the determination of the amount and timing of revenue from contracts with the Company’s Members. Sources of revenue from contracts with Members that are in the scope of

 

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Dave Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

 

ASC 606 include subscription fees, lead generation fees, and reward program fees.

Subscription fees of $1 are received on a monthly basis from Members who subscribe to the Company’s application. The Company continually fulfills its obligation to each Member over the monthly subscription term. The series of distinct services represents a single performance obligation that is satisfied over time. The Company recognizes revenue ratably as the Member receives and consumes the benefits of the platform throughout the contract period.

Price concessions granted to Members who have insufficient funds when subscription fees are due are forms of variable consideration under the Company’s contracts with Members. For price concessions, the Company has elected, as an accounting policy, to account for price concessions for the month at the end of the reporting month based on the actual amounts of concessions granted as the impact.

Service based revenue also consists of lead generation fees from the Company’s Side Hustle advertising partners. The Company is entitled to receive these lead generation fees when Members use the application to sign up for jobs with the Company’s various partners. Lead generation contracts contain a single performance obligation. Lead generation revenue is recognized at a point in time upon satisfaction and completion of the single performance obligation. The Company also offers a reward program to enable Dave debit card Members to earn subscription credits. The Company also offers a rewards program to enable eligible Dave debit card Members to earn subscription credits by spending funds with selected vendors. The program is managed by a third-party service provider and cash received by the Company from the third-party service provider is recorded as unearned revenue and recognized as revenue as the subscription credits are earned by the Members.

Transaction Based Revenue, Net:

Transaction based revenue, net primarily consists of interchange and ATM revenues from Dave’s Checking Product, net of interchange and ATM-related fees, and are recognized at the point in time the transactions occur, as the performance obligation is satisfied. Interchange and ATM-related fees recognized as a reduction of transaction based revenue during the three and nine months ended September 30, 2022 was approximately $0.3 million and $0.5 million, respectively, and, during the three and nine months ended September 30, 2021 was approximately $0.2 million and $0.6 million, respectively.

Processing and Servicing Fees

Processor fees consist of fees paid to the Company’s processors for the recovery of advances, processing fees, tips and subscriptions. These expenses also include fees paid for services to connect Member’s bank accounts to the Company’s application. Except for processing and service fees associated with advance disbursements, which are recorded net against revenue, all other processing and service fees are expensed as incurred.

Cash and Cash Equivalents

The Company classifies all highly liquid instruments with an original maturity of three months or less as cash equivalents.

Restricted Cash

Restricted cash primarily represents cash held at financial institutions that is pledged as collateral for specific accounts that may become overdrawn.

 

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Dave Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

 

Marketable Securities

Marketable securities consist of investment in a money market mutual fund. The Company carries this investment at fair value and the fair value is determined by quoted prices in active markets and changes in fair value are recorded in other (income) expense in the consolidated statements of operations.

Short-Term Investments

Short-term investments consist of corporate bonds and notes, asset backed securities, and government securities and are classified as “available-for-sale”, as the sale of such securities may be required prior to maturity to implement the Company’s strategies. The fair value of short-term investments is determined by quoted prices in active markets with unrealized gains and losses (other than credit related impairment) reported as a separate component of other comprehensive income. Unrealized gains and losses of short-term investments are included in accumulated other comprehensive income, net of tax, in our condensed consolidated balance sheets, with unrealized gains and losses, net of tax, reported as a separate component of stockholders’ equity as accumulated other comprehensive income (loss). For securities with unrealized losses, any credit related portion of the loss is recognized in earnings. If it is more likely than not that the Company will be unable or does not intend to hold the security to recovery of the non-credit related unrealized loss, the loss is recognized in earnings. Realized gains and losses are determined using the specific identification method and recognized in our condensed consolidated statements of comprehensive income. Any related amounts recorded in accumulated other comprehensive income are reclassified to earnings (on a pretax basis).

Member Advances

Member advances include non-recourse cash advances, fees, and tips, net of certain direct origination costs and allowance for unrecoverable advances. Management’s intent is to hold advances until maturity or payoff. Members’ cash advances are treated as financial receivables under ASC 310.

Advances to Members are not interest-bearing. The Company recognizes these advances at the advanced amount and does not use discounting techniques to determine present value of advances due to their short-term average maturity. The consequent discount impact under the imputed interest rate method does not result in a significant impact to the consolidated financial statements.

The Company does not provide modifications to advances.

Allowance for Unrecoverable Advances

The Company maintains an allowance for unrecoverable advances at a level estimated to be adequate to absorb credit losses inherent in outstanding Member advances. Management currently estimates the allowance balance required using historical loss and collections experience, and, if relevant, the nature and volume of the portfolio, economic conditions, and other factors. Interpretations of past cash recovery patterns and projections of future economic conditions involve a high degree of subjectivity. Changes to the allowance have a direct impact on the provision for unrecoverable advances in the condensed consolidated statements of operations.

The Company considers advances over 120 days past due or which become uncollectible based on information available to the Company as impaired. All impaired advances are deemed uncollectible and subsequently written-off and are a direct reduction to the allowance for unrecoverable advances. Subsequent recoveries of Member advances written-off, if any, are recorded as a reduction to Member advances when collected, resulting in a reduction to the allowance for unrecoverable advances and a corresponding reduction to the provision for unrecoverable advances expense in the condensed consolidated statements of operations.

Internally Developed Software

Internally developed software is capitalized when preliminary development efforts are successfully completed, management has authorized and committed project funding, it is probable that the project will be completed, and the software will be used as intended. Capitalized costs consist of salaries and other compensation costs for employees incurred for time spent on upgrades and enhancements to add functionality to the software and fees paid to third-party consultants who are directly involved in development efforts. These capitalized costs are included on the condensed consolidated balance sheets as intangible assets, net. Other costs are expensed as incurred and included within Other general and administrative expenses in the condensed consolidated statements of operations.

Amortization of internally developed software commences when the software is ready for its intended use (i.e., after all substantial testing is complete). Internally developed software is amortized over its estimated useful life of 3 years.

The Company’s accounting policy is to perform annual reviews of capitalized internally developed software projects to determine whether any indicators are present as of December 31, or whenever a change in circumstances suggests an indicator is present. If any indicators are present, the Company will perform a recoverability test by comparing the sum of the estimated undiscounted cash flows attributed to the asset group to their carrying value. If the undiscounted cash flows expected to result from the remaining use of the asset (i.e., cash flows when testing recoverability) are less than the asset group’s carrying value, the Company will determine the fair value of the asset group and recognize an impairment loss as the

 

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Dave Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

 

amount by which the carrying value of the asset group exceeds its fair value. If based on the results of the recoverability test, no impairment is indicated as the remaining undiscounted cash flows exceed the carrying value of the software asset group, the carrying value of the asset group as of the assessment date is deemed fully recoverable. In addition, the Company evaluates the remaining useful life of an intangible asset that is being amortized each reporting period to determine whether events and circumstances warrant a revision to the remaining period of amortization. If the estimate of an intangible asset’s remaining useful life is changed, the remaining carrying value of the intangible asset shall be amortized prospectively over that revised remaining useful life.

Property and Equipment, Net

Property and equipment are stated at cost less accumulated depreciation. Property and equipment are recorded at cost and depreciated over the estimated useful lives ranging from 3 to 7 years using the straight-line method. Maintenance and repair costs are charged to operations as incurred and included within other operating expenses in the condensed consolidated statements of operations.

Impairment of Long-Lived Assets

The Company assesses the impairment of long-lived assets, primarily property and equipment and amortizable intangible assets, whenever events or changes in business circumstances indicate that carrying values of the assets may not be fully recoverable. If the sum of the expected undiscounted future cash flows from an asset is less than the carrying value of the asset, the Company estimates the fair value of the assets. The Company measures the loss as the amount by which the carrying value exceeds its fair value calculated using the present value of estimated net future cash flows.

Warrants

The Company reviewed the terms of warrants to purchase its Common Stock to determine whether warrants should be classified as liabilities or stockholders’ equity in its condensed consolidated balance sheet. In order for a warrant to be classified in stockholders’ equity, the warrant must be (a) indexed to the Company’s equity and (b) meet the conditions for equity classification in ASC Subtopic 815-40, Derivatives and Hedging – Contracts in an Entity’s Own Equity. As the warrants do not meet the conditions for equity classification, they are carried on the condensed consolidated balance sheets as warrant liabilities measured at fair value, with subsequent changes in the fair value of the warrant recorded in the condensed consolidated statement of operations as change in fair value of warrants in other income (expense).

Fair Value of Financial Instruments

ASC 820, Fair Value Measurement (“ASC 820”), provides a single definition of fair value and a common framework for measuring fair value as well as disclosure requirements for fair value measurements used in financial statements. Under ASC 820, fair value is determined based upon the exit price that would be received by a company to sell an asset or paid by a company to transfer a liability in an orderly transaction between market participants, exclusive of any transaction costs. Fair value measurements are determined by either the principal market or the most advantageous market. The principal market is the market with the greatest level of activity and volume for the asset or liability. Absent a principal market to measure fair value, the Company uses the most advantageous market, which is the market from which the Company would receive the highest selling price for the asset or pay the lowest price to settle the liability, after considering transaction costs. However, when using the most advantageous market, transaction costs are only considered to determine which market is the most advantageous and these costs are then excluded when applying a fair value measurement. ASC 820 creates a three-level hierarchy to prioritize the inputs used in the valuation techniques to derive fair values. The basis for fair value measurements for each level within the hierarchy is described below, with Level 1 having the highest priority and Level 3 having the lowest.

Level 1 – Quoted prices in active markets for identical assets or liabilities.

Level 2 – Observable inputs other than Level 1 quoted prices, such as quoted prices for similar assets and liabilities in active markets, quoted prices in markets that are not active for identical or similar assets and liabilities, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

Level 3 – Valuations are based on inputs that are unobservable and significant to the overall fair value measurement of the assets or liabilities. Inputs reflect management’s best estimate of what market participants would use in pricing the asset or liability at the measurement date. Consideration is given to the risk inherent in the valuation technique and the risk inherent in the inputs to the model.

 

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Dave Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

 

Following are the major categories of assets and liabilities measured at fair value on a recurring basis as of September 30, 2022 and December 31, 2021, using quoted prices in active markets for identical assets (Level 1), significant other observable inputs (Level 2), and significant unobservable inputs (Level 3) (in thousands):

 

September 30, 2022

   Level 1      Level 2      Level 3      Total  

Assets

           

Marketable securities

   $ —        $ —        $ —        $ —    

Short-term investments

     —          185,323        —        $ 185,323  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

   $ —        $ 185,323      $ —        $ 185,323  
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Warrant liabilities - public warrants

   $ 197      $ —        $ —        $ 197  

Warrant liabilities - private placement warrants

     —          —          226        226  

Earnout liabilities

     —          —          66        66  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

   $ 197      $ —        $ 292      $ 489  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

December 31, 2021

     Level 1          Level 2        Level 3      Total  

Assets

           

Marketable securities

   $ 8,226      $ —        $ —        $ 8,226  

Derivative asset on loans to stockholders

     —          —          35,253        35,253  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total assets

   $ 8,226      $ —        $ 35,253      $ 43,479  
  

 

 

    

 

 

    

 

 

    

 

 

 

Liabilities

           

Warrant liability

   $ —        $ —        $ 3,726      $ 3,726  

Note payable

     —          —          15,051        15,051  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total liabilities

   $ —        $ —        $ 18,777      $ 18,777  
  

 

 

    

 

 

    

 

 

    

 

 

 

The Company had no assets and liabilities measured at fair value on a non-recurring basis as of September 30, 2022 and December 31, 2021.

The Company also has financial instruments not measured at fair value. The Company has evaluated cash and cash equivalents, Member advances, net, restricted cash, accounts payable, and accrued expenses, and believes the carrying values approximate the fair values due to the short-term nature of these balances. The debt facility, convertible debt, and credit facility are not measured at fair value on a recurring basis. The fair values of the debt facility, convertible debt, and credit facility approximate their carrying values.

Marketable Securities:

The Company evaluated the quoted market prices in active markets for its marketable securities and has classified its securities as Level 1. The Company’s investments in marketable securities are exposed to price fluctuations. The fair value measurements for the securities are based upon the quoted prices of identical items in active markets multiplied by the number of securities owned.

Short-Term Investments:

The following describes the valuation techniques used by the Company to measure the fair value of short-term investments held as of September 30, 2022 and December 31, 2021.

U.S. Government Securities

The fair value of U.S. government securities is estimated by independent pricing services who use computerized valuation formulas to calculate current values. U.S. government securities are categorized in Level 2 of the fair value hierarchy.

Corporate Bonds and Notes

The fair value of corporate bonds and notes is estimated by independent pricing services who use computerized valuation formulas to calculate current values. These securities are generally categorized in Level 2 of the fair value hierarchy or in Level 3 when market-based transaction activity is unavailable and significant unobservable inputs are used.

Asset-Backed Securities

The fair value of these asset-backed securities is estimated by independent pricing services who use computerized valuation formulas to calculate current values. These securities are generally categorized in Level 2 of the fair value hierarchy or in Level 3 when market-based transaction activity is unavailable and significant unobservable inputs are used.

Derivative Asset Related to Loans to Stockholders:

In relation to certain loans to stockholders, the Company purchased call options which grant the Company the right to acquire a fixed number of the Company’s Common Stock, held by such stockholders over the exercise period (four years). However, the exercise price per share is not fixed. The approximate $3.273 exercise price per share increases by a nominal amount of approximately $0.005 for each month that lapses from the call option issuance date. As of the date of the Business Combination, the exercise price per share was approximately $3.42. The Company understands that this variability in the exercise price of the call option is tied to the passage of time, which is not an input to the fair value of the Company’s shares per ASC 815, Derivatives and Hedging (“ASC 815”). Therefore, the Company does not believe the call option meets the scope exception under ASC 815. As the scope exception is not met, the call option is accounted for as a derivative instrument. Accordingly, the call option was measured at fair value and presented as a derivative asset on loans to stockholders on the Company’s condensed consolidated balance sheets. Interest earned on the non-recourse

 

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Dave Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

 

promissory notes was reported as interest income and changes in the fair value of the call option were reported as other income or expense in the period incurred. The call option was measured at fair value at the end of each reporting period with change in fair value recorded in earnings. The fair value of the call option as of September 30, 2022 and December 31, 2021, was $0 and $35.3 million, respectively. Upon consummation of the Business Combination in January 2022, all of the call options related to the Loans to Stockholders were exercised, settling the derivative asset on Loans to Stockholders of $29.7 million and the contra-equity Loans to Stockholders of $15.2 million with APIC being the offsetting entry.

A roll-forward of the Level 3 derivative asset on loans to stockholders is as follows (dollars in thousands):

 

Opening value at January 1, 2021

   $ 457  

Amendment to loan to stockholder

     5  

Change in fair value during the year

     34,791  
  

 

 

 

Ending value at December 31, 2021

     35,253  

Change in fair value during the period

     (5,572

Exercise of call option

     (29,681
  

 

 

 

Ending value at September 30, 2022

   $ —    
  

 

 

 

The Company used a probability-weighted expected return method (“PWERM”) to weight the indicated call options value determined under the binomial option pricing model to determine the fair value of the call options. The following table presents the assumptions used to value the call options for the year ended December 31, 2021:

 

     December 31, 2021  

Expected volatility

     61.5

Risk-free interest rate

     0.2

Remaining term

     3.0 Years  

Warrant Liability Related to Debt Facility:

As discussed further in Note 15, Debit and Credit Facility, in January 2021, the Company issued warrants contemporaneously with a debt facility that met the definition of a derivative under ASC 815. This warrant liability was initially recorded as a liability at fair value, with the offsetting entry recorded as a loan commitment fees asset. The derivative liability was subsequently recorded at fair value at each reporting period, with changes in fair value reflected in earnings. The gain related to the change in fair value of the warrant liability in the three and nine months ended September 30, 2022, was $0 million and $0.4 million, respectively, which is presented within changes in fair value of warrant liability in the condensed consolidated statements of operations. Immediately prior to the close of the Business Combination, all, or 1,664,394 of the vested warrants were exercised and net settled for 450,841 shares of Legacy Dave’s Class A Common Stock pursuant to the terms of the Business Combination.

