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/A)

12/21/2021 | 04:38pm EDT
References in this amended 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 Quarterly
Report including, without limitation, statements in this "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
regarding the completion of the Proposed Business Combination (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 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.
This Management's Discussion and Analysis of Financial Condition and Results of
Operations has been amended and restated to give effect to the restatement of
our financial statements as of March 31, 2021 and June 30, 2021. Management
identified errors made in its historical financial statements where, at the
closing of our Initial Public Offering, we improperly valued our Class A
ordinary shares subject to possible redemption. We previously determined the
Class A ordinary shares subject to possible redemption to be equal to the
redemption value of $10.00 per Class A ordinary share while also taking into
consideration a redemption cannot result in net tangible assets being less than
$5,000,001. Management determined that the Class A ordinary shares issued during
the Initial Public Offering can be redeemed or become redeemable subject to the
occurrence of future events considered outside of the Company's control.
Therefore, management concluded that the redemption value should include all
Class A ordinary shares subject to possible redemption, resulting in the Class A
ordinary shares subject to possible redemption being equal to their redemption
value. As a result, management has noted a reclassification error related to
temporary equity and permanent equity. This resulted in a restatement to the
initial carrying value of the Class A ordinary shares subject to possible
redemption with the offset recorded to additional paid-in capital (to the extent
available), accumulated deficit and Class A ordinary shares.
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.
Under ASC 480-10-S99, the Company has elected to recognize changes in the
redemption value immediately as they occur and adjust the carrying value of the
security to equal the redemption value at the end of each reporting period. This
method would view the end of the reporting period as if it were also the
redemption date for the security.
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
Disclosure controls are procedures that are designed with the objective of
ensuring that information required to be disclosed in our reports filed under
the Exchange Act is recorded, processed, summarized, and reported within the
time period specified in the SEC's rules and forms. Disclosure controls are also
designed with the objective of ensuring that such information is accumulated and
communicated to our management, including the chief executive officer and chief
financial officer, as appropriate to allow timely decisions regarding required
disclosure.
Our management evaluated, with the participation of our chief executive officer
and chief financial officer (our "Certifying Officers"), the effectiveness of
our disclosure controls and procedures as of September 30, 2021, pursuant to
Rule 13a-15(b) under the Exchange Act. Based upon that evaluation, our
Certifying Officers concluded that, due to the events that led to the Company's
restatement of its financial statements as described in the Explanatory Note to
this Amendment, as of September 30, 2021, our disclosure controls and procedures
were not effective. As a result, we performed additional analysis as deemed
necessary to ensure that our financial statements were prepared in accordance
with U.S. generally accepted accounting principles. Accordingly, management
believes that the financial statements included in this Form 10-Q/A present
fairly, in all material respects, our financial position, result of operations
and cash flows of the periods presented.
Management has implemented remediation steps to improve our internal control
over financial reporting. Specifically, we expanded and improved our review
process for complex securities and related accounting standards. We plan to
further improve this process by enhancing access to accounting literature,
identification of third-party professionals with whom to consult regarding
complex accounting applications and consideration of additional staff with the
requisite experience and training to supplement existing accounting
professionals.
We do not expect that our disclosure controls and procedures will prevent all
errors and all instances of fraud. Disclosure controls and procedures, no matter
how well conceived and operated, can provide only reasonable, not absolute,
assurance that the objectives of the disclosure controls and procedures are met.
Further, the design of disclosure controls and procedures must reflect the fact
that there are resource constraints, and the benefits must be considered
relative to their costs. Because of the inherent limitations in all disclosure
controls and procedures, no evaluation of disclosure controls and procedures can
provide absolute assurance that we have detected all our control deficiencies
and instances of fraud, if any. The design of disclosure controls and procedures
also is based partly on certain assumptions about the likelihood of future
events, and there can be no assurance that any design will succeed in achieving
its stated goals under all potential future conditions.
Changes in Internal Control over Financial Reporting
There were no other changes in our internal control over financial reporting (as
such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act)
during the most recent fiscal quarter that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting. Management has identified a material weakness in internal controls
related to the accounting for complex financial instruments. While we have
processes to identify and appropriately apply applicable accounting
requirements, we plan to continue to enhance our system of evaluating and
implementing the accounting standards that apply to our financial statements,
including through enhanced analyses by our personnel and third-party
professionals with whom we consult regarding complex accounting applications.
The elements of our remediation plan can only be accomplished over time, and we
can offer no assurance that these initiatives will ultimately have the intended
effects.

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