References in this report on Form 10-Q (the "Quarterly Report") to "we," "our,"
"us" or the "Company" refer to Disruptive Acquisition Corporation I. References
to our "management" or our "management team" refer to our officers and directors
and references to the "Sponsor" refer to Disruptive Acquisition Sponsor I, LLC.
The following discussion and analysis of the Company's financial condition and
results of operations should be read in conjunction with the unaudited interim
condensed 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.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act and Section 21E of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"). We have based these
forward-looking statements on our current expectations and projections about
future events. These forward-looking statements are subject to known and unknown
risks, uncertainties and assumptions about us that may cause our actual results,
levels of activity, performance or achievements to be materially different from
any future results, levels of activity, performance or achievements expressed or
implied by such forward-looking statements. In some cases, you can identify
forward-looking statements by terminology such as "may," "should," "could,"
"would," "expect," "plan," "anticipate," "believe," "estimate," "continue," or
the negative of such terms or other similar expressions. Factors that might
cause or contribute to such a discrepancy include, but are not limited to, those
described in our other SEC filings.
Overview
We are a blank check company incorporated on December 29, 2020 as a Cayman
Islands exempted company for the purpose of effecting a merger, share exchange,
asset acquisition, share purchase, reorganization or similar business
combination with one or more businesses. Our sponsor is Disruptive Acquisition
Sponsor I, LLC, a Delaware limited liability company.
The registration statement for our initial public offering was declared
effective on March 23, 2021. On March 26, 2021, we consummated our initial
public offering of 25,000,000 units at $10.00 per unit, generating gross
proceeds of $250,000,000 and incurring offering costs of approximately
$14,750,000, inclusive of $8,750,000 in a deferred underwriting discount.
Substantially concurrently with the closing of our initial public offering, we
completed the private sale of 4,666,667 private placement warrants, at a price
of $1.50 per private placement warrant, to our sponsor, generating gross
proceeds of $7,000,000. On May 5, 2021, the underwriters purchased an additional
2,500,000 units pursuant to the partial exercise of their overallotment option.
The units were sold at an offering price of $10.00 per unit, generating
additional gross proceeds of $25,000,000. In connection with the partial
exercise of the overallotment option, our sponsor purchased an additional
333,333 private placement warrants at $1.50, which generated an additional
$500,000 in gross proceeds.
Following our initial public offering, the partial exercise of the overallotment
option and the related sales of the private placement warrants described above,
a total of $275,000,000 was placed in the trust account and was invested in
permitted U.S. "government securities" within the meaning of Section 2(a)(16) of
the Investment Company Act, having a maturity of 185 days or less or in money
market funds meeting certain conditions under Rule 2a-7 promulgated under the
Investment Company Act that invest only in direct U.S. government treasury
obligations. In total, we incurred $15,712,871 in transaction costs, including
$5,500,000 of an underwriting discount, $9,625,000 of a deferred underwriting
discount and $587,871 of other offering costs.
Our management has broad discretion with respect to the specific application of
the net proceeds from our initial public offering and the sale of the private
placement warrants, although substantially all of the net proceeds are intended
to be applied generally toward consummating a business combination.
We will only have until March 26, 2023, i.e., 24 months from the closing of our
initial public offering (as such period may be extended pursuant to a
shareholder vote) to complete our initial business combination. If we have not
completed our initial business combination within this time frame, we will (i)
cease all operations except for the purpose of winding up, (ii) as promptly as
reasonably possible, but not more than 10 business days thereafter, redeem the
public shares at a per-share price, payable in cash, equal to the aggregate
amount then on deposit in the trust account, including interest earned on the
funds held in the trust account (less taxes payable and up to $100,000 of
interest to pay dissolution expenses), divided by the number of then-outstanding
public shares, which redemption will completely extinguish public shareholders'
rights as shareholders (including the right to receive further liquidation
distributions, if any), subject to applicable law, and (iii) as promptly as
reasonably possible following such redemption, subject to the approval of our
remaining shareholders and our board of directors, liquidate and dissolve,
subject, in the case of clauses (ii) and (iii), to our obligations under Cayman
Islands law to provide for claims of creditors and in all cases subject to the
other requirements of applicable law. There will be no redemption rights or
liquidating distributions with respect to our warrants, which will expire
worthless if we do not complete our initial business combination within the
allotted period.
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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.
Liquidity, Capital Resources, and Going Concern
As of September 30, 2022, we had cash outside the trust account of $28,346
available for working capital needs. 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 an initial
business combination. All remaining cash held in the trust account is generally
unavailable for its use, prior to an initial business combination, and is
restricted for use either in a business combination or to redeem ordinary
shares. As of September 30, 2022, none of the amount in the trust account was
available to be withdrawn as described above.