A roll-forward of the Level 3 warrant liability is as follows (dollars in thousands):

 

Opening value at January 1, 2021

   $ —    

Initial fair value at the original issuance date

     106  

Change in fair value during the year

     3,620  
  

 

 

 

Ending value at December 31, 2021

     3,726  

Change in fair value during the period

     (361

Exercise of warrant

     (3,365
  

 

 

 

Ending value at September 30, 2022

   $ —    
  

 

 

 

The Company used a PWERM to weight the indicated warrant liability value determined under the binomial option pricing model to determine the fair value of the warrant liability. The following table presents the assumptions used to value the warrant liability for the period ended December 31, 2021:

 

     December 31, 2021  

Expected volatility

     57.0

Risk-free interest rate

     0.1 - 0.6

Remaining term

     0.0 - 1.5 Years  

Note Payable:

As discussed in Note 13, Notes Payable, the Company has elected to measure the note payable at fair value using the fair value option of ASC 825-10. The Company identified an embedded derivative related to a convertible feature in its promissory note and, in accordance with ASC 815-15-25-1 criterion (b), since the Company has elected to apply the fair value option to the debt, embedded features will not be separated from the debt host. The note payable is carried on the Company’s unaudited condensed consolidated balance sheet as a current liability estimated at fair value with changes in fair value reflected in earnings. The Company recorded an unrealized gain of $0 and $0.1 million related to the change in fair value of the promissory note for the three and nine months ended September 30, 2022, respectively. Upon the Closing of the Business Combination, the promissory note was automatically discharged upon the Company’s issuance of 1,500,000 shares of Class A Common Stock to Alameda Research. The closing of the note payable occurred immediately prior to the closing date of the Business Combination. Refer to Note 4, The Reverse Recapitalization and Related Transactions for further details on the closing of the note payable.

 

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Dave Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

 

A roll-forward of the Level 3 promissory note is as follows (dollars in thousands):

 

Opening value at January 1, 2021

   $ —    

Fair value at issuance

     14,608  

Change in fair value during the year

     443  
  

 

 

 

Ending value at December 31, 2021

     15,051  

Change in fair value during the period

     (51

Discharge of obligation through the issuance of Common Stock

     (15,000
  

 

 

 

Ending value at September 30, 2022

   $ —    
  

 

 

 

Public Warrants:

As discussed further in Note 14, Warrant Liabilities, in January 2022, upon completion of the Business Combination, public warrants were automatically converted to warrants to purchase Common Stock of the Company. These public warrants met the definition of a derivative under ASC 815, and due to the terms of the warrants, were required to be liability classified. This warrant liability was initially recorded as a liability at fair value, with the offsetting entry recorded as a non-cash expense within the statement of operations. The derivative liability was subsequently recorded at fair value at each reporting period, with changes in fair value reflected in earnings. The gain related to the change in fair value of the public warrant liability during the three and nine months ended September 30, 2022, was approximately $0.3 million and $7.4 million, respectively, which is presented within changes in fair value of public warrant liability in the condensed consolidated statements of operations.

Private Warrants:

As discussed further in Note 14, Warrant Liabilities, in January 2022, upon completion of the Business Combination, private warrants were automatically converted to warrants to purchase Common Stock of the Company. These private warrants met the definition of a derivative under ASC 815, and due to the terms of the warrants, were required to be liability classified. This warrant liability was initially recorded as a liability at fair value, with the offsetting entry recorded as a non-cash expense within the condensed consolidated statement of operations. The derivative liability was subsequently recorded at fair value at each reporting period, with changes in fair value reflected in earnings. The gain related to the change in fair value of the private warrant liability during the three and nine months ended September 30, 2022, was approximately $0.4 million and $6.5 million, respectively, which is presented within changes in fair value of private warrant liability in the condensed consolidated statements of operations.

A roll-forward of the Level 3 private warrant liability is as follows (dollars in thousands):

 

Opening value at January 1, 2022

   $ —    

Initial fair value at the merger date

     6,681  

Change in fair value during the period

     (6,455
  

 

 

 

Ending value at September 30, 2022

   $ 226  
  

 

 

 

The Company used a Black-Scholes option pricing model to determine the fair value of the private warrant liability. The following table presents the assumptions used to value the private warrant liability for the period ended September 30, 2022:

 

     September 30, 2022  

Exercise Price

   $ 11.50  

Expected volatility

     92.8

Risk-free interest rate

     4.1

Remaining term

     4.26 years  

Dividend yield

     0

Earnout Shares Liability:

As discussed further in Note 4, The Reverse Recapitalization and Related Transactions, as part of the recapitalization, 1,586,037 shares of Class A Common Stock held by founders of VPCC are subject to forfeiture if the vesting condition is not met over the five year term following the Closing Date (“Founder Holder Earnout Shares”). These Founder Holder Earnout Shares were initially recorded as a liability at fair value and subsequently recorded at fair value at each reporting period, with changes in fair value reflected in earnings. The (loss) gain related to the change in fair value of the Founder Holder Earnout Shares liabilities in the three and nine months ended September 30, 2022, was approximately ($0.02) and $9.6 million, respectively, which is presented within changes in fair value of earnout liabilities in the condensed consolidated statements of operations.

A roll-forward of the Level 3 Founder Holder Earnout Shares liability is as follows (dollars in thousands):

 

Opening value at January 1, 2022

   $ —    

Initial fair value at the merger date

     9,682  

Change in fair value during the period

     (9,616
  

 

 

 

Ending value at September 30, 2022

   $ 66  
  

 

 

 

 

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Dave Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

 

The Company used a Monte Carlo Simulation Method to determine the fair value of the Founder Holder Earnout Shares liability. The following table presents the assumptions used to value the Founder Holder Earnout Shares liability for the period ended September 30, 2022:

 

     September 30, 2022  

Exercise Price

   $ 11.50  

Expected volatility

     77.5

Risk-free interest rate

     4.1

Remaining term

     4.27  

Dividend yield

     0

There were no other assets or liabilities that were required to be measured at fair value on a recurring basis as of September 30, 2022 and December 31, 2021.

Fair Value of Common Stock

Up until the Closing of the Business Combination in which the Company became publicly traded on Nasdaq, the Company was required to estimate the fair value of the Common Stock underlying the Company’s share-based awards. The fair value of the Common Stock underlying the Company’s stock-based awards was determined, in each case, based on a valuation model as discussed further below, and was approved by the Company’s Board of Directors. The Company’s Board of Directors intends all stock options granted to be exercisable at a price per share not less than the fair value per share of the ordinary share underlying those stock options on the date of grant.

In the absence of a public market for the Common Stock prior to the date of the Business Combination, the valuation of the Common Stock was determined using a market approach, income approach, and subject company transaction method. The allocation of equity value was determined using Accountants Practice Guide, Valuation of Privately Held Company Equity Securities Issued as Compensation.

The Company considered various objective and subjective factors to determine the fair value of its Common Stock as of each grant date, including:

 

   

Historical financial performance;

 

   

The Company’s business strategy;

 

   

Industry information, such as external market conditions and trends;

 

   

Lack of marketability of the Common Stock;

 

   

Likelihood of achieving a liquidity event, such as an initial public offering, special-purpose acquisition company (“SPAC”) merger, or strategic sale given prevailing market conditions and the nature and history of the Company’s business;

 

   

Prices, privileges, powers, preferences, and rights of our convertible preferred stock relative to those of the Common Stock;

 

   

Forecasted cash flow projections for the Company;

 

   

Publicly traded price of the SPAC;

 

   

Primary preferred stock financings and secondary common stock transactions of the Company’s equity securities;

 

   

Lack of marketability/illiquidity of the common stock underlying the Company’s stock-based awards involving securities in a private company; and

 

   

Macroeconomic conditions.

The assumptions underlying these valuations represented management’s best estimate, which involved inherent uncertainties and the application of management’s judgment. The probability of a liquidity event and the derived discount rate are significant assumptions used to estimate the fair value of the Common Stock. If the Company had used different assumptions or estimates, the fair value of the Common Stock and the Company’s stock-based compensation expense could have been materially different.

During 2019 and 2020, the Company’s estimated fair value of its Common Stock remained relatively consistent, fluctuating between $0.935 per share as of August 5, 2019 (“August 2019 Valuation”), and $0.981 per share as of August 30, 2020 (“August 2020 Valuation”). The August 2019 Valuation and August 2020 Valuation utilized the income and market approaches in estimating the fair value.

In 2021, the Company’s management team first contemplated a transaction with a special purpose acquisition company (“SPAC Transaction”), which was incorporated into the June 7, 2021 valuation that resulted in a fair value of Dave’s Common Stock of $8.67 per share (“June 2021 Valuation”). The SPAC Transaction was considered in the subsequent valuation performed as of October 6, 2021 that resulted in a fair value of Dave’s Common Stock of $10.80 per share (“October 2021 Valuation”).

 

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Dave Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

 

The August 2019 Valuation and August 2020 Valuations were completed prior to the contemplation of the Business Combination, and at the time of these valuations, management did not expect a near-term exit. The August 2019 Valuation was performed at the time of the close of Dave’s Series B-1 and B-2 preferred equity financings (“Series B Financing”). Since no near-term exit was expected, the August 2019 Valuation was performed using the market approach, specifically the subject company transaction method was performed using a single option pricing model (“OPM”) as the allocation method. As a result, the fair value of the Company’s Common Stock was inferred from the Series B Financing. The August 2020 Valuation was performed using the market approach, specifically the guideline public company method (“GPCM”), and used a single OPM as the allocation methodology. The GPCM was performed by first considering the Series B Financing’s implied revenue multiple from the August 2019 valuation report, and then was adjusted based on changes in the guideline public company’s multiples since the Series B Financing occurred, with consideration for adjustments based on the Company’s comparative operational performance between the periods.

The June 2021 Valuation and October 2021 Valuation both used the hybrid method, wherein a PWERM incorporated an expected near-term SPAC exit scenario as well as an OPM. The OPM was used to model the value of common stock in a delayed exit/stay private scenario. Total equity values for each scenario management identified were estimated as of the measurement date. The delayed exit/stay private scenario total equity value was estimated using the discounted cash flow method under the income approach and the GPCM under the market approach. The total equity value in the SPAC Transaction scenario included in the June 2021 Valuation was determined based on the expected Business Combination pre-money valuation. The common stock price per share in the SPAC Transaction scenario included in the October 2021 Valuation was determined based on the publicly traded price of the SPAC as of the valuation date. Management’s estimated probability for each scenario occurring at each valuation date was applied to the respective scenario’s indicated common stock value to arrive at the estimated fair value of common stock.

The increase in the fair value of the Company’s Common Stock between the August 2019 and August 2020 Valuations, and the June 2021 Valuation and the October 2021 Valuation was predominantly due to the Company’s progress towards completing the Business Combination that was not known or knowable at the earlier valuation dates. As previously discussed, the August 2019 Valuation utilized the Series B financing to determine the value of common stock in a single OPM. The August 2020 Valuation relied upon the GPCM with valuation multiples selected considering the implied multiples at the time of the Series B Financing, with appropriate adjustments to the multiples to account for changes in the Company’s financial and operational performance as well as to reflect changes in the guideline public companies’ multiples and comparative performance, from the close of the Series B financing to the August 2020 valuation date. In early 2021, the Company first contemplated a SPAC Transaction and began taking the necessary steps to prepare for a business combination with VPCC. The necessary steps undertaken to prepare for the Business Combination included meeting with VPCC and investment bankers, discussing timing expectations, and negotiating the preliminary letter of intent with VPCC. As ongoing negotiations related to the Business Combination reflected an increased likelihood of a near-term exit transaction and/or liquidity event, the valuation of Dave’s equity as of the June 2021 Valuation took into consideration the indicated equity value implied by the negotiations as well as the uncertainty inherent in the future key milestones including execution of the Business Combination Agreement and VPCC’s shareholder vote. Similarly, the increase in the common stock value to $10.80 per share in the October 2021 Valuation resulted primarily from an increase in the probability of the near-term SPAC Transaction closing and an increase in the value of common stock in that scenario due to the passage of time and an increase in the SPAC’s publicly traded price as compared to the SPAC Transaction’s negotiated pre-money valuation. As a result, the increase in Dave’s Common Stock fair value between the valuation dates resulted directly from both the increase in the pre-money valuation and acceleration of the timing of an exit, from the Series B Financing to the Business Combination.

Concentration of Risk

Financial instruments, which potentially subject the Company to concentrations of credit risk, principally consist of cash and cash equivalents, restricted cash, Member cash advances, and accounts receivable. The Company’s cash and cash equivalents and restricted cash in excess of the Federal Deposit Insurance Corporation (“FDIC”) insured limits were approximately $37.8 million and $31.9 million at September 30, 2022 and December 31, 2021, respectively. The Company’s payment processors also collect cash on the Company’s behalf and will hold these cash balances temporarily until they are settled the next business day. The Company does not believe its marketable securities are exposed to any significant credit risk due to the quality and nature of the securities in which the money is held. Pursuant to the Company’s internal investment policy, investments must be rated A-1/P-1 or better by Standard and Poor’s Rating Service and Moody’s Investors Service at the time of purchase.

No Member individually exceeded 10% or more of the Company’s Member cash advances balances as of September 30, 2022 and December 31, 2021.

Leases

ASC 842, Leases (“ASC 842”) requires lessees to recognize most leases on the condensed consolidated balance sheet with a corresponding right-of-use asset and lease liability. Right-of-use assets represent the Company’s right to use an underlying asset for the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at the lease commencement date based on the estimated present value of fixed lease payments over the lease term. Leases are classified as financing or operating which will drive the expense recognition pattern. Lease payments on short-term leases are recognized as expense on a straight-line basis over the lease term. At the time of a lease abandonment, the operating lease right-of-use asset is derecognized, while the corresponding lease liability is evaluated by the Company based any remaining contractual obligations as of the lease abandonment date.

The Company leases office space under two separate leases, both of which are considered operating leases. Options to extend or terminate a lease are considered as part of calculating the lease term to the extent that the option is reasonably certain of exercise. The leases do not include the options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term. Covenants imposed by the leases include letters of credit required to be obtained by the lessee.

 

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Dave Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

 

The incremental borrowing rate (“IBR”) represents the rate of interest the Company would expect to pay on a collateralized basis to borrow an amount equal to the lease payments under similar terms. When determinable, the Company uses the rate implicit in the lease to determine the present value of lease payments. As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at the lease commencement date in determining the present value of lease payments.

Loans to Stockholders

In 2019, the Company entered into loan, pledge, and option agreements with various employees, who are also stockholders, to provide those employees cash in exchange for non-recourse promissory notes and call options, which allow the Company to acquire shares held by these stockholders. Following ASC 310, the Company recorded the notes as a reduction to shareholders’ equity and will do so until it is repaid, or the associated call option is exercised and the Company reacquires the collateralized shares. Interest earned and accrued on the notes also increases this contra-equity account balance. Upon consummation of the Business Combination in January 2022, all of the call options related to the Loans to Stockholders were exercised and the related loans were settled.

Stock-Based Compensation

Stock Option Awards:

ASC 718, Compensation-Stock Compensation (“ASC 718”), requires the estimate of the fair value of all stock-based payments to employees, including grants of stock options, to be recognized in the statement of operations over the requisite service period. Under ASC 718, employee option grants are generally valued at the grant date and those valuations do not change once they have been established. The fair value of each option award is estimated on the grant date using the Black-Scholes Option Pricing Model. As allowed by ASC 718, the Company’s estimate of expected volatility is based on its peer company average volatilities, including industry, stage of life cycle, size, and financial leverage. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant valuation. The Company recognizes forfeitures as they occur.

Restricted Stock Unit Awards:

Restricted stock units (“RSUs”) are valued on the grant date, and the fair value of the RSUs is equal to the estimated fair value of the Company’s Common Stock on the grant date. This compensation cost is recognized over the requisite service period as a component of stock-based compensation expense, presented within compensation and benefits in the condensed consolidated statements of operations. The Company recognizes forfeitures as they occur.

Advertising Costs

Advertising costs are expensed as incurred. Advertising expense for the three and nine months ended September 30, 2022 were approximately $24.1 million and $57.1 million, respectively, and are presented within advertising and marketing in the condensed consolidated statements of operations. Advertising expense for the three and nine months ended September 30, 2021 was approximately $12.9 million and $38.8 million, respectively.

Income Taxes

The Company follows ASC 740, Income Taxes (“ASC 740”), which requires recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax assets and liabilities are based on the differences between the financial statement and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Deferred tax assets are reduced by a valuation allowance to the extent management concludes it is more-likely-than- not that the asset will not be realized.

The effective tax rate used for interim periods is the estimated annual effective tax rate, based on the current estimate of full year results, except that those taxes related to specific discrete events, if any, are recorded in the interim period in which they occur. The annual effective tax rate is based upon several significant estimates and judgments, including the estimated annual pre-tax income of the Company in each tax jurisdiction in which it operates, and the development of tax planning strategies during the year. In addition, the Company’s tax expense can be impacted by changes in tax rates or laws and other factors that cannot be predicted with certainty. As such, there can be significant volatility in interim tax provisions.

ASC 740 provides that a tax benefit from an uncertain tax position may be recognized when it is more-likely-than-not that the position will be sustained in a court of last resort, based on the technical merits. If more-likely-than-not, the amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination, including compromise settlements. For tax positions not meeting the more-likely-than-not threshold, no tax benefit is recorded. The Company has estimated approximately $0.6 million and $0.5 million of uncertain tax positions as of September 30, 2022 and December 31, 2021, respectively, related to state income taxes and research tax credits.

