| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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.
On February 14, 2023, we held the Extraordinary Meeting. At the Extraordinary Meeting, our shareholders approved, among other things, an amendment to our amended and restated memorandum and articles of association to extend the date that we have to consummate an initial business combination from March 26, 2023 to March 26, 2024 and such earlier date as shall be determined by our board of directors and publicly announced by us. In connection with the shareholders’ vote at the Extraordinary Meeting, the holders of 25,790,900 Class A ordinary shares properly exercised their right to redeem their shares for cash at a redemption price of approximately $10.20 per share, for an aggregate redemption amount of $263,071,274.
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, 2024 (as such period may be further 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.
Recent Developments
On June 16, 2023, we received a written notice from the Listing Qualifications Department of Nasdaq indicating that we were no longer in compliance with Listing Rule 5550(b)(2) (the “MVLS Listing Requirement”) with respect to our Class A ordinary shares, which requires us to maintain an aggregate market value of listed securities of at least $35.0 million for continued listing on The Nasdaq Capital Market (the “Notice”). The Notice additionally indicates that we have 180 calendar days from the date of the Notice (the “Compliance Period”), or until December 13, 2023, to regain compliance with the MVLS Listing Requirement. Further, the Notice states that if at any time during the Compliance Period the market value of our Class A ordinary shares closes at a value of at least $35.0 million for a minimum of ten consecutive business days, Nasdaq will provide written confirmation of compliance and the matter will be closed.
The Notice serves only as a notification of deficiency, not of imminent delisting, and has no current effect on the listing or trading of our Class A ordinary shares on The Nasdaq Capital Market. While we are exercising diligent efforts to maintain the listing of our Class A ordinary shares on The Nasdaq Capital Market, there can be no assurance that we will be able to regain compliance with the MVLS Listing Requirement within the Compliance Period or otherwise maintain compliance with other continued listing requirements with respect to any of our listed securities. In addition, if we do not meet the MVLS Listing Requirement by the end of the Compliance Period, our Class A ordinary shares will become subject to delisting. In the event we receive notice that our Class A ordinary shares are being delisted, Nasdaq’s rules permit us to appeal any delisting determination by the Nasdaq staff to a hearings panel.
See “Risk Factors—Nasdaq may delist our securities from trading on its exchange, which could limit investors’ ability to make transactions in our securities and subject us to additional trading restrictions” in this this Quarterly Report.
Liquidity and Capital Resources
As of June 30, 2023, we had cash outside the trust account of $27,426 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 June 30, 2023, none of the amount in the trust account was available to be withdrawn as described above.
Through June 30, 2023, 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. On August 18, 2022, we further amended and restated the Note to increase the Note’s principal amount to $750,000. On April 17, 2023, we again amended and restated the Note to increase its principal amount to $1,500,000. As of June 30, 2023 and December 31, 2022, we had $1,500,000 and $750,000 in borrowings outstanding under the Note, respectively. On August 14, 2023, we again amended and restated the Note to increase its principal amount to $2,500,000.
Until consummation of our business combination, we will be using the funds not held in the trust account, 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), 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.
If our estimates of the costs of undertaking in-depth due diligence and negotiating an initial business combination are less than the actual amounts necessary to do so, we may have insufficient funds available to operate our business prior to the consummation of our initial business combination and may need to raise additional capital, e.g., through loans from our Sponsor, officers, directors or third parties. If we are unable to raise additional capital, we 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 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. We cannot assure you that our plans to consummate an initial business combination before March 26, 2024 (absent any further extensions of such period with shareholder approval) will be successful.
In addition, we only have until March 26, 2024 (as such period may be further extended pursuant to a shareholder vote) to complete our initial business combination. If we have not completed our initial business combination within this period, we 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 Class A ordinary 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, and subject to our 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 our warrants, which will expire worthless if we do not complete our initial business combination within the period.
