DHC ACQUISITION CORP.

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DHC ACQUISITION CORP. Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

11/12/2021 | 05:16pm EDT
References in this report (the "Quarterly Report") to "we," "us" or the
"Company" refer to DHC Acquisition Corp. References to our "management" or our
"management team" refer to our officers and directors, and references to the
"Sponsor" refer to DHC Sponsor, LLC. The following discussion and analysis of
the Company's financial condition and results of operations should be read in
conjunction with the financial statements and the notes thereto contained
elsewhere in this Quarterly Report. Certain information contained in the
discussion and analysis set forth below includes forward-looking statements that
involve risks and uncertainties.
Special Note Regarding Forward-Looking Statements
This Quarterly Report includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act
that are not historical facts and involve risks and uncertainties that could
cause actual results to differ materially from those expected and projected. All
statements, other than statements of historical fact included in this Form
10-Q
including, without limitation, statements in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations" regarding the
completion of the Proposed Business Combination (as defined below), the
Company's financial position, business strategy and the plans and objectives of
management for future operations, are forward-looking statements. Words such as
"expect," "believe," "anticipate," "intend," "estimate," "seek" and variations
and similar words and expressions are intended to identify such forward-looking
statements. Such forward-looking statements relate to future events or future
performance, but reflect management's current beliefs, based on information
currently available. A number of factors could cause actual events, performance
or results to differ materially from the events, performance and results
discussed in the forward-looking statements, including that the conditions of
the Proposed Business Combination are not satisfied. For information identifying
important factors that could cause actual results to differ materially from
those anticipated in the forward-looking statements, please refer to the Risk
Factors section of the Company's final prospectus for its Initial Public
Offering filed with the U.S. Securities and Exchange Commission (the "SEC"). The
Company's securities filings can be accessed on the EDGAR section of the SEC's
website at www.sec.gov. Except as expressly required by applicable securities
law, the Company disclaims any intention or obligation to update or revise any
forward-looking statements whether as a result of new information, future events
or otherwise.
Overview
We are a blank check company incorporated in the Cayman Islands on December 22,
2020 formed for the purpose of effecting a merger, share exchange, asset
acquisition, share purchase, reorganization or similar business combination with
one or more businesses or entities. We intend to effectuate our Business
Combination using cash derived from the proceeds of the Initial Public Offering
and the sale of the Private Placement Warrants, our shares, debt or a
combination of cash, shares and debt.
We expect to continue to incur significant costs in the pursuit of our
acquisition plans. We cannot assure you that our plans to complete a Business
Combination will be successful.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date.
Our only activities through September 30, 2021 were organizational activities,
those necessary to prepare for the Initial Public Offering, described below, and
identifying a target company for a Business Combination. We do not expect to
generate any operating revenues until after the completion of our Business
Combination. We generate
non-operating
income in the form of interest income on marketable securities held in the Trust
Account. We incur expenses as a result of being a public company (for legal,
financial reporting, accounting and auditing compliance), as well as for due
diligence expenses.
For the three months ended September 30, 2021, we had a net income of
$4,773,118, which consists of operating costs of 549,272 and a change in fair
value of warrant liability of $5,322,390.
For the nine months ended September 30, 2021, we had a net income of $2,719,696,
which consists of operating costs of $1,461,885, change in fair value of warrant
liability of $4,767,900 and transaction costs allocated to warrant liabilities
of $586,339.
Liquidity and Capital Resources
On March 4, 2021, we consummated the Initial Public Offering of 30,000,000 Units
at $10.00 per Unit, generating gross proceeds of $300,000,000. Simultaneously
with the closing of the Initial Public Offering, we consummated the sale of
6,000,000 Private Placement Warrants at a price of $1.50 per Private Placement
Warrant in a private placement to the Sponsor, generating gross proceeds of
$9,000,000.
On March 5, 2021, in connection with the underwriters' partial exercise of their
over-allotment option, we consummated the sale of an additional 945,072 Units at
a price of $10.00 per Unit, generating total gross proceeds of $9,450,720. In
addition, we also consummated the sale of an additional 126,010 Private
Placement Warrants at $1.50 per Private Warrant, generating total gross proceeds
of $189,015.
Following the Initial Public Offering, the partial exercise of the
over-allotment option, and the sale of the Private Placement Warrants, a total
of $309,450,720 was placed in the Trust Account. We incurred $17,501,346 in
Initial Public Offering related costs, including $6,189,014 of underwriting
fees, $10,830,775 of deferred underwriting fees and $481,557 of other costs.
For the nine months ended September 30, 2021, cash used in operating activities
was $1,655,485. Net income of $2,719,676 was affected by change in fair value of
warrant liability of $4,767,900 and transaction costs allocated to warrant
liabilities of $586,339. Changes in operating assets and liabilities used
$193,600 of cash for operating activities.
As of September 30, 2021, we had cash held in the Trust Account of $309,450,720.
We may withdraw interest from the Trust Account to pay taxes, if any. We intend
to use substantially all of the funds held in the Trust Account, including any
amounts representing interest earned on the Trust Account (less income taxes
payable), to complete our Business Combination. To the extent that our share
capital or debt is used, in whole or in part, as consideration to complete our
Business Combination, the remaining proceeds held in the Trust Account will be
used as working capital to finance the operations of the target business or
businesses, make other acquisitions and pursue our growth strategies.

