Business context and reporting period
This is DHC Acquisition Corp.’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2023, filed November 14, 2023. Despite the request metadata, the filer is DHC, a Cayman Islands blank-check company; Brand Engagement Network Inc. (BEN) is its proposed merger target. DHC reports no operating business or revenue, and these statements do not report BEN’s operating results.
DHC signed a business combination agreement with BEN on September 7, 2023. The proposed transaction remained subject to shareholder, regulatory, listing, financing and other closing conditions. DHC’s prior agreement with GloriFi was terminated in January 2023 after GloriFi announced it was winding down.
Financial results and liquidity
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | None; DHC had not begun operating revenue-generating activities | |||
| Operating and formation costs | $1.624 million | $2.620 million | $2.486 million | $4.567 million |
| Net income (loss) | $(1.590) million | $(1.666) million | $0.232 million | $3.934 million |
| Net income (loss) per share | $(0.13) | $(0.04) | $0.01 | $0.10 |
| Trust-account interest income | $0.574 million | $1.397 million | $3.868 million | $1.845 million |
Nine-month 2023 results included a $1.151 million expense from the change in fair value of warrant liabilities, compared with a $6.655 million gain in 2022. The nine-month earnings comparison therefore reflects non-operating items as well as lower operating costs; it is not a measure of operating-company profitability. No operating margin is meaningful because DHC had no revenue.
At September 30, 2023, DHC had $60,847 of cash outside the trust, $49.179 million in the trust account, and a $16,824 trust-account receivable. Current liabilities were $7.737 million, including $7.162 million in accounts payable and accrued expenses and $575,000 in sponsor advances; reported working-capital deficit was $7.651 million. Total liabilities were $19.883 million, including $1.315 million of warrant liabilities and $10.831 million of deferred underwriting fees. Shareholders’ deficit was $19.797 million. The company reported no long-term debt.
Cash used in operating activities for the nine months was $726,761. Trust withdrawals and share redemptions largely offset in investing and financing cash flows; reported ending operating cash was $60,847. The trust held $49.179 million after substantial redemptions. In March 2023, 26,298,498 Class A shares were redeemed for approximately $268.585 million. The filing’s MD&A gives a conflicting approximate redemption amount of $269.585 million; the financial statements and cash-flow statement report $268.585 million.
Material changes, outlook and risks
- In March 2023, shareholders extended DHC’s initial business-combination deadline to December 4, 2023. On October 27, DHC filed a preliminary proxy seeking a further extension to May 4, 2024; the filing describes this as a proposal, not an approved extension.
- Management stated it did not have sufficient liquidity to meet anticipated obligations for at least twelve months after the financial statements were available to be issued. The approaching deadline, low operating cash and potential mandatory liquidation if no combination is completed raise substantial doubt about DHC’s ability to continue as a going concern. Management planned to complete a combination before the deadline.
- On November 1, 2023, Citi Global Markets waived $10.398 million of its deferred underwriting fee. The filing says $433,231 remained payable afterward. This occurred after quarter-end; the September 30 balance sheet still reports $10.831 million of deferred fees.
- Disclosure controls and procedures were deemed ineffective as of September 30 because of weaknesses in review and approval of quarterly financial statements. Management described planned enhancements, but gave no assurance they would achieve their intended effect.
- Other noted risks include redemption-driven reduction of trust funds, failure to complete the BEN transaction, potential liquidation and worthless warrants, uncertainty in warrant valuation, and market and geopolitical volatility. DHC reported no legal proceedings and no material changes to the risk factors in its prior Form 10-K.
The filing provides no operating-company guidance or revenue forecast. DHC’s reported income largely reflects trust interest and warrant fair-value movements rather than operating performance.
Most important facts for investors to verify
- Whether DHC shareholders approved the proposed extension and whether the BEN business combination closed; confirm current deadlines and remaining closing conditions.
- The amount remaining in the trust after any further redemptions, and whether DHC can meet the transaction’s minimum $5,000,001 net tangible asset condition.
- The post-quarter underwriting-fee waiver and the stated $433,231 remaining balance, as well as the filing’s conflicting March redemption amount in MD&A.
- How DHC funded transaction costs given $60,847 of outside-trust cash, a $7.651 million working-capital deficit and substantial doubt about going concern.
- Whether management’s planned remediation addresses the ineffective disclosure controls and whether subsequent filings clarify the transaction and financial position.