Filing Summary — Quarter Ended September 30, 2022
Important identity note: The supplied filing is DHC Acquisition Corp.’s Form 10-Q, not a filing by Brand Engagement Network Inc. It describes DHC, a SPAC, and its proposed business combination with GloriFi.
Business context and reporting period
DHC was a blank-check company with no operating business or revenue before completing a business combination. Its activities consisted of formation, public-company costs, and pursuing a transaction. On July 25, 2022, DHC agreed to combine with With Purpose, Inc. (d/b/a GloriFi, Inc.). Financial statements are unaudited and cover the three and nine months ended September 30, 2022, with comparable 2021 periods.
Financial results and liquidity
| Metric | Q3 2022 | 9M 2022 |
|---|---|---|
| Operating revenue | None | None |
| Operating and formation costs | $2.62 million | $4.57 million |
| Net income (loss) | $(1.67) million | $3.93 million |
| Interest earned on Trust Account investments | $1.40 million | $1.84 million |
| Change in fair value of warrant liabilities | $(0.44) million | $6.66 million income |
| Net cash used in operating activities | Not presented quarterly | $0.51 million |
- At September 30, 2022, cash outside the Trust Account was $349,447; Trust Account assets were $311.30 million. Working capital deficit was $4.34 million.
- Total liabilities were $17.85 million, including $5.38 million of accounts payable and accrued expenses, $1.64 million of warrant liabilities, and a $10.83 million deferred underwriting fee payable upon a completed business combination. The filing reports no long-term debt.
- Shareholders’ deficit was $16.82 million. Redeemable Class A shares were recorded at $311.30 million, or $10.05 per share.
- Profitability and operating margins are not meaningful for this pre-combination SPAC; reported earnings were driven substantially by non-operating warrant valuation changes and Trust Account interest.
Material changes versus prior comparable periods
- Q3 shifted from $4.77 million net income in 2021 to a $1.67 million net loss in 2022, as operating costs rose to $2.62 million from $0.55 million and the warrant valuation change moved from $5.32 million of income to a $0.44 million expense. Trust interest partly offset costs in 2022.
- For the first nine months, net income increased to $3.93 million from $2.72 million, primarily reflecting higher warrant fair-value income and $1.84 million of Trust Account interest in 2022.
- Accounts payable and accrued expenses rose to $5.38 million from $1.02 million at year-end 2021; warrant liabilities fell to $1.64 million from $8.30 million.
- Trust Account funds were held primarily in money-market funds invested in U.S. Treasury securities at September 30, 2022, versus a checking account at December 31, 2021.
Outlook, risks and contingencies
- DHC’s agreement with GloriFi remained subject to approvals and other closing conditions, including at least $60 million of financing proceeds to GloriFi, a minimum $30 million cash condition for the combined company under specified sources, regulatory and shareholder approvals, and certain banking-related arrangements.
- DHC had until March 4, 2023 to complete a business combination. Management stated that failure to do so would require liquidation and dissolution, and concluded that the deadline, liquidity position, and uncertainty of closing raised substantial doubt about DHC’s ability to continue as a going concern. Management planned to complete a transaction before the deadline.
- DHC reported no operating revenue and expected continued transaction-related costs. Sponsor or affiliate working-capital loans were possible but not committed; none were outstanding at quarter-end.
- Risks included redemptions reducing available transaction cash, failure to satisfy deal conditions, warrant fair-value volatility, and potential effects of economic and geopolitical uncertainty, COVID-19, and changes in SPAC regulation. The filing says there were no material changes to previously disclosed risk factors other than an added discussion of legal and regulatory changes.
- No legal proceedings were reported. Management said disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Confirm the filing’s registrant: this is DHC Acquisition Corp., not Brand Engagement Network Inc.
- Verify the later status and outcome of the proposed GloriFi combination, including whether the financing, minimum-cash, and other closing conditions were satisfied.
- Assess redemption levels and cash available to the transaction after redemptions, including the effect of the $10.83 million deferred underwriting fee.
- Review the going-concern warning and the March 4, 2023 combination deadline stated in this filing.
- Distinguish recurring cash resources from reported earnings: warrant remeasurement and Trust Account interest materially affected net income, while nine-month operating cash flow was negative.