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 Annual Report.
Certain information contained in the discussion and analysis set forth below
includes forward-looking statements that involve risks and uncertainties. Our
actual results may differ materially from those anticipated in these
forward-looking statements as a result of many factors, including those set
forth under "Cautionary Note Regarding Forward-Looking Statements and Risk
Factor Summary," "Item 1A. Risk Factors" and elsewhere in this Annual Report.
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.
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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.
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 and Capital Resources
As of December 31, 2021, we had cash outside the trust account of $213,495
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 December 31, 2021, none of the amount in the trust account was
available to be withdrawn as described above.
Through December 31, 2021, 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. As of December 31, 2021, we had no 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.
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We anticipate that the $213,495 outside of the trust account as of December 31,
2021 will be sufficient to allow us to operate for at least the next 12 months
from the issuance of the 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 5 to
the financial statements included herein) from our initial shareholders,
officers and directors, or their respective affiliates (which is described in
Note 5 to the 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.
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 estimates of
the costs of identifying a target business, undertaking in-depth due diligence
and negotiating a business combination is less than the actual amount necessary
to do so, we may have insufficient funds available to operate its business prior
to our business combination. Moreover, we may need to raise additional capital
through additional loans from our sponsor, officers, directors or third parties.
None of our sponsor, officers or directors are under any obligation to advance
additional funds to, or to invest in, us. If we are unable to raise additional
capital, we may be required to take additional measures to conserve liquidity,
which could include, but not necessarily be limited to, curtailing operations,
suspending the pursuit of our business plan and reducing overhead expenses. We
cannot provide any assurance that new financing will be available to us on
commercially acceptable terms, if at all.
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 financial statements. The 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 December 31, 2021 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 year ended December 31, 2021, we had $4,833,241 in net income. We
incurred $2,011,214 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 $7,460,809 and investment income of $18,013 on our
amounts held in the trust account, offset by offering expenses related to
warrants of $634,367 for the year ended December 31, 2021.
For the three months ended December 31, 2021, we had $3,651,575 in net loss. We
incurred $1,535,675 of formation and operating costs consisting mostly of
general and administrative expenses. We had loss on the change in fair value of
our warrant liabilities of $2,121,711 and investment income of $5,811 on our
amounts held in the trust account.
For the period from December 29, 2020 (inception) through December 31, 2020, we
had $12,845 in net loss. We incurred $12,845 of formation and operating costs
consisting of legal and professional expenses.
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.
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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 December 31, 2021, we had no 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.
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.
Going Concern
In connection with our assessment of going concern considerations in accordance
with ASU 2014-15, "Disclosures of Uncertainties about an Entity's Ability to
Continue as a Going Concern," we have until March 26, 2023 (absent any
extensions of such period with shareholder approval) to consummate our initial
business combination. It is uncertain that we will be able to consummate our
initial business combination by this time. If a business combination is not
consummated by this date, there will be a mandatory liquidation and subsequent
dissolution. Management has determined that the mandatory liquidation, should a
business combination not occur, and potential subsequent dissolution, raises
substantial doubt about our ability to continue as a going concern. No
adjustments have been made to the carrying amounts of assets or liabilities
should we be required to liquidate after March 26, 2023. We intend to complete
our initial business combination before the mandatory liquidation date. However,
there can be no assurance that we will be able to consummate any business
combination by March 26, 2023.
Critical Accounting Policies and Estimates
This management's discussion and analysis of our financial condition and results
of operations is based on our financial statements, which have been prepared in
accordance with GAAP. The preparation of these 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 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:
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
statement 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 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' equity 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 loss per ordinary share for the periods.
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Recent Accounting Pronouncements
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. We are
currently assessing the impact, if any, that ASU 2020-06 would have on our
financial position, results of operations and cash flows.
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 financial statements.
Off-Balance Sheet Arrangements
As of December 31, 2021, we did not have any off-balance sheet arrangements as
defined in Item 303(a)(4)(ii) of Regulation S-K.
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
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 