The Company’s policy is to recognize interest expense and penalties accrued on any unrecognized tax benefits as a component of income tax expense within the statement of operations.

 

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Dave Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

 

Segment Information

The Company determines its operating segments based on how its chief operating decision makers manage operations, make operating decisions, and evaluate operating performance. The Company has determined that the Chief Operating Decision Maker (“CODM”) is a joint role shared by the Chief Executive Officer and Chief Financial Officer. Based upon the way the CODM reviews financial information and makes operating decisions and considering that the CODM reviews financial information on a consolidated basis for purposes of allocating resources and evaluating financial performance, the service-based and transaction-based operations constitute a single operating segment and one reportable segment.

Net Loss Per Share Attributable to Stockholders

The Company has two classes of participating securities (Class A Common Stock and Class V Common Stock) issued and outstanding as of September 30, 2022.

Prior to the consummation of the Business Combination, the Company had five classes of participating securities (Series A preferred stock, par value $0.000001 per share (“Series A Preferred Shares”), Series B-1 preferred stock, par value $0.000001 per share (“Series B-1 Preferred Shares”), and Series B-2 preferred stock, par value $0.000001 per share (“Series B-2 Preferred Shares”) and, together with the Series A Preferred Shares and the Series B-1 Preferred Shares, the “Preferred Stock”), unvested restricted stock awards and early exercised stock options). The Company used the two-class method to compute net loss per common share, because it had issued multiple classes of participating securities. The two-class method requires earnings for the period to be allocated between multiple classes of participating securities based upon their respective rights to receive distributed and undistributed earnings. Losses are not attributed to participating securities as holders of Preferred Stock, unvested restricted stock awards, and early exercised stock options are not contractually obligated to share in the Company’s losses.

Basic net loss attributable to holders of Common Stock per share is calculated by dividing net loss attributable to holders of Common Stock by the weighted-average number of shares outstanding, excluding shares issued in relation to unvested restricted stock awards and vested early exercise options funded by non-recourse notes (refer to Note 20, Related-Party Transactions for further details on the Company’s Loans to Stockholders).

Diluted net loss per share attributable to holders of Common Stock adjusts the basic net loss per share attributable to stockholders and the weighted-average number of shares outstanding for the potentially dilutive impact of stock options, warrants, and restricted stock units using the treasury stock method and convertible preferred stock using the as-if-converted method.

The following table sets forth the computation of the Company’s basic and diluted net loss per share attributable to holders of Common Stock (in thousands, except share data):

 

     For the Three Months September 30,      For the Nine Months Ended September 30,  
     2022      2021      2022      2021  

Numerator

           

Net loss

   $ (47,504    $ (7,889    $ (107,414    $ (4,801

Less: noncumulative dividend to convertible preferred stockholders

     —          —          —          —    

Less: undistributed earnings to participating securities

     —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Net loss attributed to common stockholders—basic

     (47,504      (7,889      (107,414      (4,801

Add: undistributed earnings reallocated to common stockholders

     —          —          —          —    
  

 

 

    

 

 

    

 

 

    

 

 

 

Net loss attributed to common stockholders—diluted

   $ (47,504    $ (7,889    $ (107,414    $ (4,801

Denominator

           

Weighted-average shares of common stock—basic

     374,507,465        137,833,983        368,843,244        135,678,324  

Dilutive effect of convertible preferred stock

     —             

Dilutive effect of equity incentive awards

     —             
  

 

 

    

 

 

    

 

 

    

 

 

 

Weighted-average shares of common stock—diluted

     374,507,465        137,833,983        368,843,244        135,678,324  

Net loss per share

           

Basic

   $ (0.13    $ (0.06    $ (0.29    $ (0.04

Diluted

   $ (0.13    $ (0.06    $ (0.29    $ (0.04

The following potentially dilutive shares were excluded from the computation of diluted net (loss) income per share for the periods presented because including them would have been antidilutive:

 

     For the Three Months Ended September 30,      For the Nine Months Ended September 30,  
     2022      2021      2022      2021  

Equity incentive awards

     47,812,017        38,416,709        47,812,017        38,416,709  

Convertible debt

     10,000,000        —          10,000,000        —    

Convertible preferred stock

     —          203,882,182        —          203,882,182  

Series B-1 warrants

     —          2,252,178        —          2,252,178  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

     57,812,017        244,551,069        57,812,017        244,551,069  
  

 

 

    

 

 

    

 

 

    

 

 

 

 

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Dave Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

 

Recent Accounting Pronouncements

Recently Issued Accounting Pronouncements Not Yet Adopted:

In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments— Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 introduced a new credit loss methodology, the Current Expected Credit Losses (“CECL”) methodology, which requires earlier recognition of credit losses, while also providing additional transparency about credit risk. The CECL methodology utilizes a lifetime “expected credit loss” measurement objective for the recognition of credit losses for loans, held-to maturity debt securities, trade receivables and other receivables measured at amortized cost at the time the financial asset is originated or acquired. Subsequent to the issuance of ASU 2016-13, the FASB issued several additional ASUs to clarify implementation guidance, provide narrow-scope improvements and provide additional disclosure guidance. In November 2019, the FASB issued an amendment making this ASU effective for public companies for the fiscal year beginning after December 15, 2019. In February 2020, the FASB issued an amendment providing a description of the measurement process for current expected credit losses. Early adoption is permitted. The Company plans to adopt the standard on January 1, 2023, provided it remains an “emerging growth company” as defined in Section 2(a) of the Securities Act of 1933, as amended. The Company is currently evaluating the short-term nature of its receivables, historical loss information and current market conditions to assess any potential impact the adoption of this standard may have on its condensed consolidated financial statements and related disclosures.

In March 2020, the FASB issued ASU No. 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which provides optional guidance for accounting for contracts, hedging relationships, and other transactions affected by reference rate reform, if certain criteria are met. The provisions of this standard are available for election for all companies through December 31, 2022. The Company is currently evaluating the impact of the adoption of this standard on its condensed consolidated financial statements and related disclosures.

Recently Adopted Accounting Pronouncements:

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes (“ASU 2019-12”), as part of its Simplification Initiative to reduce the cost and complexity in accounting for income taxes. The amendments in ASU 2019-12 remove certain exceptions related to the approach for intra-period tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. ASU 2019-12 also amends other aspects of the guidance to help simplify and promote consistent application of U.S. GAAP. This ASU is effective for public companies for annual periods beginning after December 15, 2020. Early adoption is permitted. The Company adopted the standard effective January 1, 2022. The Company has evaluated the effect that the updated standard had on its internal processes, condensed consolidated financial statements, and related disclosures, and has determined that the adoption did not have a significant impact on its condensed consolidated financial statements and related disclosures.

In August 2020, the FASB issued ASU 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”). The guidance in ASU 2020-06 simplifies the accounting for convertible debt and convertible preferred stock by removing the requirements to separately present certain conversion features in equity. In addition, the amendments in the ASU 2020-06 also simplify the guidance in ASC Subtopic 815-40, Derivatives and Hedging: Contracts in Entity’s Own Equity, by removing certain criteria that must be satisfied in order to classify a contract as equity, which is expected to decrease the number of freestanding instruments and embedded derivatives accounted for as assets or liabilities. Finally, the amendments revise the guidance on calculating earnings per share, requiring use of the if-converted method for all convertible instruments and rescinding an entity’s ability to rebut the presumption of share settlement for instruments that may be settled in cash or other assets. The amendments in ASU 2020-06 are effective for public companies for fiscal years beginning after December 15, 2021. The Company adopted the standard effective January 1, 2022 on a modified retrospective approach. The Company has evaluated the effect that the updated standard had on its internal processes, condensed consolidated financial statements, and related disclosures, and has determined that the adoption did not have a significant impact on its condensed consolidated financial statements and related disclosures.

 

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Dave Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

 

In October 2020, the FASB issued ASU 2020-10, Codification Improvements (“Codification”). The update provides incremental improvements on various topics in the Codification to provide clarification, correct errors in, and simplification on a variety of topics. Among other things, the guidance includes presentation disclosures for the amount of income tax expense or benefit related to other comprehensive income. The amendments are effective for public entities in fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption is permitted. The Company adopted the standard effective January 1, 2021. The Company has evaluated the effect that the updated standard had on its internal processes, condensed consolidated financial statements, and related disclosures, and has determined that the adoption did not have a significant impact on its condensed consolidated financial statements and related disclosures.

In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40), which addresses issuer’s accounting for certain modifications or exchanges of freestanding equity-classified written call options. The amendments in this update are effective for all companies for annual periods beginning after December 15, 2021. The Company adopted the standard effective January 1, 2022. The Company has evaluated the effect that the updated standard had on its internal processes, condensed consolidated financial statements, and related disclosures, and has determined that the adoption did not have a significant impact on its condensed consolidated financial statements and related disclosures.

Note 4 The Reverse Recapitalization and Related Transactions

On the Closing Date, the Company consummated the previously announced mergers contemplated by the Business Combination Agreement. In connection with the closing of the Business Combination, the Company changed the name from “VPC Impact Acquisition Holdings III, Inc.” to “Dave Inc.,” and the Surviving Entity operates under the name “Dave Operating LLC.”

Upon the consummation of the Business Combination, in accordance with the terms and conditions of the Business Combination Agreement, all issued and outstanding Legacy Dave common stock was converted into shares of Common Stock at the Exchange Ratio. At closing, VPCC transaction costs of $22.6 million were paid, which reduced the proceeds from VPCC and reduced APIC. Additionally, $5.1 million of the costs were capitalized and included within deferred issuance costs in the consolidated balance sheet for the years ended December 31, 2021, and reduced APIC at closing. The remaining $7.5 million in transaction costs were accrued for at closing. Upon closing the Business Combination, Legacy Dave received $7.0 million in cash proceeds after transactions costs of $22.6 million were paid and released from VPCC’ trust account, net of redemptions of $224.2 million. At closing, each non-redeemed outstanding share of Legacy Dave Class A common stock was converted into one share of Class A Common Stock.

Upon consummation of the Business Combination, the shares of Legacy Dave held by Legacy Dave shareholders converted into 342,638,866 shares of Common Stock, including 294,188,227 shares of Class A Common Stock and 48,450,639 shares of Class V Common Stock.

While the legal acquirer in the Business Combination was VPCC, for accounting and financial reporting purposes under U.S. GAAP, Legacy Dave is the accounting acquirer and the Business Combination was accounted for as a “reverse recapitalization.” A reverse recapitalization does not result in a new basis of accounting, and the financial statements of the combined entity represent the continuation of the financial statements of Legacy Dave in many respects. Under this method of accounting, VPCC was treated as the “acquired” company. Accordingly, the consolidated assets, liabilities, and results of operations of Legacy Dave became the historical consolidated financial statements of Dave, and VPCC’s assets and liabilities were consolidated with Legacy Dave’s on the Closing Date. Operations prior to the Business Combination are presented as those of Dave in reports subsequent to the Closing Date. The net assets of VPCC were recognized at their carrying value immediately prior to the closing with no goodwill or other intangible assets recorded and were as follows, net of transaction costs (in millions):

 

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Dave Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

 

Cash

   $ 202.0  

Other assets

     0.7  

Accrued expense

     (0.2

Earnout liabilities (As Restated)

     (9.7

Warrant liability — Public

     (7.6

Warrant liability — Private

     (6.7

Net assets acquired (As Restated)

   $ 178.5  

Additionally, as part of the recapitalization, 5,392,528 shares of VPCC Class A common stock held by founders of VPCC (the “Founder Holders”) were exchanged with 5,392,528 shares of Dave Class A Common Stock, 1,586,037 (or “Founder Holder Earnout Shares”) of which will be subject to forfeiture if the vesting condition is not met over the five year term following the Closing Date as follows:

Sixty percent (60%) of the Founder Holder Earnout Shares (951,622 Founder Holder Earnout Shares) shall immediately become fully vested and no longer subject to forfeiture upon the occurrence of Triggering Event I, which is defined as the first date on which the Common Share Price is equal to or greater than twelve dollars and fifty cents ($12.50) after the Closing Date, but within the Earnout Period (as defined in the Business Combination Agreement); provided, that

 

  (i)

in the event of a change of control pursuant to which Dave Stockholders receive, or have the right to receive, cash, securities or other property attributing a value of at least twelve dollars and fifty cents ($12.50) to each share of Class A Common Stock (as agreed in good faith by the Sponsor and the Board), then Triggering Event I shall be deemed to have occurred and;

 

  (ii)

in the event that, and as often as, the number of outstanding shares of Class A Common Stock is changed by reason of any dividend, subdivision, reclassification, recapitalization, split, combination, exchange or any similar event, then the applicable Common Share Price (as defined in the Business Combination Agreement) threshold (i.e., twelve dollars and fifty cents ($12.50)) will, for all purposes of the Business Combination Agreement (and an agreement with the Founder Holders (the “Founder Holder Agreement”)), in each case be equitably adjusted to reflect such change; and

The remaining Founder Holder Earnout Shares (634,415 Founder Holder Earnout Shares) shall immediately become fully vested and no longer subject to forfeiture upon the occurrence of Triggering Event II, which is defined as the first date on which the Common Share Price is equal to or greater than fifteen dollars ($15.00) after the Closing Date, but within the Earnout Period; provided that

 

  (iii)

in the event of a change of control pursuant to which Dave Stockholders receive, or have the right to receive, cash, securities or other property attributing a value of at least fifteen dollars ($15.00) to each share of Class A Common Stock (as agreed in good faith by Sponsor and the Board), then Triggering Event II shall be deemed to have occurred and;

 

  (iv)

in the event that, and as often as, the number of outstanding shares of Class A Common Stock is changed by reason of any dividend, subdivision, reclassification, recapitalization, split, combination, exchange or any similar event, then the applicable Common Share Price threshold (i.e., fifteen dollars ($15.00)) will, for all purposes of the Business Combination Agreement (and the Founder Holder Agreement), in each case be equitably adjusted to reflect such change.

 

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Dave Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

 

The Founder Holder Earnout Shares were recognized at fair value upon the closing of the Business Combination and classified as a liability. The issuance of the Founder Holder Earnout Shares will be recorded as a liability with the offsetting amount within APIC because the Business Combination is accounted for as a reverse recapitalization. The Founder Holder Earnout Shares will be remeasured to fair value at each reporting period end with changes in fair value going through the statements of operations.

Pursuant to the terms of the Business Combination Agreement, all of the issued and outstanding Series A, Series B-1 and Series B-2 redeemable convertible preferred stock and series A redeemable convertible preferred stock converted into 204,657,950 shares of Legacy Dave common stock immediately prior to the Business Combination. Then, as of the closing of the Business Combination, all outstanding shares of Legacy Dave common stock converted into 342,638,866 shares of Class A Common Stock and Class V Common Stock. Additionally, each of Legacy Dave options and warrants that were outstanding immediately prior to the closing of the Business Combination remained outstanding and converted into options and warrants for Dave Class A and Class V Common Stock equal to the number of the Company’s common stock, subject to such options or warrants, multiplied by the Exchange Ratio at an exercise price per share equal to the current exercise price per share for such option or warrant divided by the Exchange Ratio, with the aggregate amount of shares of Class A Common Stock and Class V Common Stock issuable upon exercise of such options and warrants to be 32,078,481.

Concurrently with the execution of the Business Combination Agreement, VPCC entered into Subscription Agreements (the “Subscription Agreement”) with certain investors (the “Subscription Investors”) pursuant to which the Subscription Investors agreed to purchase, and the Company agreed to sell to the Subscription Investors, an aggregate of 21,000,000 shares of the Class A Common Stock for a purchase price of $10 per share, or an aggregate of $210 million in gross cash proceeds (the “PIPE Financing”). On August 17, 2021 Alameda Research, a Subscription Investor agreed to pre-fund its obligation under the original Subscription Agreement to subscribe for 1,500,000 shares of Class A Common Stock for $15.0 million of the aggregate PIPE Financing subscription amount. On August 17, 2021, Legacy Dave issued a promissory note with a principal amount of $15.0 million to Alameda Research and amended the Subscription Agreement to satisfy Alameda Research’s obligation to pay the $15.0 million purchase price under the Alameda Subscription Agreement by way of a full discharge of Legacy Dave’s obligations to pay the principal under the promissory note. Upon the closing of the Business Combination, the promissory note was automatically discharged upon the Company’s issuance of 1,500,000 shares of Class A Common Stock to Alameda Research. The closing of the private placement occurred immediately prior to the closing date.