Through September 30, 2022, our liquidity needs were satisfied through receipt
of $25,000 from the sale of the founder shares and the remaining net proceeds
from our initial public offering and the sale of the private placement warrants.
On November 15, 2021, we issued an unsecured promissory note in the amount of up
to $250,000 to an affiliate of our sponsor. The proceeds of the note, which may
be drawn down from time to time until we consummate our initial business
combination, will be used for general working capital purposes. The note bears
no interest and is payable in full upon the earlier to occur of (i) twenty-four
(24) months from the closing of our initial public offering (or such later date
as may be extended in accordance with the terms of our amended and restated
memorandum and articles of association) or (ii) the consummation of our initial
business combination. A failure to pay the principal within five business days
of the date specified above or the commencement of a voluntary or involuntary
bankruptcy action shall be deemed an event of default, in which case the note
may be accelerated. On April 12, 2022, we amended and restated the note in its
entirety to increase the note's principal amount to $500,000. On August 18,
2022, we further amended and restated the Note to increase the Note's principal
amount to $750,000. As of September 30, 2022 and December 31, 2021, we had
$555,363 and $77,000, respectively, in borrowings outstanding under the note.
We anticipate that the $28,346 outside of the trust account as of September 30,
2022 will be sufficient to allow us to operate for at least the next 12 months
from the issuance of the unaudited condensed financial statements, assuming that
a business combination is not consummated during that time. Until consummation
of our business combination, we will be using the funds not held in the trust
account, funds available to us under the amended and restated promissory note
issued on April 12, 2022 and any additional Working Capital Loans (as defined in
Note 6 to the unaudited condensed financial statements included herein) from our
initial shareholders, officers and directors, or their respective affiliates
(which is described in Note 6 to the unaudited condensed financial statements
included herein), for identifying and evaluating prospective acquisition
candidates, performing business due diligence on prospective target businesses,
traveling to and from the offices, plants or similar locations of prospective
target businesses, reviewing corporate documents and material agreements of
prospective target businesses, selecting the target business to acquire and
structuring, negotiating and consummating our business combination.
If the Company's estimates of the costs of undertaking in-depth due diligence
and negotiating a Business Combination are less than the actual amounts
necessary to do so, the Company may have insufficient funds available to operate
its business prior to the consummation of its Business Combination and may need
to raise additional capital, e.g., through loans from its Sponsor, officers,
directors or third parties. If the Company is unable to raise additional
capital, it may be required to take additional measures to preserve liquidity,
which could include, but not necessarily be limited to, curtailing operations,
suspending the pursuit of its business plan and reducing overhead expenses. The
Company cannot provide any assurance that new financing will be available to it
on commercially acceptable terms, if at all. The Company cannot assure you that
its plans to raise capital or to consummate an initial Business Combination
before March 26, 2023 (absent any extensions of such period with shareholder
approval) will be successful.
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In addition, the Company only has 24 months from the closing of the Initial
Public Offering (as such period may be extended pursuant to a shareholder vote)
to complete its initial Business Combination. If the Company has not completed
its initial Business Combination within this Combination Period, the Company
will (i) cease all operations except for the purpose of winding up, (ii) as
promptly as reasonably possible, but not more than ten business days thereafter,
redeem the Public Shares at a per-share price, payable in cash, equal to the
aggregate amount then on deposit in the Trust Account, including interest earned
on the funds held in the Trust Account (less taxes payable and up to $100,000 of
interest to pay dissolution expenses), divided by the number of then outstanding
public shares, which redemption will completely extinguish public shareholders'
rights as shareholders (including the right to receive further liquidation
distributions, if any), subject to applicable law, and (iii) as promptly as
reasonably possible following such redemption, subject to the approval of the
Company's remaining shareholders and its board of directors, liquidate and
dissolve, and subject to the Company's obligations under Cayman Islands law, in
the case of clauses (ii) and (iii), provide for claims of creditors and in all
cases subject to the other requirements of applicable law. There will be no
redemption rights or liquidating distributions with respect to the Company's
warrants, which will expire worthless if the Company does not complete its
initial Business Combination within the Combination Period.
Management has determined that the Company could have insufficient liquidity to
meet its anticipated obligations for at least twelve months after the financial
statements are available to be issued due to recurring operating losses and
negative cash utilized in operating activities. The Company will need to raise
additional capital through loans or additional investments from its Sponsor,
shareholders, officers, directors or third parties as needed. The Company's
officers, directors and Sponsor may, but are not obligated to, loan the Company
funds, from time to time or at any time, in whatever amount they deem reasonable
in their sole discretion, to meet the Company's working capital needs.
Accordingly, the Company may not be able to obtain additional financing. The
Company cannot provide any assurance that new financing will be available to it
on acceptable terms, if at all. These conditions raise substantial doubt about
the Company's ability to continue as a going concern.