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As of September 30, 2021, we had cash of $979,939. We intend to use the funds
held outside the Trust Account primarily to identify and evaluate target
businesses, perform business due diligence on prospective target businesses,
travel to and from the offices, plants or similar locations of prospective
target businesses or their representatives or owners, review corporate documents
and material agreements of prospective target businesses, and structure,
negotiate and complete a Business Combination.
In order to fund working capital deficiencies or finance transaction costs in
connection with a Business Combination, the Sponsor, or certain of our officers
and directors or their affiliates may, but are not obligated to, loan us funds
as may be required. If we complete a Business Combination, we will repay such
loaned amounts. In the event that a Business Combination does not close, we may
use a portion of the working capital held outside the Trust Account to repay
such loaned amounts but no proceeds from our Trust Account would be used for
such repayment. Up to $1,500,000 of such loans may be convertible into warrants
at a price of $1.50 per warrant, at the option of the lender. The warrants would
be identical to the Private Placement Warrants.
We do not believe we will need to raise additional funds in order to meet the
expenditures required for operating our business. However, if our estimate of
the costs of identifying a target business, undertaking
in-depth
due diligence and negotiating a Business Combination are less than the actual
amount necessary to do so, we may have insufficient funds available to operate
our business prior to our Business Combination. Moreover, we may need to obtain
additional financing either to complete our Business Combination or because we
become obligated to redeem a significant number of our Public Shares upon
consummation of our Business Combination, in which case we may issue additional
securities or incur debt in connection with such Business Combination.
Off-Balance
Sheet Arrangements
We have no obligations, assets or liabilities, which would be considered
off-balance
sheet arrangements as of September 30, 2021. We do not participate in
transactions that create relationships with unconsolidated entities or financial
partnerships, often referred to as variable interest entities, which would have
been established for the purpose of facilitating
off-balance
sheet arrangements. We have not entered into any
off-balance
sheet financing arrangements, established any special purpose entities,
guaranteed any debt or commitments of other entities, or purchased any
non-financial
assets.
Contractual obligations
We do not have any long-term debt, capital lease obligations, operating lease
obligations or long-term liabilities, other than an agreement to pay an
affiliate of one of our Sponsor a monthly fee of $10,000 for office space,
utilities and secretarial and administrative services. We began incurring these
fees on March 4, 2021 and will continue to incur these fees monthly until the
earlier of the completion of the Business Combination and our liquidation.
The underwriters are entitled to a deferred fee of $0.35 per unit, or
$10,500,000 in the aggregate. The deferred fee will become payable to the
underwriters from the amounts held in the Trust Account solely in the event that
we complete a Business Combination, subject to the terms of the underwriting
agreement.
Critical Accounting Policies
The preparation of condensed financial statements and related disclosures in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and income and expenses
during the periods reported. Actual results could materially differ from those
estimates. We have identified the following critical accounting policies:
Warrant Liabilities
We do not use derivative instruments to hedge exposures to cash flow, market, or
foreign currency risks. We evaluate all of our financial instruments, including
issued stock purchase warrants, to determine if such instruments are derivatives
or contain features that qualify as embedded derivatives, pursuant to ASC 480
and ASC 815. We account for the Warrants in accordance with the guidance
contained in ASC
815-40
under which the Warrants do not meet the criteria for equity treatment and must
be recorded as liabilities. Accordingly, we classify the Warrants as liabilities
at their fair value and adjust the Warrants to fair value at each reporting
period. This liability is subject to re-measurement at each balance sheet date
until exercised, and any change in fair value is recognized in our statements of
operations. The Private Placement Warrants and the Public Warrants for periods
where no observable traded price was available are valued using a Monte Carlo
simulation. For periods subsequent to the detachment of the Public Warrants from
the Units, the Public Warrant quoted market price will be used as the fair value
as of each relevant date.
Class A Ordinary Shares Subject to Possible Redemption
We account for our ordinary shares subject to possible conversion in accordance
with the guidance in Accounting Standards Codification ("ASC") Topic 480
"Distinguishing Liabilities from Equity." Ordinary shares subject to mandatory
redemption, if any, are classified as a liability instrument and measured at
fair value. Conditionally redeemable ordinary shares (including ordinary shares
that feature redemption rights that are either within the control of the holder
or subject to redemption upon the occurrence of uncertain events not solely
within our control) are classified as temporary equity. At all other times,
ordinary shares are classified as shareholders' equity. Our ordinary shares
feature certain redemption rights that are considered to be outside of our
control and subject to occurrence of uncertain future events. Accordingly,
ordinary shares subject to possible redemption are presented at redemption value
as temporary equity, outside of the shareholders' equity section of our
condensed balance sheets.
Net Income (Loss) Per Ordinary Share
Net loss per ordinary share is computed by dividing net loss by the weighted
average number of ordinary shares outstanding during the period. We apply the
two-class
method in calculating earnings per share. Accretion associated with the
redeemable shares of Class A ordinary shares is excluded from earnings per share
as the redemption value approximates fair value.