The number of shares of Common Stock issued immediately following the consummation of the Business Combination were as follows:

 

     Class A      Class V  

Common stock outstanding on December 31, 2021

     92,436,304        48,450,639  

Common stock activity between December 31, 2021 and January 5, 2022

     

Exercise of derivative asset and paydown of stockholder loans

     (6,014,250      —    

Issuance of Class A Common Stock for stock option exercises

     2,630,557        —    

Repurchase of Class A Common Stock

     (198,505      —    
  

 

 

    

 

 

 

Common Stock outstanding prior to the Business Combination

     88,854,106        48,450,639  

Conversion of preferred stock to Class A Common Stock

     204,657,950        —    

Class A Common Stock attributable to VPCC

     2,958,831        —    
  

 

 

    

 

 

 

Adjustment related to Reverse Recapitalization*

     207,616,781        —    

Founder Holder shares

     3,806,491        —    

Conversion of 2019 convertible notes and accrued interest to Class A common stock

     225,330        —    

Exercise of Series B-1 preferred stock warrants, net of settlement

     450,841        —    

Issuance of Class A common stock pursuant to the PIPE financing

     21,000,000        —    
  

 

 

    

 

 

 

Total shares of common stock as of closing of Business Combination and related transactions

     321,953,549        48,450,639  
  

 

 

    

 

 

 

 

*

The corresponding adjustment to APIC related to the reverse recapitalization was comprised of (i) approximately $178.5 million which represents the fair value of the consideration transferred in the Business Combination, less the excess of the fair value of the shares issued over the value of the net monetary assets of VPCC, net of transaction costs and (ii) approximately $72.2 million which represents the conversion of the convertible preferred stock into Dave Class A Common Stock.

 

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Dave Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

 

There were 32,078,481 Dave options outstanding immediately after the Business Combination.

Following the Business Combination, Dave warrants to purchase 11,444,235 shares of Class A Common Stock, consisting of (i) 6,344,131 public warrants listed on the Nasdaq and (ii) 5,100,214 private warrants, each with an exercise price of $11.50 per share, remained outstanding.

Note 5 Marketable Securities

Below is detail regarding marketable securities (in thousands):

 

     September 30, 2022      December 31, 2021  

Marketable securities

   $ —        $ 8,226  
  

 

 

    

 

 

 

Total

   $ —        $ 8,226  
  

 

 

    

 

 

 

At December 31, 2021, the Company’s marketable securities consisted of investments in a publicly traded money market mutual fund with a ticket symbol SSPXX. The underlying money market instruments were primarily comprised of certificates of deposit and financial company asset backed commercial paper. At December 31, 2021, the investment portfolio had a weighted-average maturity of 46 days.

The gain (loss) recognized in connection with the investment in marketable securities for the three and nine months ended September 30, 2022, was insignificant and recorded as a component of interest income in the condensed consolidated statements of operations. The gain (loss) recognized in connection with the investment in marketable securities for the three and nine months ended September 30, 2021, was insignificant and recorded as a component of interest income in the condensed consolidated statements of operations.

Note 6 Short-term investments

Below is a summary of short-term investments, which are measured at fair value as of September 30, 2022 (in thousands):

 

     Amortized Cost      Gross Unrealized
Gains
     Gross Unrealized
Losses
     Fair Value  

Corporate bonds

   $ 165,503      $ —        $ (2,905    $ 162,598  

Asset-backed securities

     19,895        —          (104      19,791  

Government securities

     2,951        —          (17      2,934  
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 188,349      $ —        $ (3,026    $ 185,323  
  

 

 

    

 

 

    

 

 

    

 

 

 

At September 30, 2022, the Company’s short-term investments consisted of investments in corporate bonds and notes, asset backed securities, and government securities with varying maturity dates between 2022 through 2027. Proceeds from sales and maturities of short-term investments during the nine months ended September 30, 2022, were $10.3 million. Purchases of short-term investments during the nine months ended September 30, 2022 were $197.8 million. The unrealized loss recorded in connection with the investment in short-term investments for the three and nine months ended September 30, 2022, was approximately $0.6 million and $3.0 million, respectively, and recorded as a separate component of income in the condensed consolidated statement of comprehensive income.

At December 31, 2021, the Company had no short-term investments.

Note 7 Member Cash Advances, Net

Below is detail regarding Member cash advances, net as of September 30, 2022 (in thousands):

 

Days From Origination

   Gross Member
Advances
     Allowance for
Unrecoverable
Advances
     Member
Advances, Net
 

1-10

   $ 72,474      $ (1,703    $ 70,771  

11-30

     13,381        (3,368      10,013  

31-60

     9,801        (5,990      3,811  

61-90

     7,856        (5,921      1,935  

91-120

     6,212        (5,134      1,078  
  

 

 

    

 

 

    

 

 

 

Total

   $ 109,724      $ (22,116    $ 87,608  
  

 

 

    

 

 

    

 

 

 

 

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Dave Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

 

Below is detail regarding Member cash advances, net as of December 31, 2021 (in thousands):

 

Days From Origination

   Gross Member
Advances
     Allowance for
Unrecoverable
Advances
     Member
Advances, Net
 

1-10

   $ 39,910      $ (1,313    $ 38,597  

11-30

     8,111        (2,084      6,027  

31-60

     4,781        (2,652      2,129  

61-90

     3,986        (2,735      1,251  

91-120

     4,220        (3,211      1,009  
  

 

 

    

 

 

    

 

 

 

Total

   $ 61,008      $ (11,995    $ 49,013  
  

 

 

    

 

 

    

 

 

 

Member advances, net, represent outstanding advances, tips, and processing fees, net of direct origination costs, less an allowance for unrecoverable advances.

The roll-forward of the allowance for unrecoverable advances is as follows (dollars in thousands):

 

Opening allowance balance at January 1, 2022

   $ 11,995  

Plus: provision for unrecoverable advances

     45,995  

Less: amounts written-off

     (35,874
  

 

 

 

Ending allowance balance at September 30, 2022

   $ 22,116  
  

 

 

 

Opening allowance balance at January 1, 2021

   $ 12,580  

Plus: provision for unrecoverable advances

     21,693  

Less: amounts written-off

     (22,933
  

 

 

 

Ending allowance balance at September 30, 2021

   $ 11,340  
  

 

 

 

Note 8 Property and Equipment, net

Property and Equipment, Net consisted of the following (dollars in thousands):

 

     September 30, 2022      December 31, 2021  

Computer equipment

   $ 991      $ 664  

Leasehold improvements

     532        384  

Furniture and fixtures

     14        14  
  

 

 

    

 

 

 

Total property and equipment

     1,537        1,062  

Less: accumulated depreciation

     (623      (377
  

 

 

    

 

 

 

Property and equipment, net

   $ 914      $ 685  
  

 

 

    

 

 

 

Depreciation expense for the three and nine months ended September 30, 2022 was approximately $0.1 million and $0.3 million, respectively. Depreciation expense for the three and nine months ended September 30, 2021 was approximately $0.06 million and $0.1 million, respectively.

 

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Notes to the Unaudited Condensed Consolidated Financial Statements

 

Note 9 Intangible Assets, Net

The Company’s Intangible assets, net consisted of the following (in thousands):

 

     September 30, 2022      December 31, 2021  
     Weighted
Average Useful
Lives
     Gross Carrying
Value
     Accumulated
Amortization
    Net Book Value      Gross Carrying Value      Accumulated
Amortization
    Net Book Value  

Internally developed software

     3.0 Years      $ 19,551      $ (10,197   $ 9,354      $ 13,109      $ (5,342   $ 7,767  

Domain name

     15.0 Years        121        (45     76        121        (39     82  
     

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

Intangible assets, net

      $ 19,672      $ (10,242   $ 9,430      $ 13,230      $ (5,381   $ 7,849  
     

 

 

    

 

 

   

 

 

    

 

 

    

 

 

   

 

 

 

The future estimated amortization expenses as of September 30, 2022, were as follows (in thousands):

 

2022 (remaining)

   $ 1,720  

2023

     3,610  

2024

     2.942  

2025

     1,108  

2026

     8  

Thereafter

     42  
  

 

 

 

Total future amortization

   $ 9,430  
  

 

 

 

Total amortization expense for the three and nine months ended September 30, 2022, was approximately $2.3 million and $4.9 million, respectively. Total amortization expense for the three and nine months ended September 30, 2021, was approximately $0.7 million and $1.9 million, respectively. No impairment charges were recognized related to long-lived assets for the nine months ended September 30, 2022 and 2021. Capitalized costs for internally developed software for the three and nine months ended September 30, 2022 were approximately $2.3 million and $6.4 million, respectively. Capitalized costs for internally developed software for the three and nine months ended September 30, 2021 were approximately $1.1 million and $3.9 million, respectively.

Amortization expense related to change in useful life of a certain definite-lived intangible asset for the three and nine months ended September 30, 2022 was approximately $1.5 million and $2.1 million, respectively. Amortization expense related to change in useful life of a certain definite-lived intangible asset for the three and nine months ended September 30, 2021 was approximately $0 million and $0 million, respectively.

Note 10 Accrued Expenses

Accrued expenses consisted of the following (dollars in thousands):

 

     September 30, 2022      December 31, 2021  

Accrued charitable contributions

   $ 4,735      $ 7,164  

Accrued compensation

     3,012        1,522  

Sales tax payable

     1,303        1,208  

Accrued professional and program fees

     4,721        2,163  

Other

     1,933        988  
  

 

 

    

 

 

 

Total

   $ 15,704      $ 13,045  
  

 

 

    

 

 

 

Accrued charitable contributions include amounts the Company has pledged related to charitable meal donations. The Company uses a portion of tips received to make a charitable cash donation to third parties who use the funds to provide meals to those in need. For the three and nine months ended September 30, 2022, the Company pledged approximately $0.9 million and $2.9 million related to charitable donations, respectively. For the three and nine months ended September 30, 2021, the Company pledged approximately $1.3 million and $3.6 million related to charitable donations, respectively. These costs are expensed as incurred and are presented within other general and administrative expenses in the condensed consolidated statements of operations.

Accrued compensation includes accrued bonuses and one half of the portion of employer Social Security payroll taxes deferred under the CARES Act.

 

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Dave Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

 

Note 11 Line of Credit

In November 2017, the Company entered into a line of credit agreement with UBS (the “UBS Agreement”) which was terminated in March 2021. Issuance costs related to this transaction were not significant. There was no stated maturity date, there were no financial covenants and the amount of the line of credit was solely dependent upon the total amount of assets the Company holds with UBS at any given point. Upon termination, the Company repaid $3.9 million.

 

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Dave Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

 

Note 12 Convertible Note Payable

On March 21, 2022, the Company entered into a Convertible Note Purchase Agreement (“Purchase Agreement”) with FTX Ventures Ltd., (the “Purchaser”) owner of FTX US (“FTX”), providing for the purchase and sale of a convertible note in the initial principal amount of $100.0 million (the “Note”). The Note bears interest at a rate of 3.00% per year (compounded semiannually), payable semi-annually in arrears on June 30th and December 31st of each year. Interest may be paid in-kind or in cash, at the Company’s option. Forty-eight months (the “Maturity Date”) after the date of the initial issuance of the Note (the “Issuance Date”), the Company will pay the Purchaser the sum of (i) the outstanding principal amount of the Note, plus (ii) all accrued but unpaid interest thereon, plus (iii) all expenses incurred by the Purchaser (the “Redemption Price”). Payment of the Redemption Price on the Maturity Date will constitute a redemption of the Note in whole.

During the term of the Note, the Note will be convertible into shares of the Company’s Class A Common Stock, at the option of the Purchaser, upon delivery on one or more occasions of a written notice to the Company electing to convert the Note or all of any portion of the outstanding principal amount of the Note. The initial conversion price of the Note is $10.00 per share of Common Stock (the “Conversion Price”). The Conversion Price of the Note is subject to adjustment for stock splits, dividends or distributions, recapitalizations, spinoffs or similar transactions. The Note and the shares of Common Stock issuable upon conversion of the Note have not been registered under the Securities Act and may not be offered or sold absent registration or an applicable exemption from registration requirements.

Beginning on the twenty-four-month anniversary of the Issuance Date continuing until the Maturity Date, if the closing price of the Common Stock equals or exceeds 175% of the Conversion Price for 20 out of the 30 consecutive trading days ending immediately preceding the delivery of the notice of the Company’s election to convert the Note, the Note will be convertible into shares of Common Stock at the option of the Company, upon delivery of a written notice to the Purchaser electing to convert the Note or all or any portion of the outstanding principal amount of the Note.

At any time prior to the Maturity Date, the Company may, in its sole discretion and upon delivery of a written notice to the Purchaser electing to prepay the Note, prepay the Note without penalty by paying the Purchaser 100% of the Redemption Price. Once the Redemption Price has been delivered to the Purchaser, the Note will be cancelled and retired.

The effective interest rate as of September 30, 2022 was 3.01%. As of September 30, 2022, the outstanding balance of the Note, including paid in-kind interest was $101.6 million.

Note 13 Note Payable

In August 2021, VPCC entered into an amendment to the private investment in public equity (“PIPE”) subscription agreement (“PIPE Amendment”) it previously entered into with Alameda Research Ventures LLC (“Alameda Research”) in connection with the proposed business combination with the Company (refer to Note 1, Organization and Nature of Business). The PIPE Amendment called for a $15.0 million pre-funding, which was facilitated through the issuance of an unsecured promissory note by the Company to Alameda Research during November 2021. The Company’s obligations to repay the principal amount of the promissory note were discharged through the issuance of 1.5 million shares of VPCC to Alameda Research at the closing of the Business Combination. The promissory note bore an interest rate of the applicable short-term federal rate and was due at the earlier of (i) the one-year anniversary of the promissory note or (ii) an event of default.

The Company elected to measure the note payable debt instrument at fair value using the fair value option of ASC 825-10. The Company determined that the feature to settle the promissory note with shares at the closing of the Business Combination was a contingently exercisable share settled put option that represented an embedded derivative instrument that required bifurcation from the host promissory note. Additionally, the feature to redeem the promissory note upon a default event was a contingently exercisable call option and represented an embedded derivative instrument that required bifurcation from the host promissory note. However, in accordance with ASC 815-15-25-1 criterion (b), since the Company has elected to apply the fair value option to the debt, the embedded features will not be separated from the debt host. The fair value of the Promissory Note was $0 and $15.0 million as of September 30, 2022 and December 31, 2021, respectively. Upon the closing of the Business Combination, the promissory note was automatically discharged upon the Company’s issuance of 1,500,000 shares of Class A Common Stock to Alameda Research. The closing of the note payable occurred immediately prior to the closing date of the Business Combination. Refer to Note 4, The Reverse Recapitalization and Related Transactions for further details on the closing of the note payable.

 

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Dave Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

 

Note 14 Warrant Liabilities

As of September 30, 2022, there were 6,344,021 public warrants (“Public Warrants”) outstanding and 5,100,214 private placement warrants (“Private Warrants”) outstanding. Public Warrants may only be exercised for a whole number of shares. No fractional Public Warrants were issued upon separation of the units into their component parts upon the closing of the Business Combination and only whole Public Warrants trade. The Public Warrants are exercisable, provided that the Company continues to have an effective registration statement under the Securities Act covering the shares of Class A Common Stock issuable upon exercise of the Public Warrants and a current prospectus relating to them is available (or the Company permits holders to exercise their Public Warrants on a cashless basis and such cashless exercise is exempt from registration under the Securities Act).

The Company filed a registration statement covering the shares of Class A Common Stock issuable upon exercise of the Public Warrants and the Private Warrants. If the Company’s shares of Class A Common Stock are at the time of any exercise of a warrant not listed on a national securities exchange such that they satisfy the definition of a “covered security” under Section 18(b)(1) of the Securities Act, the Company may, at its option, require holders of Public Warrants who exercise their warrants to do so on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act and, in the event the Company so elects, it will not be required to file or maintain in effect a registration statement, and in the event the Company does not so elect, it will use its best efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available.

The Public Warrants and the Private Warrants have an exercise price of $11.50 per share, subject to adjustments and will expire five years after the completion of the Business Combination or earlier upon redemption or liquidation.

Redemption of Public Warrants when the price per share of Class A Common Stock equals or exceeds $18.00:

Once the Public Warrants become exercisable, the Company may redeem the outstanding Public Warrants for cash:

 

   

in whole and not in part;

 

   

at a price of $0.01 per warrant;

 

   

upon a minimum of 30 days’ prior written notice of redemption; and if, and only if, the closing price of Class A Common Stock equals or exceeds $18.00 per share (as adjusted) for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which the Company sends the notice of redemption to the warrant holders.

The Company will not redeem the Public Warrants as described above unless an effective registration statement under the Securities Act covering the Class A Common Stock issuable upon exercise of the warrants is effective and a current prospectus relating to those shares of Class A Common Stock is available throughout the 30-day redemption period.