In connection with the Company's assessment of going concern considerations in
accordance with FASB ASC Topic 205-40, "Presentation of Financial
Statements - Going Concern," management has also determined that the mandatory
liquidation date and subsequent dissolution raises substantial doubt about the
Company's ability to continue as a going concern. If the Company is unable to
complete its Initial Business Combination by March 26, 2023 (unless such a
period is extended as described herein), then the Company will cease all
operations except for the purpose of liquidating. No adjustments have been made
to the carrying amounts of assets or liabilities should the Company be required
to liquidate after March 26, 2023.
Risks and Uncertainties
Our management continues to evaluate the impact of the COVID-19 pandemic and has
concluded that while it is reasonably possible that the virus could have a
negative effect on our financial position, results of operations and/or search
for a target company, the specific impact is not readily determinable as of the
date of these unaudited condensed financial statements. The unaudited condensed
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Results of Operations
All of our activities since inception through September 30, 2022 related to our
formation, the preparation for our initial public offering and, since the
closing of our initial public offering, the search for a prospective target of
our initial business combination.
We have neither engaged in any operations nor generated any revenues to date. We
will not generate any operating revenues until after completion of our initial
business combination. We will generate nonoperating income in the form of
interest income on cash and cash equivalents held in the trust account. We
expect to continue to incur increased 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, 2022, we had $1,144,259 in net income.
We incurred $254,048 of operating costs. We experienced a decrease in fair value
of our warrant liabilities of $156,988 and dividends earned on the trust account
of $1,241,319 on our amounts held in the trust account.
For the nine months ended September 30, 2022, we had $11,223,194 in net income.
We incurred $1,064,064 of operating costs. We experienced a decrease in fair
value of our warrant liabilities of $10,646,878 and dividends earned on the
trust account of $1,640,380 on our amounts held in the trust account.
For the three months ended September 30, 2021, we had $4,233,230 in net income.
We incurred $157,179 of operating costs. We had income on the change in fair
value of our warrant liabilities of $4,386,870 and dividends of $3,539 earned on
our amounts held in the Trust Account.
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For the nine months ended September 30, 2021, we had $8,484,816 in net income.
We incurred $475,539 of formation and operating costs consisting mostly of
general and administrative expenses. We had income on the change in fair value
of our warrant liabilities of $9,582,520 and dividends of $12,202 earned on our
amounts held in the Trust Account, offset by offering expenses related to
warrants of $634,367 for the nine months ended September 30, 2021.
Contractual Obligations
We do not have any long-term debt obligations, capital lease obligations,
operating lease obligations, purchase obligations or long-term liabilities,
other than as described below.
We entered into an administrative services agreement to pay our sponsor a
monthly fee of up to $15,000 for office space, utilities, secretarial and
administrative support services provided to us and other expenses and
obligations of our sponsor. We began incurring these fees on March 24, 2021 and
will continue to incur these fees monthly until the earlier of the completion of
a business combination and our liquidation. For the three months ended September
30, 2022 and 2021, the Company incurred and accrued $43,157 and $0 of
administrative support services fees, respectively. For the nine months ended
September 30, 2022 and 2021, the Company incurred and accrued $131,519 and $0 of
administrative support services fees, respectively.
On November 15, 2021, we issued an unsecured promissory note in the amount of up
to $250,000 to an affiliate of our sponsor. The proceeds of the note, which may
be drawn down from time to time until we consummate our initial business
combination, will be used for general working capital purposes. The note bears
no interest and is payable in full upon the earlier to occur of (i) twenty-four
(24) months from the closing of our initial public offering (or such later date
as may be extended in accordance with the terms of our amended and restated
memorandum and articles of association) or (ii) the consummation of our initial
business combination. A failure to pay the principal within five business days
of the date specified above or the commencement of a voluntary or involuntary
bankruptcy action shall be deemed an event of default, in which case the note
may be accelerated. As of September 30, 2022 and December 31, 2021, we had
$555,363 and $77,000, respectively, in borrowings outstanding under the note. On
April 12, 2022, we amended and restated the note in its entirety to increase the
note's principal amount to $500,000. On August 18, 2022, we further amended and
restated the Note to increase the Note's principal amount to $750,000.
The underwriters of our initial public offering are entitled to a deferred
underwriting discount of $0.35 per unit, or $9,625,000 in the aggregate. The
deferred underwriting discount 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 and Estimates
This management's discussion and analysis of our financial condition and results
of operations is based on our unaudited condensed financial statements, which
have been prepared in accordance with GAAP. The preparation of these unaudited
condensed financial statements requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses and
the disclosure of contingent assets and liabilities in our unaudited condensed
financial statements. On an ongoing basis, we evaluate our estimates and
judgments, including those related to fair value of financial instruments and
accrued expenses. We base our estimates on historical experience, known trends
and events and various other factors that we believe to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions.