Management has determined that we could have insufficient liquidity to meet our anticipated obligations for at least twelve months after the unaudited condensed financial statements are available to be issued due to recurring operating losses and negative cash utilized in operating activities. We will need to raise additional capital through loans or additional investments from our Sponsor, shareholders, officers, directors or third parties as needed. Our officers, directors and Sponsor may, but are not obligated to, loan us funds, from time to time or at any time, in whatever amount they deem reasonable in their sole discretion, to meet our working capital needs. Accordingly, we may not be able to obtain additional financing. We cannot provide any assurance that new financing will be available to us on acceptable terms, if at all. These conditions raise substantial doubt about our ability to continue as a going concern.
In connection with our assessment of going concern considerations in accordance with FASB ASC Topic 205-40, “Presentation of Financial Statements—Going Concern,” management has also determined that the mandatory liquidation date and subsequent dissolution raises substantial doubt about our ability to continue as a going concern. If we are unable to complete our initial business combination by March 26, 2024 (unless such a period is further extended as described herein), then we will cease all operations except for the purpose of liquidating. No adjustments have been made to the carrying amounts of assets or liabilities should we be required to liquidate after March 26, 2024.
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 June 30, 2023 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 June 30, 2023, we had $112,901 in net income. We recovered $72,271 in operating income and dividends earned on the amounts held in the trust account were $211,610. We also experienced a change in fair value of our warrant liabilities of $170,980.
For the six months ended June 30, 2023, we had $37,487 in net income. We incurred dividends earned on the trust account of $2,046,305 on our amounts held in the trust account. We experienced a change in fair value of our warrant liabilities of $1,141,887 and $866,931 of operating costs.
For the three months ended June 30, 2022, we had $2,688,681 in net income. We incurred $330,090 of formation and operating costs. We experienced a decrease in fair value of our warrant liabilities of $2,647,404 and dividends earned on the trust account of $371,367 on our amounts held in the trust account.
For the six months ended June 30, 2022, we had $10,078,935 in net income. We incurred $810,016 of formation and operating costs. We experienced a decrease in fair value of our warrant liabilities of $10,489,890 and dividends earned on the trust account of $399,061 on our amounts held in the trust account.
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.
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 June 30, 2023 and December 31, 2022, we had $1,500,000 and $750,000, in 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. On August 18, 2022, we further amended and restated the Note to increase the Note’s principal amount to $750,000. On April 17, 2023, we again amended and restated the Note to increase its principal amount to $1,500,000. On August 14, 2023, we further amended and restated the Note to increase its principal amount to $2,500,000.
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.
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 June 30, 2023 and December 31, 2022, 1,709,100 and 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 sheets. In connection with the shareholders’ vote at the Extraordinary Meeting, the holders of 25,790,900 Class A ordinary shares properly exercised their right to redeem their shares for cash at a redemption price of approximately $10.20 per share, for an aggregate redemption amount of $263,071,274.
Net Income 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 per ordinary share is the same as basic net income 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.
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.
Off-Balance Sheet Arrangements
As of June 30, 2023 and December 31, 2022, 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.
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.
| Item 4. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
Disclosure controls are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act, such as this Quarterly Report, is recorded, processed, summarized, and reported within the time period specified in the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure. Our management evaluated, with the participation of our current chief executive officer and chief financial officer (our “Certifying Officers”), the effectiveness of our disclosure controls and procedures as of June 30, 2023, pursuant to Rule 13a-15(b) under the Exchange Act.
We determined that we had initially recorded our public and private warrants as equity instruments instead of as liabilities in our balance sheet as of March 26, 2021 and failed to record the liability related to the over-allotment option, which we filed with our Current Report on Form 8-K on April 1, 2021.
As such, our internal control over financial reporting was not deemed adequate and resulted in classifying certain of the warrants we issued in March 2021 as equity in error. We determined this to be a material weakness. This error in classification was brought to our attention when the Staff issued the SEC Warrant Statement. The SEC Warrant Statement addresses certain accounting and reporting considerations related to warrants of a kind similar to those we issued at the time of our initial public offering in March 2021.
On May 27, 2021, we filed with the SEC Amendment No. 1 on Form 8-K/A to amend and restate our audited balance sheet as of March 26, 2021 to reflect the classification of our warrants as a liability, in accordance with the SEC Statement.