Redemption of Public Warrants for when the price per share of Class A Common Stock equals or exceeds $10.00:

Once the Public Warrants become exercisable, the Company may redeem the outstanding Public Warrants:

 

   

in whole and not in part;

 

   

at $0.10 per warrant upon a minimum of 30 days’ prior written notice of redemption provided that holders will be able to exercise their warrants on a cashless basis prior to redemption and receive that number of shares determined by reference to an agreed table based on the redemption date and the “fair market value” (as defined below) of the Class A Common Stock; and

 

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Dave Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

 

   

if, and only if, the closing price of Class A Common Stock equals or exceeds $10.00 per Public Share (as adjusted) for any 20 trading days within the 30-trading day period ending three trading days before the Company sends notice of redemption to the warrant holders.

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, the Public Warrants will not be adjusted for issuance 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 Public Warrants.

The Private Warrants are identical to the Public Warrants, except that the Private Placement Warrants will be non-redeemable so long as they are held by VPC Impact Acquisition Holdings Sponsor III, LLC, which was the sponsor of VPCC and an affiliate of certain of VPCC’s officers and directors prior to the Business Combination, (the “Sponsor”) or its permitted transferees. If the Private Warrants are held by someone other than the Sponsor or its permitted transferees, the Private Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.

Contemporaneously with the execution of the Debt Facility, the Company issued warrants to the Lenders as consideration for entering into the Debt Facility, representing a loan commitment fee. The warrants vest and become exercisable based on the Company’s aggregated draw on the Debt Facility in incremental $10.0 million tranches and terminate upon the earliest to occur of (i) the fifth anniversary of the occurrence of a qualified financing event and (ii) the consummation of a liquidity event. The holders of the warrants have the ability to exercise their right to acquire a number of common shares equal to 0.2% of the fully diluted equity of the Company as of the closing date (“Equity Closing Date”) of the Company’s next equity financing with proceeds of at least $40.0 million (“Qualified Financing Event”) or immediately prior to the consummation of a liquidity event. The exercise price of the warrants is the greater of (i) 80% of the fair market value of each share of Common Stock at the Equity Closing Date and (ii) $3.752050 per share, subject to certain down-round adjustments. The warrants meet the definition of a derivative under ASC 815 and will be accounted for as a liability at fair value and subsequently remeasured to fair value at the end of each reporting period with the changes in fair value recorded in the condensed consolidated statement of operations. The initial offsetting entry to the warrant liability was an asset recorded to reflect the loan commitment fee. The loan commitment fee asset will be amortized to interest expense over the commitment period of four years. The Company estimated the fair value of the warrants at the issuance date to be $0.1 million using the Black-Scholes option-pricing model. Determining the fair value of these warrants under this model requires subjective assumptions. These estimates involve inherent uncertainties and the application of management’s judgment.

Immediately prior to the close of the Business Combination, all, or 1,664,394 of the vested warrants were exercised and net settled for 450,841 shares of Legacy Dave’s Class A Common Stock after applying the Exchange Ratio.

Note 15 Debt and Credit Facility

In January 2021, Dave OD Funding I, LLC (“Borrower”) entered into a delayed draw senior secured loan facility (the “Debt Facility”) with Victory Park Management, LLC (“Agent”), allowing the Borrower to draw up to $100 million from various lenders associated with Victory Park Management, LLC (the “Lenders”). The Debt Facility has an interest rate of 6.95% annually plus a base rate defined as the greater of three-month LIBOR (as of the last business day of each calendar month) and 2.55%. Interest is payable monthly in arrears. The Debt Facility has certain financial covenants, including a requirement to maintain a minimum cash, cash equivalents, or marketable securities balance of $10.0 million and as of September 30, 2022, the Company was in compliance with all covenants. Payments of the loan draws are due at the following dates: (i) within five business days after the date of receipt by the Borrower and the Company (each, a “Credit Party”) or any of their subsidiaries of any net cash proceeds in excess of $250 thousand in the aggregate during any fiscal year from any asset sales (other than certain permitted dispositions), the Borrower shall prepay the loans or remit such net cash proceeds in an aggregate amount equal to 100% of such net cash proceeds; (ii) within five business days after the date of receipt by any Credit Party or any of their subsidiaries, or the Agent as loss payee, of any net cash proceeds from any destruction or taking, the Borrower shall prepay the loans or remit such net cash proceeds in an aggregate amount equal to 100% of such net cash proceeds; (iii) within three business days after the date of receipt by any Credit Party or any of their subsidiaries of any net cash proceeds from the incurrence of any indebtedness of any Credit Party or any of their subsidiaries (other than with respect to permitted indebtedness), the Borrower shall prepay the loans or remit such net cash proceeds in an aggregate amount equal to 100% of such net cash proceeds; and (iv) (a) if extraordinary receipts are received by any Credit Party in the aggregate amount in any fiscal year in excess of $250 thousand or (b) if an event of default has occurred and is continuing at any time when any extraordinary receipts are received by any Credit Party, then within five business days of the receipt by any Credit Party of any such extraordinary receipts, the Borrower shall prepay the loans or remit such net cash proceeds in an aggregate amount equal to (x) 100% of such extraordinary receipts in excess of $250 thousand in respect of clause (a) above and (y) 100% of such extraordinary receipts in respect of clause (b) above. As of September 30, 2022 and December 31, 2021, respectively, the Company had drawn $45 million and $35 million on the Debt Facility and had made no repayments.

In November 2021, the Borrower entered into an amendment of the Debt Facility which added a $20 million credit line (as amended, the “Credit Facility”) which has an interest rate of 8.95% annually plus a base rate defined as the greater of three-month LIBOR (as of the last business day of each calendar month) and 2.55%. As of September 30, 2022 and December 31, 2021, respectively, the Company had drawn $20 million on the Credit Facility and has made no repayments.

 

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Dave Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

 

Note 16 Commitments and Contingencies

Litigation:

From time to time, the Company is subject to various legal proceedings and claims, either asserted or unasserted, that arise in the ordinary course of business. Although the outcome of the various legal proceedings and claims cannot be predicted with certainty, management does not believe that any of these proceedings or claims will have a significant adverse effect on the Company’s business, financial condition, results of operations, or cash flows.

Stoffers v. Dave Inc. (filed September 16, 2020 in LA County Superior Court)

This is a purported class action lawsuit filed in connection with a July 2020 data breach. The Company is in the process of settling this matter and the estimated settlement amount of approximately $3.2 million is included in the Legal settlement accrual within the condensed consolidated balance sheets for the period ended September 30, 2022 and December 31, 2021.

Martinsek v. Dave Inc. (filed January 9, 2020 in the California Superior Court for the County of Los Angeles)

In January 2020, a former employee of the Company filed a complaint in the California Superior Court for the County of Los Angeles against the Company and the Company’s Chief Executive Officer, asserting claims for, among other things, breach of contract, breach of fiduciary duty, conversion, and breach of the implied covenant of good faith and fair dealing. The complaint alleges that the Company and the Chief Executive Officer misappropriated approximately 9.2 million shares (as adjusted for a 10:1 forward stock split in November 2020 and the Exchange Ratio) by rescinding a stock option agreement and a restricted stock purchase agreement between the Company and the former employee under which such shares were issued and repurchasing the shares. The Company rescinded the agreements for failure of consideration. The Company and the Chief Executive Officer answered, denying all claims and asserting defenses. The Company is in the process of settling this matter and the estimated settlement amount of approximately $6.0 million is included in the Legal settlement accrual within the condensed consolidated balance sheet for the period ended September 30, 2022.

Lopez v. Dave Inc. (filed July 15, 2022 in the United States District Court for the Northern District of California)

This is a purported class action alleging violations of California consumer protection laws and state and federal lending laws, among other things. The complaint seeks injunctive relief, damages, restitution, nonrestitutionary disgorgement, pre- and post-judgment interest and reasonable attorneys’ fees and costs. The Company is actively litigating this matter and cannot estimate the likely outcome at this time.

 

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Dave Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

 

Note 17 Leases

In November 2018, the Company entered into a sublease agreement with PCJW Properties LLC (“PCJW”), controlled by Company’s founders (including the Company’s current CEO), for general office space next to the aforementioned leased property in Los Angeles, California. The lease term is five years subject to early termination by either party. Under the terms of the sublease, monthly rent is approximately $0.006 million, subject to an annual escalation of 4%.

In January 2019, the Company entered into a lease agreement with PCJW for office space located in Los Angeles, California. The lease term is seven years, beginning January 1, 2019 and ending December 31, 2025. Monthly rent is approximately $0.02 million, subject to an annual escalation of 5%.

In May 2020, the Company entered into a sublease with Whalerock for general office space in West Hollywood, California. Under the terms of the sublease, the lease term is approximately 18 months and the monthly rent is approximately $0.14 million. The Company began utilizing the office space in June 2021. The lease was abandoned during the quarter ended September 30, 2022.

All leases were classified as operating and operating lease expenses are presented within other general and administrative expenses in the condensed consolidated statements of operations. The Company does not have any finance leases or sublease arrangements where the Company is the sublessor. The Company’s leasing activities are as follows (dollars in thousands):

 

     For the Nine Months Ended  
     September 30,
2022
     September 30,
2021
 

Operating lease cost

   $ 2,058      $ 901  

Short-term lease cost

     26        —    

Variable lease cost

     —          —    
  

 

 

    

 

 

 

Total lease cost

   $ 2,084      $ 901  
  

 

 

    

 

 

 

 

     For the Nine Months Ended  
     September 30,
2022
    September 30,
2021
 

Other information:

    

Cash paid for operating leases

   $ 1,457     $ 798  

Right-of-use assets obtained in exchange for new operating lease liability

   $ —       $ 2,514  

Weighted-average remaining lease term—operating lease

     3.08       2.22  

Weighted-average discount rate—operating lease

     10     10

 

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Dave Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

 

The future minimum lease payments as of September 30, 2022, were as follows (in thousands):

 

Year

   Third-Party
Commitment
     Related-Party
Commitment
     Total  

2022 (remaining)

   $ —        $ 84      $ 84  

2023

     —          339        339  

2024

     —          295        295  

2025

     —          310        310  

Thereafter

     —          —          —    
  

 

 

    

 

 

    

 

 

 

Total minimum lease payments

   $  —      $ 1,028      $ 1,028  
  

 

 

    

 

 

    

 

 

 

Less: imputed interest

     —          (142      (142
  

 

 

    

 

 

    

 

 

 

Total lease liabilities

   $ —        $ 886      $ 886  
  

 

 

    

 

 

    

 

 

 

Note 18 Preferred Stock and Stockholders’ Equity

As of September 30, 2022, no shares of preferred stock were outstanding, and the Company has no present plans to issue any shares of preferred stock.

Pursuant to the terms of our amended and restated certificate of incorporation, shares of preferred stock may be issued from time to time in one or more series. The board of directors is authorized to fix the voting rights, if any, designations, powers and preferences, the relative, participating, optional or other special rights, and any qualifications, limitations and restrictions thereof, applicable to the shares of each series of preferred stock. The board of directors is able to, without stockholder approval, issue preferred stock with voting and other rights that could adversely affect the voting power and other rights of the holders of the common stock and could have anti-takeover effects. The ability of the board of directors to issue preferred stock without stockholder approval could have the effect of delaying, deferring or preventing a change of control or the removal of existing management.

Class A and Class V Common Stock:

The Company’s Board of Directors has authorized two classes of common stock, Class A Common Stock and Class V Common Stock. As of September 30, 2022, the Company had authorized 500,000,000 and 100,000,000 shares of Class A Common Stock and Class V Common Stock, respectively. As of September 30, 2022, the Company had 329,596,893 and 48,450,639 shares of Class A Common Stock and Class V Common Stock issued, respectively. As of September 30, 2022, the Company had 328,010,856 and 48,450,639 shares of Class A Common Stock and Class V Common Stock outstanding, respectively.

Note 19 Stock-Based Compensation

In 2017, the Company’s Board of Directors adopted the Dave Inc. 2017 Stock Plan (the “2017 Plan”). The 2017 Plan authorized the award of stock options, restricted stock, and restricted stock units. On January 4, 2022, the stockholders of the Company approved the 2021 Equity Incentive Plan (the “2021 Plan”). The 2021 Plan was previously approved, subject to stockholder approval, by the Company’s Board of Directors on January 4, 2022. Upon the consummation of the Business Combination with VPCC, the 2017 Plan was terminated and replaced by the 2021 Plan. The maximum term of stock options granted under the 2021 Plan is 10 years and the awards generally vest over a four year period.

On January 4, 2022, the stockholders of the Company approved the 2021 Employee Stock Purchase Plan (the “ESPP”). The ESPP was previously approved, subject to stockholder approval, by the Company’s Board of Directors on January 4, 2022. The ESPP became effective immediately upon the completion of the Business Combination with VPCC.

The Company recognized approximately $8.0 million and $34.1 million of stock-based compensation expense arising from stock option and restricted stock unit grants which is recorded as a component of compensation and benefits in the condensed consolidated statements of operations for the three and nine months ended September 30, 2022, respectively. The Company recognized approximately $3.6 million and $6.3 million of stock-based compensation expense arising from stock option and restricted stock grants for the three and nine months ended September 30, 2021, respectively.

 

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Dave Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

 

Stock Options:

Management has valued stock options at their date of grant utilizing the Black-Scholes option pricing model. The fair value of the underlying shares was estimated by using a number of inputs, including recent arm’s length transactions involving the sale of the Company’s Class A Common Stock.

The following table presents the weighted-average assumptions used to value options granted during the nine months ended September 30, 2021:

 

Expected term

     6.0 years  

Risk-free interest rate

     1.5

Expected dividend yield

     0.0

Expected volatility

     40.0

The Company had no stock options granted during the nine months ended September 30, 2022.

Expected term—The expected term represents the period of time that options are expected to be outstanding. As the Company does not have sufficient historical exercise behavior, it determines the expected life assumption using the simplified method, which is an average of the contractual term of the option and its vesting period.

Risk free interest rate—The risk-free interest rate is based on the implied yield available on U.S. Treasury issues with an equivalent term approximating the expected life of the options depending on the date of the grant and expected life of the options.

Expected dividend yield—The Company bases the expected dividend yield assumption on the fact that it has never paid cash dividends and has no present intention to pay cash dividends.

Expected volatility—Due to the Company’s limited operating history and lack of company-specific historical or implied volatility, the expected volatility assumption is based on historical volatilities of a peer group of similar companies whose share prices are publicly available. The Company identified a group of peer companies and considered their historical stock prices. In identifying peer companies, the Company considered the industry, stage of life cycle, size, and financial leverage of such other entities.

Activity with respect to stock options is summarized as follows:

 

     Shares      Weighted-
Average
Exercise
Price
 

Options outstanding, January 1, 2022

     34,709,027      $ 0.64  

Granted

     —        $ —    

Exercised

     (3,623,359    $ 0.45  

Forfeited

     (979,297    $ 0.67  

Expired

     (617,342    $ 0.70  
  

 

 

    

Options outstanding, September 30, 2022

     29,489,029      $ 0.66  
  

 

 

    

Nonvested options, September 30, 2022

     18,909,160      $ 0.72  
  

 

 

    

Vested and exercisable, September 30, 2022

     10,579,869      $ 0.54  
  

 

 

    

At September 30, 2022, total estimated unrecognized stock-based compensation cost related to nonvested stock options granted prior to that date was approximately $14.1 million, which is expected to be recognized over a weighted-average period of 3.7 years. The weighted-average grant date fair value of options granted during the nine months ended September 30, 2022 and 2021 was $0 and $1.22 per share, respectively.

The Company allowed certain stock option holders to exercise unvested options to purchase shares of Common Stock. Shares received from such early exercises are subject to repurchase in the event of the optionee’s employment termination, at the original issuance price, until the options are fully vested. As of September 30, 2022 and 2021, 266,645 and 622,171 shares of Common Stock were subject to repurchase at weighted-average exercise prices of $0.69 and $0.69, respectively. The shares issued pursuant to unvested options have been included in shares issued and outstanding on the condensed consolidated balance sheets as such shares are considered legally outstanding.

 

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Dave Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

 

On March 3, 2021, the Company granted the Chief Executive Officer stock options to purchase up to 11,456,061 shares of Common Stock in nine tranches. Each of the nine tranches contain service, market, and performance conditions. The market conditions relate to the achievement of certain specified price targets. Vesting commences on the grant date; however, no compensation charges are recognized until the service, market, and performance conditions are probable, which is upon the completion of a liquidity event, the achievement of specified price targets for each tranche of shares, and continuous employment. Upon the completion of a business combination with VPCC, the performance condition was met and the Company recorded a cumulative stock-based compensation expense as of approximately $1.9 million. The options have a strike price of $0.72 per share. The Company determined the fair value of the options on the grant date to be approximately $10.5 million (unaudited) using a Monte Carlo simulation with key inputs and assumptions such as stock price, term, dividend yield, risk-free interest rate, and volatility. Each tranche will vest monthly over a derived service period.

