Business context and reporting period
This filing is DHC Acquisition Corp.’s unaudited Form 10-Q for the three months ended March 31, 2021, signed July 21, 2021. It is not identified in the filing as a report of Brand Engagement Network Inc.; investors should verify the registrant and filing attribution. DHC was a Cayman Islands blank-check company formed to pursue a business combination, with no operating business or operating revenue during the period.
Financial results and liquidity
| Metric | Quarter ended March 31, 2021 |
|---|---|
| Operating revenue | None; the company said it did not expect operating revenue before a business combination. |
| Operating and formation costs | $160,016 in the financial statements. |
| Net loss | $1,403,996 in the statement of operations; MD&A gives $1,393,996, an inconsistency requiring verification. |
| Net loss per Class B share | Statement of operations: $(0.19); EPS note: $(0.18). The filing text does not provide a clear reconciled value. |
| Operating cash flow | $(954,856). |
| Cash outside trust | $1,573,788 at March 31, 2021. |
| Cash in trust | $309,450,720 at March 31, 2021, primarily reserved for a business combination or shareholder redemptions. |
| Debt and liquidity | No long-term debt reported. Current liabilities were $67,738; total liabilities were $27,832,778, including $16,934,265 of warrant liabilities and $10,830,775 of deferred underwriting fees. |
The company raised gross proceeds of $300.0 million in its March IPO, plus $9.45 million from a partial over-allotment, and received $9.19 million from private placement warrants. The quarter’s loss included a $657,641 increase in warrant fair value and $586,339 of offering costs allocated to warrant liabilities. No meaningful operating margin comparison is available because the company had no operating revenue and the filing presents no comparable prior-year quarter.
Material changes and unusual items
- The company revised its previously issued March 4, 2021 financial statements after determining that public and private warrants should be classified as derivative liabilities rather than equity. The revision recognized warrant liabilities and related offering-cost expense; it did not affect previously reported trust investments or cash.
- The warrant liabilities are remeasured at fair value each reporting period, with changes recorded in earnings. They were valued using Level 3 inputs and a Monte Carlo simulation at March 31.
- The filing reports 27,906,410 Class A shares subject to possible redemption at $10 per share, presented as temporary equity, and $5,000,008 of shareholders’ equity.
- The underwriters’ over-allotment was only partially exercised. The financial statements and notes report 945,072 additional units, while MD&A says the option was exercised “in full”; this wording conflicts with the other disclosures.
Outlook, risks and contingencies
No financial guidance or target-combination forecast is provided. Management said it expected to continue incurring costs while seeking a business combination and could require additional financing if available funds prove insufficient or redemptions are significant. The company had until March 4, 2023 to complete a business combination; otherwise, it was required to wind up and redeem public shares, subject to the filing’s terms. The company reported no long-term debt, but disclosed a $10,000 monthly affiliate administrative-services fee and a deferred underwriting fee payable only if a business combination is completed.
Management said COVID-19 could adversely affect the company’s financial position, operations, or search for a target, but the effect was not determinable. The filing disclosed a material weakness in internal control over financial reporting related to warrant classification and valuation, and concluded disclosure controls were not effective as of March 31, 2021. Remediation plans included enhanced accounting research and consultation and retaining a valuation expert. The company warned of possible future litigation or disputes related to the weakness and restatement; it reported no known such litigation as of the report date. Legal proceedings were otherwise reported as none.
Important facts for investors to verify
- Confirm whether this DHC Acquisition Corp. filing is the intended filing for Brand Engagement Network Inc.
- Reconcile net loss and Class B loss per share across the statement of operations, EPS note, and MD&A.
- Confirm the over-allotment description and related share and warrant figures, given the conflicting “in full” statement.
- Assess remediation progress and whether the warrant accounting material weakness has been resolved.
- Review the proposed business combination’s financing, redemption levels, and remaining cash available outside the trust; trust funds are not ordinary operating liquidity.