In addition, as part of a review of our accounting for complex financial instruments during the fiscal quarter ended March 31, 2022, we also restated our accounting for our Class A ordinary shares subject to possible redemption to comply with guidance in ASC 480. Redeemable equity instruments (including equity instruments that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of certain events not solely within our control) are classified as temporary equity. Accordingly, we have determined that all of our outstanding Class A ordinary shares should be presented as temporary equity, outside of the shareholders’ deficit section of our balance sheet.
On November 22, 2021, we filed with the SEC Amendment No. 2 on Form 8-K/A to amend and restate our audited balance sheet as of March 26, 2021 to reflect the classification of all of our outstanding Class A ordinary shares as temporary equity.
During the financial close process for the three months ended March 31, 2022, we identified a material weakness related to the Company’s review of accrued liabilities, specifically, the deferred legal fees mentioned in Note 6. While we have a control to reconcile accrued liabilities, we plan to continue to enhance our control around the search of unrecorded liabilities. The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects.
As a result of errors identified in the financial reporting and closing process, we determined that a material weakness existed in our internal control.
As required by Rules 13a-15f and 15d-15 under the Exchange Act, our Certifying Officers carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2023. Based upon their evaluation, given the material weakness in our internal control over financial reporting described below, our Certifying Officers concluded that our disclosure controls and procedures (as defined in Rules 13a-15 (e) and 15d-15 (e) under the Exchange Act) were not effective as of June 30, 2023.
Notwithstanding the identified material weakness as of June 30, 2023, management, including the Certifying Officers, believe that the unaudited condensed financial statements contained in this Quarterly Report fairly present, in all material respects, our financial condition, results of operations and cash flows for the fiscal period presented in conformity with GAAP.
We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
None.
Factors that could cause our actual results to differ materially from those in this Quarterly Report are any of the risks described in the Prospectus, our Annual Report on Form 10-K for the year ended December 31, 2022 (the “Annual Report”). As of the date of this Quarterly Report, there have been no material changes to the risk factors described in the Prospectus or the Annual Report, except for the below. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations.
Nasdaq may delist our securities from trading on its exchange, which could limit investors’ ability to make transactions in our securities and subject us to additional trading restrictions.
Our units, Class A ordinary shares and warrants are listed on Nasdaq. Although in connection with our initial public offering we met the minimum initial listing standards set forth in the Nasdaq listing standards, we cannot assure you that our securities will be, or will continue to be, listed on Nasdaq in the future or prior to our initial business combination. In order to continue listing our securities on Nasdaq prior to our initial business combination, we must maintain certain financial, distribution and share price levels. In general, following our initial public offering, we must maintain a minimum amount in shareholders’ equity (generally $2.5 million) or a market value of our listed securities (generally $35.0 million) and a minimum number of holders of our securities (generally 300 public holders).
On June 16, 2023, we received a written notice from the Listing Qualifications Department of Nasdaq indicating that we were no longer in compliance with the MVLS Listing Requirement with respect to our Class A ordinary shares, which requires us to maintain an aggregate market value of listed securities of at least $35.0 million for continued listing on The Nasdaq Capital Market. The Notice additionally indicates that we have 180 calendar days from the date of the Notice, or until December 13, 2023, to regain compliance with the MVLS Listing Requirement. Further, the Notice states that if at any time during the Compliance Period the market value of our Class A ordinary shares closes at a value of at least $35.0 million for a minimum of ten consecutive business days, Nasdaq will provide written confirmation of compliance and the matter will be closed.
The Notice serves only as a notification of deficiency, not of imminent delisting, and has no current effect on the listing or trading of our Class A ordinary shares on The Nasdaq Capital Market. While we are exercising diligent efforts to maintain the listing of our Class A ordinary shares on The Nasdaq Capital Market, there can be no assurance that we will be able to regain compliance with the MVLS Listing Requirement within the Compliance Period or otherwise maintain compliance with other continued listing requirements with respect to any of our listed securities. In addition, if we do not meet the MVLS Listing Requirement by the end of the Compliance Period, our Class A ordinary shares will become subject to delisting. In the event we receive notice that our Class A ordinary shares are being delisted, Nasdaq’s rules permit us to appeal any delisting determination by the Nasdaq staff to a hearings panel.