The following table presents the key inputs and assumptions used to value the options granted to the Chief Executive Officer on the grant date:

 

Remaining term

     10.0 years  

Risk-free interest rate

     1.5

Expected dividend yield

     0.0

Expected volatility

     40.0

Restricted Stock Units:

Activity with respect to Restricted Stock Units is summarized as follows:

 

     Shared      Weighted-
Average
Grant-Date
Fair Value
 

Nonvested shares at January 1, 2022

     —        $ —    

Granted

     24,141,786      $ 4.57  

Vested

     (3,700,759    $ 6.06  

Forfeited

     (2,118,039    $ 6.04  
  

 

 

    

Nonvested shares at September 30, 2022

     18,322,988      $ 4.09  
  

 

 

    

In July 2022, the Company granted 6,463,951 time-based RSUs contingent upon shareholder approval. These awards are classified as Other current liabilities on the condensed consolidated balance sheet due to insufficient shares available for grant in the 2021 Plan.

The Company had no RSU activity during the nine months ended September 30, 2021.

At September 30, 2022, total estimated unrecognized stock-based compensation cost related to nonvested RSUs was approximately $69.4 million, which is expected to be recognized over a weighted-average period of 3.0 years.

Note 20 Related-Party Transactions

Leasing Arrangements:

During the three and nine months ended September 30, 2022, the Company paid approximately $0.1 million and $0.3 million, respectively, under lease agreements with PCJW for general office space in Los Angeles, California, and during the three and nine months ended September 30, 2021, the Company paid approximately $0.1 million and $0.2 million, respectively.

The following is a schedule of future minimum rental payments as of September 30, 2022, under the Company’s sub-lease for the properties located in Los Angeles, California signed with PCJW (in thousands):

 

Year

   Related-Party
Commitment
 

2022 (remaining)

   $ 84  

2023

     340  

2024

     295  

2025

     309  

Thereafter

     —    
  

 

 

 

Total minimum lease payments

   $ 1,028  
  

 

 

 

Less: imputed interest

     (142
  

 

 

 

Total lease liabilities

   $ 886  
  

 

 

 

 

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Dave Inc.

Notes to the Unaudited Condensed Consolidated Financial Statements

 

The related-party components of the lease right-of-use assets, lease liabilities, short-term, and lease liabilities, long-term, are presented as part of the right-of-use asset and lease liability on the condensed consolidated balance sheets.

Related-Party Exercise Receivable Promissory Notes:

During 2018, the Company received non-recourse promissory notes from certain employees, which allowed for the early exercise of stock options, with the exercise price to be paid back to the Company at a later date. The notes for approximately $0.1 thousand were secured by a pledge of 1,942,250 shares. During 2020, the Company received a non-recourse promissory note from a certain executive, which allowed for the early exercise of stock options, with the exercise price to be paid back to the Company at a later date. The note for approximately $1.0 million was secured by a pledge of 1,050,000 shares. The promissory notes have a term of five years and carry stated interest rates between 1.5% and 2.0%, which are compounded annually. Prior to the consummation of the Business Combination in January 2022, the promissory notes were repaid. The amounts due as of September 30, 2022 and December 31, 2021, were $0 and approximately $1.1 million, respectively.

On January 3, 2022, Legacy Dave entered into an agreement with a certain executive to transfer and sell shares of Legacy Dave common stock to Legacy Dave. A total of 146,565 shares of Legacy Dave’s common stock were repurchased for an aggregate purchase amount of $1.6 million, which resulted in an extinguishment of the related-party exercise receivable promissory notes.

Loans to Stockholders:

In 2019, the Company entered into loan, pledge, and option agreements (“Loans to Stockholders”) with various employees, who are also stockholders, to provide those employees cash in exchange for non-recourse promissory notes and call options, which allow the Company to acquire shares held by these stockholders. The entire unpaid principal balance of these Loans to Stockholders, together with all accrued but unpaid interest, is due and payable upon the earlier (i) of August 12, 2026; (ii) a liquidity event; or (iii) upon the exercise of the call option by the Company. These Loans to Stockholders carry stated interest rates of 1.87%, which are compounded annually. Please refer to Note 3, Significant Account Policies Summary of Significant Accounting Policies, for further details on the fair value of the derivative asset related to the Loans to Stockholders. Upon consummation of the Business Combination in January 2022, all of the call options related to the Loans to Stockholders were exercised and the related loans were settled. The Loans to Stockholders, inclusive of interest, were $0 and approximately $15.2 million as of September 30, 2022 and December 31, 2021, respectively.

Note 21 401(k) Savings Plan

The Company maintains a 401(k) savings plan for the benefit of its employees. Employees can defer up to 90% of their compensation subject to fixed annual limits. All current employees are eligible to participate in the 401(k) savings plan. Beginning January 2021, the Company is required to make matching contributions to the 401(k) savings plan equal to 100% of the first 4% of wages deferred by each participating employee. The Company incurred expenses for employer matching contributions of approximately $0.5 million and $1.4 million for the three and nine months ended September 30, 2022, respectively, and approximately $0.3 million and $0.7million for the three and nine months ended September 30, 2021, respectively.

Note 22 Subsequent Events

Management has evaluated all events and transactions through the date the Company issued these condensed consolidated financial statements.

 

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

The following discussion and analysis provides information which our management believes is relevant to an assessment and understanding of our results of operations and financial condition and should be read in conjunction with the unaudited condensed consolidated financial statements and the related notes included elsewhere in this report. This discussion contains forward-looking statements and involves numerous risks and uncertainties, including, but not limited to, those described in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the Securities and Exchange Commission (“SEC”) on March 25, 2022 our Form 10-Q/A for the three months ended March 31, 2022 filed with the SEC on August 22, 2022 and our Form 10-Q for the six months ended June 30, 2022 filed with the SEC on August 22, 2022. Actual results may differ materially from those contained in any forward-looking statements. Unless otherwise noted or the context otherwise requires, references in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” to “we,” “us,” “our,” and the “Company” are intended to mean the business and operations of Dave Inc. and our consolidated subsidiaries subsequent to the closing of the Business Combination (as defined below).

Overview

In the story of David vs. Goliath, the small underdog is able to outsmart and defeat his larger adversary. This is the spirit behind the name “Dave.” We have built an integrated financial services online platform that provides millions of Americans with seamless access to a variety of intuitive financial products at a fraction of the cost and with much higher speed to value than that of the legacy financial services incumbents, such as traditional banks and other financial institutions. Our mission is to build products that level the financial playing field. Our near-term strategy is focused on delivering a superior banking experience for anyone living paycheck to paycheck.

Based on our observation and analysis of Member data, legacy financial institutions charge high fees for consumer banking and other financial services products, which disproportionately burdens tens of millions of Americans who can least afford them. We see this dynamic playing out with our Members who we believe are on average paying between $300-$400 in overdraft, maintenance and other fees to their existing bank for basic checking services.

Further, we see a significant opportunity to address the broader short-term credit market. According to a report by the Center for Financial Services Innovation (“CFSI”), legacy financial institutions charge approximately $30 billion in fees annually. The Financial Health Network estimates that financially “coping” and “vulnerable” populations pay approximately $120 billion a year in fees and interest for access to short-term credit.

Our prospective Member opportunity is also significant. According to the Financial Health Network, by 2023 approximately 45 million Americans will be “financially vulnerable,” 65 million Americans will be unbanked or underbanked and 185 million Americans will fall into the low or volatile income and credit-challenged category. Given these dynamics, we estimate that our total addressable market consists of between 150 million to 180 million Americans who are in need of financial stability and are either not served or underserved by legacy financial institutions.

Dave offers a suite of innovative financial products aimed at helping our Members improve their financial health. Our budgeting tool helps Members manage their upcoming bills to avoid overspending. To help Members avoid punitive overdraft fees and access short-term liquidity, Dave offers cash advances through its flagship 0% interest ExtraCash product. We also help Members generate extra income for spending or emergencies through our Side Hustle product, where we present Members with supplemental work opportunities. Through Dave Banking, we provide a modern checking account experience with valuable tools for building long-term financial health.

Market research conducted by Dave found that legacy financial institutions commonly require a more extensive banking relationship and days or even weeks of wait times to access their features and services, which can potentially be more onerous in order to obtain premium features (e.g., access to increased interest rates requires direct deposit or higher minimum daily balances). Even new challenger banks often take multiple days or even weeks before allowing members to access certain premium features, according to the same research. In contrast, Members are able to utilize all of Dave’s products individually and instantly, whether or not their banking relationship is with us. As an example, our ExtraCash product allows new Members to now access up to $500 to cover an overdraft at their existing bank. We are able to do this by leveraging our proprietary machine learning engine that analyzes a Member’s prior transaction history at their existing bank. This flexible approach to Member choice and speed to value has been a key driver of our growth and best-in-Class brand favorability.

We have only begun to address the many inequities in financial services, but our progress to date demonstrates the demand for Dave to rewire the financial system for the everyday person. Since inception and through the date of this Form 10-Q, over 10 million Members have registered on the Dave app, over six million of them have used at least one of our current products and we believe that we have a substantial opportunity to continue growing our Member base going forward. We strongly believe that the value proposition of our platform approach will continue to accelerate as a result of our data-driven perspective of our Members, allowing us to introduce products and services that address their changing life circumstances.

Business Combination and Public Company Costs

On January 5, 2022 (the “Closing Date”), we consummated the previously announced mergers contemplated by the Agreement and Plan of Merger, dated as of June 7, 2021 (the “Business Combination Agreement”), by and among VPC Impact Acquisition Holdings III, Inc. (“VPCC”), Dave Inc., a Delaware corporation (“Legacy Dave”), Bear Merger Company I Inc., a Delaware corporation and a direct, wholly owned Subsidiaries of VPCC (“First Merger Sub”), and Bear Merger Company II LLC, a Delaware limited liability company and a direct, wholly owned Subsidiaries of VPCC (“Second Merger Sub”). Pursuant to the Business Combination Agreement, First Merger Sub merged with and into Legacy Dave (the “First Merger”), with Legacy Dave being the surviving corporation of the First Merger (the “Surviving Corporation”), and immediately following the First Merger, the Surviving Corporation merged with and into Second Merger Sub (the “Second Merger,” together with the First Merger, the “Mergers” and the Mergers together with the other transactions contemplated by the Business Combination Agreement, the “Business Combination”), with Second Merger Sub being the surviving company of the Second Merger as a wholly owned Subsidiaries of VPCC (the “Surviving Entity”). In connection with the closing of the Business Combination, we changed our name from “VPC Impact Acquisition Holdings III, Inc.” to “Dave Inc.,” and the Surviving Entity operates under the name “Dave Operating LLC.”

 

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While the legal acquirer in the Business Combination Agreement is VPCC, for financial accounting and reporting purposes under accounting principles generally accepted in the United States (“U.S. GAAP”), Legacy Dave is the accounting acquirer, and the Business Combination is accounted for as a “reverse recapitalization.” A reverse recapitalization does not result in a new basis of accounting, and the consolidated financial statements of the combined entity represent the continuation of the consolidated financial statements of Legacy Dave in many respects. Under this method of accounting VPCC is treated as the “acquired” company for financial reporting purposes. For accounting purposes, Legacy Dave is deemed to be the accounting acquirer in the transaction and, consequently, the transaction will be treated as a recapitalization of Legacy Dave (i.e., a capital transaction involving the issuance of stock by VPCC for Dave Capital Stock). Accordingly, the consolidated assets, liabilities and results of operations of Legacy Dave have become the historical consolidated financial statements of the combined company, and VPCC’s assets, liabilities and results of operations have been consolidated with Dave beginning on the Closing Date. Operations prior to the Business Combination are presented as those of Legacy Dave in future reports. The net assets of VPCC have been recognized at historical cost (which is expected to be consistent with carrying value), with no goodwill or other intangible assets recorded.

The Business Combination generated gross cash proceeds of $217.0 million, including $210.0 million proceeds from the public investment in private equity pursuant to the subscription agreements between the Company and certain investors (the “PIPE Investment”). Total direct and incremental transaction costs aggregated approximately $35.3 million which were recorded to APIC as equity issuance costs.

As a result of the consummation of the Business Combination, we will incur additional annual expenses as a public company for, among other things, directors’ and officers’ liability insurance, director fees and additional internal and external accounting, and legal and administrative resources, including increased audit, compliance and legal fees.

Recent Developments

On March 21, 2022, we entered into a Convertible Note Purchase Agreement (“Purchase Agreement”) with FTX Ventures Ltd., owner and operator of FTX US (“FTX Ventures”), pursuant to which, we sold and issued a convertible note in the initial principal amount of $100.0 million (the “Note” and the transactions contemplated by the Purchase Agreement and the Note, the “Transaction”). The Transaction is exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”) in reliance on an exemption provided by Rule 506 of Regulation D and Section 4(a)(2) of the Securities Act. We intend to use the proceeds from the sale of the Note for working capital and general corporate purposes.

The note bears interest at a fixed rate of 3.00% per year (compounded semi-annually), payable semi-annually in arrears on June 30th and December 31st of each year. Interest may be paid in-kind or in cash, at our option. Forty-eight months (the “Maturity Date”) after the date of the initial issuance of the Note (the “Issuance Date”), we will pay FTX Ventures the sum of (i) the outstanding principal amount of the Note, plus (ii) all accrued but unpaid interest thereon, plus (iii) all expenses incurred by FTX Ventures (the “Redemption Price”). Payment of the Redemption Price on the Maturity Date will constitute a redemption of the Note in whole.

The Note will be convertible into shares of our Class A Common Stock (“Common Stock”) at the option of FTX Ventures, upon delivery on one or more occasions of a written notice to us electing to convert the Note or all of any portion of the outstanding principal amount of the Note. The initial conversion price of the Note is $10.00 per share of Common Stock (the “Conversion Price”). The Conversion Price of the Note is subject to adjustment for stock splits, dividends or distributions, recapitalizations, spinoffs or similar transactions. The Note and the shares of Common Stock issuable upon conversion of the Note have not been registered under the Securities Act and may not be offered or sold absent registration or an applicable exemption from registration requirements.

Beginning on the 24-month anniversary of the Issuance Date continuing until the Maturity Date, if the closing price of the Common Stock equals or exceeds 175% of the Conversion Price for 20 out of the 30 consecutive trading days ending immediately preceding the delivery of the notice of our election to convert the Note, the Note will be convertible into shares of Common Stock, upon delivery of a written notice to FTX Ventures electing to convert the Note or all or any portion of the outstanding principal amount of the Note.

At any time prior to the Maturity Date, we may, in our sole discretion and upon delivery of a written notice to FTX Ventures electing to prepay the Note, prepay the Note without penalty by paying FTX Ventures 100% of the Redemption Price. Once the Redemption Price has been delivered to FTX Ventures, the Note will be cancelled and retired.

Conversion of the full initial principal amount of the Note would result in the issuance of 10,000,000 shares of Common Stock if converted at $10.00 per share, which amount is subject to increase by any interest paid in kind that is added to the outstanding principal under the terms of the Note.

The Purchase Agreement and Note include customary representations, warranties and covenants and set forth standard events of default upon which the Note may be declared immediately due and payable.

On March 21, 2022, we also entered into a White Label Services Agreement (the “Services Agreement”) with West Realm Shire Services, Inc., d/b/a FTX US (“FTX US”). The Services Agreement allows our customers to establish accounts with FTX US through our platform to place orders for eligible cryptocurrencies and for the settlement of such orders. During the four-year term of the Services Agreement, FTX US will be our exclusive provider of such cryptocurrency services.

Restatement of Consolidated Financial Statements

This Management’s Discussion and Analysis of Financial Condition and Results of Operations gives effect to certain adjustments made to our previously issued condensed consolidated financial statements as of and for the nine months ended September 30, 2021. The determination to restate these condensed consolidated financial statements was made by management after its review of records related to the classification of cash flows to/from Member advances, in connection with its preparation of the Company’s condensed consolidated financial statements for the nine months ended September 30, 2022. See Note 2—Restatement of Previously Issued Financial Statements to our condensed consolidated financial statements.

 

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COVID-19 Impact

There are many uncertainties regarding the current global pandemic involving a novel strain of coronavirus (“COVID-19”), and we continue to closely monitor the impact of the pandemic on all aspects of our business, including how it has and may in the future impact our Members, employees, suppliers, vendors, and business partners. The duration and magnitude of the continuing effects of COVID-19 on our Members remain uncertain and dependent on various factors, including new variants of the virus and their severity and transmission rates, the nature of and duration for which preventive and containment measures are taken and remain in place, and the extent and effectiveness of such measures, including vaccination programs, and the type of stimulus measures and other policy responses that the U.S. government may further adopt. Moreover, the global macroeconomic effects of the COVID-19 pandemic and related impacts on Members and their demand for our products and services may persist for an indefinite period, even after the effects of the pandemic have subsided.