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Recent Accounting Standards
In August 2020, the Financial Accounting Standards Board ("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)
("ASU
2020-06")
to simplify accounting for certain financial instruments. ASU
2020-06
eliminates the current models that require separation of beneficial conversion
and cash conversion features from convertible instruments and simplifies the
derivative scope exception guidance pertaining to equity classification of
contracts in an entity's own equity. The new standard also introduces additional
disclosures for convertible debt and freestanding instruments that are indexed
to and settled in an entity's own equity. ASU
2020-06
amends the diluted earnings per share guidance, including the requirement to use
the
if-converted
method for all convertible instruments. ASU
2020-06
is effective January 1, 2022 and should be applied on a full or modified
retrospective basis, with early adoption permitted beginning on January 1, 2021.
The Company adopted ASU
2020-06
as of January 1, 2021, and the adoption did not have an impact on its financial
position, results of operations or cash flows.
Management does not believe that any other recently issued, but not yet
effective, accounting standards, if currently adopted, would have a material
effect on our condensed financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not required for smaller reporting companies.
Item 4. Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are
designed to ensure that information required to be disclosed in our reports
filed or submitted under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in the SEC's rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed in our
reports filed or submitted under the Exchange Act is accumulated and
communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, to allow timely decisions regarding required disclosure.
Evaluation of Disclosure Controls and Procedures
As required by Rules
13a-15
and
15d-15
under the Exchange Act, our Chief Executive Officer and Chief Financial Officer
carried out an evaluation of the effectiveness of the design and operation of
our disclosure controls and procedures as of September 30, 2021. Based upon
their evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures (as defined in Rules
13a-15
(e) and
15d-15
(e) under the Exchange Act) were effective.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting that
occurred during the fiscal quarter ended September 30, 2021 covered by this
Quarterly Report on Form
10-Q
that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting. The material weakness discussed below
was remediated during the quarter ended September 30, 2021.
Remediation of a Material weakness in Internal Control over Financial Reporting
We recognize the importance of the control environment as it sets the overall
tone for the Company and is the foundation for all other components of internal
control. Consequently, we designed and implemented remediation measures to
address the material weakness previously identified and enhance our internal
control over financial reporting. In light of the material weakness, we enhanced
our processes to identify and appropriately apply applicable accounting
requirements to better evaluate and understand the nuances of the complex
accounting standards that apply to our financial statements, including providing
enhanced access to accounting literature, research materials and documents and
increased communication among our personnel and third-party professionals with
whom we consult regarding complex accounting applications. The foregoing
actions, which we believe remediated the material weakness in internal control
over financial reporting, were completed as of the date of June 30, 2021.

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