Additionally, in connection with our initial business combination, we will be required to demonstrate compliance with Nasdaq’s initial listing requirements, which are more rigorous than Nasdaq’s continued listing requirements, in order to continue to maintain the listing of our securities on Nasdaq. For instance, our share price would generally be required to be at least $4.00 per share and our shareholders’ equity would generally be required to be at least $5.0 million. We cannot assure you that we will be able to meet those initial listing requirements at that time.
If Nasdaq delists our securities from trading on its exchange and we are not able to list our securities on another national securities exchange, we expect our securities could be quoted on an over-the-counter market. If this were to occur, we could face significant material adverse consequences, including:
| • | a limited availability of market quotations for our securities; |
| • | reduced liquidity for our securities; |
| • | a determination that our Class A ordinary shares are a “penny stock” which will require brokers trading in our Class A ordinary shares to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities; |
| • | a limited amount of news and analyst coverage; and |
| • | a decreased ability to issue additional securities or obtain additional financing in the future. |
The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as “covered securities.” Because our units, Class A ordinary shares and warrants are listed on Nasdaq, our units, Class A ordinary shares and warrants qualify as covered securities under the statute. Although the states are preempted from regulating the sale of our securities, the federal statute does allow the states to investigate companies if there is a suspicion of fraud, and, if there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular case. While we are not aware of a state having used these powers to prohibit or restrict the sale of securities issued by blank check companies, other than the State of Idaho, certain state securities regulators view blank check companies unfavorably and might use these powers, or threaten to use these powers, to hinder the sale of securities of blank check companies in their states. Further, if we were no longer listed on Nasdaq, our securities would not qualify as covered securities under the statute and we would be subject to regulation in each state in which we offer our securities.
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
Use of Proceeds
Of the $277,000,000 in proceeds we received from our Initial Public Offering and the sale of the private placement warrants, a total of $275,000,000, including $9,625,000 payable to the underwriters for a deferred underwriting discount, was placed in a U.S.-based trust account maintained by Continental Stock Transfer & Trust Company, acting as trustee. We incurred a total of $587,871 of other costs and expenses related to our initial public offering and the sale of the private placement warrants. The remaining proceeds were used for working capital purposes.
There has been no material change in the planned use of proceeds from such use as described in our registration statement on Form S-1 (File No. 333-253971), which was declared effective by the SEC on March 23, 2021.
| Item 3. | Defaults Upon Senior Securities |
None.
| Item 4. | Mine Safety Disclosures |
Not applicable.
On August 14, 2023, we amended and restated the unsecured promissory note issued to an affiliate of the sponsor to increase its principal amount to up to $2,500,000. 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) thirty-six (36) 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 completion of an 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.
The foregoing description is qualified in its entirety by the full text of the Note, which is filed as Exhibit 10.1 hereto and incorporated by reference herein.
| Exhibit Number | | Description |
| | Fourth Amended and Restated Promissory Note, dated August 14, 2023, issued by Disruptive Acquisition Corporation I to an affiliate of Disruptive Acquisition Sponsor I, LLC. |
| | Certification of Chief Executive Officer (Principal Executive Officer) Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | Certification of Chief Financial Officer (Principal Financial and Accounting Officer) Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
| | Certification of Chief Executive Officer (Principal Executive Officer) Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| | Certification of Chief Financial Officer (Principal Financial and Accounting Officer) Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. |
| 101.INS | | XBRL Instance Document. |
| 101.SCH | | XBRL Taxonomy Extension Schema Document. |
| 101.CAL | | XBRL Taxonomy Extension Calculation Linkbase Document. |
| 101.DEF | | XBRL Taxonomy Extension Definition Linkbase Document. |
| 101.LAB | | XBRL Taxonomy Extension Label Linkbase Document. |
| 101.PRE | | XBRL Taxonomy Extension Presentation Linkbase Document. |
| 104 | | Cover Page Interactive Data File (embedded within the Inline XBRL document). |
| * | These certifications are furnished to the SEC pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall they be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference in such filing. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| | By: | /s/ Phillip C. Caputo |
| | | Name: | Phillip C. Caputo |
| | | Title: | Chief Financial Officer |
| | | | |
| Dated: August 14, 2023 | | | |