Comparability of Financial Information

Our future results of operations and financial position may not be comparable to historical results as a result of the consummation of the Business Combination.

Key Factors Affecting Operating Results

Our future operating results and cash flows are dependent upon a number of opportunities, challenges and other factors, including Member growth and activity, product expansion, competition, industry trends and general economic conditions.

Member Growth and Activity

We have made significant investments in our platform and our business is dependent on continued Member growth, as well as our ability to offer new products and services and generate additional revenues from our existing members using such additional products and services. Member growth and activity are critical to our ability to increase our scale, capture market share and earn an attractive return on our technology, product and marketing investments. Growth in Members and Member activity will depend heavily on our ability to continue to offer attractive products and services and the success of our marketing and Member acquisition efforts.

Product Expansion

We aim to develop and offer a best-in-class financial services platform with integrated products and services that improve the financial wellbeing of our Members. We have invested and continue to make significant investments in the development, improvement and marketing of our financial products and are focused on continual growth in the number of products we offer that are utilized by our Members.

Competition

We face competition from several financial services-oriented institutions. In our reportable segment, as well as in potential new lines of business, we may compete with more established institutions, some of which have more financial resources. We compete at multiple levels, including competition among other financial institutions and lenders in our Advance business, competition for deposits in our Checking Product from traditional banks and digital banking products, competition for subscribers to our financial management tools, and competition with other technology platforms for the enterprise services that we provide. Some of our competitors may at times seek to increase their market share by undercutting pricing terms prevalent in that market, which could adversely affect our market share for any of our products and services or require us to incur higher member acquisition costs.

Key Components of Statements of Operations

Basis of presentation

Currently, we conduct business through one operating segment which constitutes a single reportable segment. For more information about our basis of presentation, refer to Note 3, Summary of Significant Accounting Policies in the accompanying unaudited condensed consolidated financial statements of Dave included in this Form 10-Q.

Service based revenue, net

Service based revenue, net primarily consists of optional tips, optional express processing fees and subscriptions charged to Members, net of processor- related costs associated with advance disbursements. Service based revenue, net also consists of lead generation fees from our Side Hustle advertising partners as well as fees earned related to the Rewards Product for Members who make debit card spending transactions at participating merchants.

 

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Transaction based revenue, net

Transaction based revenue, net consists of interchange and ATM revenues from our Checking Product, net of interchange and ATM-related fees and cashback rewards, and are recognized at the point in time the transactions occur, as the performance obligation is satisfied.

Operating expenses

We classify our operating expenses into the following five categories:

Provision for Unrecoverable Advances

The provision for unrecoverable advances primarily consists of an allowance for unrecoverable advances at a level estimated to be adequate to absorb credit losses inherent in the outstanding advances receivable. We currently estimate the allowance balance required using historical loss and collections experience, and, if relevant, the nature and volume of the portfolio, economic conditions, and other factors. Changes to the allowance have a direct impact on the provision for unrecoverable advances in the unaudited condensed consolidated statement of operations. We consider advances more than 120 days past due or which become uncollectible based on information available to us as impaired. All impaired advances are deemed uncollectible and subsequently written off and are a direct reduction to the allowance for unrecoverable advances. Subsequent recoveries, if any, of Member advances written-off are recorded as a reduction to Member advances, resulting in a reduction to the allowance for unrecoverable advances and a corresponding reduction to the provision for unrecoverable advances in the unaudited condensed consolidated statements of operations when collected.

Processing and Servicing Fees

Processing and servicing fees consist of fees paid to our processing partners for the recovery of advances, optional tips, optional express processing fees and subscriptions. These expenses also include fees paid for services to connect Members’ bank accounts to our application. Except for processing and servicing fees associated with advance disbursements which are recorded net against revenue, all other processing and service fees are expensed as incurred.

Advertising and Marketing

Advertising and marketing expenses consist primarily of fees we pay to our platform partners. We incur advertising, marketing and production-related expenses for online, social media and television advertising and for partnerships and promotional advertising. Advertising and marketing expenses are expensed as incurred although they typically deliver a benefit over an extended period.

Compensation and Benefits

Compensation and benefits expenses represent the compensation, inclusive of stock-based compensation and benefits, that we provide to our employees and the payments we make to third-party contractors. While we have an in-house customer service function, we employ third-party contractors to conduct call center operations and handle routine customer service inquiries and support.

Other Operating Expenses

Other operating expenses consist primarily of technology and infrastructure (third-party Software as a Service “SaaS”), commitments to charity, transaction based costs (program expenses, association fees, processor fees, losses from Member-disputed transactions, and fraud), depreciation and amortization of property and equipment and intangible assets, general and recurring legal fees, rent, certain sales tax related costs, office related expenses, public relations costs, professional service fees, travel and entertainment, and insurance. Costs associated with technology and infrastructure, rent, depreciation and amortization of our property and equipment and intangible assets, professional service fees, travel and entertainment, public relations costs, utilities, office-related expenses and insurance technology and infrastructure (third-party subscriptions), depreciation and amortization of property and equipment and intangible assets, general and recurring legal fees, rent, office-related expenses, public relations costs, professional service fees, travel and entertainment and insurance vary based upon our investment in infrastructure, business development, risk management and internal controls and are generally not correlated with our operating revenues or other transaction metrics.

We expect our operating expenses to increase for the foreseeable future with the growth of our business, and as a result of operating as a public company, including compliance with the rules and regulations of the SEC, legal, audit, additional insurance expenses, investor relations activities and other administrative and professional services.

Other (Income) Expenses

Other (income) expenses consist of interest income, interest expense, legal settlement and litigation expenses, derivative asset fair value adjustments, other strategic financing and transactional expenses, gain on extinguishment of a liability, earnout liabilities fair value adjustments, and warrant liability fair value adjustments.

Provision for Income Taxes

Provision for income taxes consists of the federal and state corporate income taxes accrued on income resulting from the sale of our services. On March 27, 2020, the CARES Act was signed into law, which among other things, includes certain income tax provisions for corporations; however, these benefits did not impact our current tax provision.

 

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Results of Operations

Comparison of the Three Months Ended September 30, 2022 and 2021

 

     For the Three Months Ended      Change  
     September 30,      $      %  
(in thousands, except for percentages)    2022      2021      2022/2021      2022/2021  

Service based revenue, net

           

Processing fees, net

   $ 29,793      $ 21,032      $ 8,761        42

Tips

     17,497        12,005        5,492        46

Subscriptions

     5,191        4,060        1,131        28

Other

     314        241        73        30

Transaction based revenue, net

     4,012        2,860        1,152        40
  

 

 

    

 

 

    

 

 

    

Total

   $  56,807      $  40,198      $  16,609        41
  

 

 

    

 

 

    

 

 

    

Operating revenues

Service based revenue, net— Processing fees, net

Processing fees, net of processor costs associated with advance disbursements, for the three months ended September 30, 2022 were approximately $29.8 million, an increase from approximately $21.0 million for the three months ended September 30, 2021. The increase of approximately $8.8 million, or 42%, was primarily attributable to increases in total advance volume from approximately $360.7 million to approximately $757.1 million along with a higher average advance amount period over period. Processing fees tend to increase as advance volume increases, but may not always trend ratably as processing fees vary depending on the total amount of the advance. The percentage of Members that chose to pay a processing fee to expedite an advance remained consistent for the three months ended September 30, 2022 and 2021, respectively. The average processing fees Members paid to expedite these advances increased slightly for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021.

Tips

Tips for the three months ended September 30, 2022 were approximately $17.5 million, an increase from approximately $12.0 million for the three months ended September 30, 2021. The increase of approximately $5.5 million, or 46%, was primarily attributable to increases in total advance volume from approximately $360.7 million to approximately $757.1 million period over period. Tips tend to increase as advance volume increases, but may not always trend ratably as tips often vary depending on the total amount of the advance. The percentage of Members that chose to leave a tip decreased slightly for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021. For those same periods, the average amount of tip Members chose to leave increased for the three months ended September 30, 2022 as compared to the three months ended September 30, 2021.

Subscriptions

Subscriptions for the three months ended September 30, 2022 were approximately $5.2 million, an increase from approximately $4.1 million during the three months ended September 30, 2021. The increase of approximately $1.1 million, or 28%, was primarily attributable to higher subscription engagement with Members on our platform.

Transaction based revenue, net

Transaction based revenue, net for the three months ended September 30, 2022 was approximately $4.0 million, an increase from approximately $2.9 million, for the three months ended September 30, 2021. The increase of approximately $1.2 million, or 40%, was primarily attributable to the growth in Members engaging with our Checking Product and corresponding growth in the number of transactions initiated by Members.

Operating expenses

 

     For the Three Months Ended      Change  
     September 30,      $      %  
(in thousands, except for percentages)    2022      2021      2022/2021      2022/2021  

Provision for unrecoverable advances

   $  18,353      $  10,760      $ 7,593        71

Processing and servicing fees

     9,494        6,205        3,289        53

Advertising and marketing

     24,090        12,949        11,141        86

Compensation and benefits

     24,294        15,432        8,862        57

Other operating expenses

     18,498        10,523        7,975        76
  

 

 

    

 

 

    

 

 

    

Total

   $ 94,729      $ 55,869      $  38,860        70
  

 

 

    

 

 

    

 

 

    

 

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Provision for unrecoverable advances—The provision for unrecoverable advances totaled approximately $18.4 million for the three months ended September 30, 2022, compared to approximately $10.8 million for the three months ended September 30, 2021. The increase of approximately $7.6 million, or 71%, was primarily attributable to an increase in provision expense of approximately $6.4 million related to Member advances aged over 120 days and those that have become uncollectible based on information available to us, in addition to an increase in provision expense of approximately $1.2 million related to Member advances aged 120 days and under.

The increase in provision expense related to Member advances aged over 120 days and those which have become uncollectible based on information available to us, period over period, was driven primarily by aged receivables and the increase in advance volume during the second quarter of 2022 along with approximately $3.0 million in member advance write-offs related to a fraud event during the third quarter of 2022. All impaired advances deemed uncollectible are subsequently written-off and are a direct reduction to the allowance for unrecoverable advances.

The increase in provision expense related to Member advances aged 120 days and under was primarily attributed to significant increases in average advance amounts and total advance volume from approximately $360.7 million to approximately $757.1 million for the three months ended September 30, 2022 and 2021, respectively. This resulted in an increase to the allowance for unrecoverable advances and corresponding higher provision for unrecoverable advances expense during the three months ended September 30, 2022 as compared to September 30, 2021. We anticipate volatility in Member advances outstanding each period as they are directly correlated with the timing and volume of Member advance activity during the last 120 days prior to the end of the period.

Throughout the three months ended September 30, 2022, loss and collections experience of Member advances remained steady, however, historical loss and collections rates utilized in the calculation of the provision for unrecoverable advances decreased slightly when compared to historical rates used in 2021 which reflected underwriting modifications made during early 2020 in response to the onset of COVID-19. These underwriting modifications primarily consisted of lower advance amounts and stricter eligibility requirements. Any changes to our historical loss and collections experience directly affects the historical loss rates utilized in the calculation of the allowance for uncollectible advances. The changes in the allowance for unrecoverable advances, period over period, has a direct impact on the provision for unrecoverable advances.

For information on the aging of Member advances and a rollforward of the allowance for unrecoverable advances, refer to the tables in Note 7 Member Cash Advances, Net in the accompanying unaudited condensed consolidated financial statements of Dave included in this Form 10-Q.

Processing and service fees—Processing and servicing fees totaled approximately $9.5 million for the three months ended September 30, 2022, compared to approximately $6.2 million for the three months ended September 30, 2021. The increase of approximately $3.3 million, or 53%, was primarily attributable to the increase in advance volume from $360.7 million to approximately $757.1 million for the three months ended September 30, 2022 and 2021, respectively, offset by volume associated discounts and cost savings due to price reductions from our processors.

Advertising and marketing—Advertising and marketing expenses totaled approximately $24.1 million for the three months ended September 30, 2022, compared to approximately $12.9 million for the three months ended September 30, 2021. The increase of approximately $11.1 million, or 86%, was primarily attributable to increased advertising efforts, production costs and promotions across various social media platforms and television.

Compensation and benefits—Compensation and benefits expenses totaled approximately $24.3 million for the three months ended September 30, 2022, compared to approximately $15.4 million for the three months ended September 30, 2021. The increase of approximately $8.9 million, or 57%, was primarily attributable to the following:

 

   

an increase in payroll and related costs of approximately $5.3 million, primarily due to hiring and increased headcount throughout the business; and

 

   

an increase in stock-based compensation of approximately $4.5 million, primarily due to restricted stock units granted during the three months ended September 30, 2022 and stock options granted to a certain executive during 2021, which achieved certain performance conditions associated with the close of the Business Combination; offset by

 

   

a decrease in consultants and contractor costs of approximately $0.9 million, primarily due to decrease in the need for supplemental recruiting efforts and a decrease in IT security, marketing, design and augmenting customer service resources.

Other operating expenses—Other operating expenses totaled approximately $18.5 million for the three months ended September 30, 2022, compared to approximately $10.5 million for the three months ended September 30, 2021. The increase of approximately $8.0 million, or 76%, was primarily attributable to the following:

 

   

an increase in insurance related costs of approximately $1.7 million, primarily related to Director and Officer and Cyber Insurance premiums;

 

   

an increase in accounting costs of approximately $0.9 million, primarily related to various audit, tax and Sarbanes-Oxley compliance readiness related fees associated with the Business Combination in January 2022;

 

   

an increase in technology and infrastructure expenses of approximately $1.2 million, primarily due to increased costs to support the growth of our business and development of new products and features;

 

   

an increase in expenses related to our Checking Product of approximately $1.5 million, primarily attributable to processing and fraud related costs associated with the growth in Members and the number of transactions processed;

 

   

an increase in legal fees of approximately $0.5 million, primarily due to ongoing litigation, compliance, employment and general corporate related matters;

 

   

an increase in various administrative expenses of approximately $0.5 million, primarily due to increases in licenses and fees and travel and entertainment and other administrative expenses;

 

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an increase in depreciation and amortization of approximately $1.6 million, primarily due to accelerated amortization related to the change in useful life of a certain intangible asset, equipment purchases for increased headcount and amortization of internally developed software; and

 

   

an increase in rent expense of approximately $0.5 million, due to additional leased office space; offset by

 

   

a decrease in charitable contribution expenses of approximately $0.4 million, primarily due to decreased amounts pledged to charitable meal donations related to Members’ tips.

Other (income) expense

 

     For the Three Months Ended      Change  
     September 30,      $      %  
(in thousands, except for percentages)    2022      2021      2022/2021      2022/2021  

Interest income

   $ (1,171    $ (470    $ (701      149

Interest expense

     2,403        709        1,694        239

Legal settlement and litigation expenses

     6,845        343        6,502        1896

Other strategic financing and transactional expenses

     2,209        29        2,180        7517

Changes in fair value of earnout liabilities

     18        —          18        -100

Changes in fair value of derivative asset on loans to stockholders

     —          (9,001      9,001        -100

Changes in fair value of warrant liabilities

     (748      614        (1,362      -222
  

 

 

    

 

 

    

 

 

    

Total

   $ 9.556      $ (7,776 )     $ 17,332        -223
  

 

 

    

 

 

    

 

 

    

Interest income— Interest income totaled approximately $1.2 million for the three months ended September 30, 2022, compared to approximately $0.5 million for the three months ended September 30, 2021. The increase of approximately $0.7 million, or 149%, was primarily attributable to interest earned from yields from short-term investments and higher interest rates during the three months ended September 30, 2022 as compared to the three months ended September 30, 2021.

Interest expense— Interest expense totaled approximately $2.4 million for the three months ended September 30, 2022, compared to approximately $0.7 million for the three months ended September 30, 2021. The increase of approximately $1.7 million, or 239%, was primarily attributable to interest related to increased borrowings from the delayed draw senior secured loan facility (the “Debt Facility”) which Dave OD Funding I, LLC (“Dave OD”) entered into during January 2021, and which was subsequently amended in November 2021 to include a $20 million line of credit (the “Credit Facility”), along with interest related to the Note with FTX Ventures and higher interest rates on borrowings under the Debt Facility and Credit Facility.

Legal settlement and litigation expenses—Legal settlement and litigation expenses totaled $6.8 million for the three months ended September 30, 2022, compared to approximately $0.3 million for the three months ended September 30, 2021. See Note 16 Commitments and Contingencies in the accompanying unaudited condensed consolidated financial statements of Dave included in this Form 10-Q for more information regarding pending legal actions. The increase of approximately $6.5 million, or 1896%, was primarily attributable to an increase in various settlement and litigation expenses related to the various legal matters as compared to those expenses recorded during the three months ended September 30, 2021.

