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.
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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, Capital Resources and Going Concern
As of March 31, 2022, we had cash outside the trust account of $29,079 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 March 31, 2022, none of the amount in the trust account was
available to be withdrawn as described above.
Through March 31, 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. As of March 31,
2022 and December 31, 2021, we had $77,000 borrowings outstanding under the
note.
We anticipate that the $29,079 outside of the trust account as of March 31,
2022, together with the funds available to us under the note and any additional
Working Capital Loans (as defined in Note 5 to the unaudited condensed financial
statements included herein) from our initial shareholders, officers and
directors, or their respective affiliates (which is described in Note 5 to the
unaudited condensed financial statements included herein), 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 such funds 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.
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.
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.
In connection with the Company's 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," the Company has until March 26, 2023
(absent any extensions of such period with shareholder approval) to consummate
its initial Business Combination. It is uncertain that the Company will be able
to consummate its 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
potential liquidity constraints in addition to the mandatory liquidation, should
a Business Combination not occur, and potential subsequent dissolution, raises
substantial doubt about the Company's ability to continue as a going concern. No
adjustments have been made to the carrying amounts of assets or liabilities
should the Company be required to liquidate after March 26, 2023. The Company
intends to complete its initial Business Combination before the mandatory
liquidation date. However, there can be no assurance that the Company will be
able to consummate any Business Combination by March 26, 2023.
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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 March 31, 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 March 31, 2022, we had $7,390,254 in net income. We
incurred $479,926 of operating costs consisting mostly of general and
administrative expenses. We had change in fair value of our warrant liabilities
of $7,842,486 and investment income of $27,694 on our amounts held in the trust
account.
For the three months ended March 31, 2021, we had $378,329 in net loss. We
incurred $25,442 of formation costs consisting mostly of general and
administrative expenses. We had change in fair value of our warrant liabilities
of $281,480 and offering expenses related to warrant issuance of $634,367.
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 March 31,
2022 and March 31, 2021, we incurred and accrued $45,000 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 March 31, 2022 and December 31, 2021, we had $77,000
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 potential liquidity constraints,
in addition to the 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.
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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:
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 March 31, 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, other than as discussed
below.
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.
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Off-Balance Sheet Arrangements
As of March 31, 2022 and December 31, 2021, we did not have any off-balance
sheet arrangements.
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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