We have identified the following critical accounting policies:
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Derivative 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
our warrants, to determine if such instruments are derivatives or contain
features that qualify as embedded derivatives, pursuant to ASC 480 and ASC
815-15. The classification of derivative instruments, including whether such
instruments should be recorded as liabilities or as equity, is reassessed at the
end of each reporting period.
We issued an aggregate of 13,000,000 warrants in connection with our initial
public offering and the simultaneous private placement, which are recognized as
derivative liabilities in accordance with ASC 815-40. In addition, we issued an
aggregate of 1,166,667 warrants in connection with the partial exercise of the
underwriters' overallotment option. Accordingly, we recognize the warrants as
liabilities at fair value and adjust the instruments to fair value at each
reporting period. The liabilities are subject to remeasurement at each balance
sheet date until exercised and any change in fair value is recognized in our
statements of operations. The fair value of the warrants issued in connection
with our initial public offering, the simultaneous private placement and the
partial exercise of the underwriters' overallotment option has been estimated
using Monte Carlo simulations at each measurement date.
Class A Ordinary Shares Subject to Possible Redemption
We account for our Class A ordinary shares subject to possible redemption in
accordance with the guidance in ASC Topic 480 "Distinguishing Liabilities from
Equity." Class A ordinary shares subject to mandatory redemption (if any) are
classified as a liability instrument and are 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, Class A
ordinary shares are classified as shareholders' equity. Our Class A ordinary
shares feature certain redemption rights that are considered to be outside of
our control and subject to the occurrence of uncertain future events.
Accordingly, as of September 30, 2022 and December 31, 2021, 27,500,000 shares
of Class A ordinary shares subject to possible redemption are presented at
redemption value as temporary equity, outside of the shareholders' deficit
section of our balance sheet.
Net Income (Loss) per Ordinary Share
We have two classes of shares, which are referred to as Class A ordinary shares
and Class B ordinary shares. Earnings and losses are shared pro rata between the
two classes of shares. The potential ordinary share for outstanding warrants to
purchase our shares were excluded from diluted earnings per share because the
warrants are contingently exercisable and the contingencies have not yet been
met. As a result, diluted net income (loss) per ordinary share is the same as
basic net income (loss) per ordinary share for the periods.
Recent Accounting Pronouncements
Our management does not believe that any recently issued, but not yet effective,
accounting standards if currently adopted would have a material effect on the
accompanying unaudited condensed financial statements.
In August 2020, FASB issued Accounting Standards Update ("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) 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, 2024 and should be
applied on a full or modified retrospective basis, with early adoption permitted
beginning on January 1, 2021. The Company is currently assessing the impact, if
any, it would have on its financial position, results of operations or cash
flows.
Off-Balance Sheet Arrangements
As of September 30, 2022 and December 31, 2021, we did not have any off-balance
sheet arrangements.
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JOBS Act
The JOBS Act contains provisions that, among other things, relax certain
reporting requirements for qualifying public companies. We qualify as an
"emerging growth company" and under the JOBS Act are allowed to comply with new
or revised accounting pronouncements based on the effective date for private
(not publicly traded) companies. We have elected to delay the adoption of new or
revised accounting standards, and as a result, we may not comply with new or
revised accounting standards on the relevant dates on which adoption of such
standards is required for non-emerging growth companies. As a result, the
unaudited condensed financial statements may not be comparable to companies that
comply with new or revised accounting pronouncements as of public company
effective dates.
Additionally, we are in the process of evaluating the benefits of relying on the
other reduced reporting requirements provided by the JOBS Act. Subject to
certain conditions set forth in the JOBS Act, if, as an "emerging growth
company," we choose to rely on such exemptions, we may not be required to, among
other things, (i) provide an independent registered public accounting firm's
attestation report on our system of internal control over financial reporting
pursuant to Section 404, (ii) provide all of the compensation disclosure that
may be required of non-emerging growth public companies under the Dodd-Frank
Wall Street Reform and Consumer Protection Act, (iii) comply with any
requirement that may be adopted by the Public Company Accounting Oversight Board
regarding mandatory audit firm rotation or a supplement to the report of the
independent registered public accounting firm providing additional information
about the audit and the financial statements (auditor discussion and analysis)
and (iv) disclose certain executive compensation-related items such as the
correlation between executive compensation and performance and comparisons of
our chief executive officer's compensation to median employee compensation.
These exemptions will apply for a period of five years following the completion
of our initial public offering or until we are no longer an "emerging growth
company," whichever is earlier.
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DISRUPTIVE ACQUISITION CORPORATION I 