Other strategic financing and transactional expenses—Other strategic financing and transactional expenses totaled approximately $2.2 million for the three months ended September 30, 2022, compared to approximately $0.03 million for the three months ended September 30, 2021. The increase of approximately $2.2 million, or 7517%, was primarily attributable to consulting related spend on exploring various transactional and new product opportunities.

Changes in fair value of derivative asset on loans to stockholders—Changes in fair value of derivative asset on loans to stockholders totaled $0 for the three months ended September 30, 2022, compared to a benefit of approximately $9.0 million for the three months ended September 30, 2021. The decrease of approximately $9.0 million, or 100%, was primarily attributable to the exercise of the call options and settlement of the derivative asset during the close of the Business Combination in January 2022. Please refer to Note 3 in the accompanying unaudited condensed consolidated financial statements of Dave included in this Form 10-Q.

Changes in fair value of warrant liability—Changes in fair value of warrant liability totaled a benefit of approximately $0.7 million for the three months ended September 30, 2022, compared to an expense of approximately $0.6 million for the three months ended September 30, 2021. The decrease in expense of approximately $1.4 million, or 222%, was primarily attributable to fair value adjustments associated with certain public and private warrant liabilities due to decreases in our underlying Class A Common Stock price, offset by fair value adjustments associated with certain warrants exercised in connection with the Business Combination.

 

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Provision for income taxes

 

     For the Three Months Ended
September 30,
     Change  
     $      %  
(in thousands, except for percentages)    2022      2021      2022/2021      2022/2021  

Provision for income taxes

              26                 (6             32        -533
  

 

 

    

 

 

    

 

 

    

Total

   $ 26      $ (6    $ 32        -533
  

 

 

    

 

 

    

 

 

    

Provision for income taxes for the three months ended September 30, 2022 increased by approximately $0.03 million compared to the three months ended September 30, 2021. This increase was primarily attributable to an increase in state taxes, including gross margin state taxes, relative to state taxes recognized for the three months ended September 30, 2021.

Comparison of the Nine Months Ended September 30, 2022 and 2021

 

     For the Nine Months Ended
September 30,
     Change  
     $      %  
(in thousands, except for percentages)    2022      2021      2022/2021      2022/2021  

Service based revenue, net

           

Processing fees, net

   $ 74,624      $  57,410      $ 17,214             30

Tips

     45,991        33,067        12,924        39

Subscriptions

     13,691        13,055        636        5

Other

     748        610        138        23

Transaction based revenue, net

     10,109        7,711        2,398        31
  

 

 

    

 

 

    

 

 

    

Total

   $ 145,163      $ 111,853      $ 33,310        30
  

 

 

    

 

 

    

 

 

    

Operating revenues

Service based revenue, net - Processing fees, net

Processing fees, net of processor costs associated with advance disbursements, for the nine months ended September 30, 2022 were approximately $74.6 million, an increase from approximately $57.4 million for the nine months ended September 30, 2021. The increase of approximately $17.2 million, or 30%, was primarily attributable to increases in total advance volume from approximately $961.7 million to approximately $1,908 million along with a higher average advance amount period over period. Processing fees tend to increase as advance volume increases, but may not always trend ratably as processing fees vary depending on the total amount of the advance. The percentage of Members that chose to pay a processing fee to expedite an advance remained consistent for the nine months ended September 30, 2022 and 2021, respectively. The average processing fees Members paid to expedite these advances increased slightly for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021.

Tips

Tips for the nine months ended September 30, 2022 were approximately $46.0 million, an increase from approximately $33.1 million for the nine months ended September 30, 2021. The increase of approximately $12.9 million, or 39%, was primarily attributable to increases in total advance volume from approximately $961.7 million to approximately $1,908 million period over period. Tips tend to increase as advance volume increases, but may not always trend ratably as tips often vary depending on the total amount of the advance. The percentage of Members that chose to leave a tip decreased slightly for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021. For those same periods, the average amount of tip Members chose to leave increased for the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021.

Subscriptions

Subscriptions for the nine months ended September 30, 2022 were approximately $13.7 million, an increase from approximately $13.1 million during the nine months ended September 30, 2021. The increase of approximately $0.6 million, or 5%, was primarily attributable to lower subscription engagement with Members on our platform.

Transaction based revenue, net—Transaction based revenue, net for the nine months ended September 30, 2022 was approximately $10.1 million, an increase from approximately $7.7 million, for the nine months ended September 30, 2021. The increase of approximately $2.4 million, or 31%, was primarily attributable to the growth in Members engaging with our Checking Product and corresponding growth in the number of transactions initiated by Members.

 

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Operating expenses

 

     For the Nine Months Ended      Change  
     September 30,      $      %  
(in thousands, except for percentages)    2022      2021      2022/2021      2022/2021  

Provision for unrecoverable advances

   $ 45,995      $ 21,693      $ 24,302        112

Processing and servicing fees

     23,627        16,920        6,707        40

Advertising and marketing

     57,087        38,844        18,243        47

Compensation and benefits

     81,326        34,685        46,641        134

Other operating expenses

     50,738        31,987        18,751        59
  

 

 

    

 

 

    

 

 

    

Total

   $ 258,773      $ 144,129      $ 114,644        80
  

 

 

    

 

 

    

 

 

    

Provision for unrecoverable advances—The provision for unrecoverable advances totaled approximately $46.0 million for the nine months ended September 30, 2022, compared to approximately $21.7 million for the nine months ended September 30, 2021. The increase of approximately $24.3 million, or 112%, was primarily attributable to an increase in provision expense of approximately $11.4 million related to Member advances aged over 120 days and those that have become uncollectible based on information available to us, in addition to an increase in provision expense of approximately $12.9 million related to Member advances aged 120 days and under.

The increase in provision expense related to Member advances aged over 120 days and those which have become uncollectible based on information available to us, period over period, was driven primarily by aged receivables and the increase in advance volume during the first and second quarters of 2022 along with approximately $3.0 million in member advance write-offs related to a fraud event during the third quarter of 2022. All impaired advances deemed uncollectible are subsequently written-off and are a direct reduction to the allowance for unrecoverable advances.

The increase in provision expense related to Member advances aged 120 days and under, was primarily attributed to significant increases in average advance amounts and total advance volume from approximately $961.7 million to approximately $1,908 million for the nine months ended September 30, 2021 and 2022, respectively. This resulted in an increase to the allowance for unrecoverable advances and corresponding higher provision for unrecoverable advances expense during the nine months ended September 30, 2022 as compared to September 30, 2021. We anticipate volatility in Member advances outstanding each period as they are directly correlated with the timing and volume of Member advance activity during the last 120 days prior to the end of the period.

Throughout the first nine months of 2022, loss and collections experience of Member advances remained steady, however, historical loss and collections rates utilized in the calculation of the provision for unrecoverable advances decreased slightly when compared to historical rates used in 2021 which reflected underwriting modifications made during early 2020 in response to the onset of COVID-19. These underwriting modifications primarily consisted of lower advance amounts and stricter eligibility requirements. Any changes to our historical loss and collections experience directly affects the historical loss rates utilized in the calculation of the allowance for uncollectible advances. The changes in the allowance for unrecoverable advances, period over period, has a direct impact on the provision for unrecoverable advances.

For information on the aging of Member advances and a rollforward of the allowance for unrecoverable advances, refer to the tables in Note 7 Member Cash Advances, Net in the accompanying unaudited condensed consolidated financial statements of Dave included in this Form 10-Q.

Processing and service fees—Processing and servicing fees totaled approximately $23.6 million for the nine months ended September 30, 2022, compared to approximately $16.9 million for the nine months ended September 30, 2021. The increase of approximately $6.7 million, or 40%, was primarily attributable to the increase in advance volume from $961.7 million to approximately $1,908 million for the nine months ended September 30, 2021 and 2022, respectively, offset by volume associated discounts and cost savings due to price reductions from our processors.

Advertising and marketing—Advertising and marketing expenses totaled approximately $57.1 million for the nine months ended September 30, 2022, compared to approximately $38.8 million for the nine months ended September 30, 2021. The increase of approximately $18.2 million or 47% was primarily attributable to increased marketing efforts, production costs and promotions across various social media platforms and television.

Compensation and benefits—Compensation and benefits expenses totaled approximately $81.3 million for the nine months ended September 30, 2022, compared to approximately $34.7 million for the nine months ended September 30, 2021. The increase of approximately $46.6 million, or 134%, was primarily attributable to the following:

 

   

an increase in payroll and related costs of approximately $17.8 million, primarily due to hiring and increased headcount throughout the business;

 

   

an increase in consultants and contractor costs of approximately $1.1 million, primarily due to our need to supplement recruiting efforts and an increase in IT security, marketing, design and augmenting customer service resources; and

 

   

an increase in stock-based compensation of approximately $27.7 million, primarily due to restricted stock units granted during the nine months ended September 30, 2022 and to the expenses related to stock options granted to a certain executive during 2021, which achieved certain performance conditions associated with the close of the Business Combination.

Other operating expenses—Other operating expenses totaled approximately $50.7 million for the nine months ended September 30, 2022, compared to approximately $32.0 million for the nine months ended September 30, 2021. The increase of approximately $18.8 million, or 59%, was primarily attributable to the following:

 

   

an increase in insurance related costs of approximately $5.3 million, primarily related to director and officer insurance premiums;

 

   

an increase in accounting costs of approximately $1.8 million, primarily related to various audit, tax and Sarbanes Oxley compliance readiness related fees associated with the Business Combination in January 2022;

 

   

an increase in technology and infrastructure expenses of approximately $3.8 million, primarily due to increased spending to support the growth of our business and development of new products and features;

 

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an increase in expenses related to our Checking Product of approximately $5.3 million, primarily attributable to processing and fraud related costs associated with the growth in Members and the number of transactions processed;

 

   

an increase in legal fees of approximately $1.5 million, primarily due to ongoing litigation, compliance, employment and general corporate related matters;

 

   

an increase in various administrative fees of approximately $1.6 million primarily due to increases license and fees and travel and entertainment, investor relations and administrative expenses;

 

   

an increase in depreciation and amortization of approximately $3.1 million primarily due to accelerated amortization related to the change in useful life of a certain intangible asset, equipment purchases for increased headcount and amortization of internally developed software; and

 

   

an increase in rent expense of approximately $1.2 million, due to additional leased office space; offset by

 

   

a decrease in chargeback related expenses of approximately $4.0 million, primarily due to fraudulent activity in relation to our Checking Product (see “Risk Factors—Risks related to our Business and Industry—Fraudulent and other illegal activity involving our products and services could lead to reputational damage to us, reduce the use of our platform and services and may adversely affect our financial position and results of operations.” in our Form 10-K for the year ended December 31, 2021); and

 

   

a decrease in charitable contribution expenses of approximately $0.8 million, primarily due to decreased amounts pledged to charitable meal donations related to Members’ tips.

Other (income) expense

 

    

For the Nine Months Ended

     Change  
     September 30,      $      %  
(in thousands, except for percentages)    2022      2021      2022/2021      2022/2021  

Interest income

   $ (1,831    $ (610    $ (1,221      200

Interest expense

     6,246        1,494        4,752        318

Legal settlement and litigation expenses

     6,845        952        5,893        619

Other strategic financing and transactional expenses

     5,040        253        4,787        1892

Gain on extinguishment of liability

     (4,290      —          (4,290      -100

Changes in fair value of earnout liabilities

     (9,616      —          (9,616      -100

Changes in fair value of derivative asset on loans to stockholders

     5,572        (33,043      38,615        -117

Changes in fair value of warrant liabilities

     (14,232      3,480        (17,712      -509
  

 

 

    

 

 

    

 

 

    

Total

   $ (6,266 )     $ (27,474 )     $ 21,208        -77
  

 

 

    

 

 

    

 

 

    

Interest income— Interest income totaled approximately $1.8 million for the nine months ended September 30, 2022, compared to approximately $0.6 million for the nine months ended September 30, 2021. The increase of approximately $1.2 million, or 200%, was primarily attributable to interest earned from a higher marketable securities balance, yields from short-term investments and higher interest rates during the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021.

Interest expense— Interest expense totaled approximately $6.2 million for the nine months ended September 30, 2022, compared to approximately $1.5 million for the nine months ended September 30, 2021. The increase of approximately $4.8 million, or 318%, was primarily attributable to interest related to increased borrowings under the Debt Facility and the Credit Facility, interest related to the Note with FTX Ventures and higher interest rates.

Legal settlement and litigation expenses—Legal settlement and litigation expenses totaled $6.8 for the nine months ended September 30, 2022, compared to approximately $1.0 million for the nine months ended September 30, 2021. See Note 16 Commitments and Contingencies in the accompanying unaudited condensed consolidated financial statements of Dave included in this Form 10-Q for more information regarding pending legal actions. The increase of approximately $5.9 million, or 619%, was primarily attributable to increased settlement and litigation expenses related to various legal matters as compared to those expenses recorded during the nine months ended September 30, 2021.

Other strategic financing and transactional expenses—Other strategic financing and transactional expenses totaled approximately $5.0 million for the nine months ended September 30, 2022, compared to approximately $0.3 million for the nine months ended September 30, 2021. The increase of approximately $4.8 million, or 1892%, was primarily attributable to consulting-related spend on exploring various transactional and new product opportunities.

Gain on extinguishment of liability—Gain on extinguishment of liability totaled approximately $4.3 million for the nine months ended September 30, 2022, compared to $0 for the nine months ended September 30, 2021. The increase of approximately $4.3 million, or 100%, was primarily attributable to the extinguishment of a $7.5 million liability in exchange for shares of our Class A Common Stock.

Changes in fair value of earnout liability—Changes in fair value of earnout liabilities totaled a benefit of approximately $9.6 million for the nine months ended September 30, 2022, compared to $0 for the nine months ended September 30, 2021. The increase of approximately $9.6 million, or 100%, was primarily attributable to fair value adjustments associated with certain earnout shares liability due to decreases in our underlying Class A Common Stock price.

 

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Changes in fair value of derivative asset on loans to stockholders—Changes in fair value of derivative asset on loans to stockholders totaled an expense of approximately $5.6 million for the nine months ended September 30, 2022, compared to a benefit of approximately $33.0 million for the nine months ended September 30, 2021. The increase of approximately $38.6 million, or 117%, was primarily attributable to fair value adjustments associated with options issued in connection with loans to stockholders resulting from a decrease in the underlying fair value of our Common Stock as of the settlement date of the derivative asset compared to the benefit received from the increase in the fair value of our Common Stock during the nine months ended September 30, 2021. Please refer to Note 3 in the accompanying unaudited condensed consolidated financial statements of Dave included in this Form 10-Q.

Changes in fair value of warrant liability—Changes in fair value of warrant liability totaled a benefit of approximately $14.2 million for the nine months ended September 30, 2022, compared to an expense of approximately $3.5 million for the nine months ended September 30, 2021. The increase of approximately $17.7 million, or 509%, was primarily attributable to fair value adjustments associated with certain public and private warrant liabilities due to decreases in our underlying Class A Common Stock price, offset by fair value adjustments associated with certain warrants exercised during the Business Combination.

Provision for income taxes

 

     For the Nine Months Ended
September 30,
     Change  
     $      %  
(in thousands, except for percentages)    2022      2021      2022/2021      2022/2021  

Provision for income taxes

     70        (1      71        -7100
  

 

 

    

 

 

    

 

 

    

Total

   $ 70      $ (1    $ 71        -7100
  

 

 

    

 

 

    

 

 

    

Provision for income taxes for the nine months ended September 30, 2022 increased by approximately $0.07 million compared to the nine months ended September 30, 2021. This increase was primarily attributable to an increase in state taxes, including gross margin state taxes, relative to state taxes recognized for the nine months ended September 30, 2021.

Non-GAAP Financial Measures

In addition to our results determined in accordance with GAAP, we believe the following non-GAAP measure is useful in evaluating our operational performance. We use the following non-GAAP measure to evaluate our ongoing operations and for internal planning and forecasting purposes. We believe that the non-GAAP financial information may be helpful in assessing our operating performance and is more indicative of our operational performance and facilitates an alternative comparison among fiscal periods. The non-GAAP financial measure is not, and should not be viewed as, a substitute for GAAP reporting measures.

Adjusted EBITDA

“Adjusted EBITDA” is defined as net loss adjusted for interest expense (income), provision (benefit) for income taxes, depreciation and amortization, stock-based compensation and other discretionary items determined by management. Adjusted EBITDA is intended as a supplemental measure of our performance that is neither required by, nor presented in accordance with, GAAP. We believe that the use of Adjusted EBITDA provides an additional tool for investors to use in evaluating ongoing operating results and trends and in comparing our financial measures with those of comparable companies, which may present similar non-GAAP financial measures to investors. However, you should be aware that, when evaluating Adjusted EBITDA, we may incur future expenses similar to those excluded when calculating these measures. In addition, ou