Brand Engagement Network Inc.(BNAI) - 2023 Q2 - Quarterly Report

Form 10-Q General Information This section provides general information on DHC Acquisition Corp.'s Form 10-Q filing, company status, and outstanding shares - DHC Acquisition Corp. filed a Quarterly Report (Form 10-Q) for the period ended June 30, 2023[2] - The registrant is a Cayman Islands company, identified as an emerging growth company, non-accelerated filer, smaller reporting company, and a shell company[2][3] Outstanding Shares (as of August 14, 2023) | Share Class | Number of Shares | | :------------------ | :--------------- | | Class A ordinary shares | 4,646,574 | | Class B ordinary shares | 7,736,268 | Part I. Financial Information This part presents the unaudited condensed consolidated financial statements and management's discussion and analysis Item 1. Interim Financial Statements This section presents DHC Acquisition Corp.'s unaudited condensed consolidated financial statements and related accounting notes Condensed Consolidated Balance Sheets Total Assets | Date | Amount | | :--------------- | :------------- | | June 30, 2023 | $48,699,510 | | December 31, 2022| $314,188,855 | Cash and investments held in Trust Account | Date | Amount | | :--------------- | :------------- | | June 30, 2023 | $48,590,022 | | December 31, 2022| $313,913,217 | Total Liabilities | Date | Amount | | :--------------- | :------------- | | June 30, 2023 | $17,710,533 | | December 31, 2022| $16,436,118 | Unaudited Condensed Consolidated Statements of Operations Net Income (Loss) | Period | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :--------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net Income (Loss) | $(256,335) | $2,768,684 | $1,821,734 | $5,599,330 | Basic and Diluted Net Income (Loss) per share, Class A ordinary shares | Period | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :--------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | EPS (Class A) | $(0.02) | $0.07 | $0.08 | $0.14 | Unaudited Condensed Consolidated Statements of Changes in Shareholders' Deficit Total Shareholders' Deficit | Date | Amount | | :--------------- | :--------------- | | June 30, 2023 | $(17,633,610) | | March 31, 2023 | $(16,857,965) | | January 1, 2023 | $(16,160,480) | | June 30, 2022 | $(13,753,437) | | March 31, 2022 | $(16,074,050) | | January 1, 2022 | $(18,904,696) | Unaudited Condensed Consolidated Statements of Cash Flows Net Cash Used in Operating Activities | Period | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :--------------------- | :--------------------------- | :--------------------------- | | Net Cash Used | $(482,314) | $(455,829) | Net Cash Provided by Investing Activities | Period | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :--------------------- | :--------------------------- | :--------------------------- | | Net Cash Provided | $268,585,494 | — | Cash – End of the period | Date | Amount | | :--------------- | :------------- | | June 30, 2023 | $30,294 | | June 30, 2022 | $405,645 | Notes to Unaudited Condensed Consolidated Financial Statements NOTE 1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS - DHC Acquisition Corp. is a blank check company formed to effect a business combination, with its wholly-owned subsidiary, Glory Merger Subsidiary Corp., created on July 22, 2022[14] - Shareholders approved an extension of the business combination period from March 4, 2023, to December 4, 2023. In connection with this, 26,298,498 Class A ordinary shares were redeemed for approximately $268,585,000[15][33] - The Business Combination Agreement with With Purpose, Inc. (d/b/a GloriFi, Inc.) was terminated on January 26, 2023, due to GloriFi winding down its operations[30][78] - As of June 30, 2023, the Company had $30,294 in its operating bank account and a working capital deficit of $6,026,818, raising substantial doubt about its ability to continue as a going concern if a business combination is not consummated by December 4, 2023[31][34] NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - The unaudited condensed consolidated financial statements are prepared in accordance with GAAP for interim financial information, with certain disclosures condensed or omitted per SEC rules[35] - The Company is an 'emerging growth company' and has elected not to opt out of the extended transition period for complying with new or revised financial accounting standards[37][38] - Assets held in the Trust Account decreased significantly from $313,913,217 (primarily U.S. Treasury Securities) at December 31, 2022, to $48,590,022 (cash) at June 30, 2023[42] - A Trust Account receivable of $32,565 remains from an overpayment to redeeming shareholders due to a clerical error, which the Company expects to fully recover[43] NOTE 3. PUBLIC OFFERING - The Initial Public Offering (IPO) involved the sale of 30,000,000 Units at $10.00 per Unit, generating gross proceeds of $300,000,000[57] - Underwriters partially exercised their over-allotment option, resulting in an additional 945,072 Units issued for $9,450,720[57] - An aggregate of $309,450,720 from the IPO and over-allotment was deposited into the Trust Account[57] NOTE 4. PRIVATE PLACEMENT - The Sponsor purchased 6,000,000 Private Placement Warrants at $1.50 per warrant, generating $9,000,000, and an additional 126,010 warrants for $189,015[58] - Proceeds from Private Placement Warrants were added to the Trust Account; if no Business Combination, these warrants will expire worthless[58] NOTE 5. RELATED PARTY TRANSACTIONS - The Sponsor initially received 7,187,500 Class B ordinary shares for $25,000, which was adjusted to 8,625,000 shares, with 888,732 shares subsequently forfeited[60] - The Company pays an affiliate of the Sponsor $10,000 per month for administrative services[62] - The Sponsor advanced $300,000 to the Company in March and April 2023, which is non-interest bearing and payable on demand[64] - The Sponsor entered into Non-Redemption Agreements, agreeing to transfer 150,000 Class B ordinary shares (fair value $744,274) to third parties who committed not to redeem 400,000 Class A ordinary shares[66][67] NOTE 6. COMMITMENTS AND CONTINGENCIES - Management is evaluating the impact of the COVID-19 pandemic and global conflicts (e.g., Russia-Ukraine) on the Company's financial position and ability to complete a Business Combination[68][69] - Holders of Founder Shares, Private Placement Warrants, and warrants from Working Capital Loans are entitled to registration rights[70] - A deferred underwriting fee of $10,830,775 is payable to underwriters only upon the completion of a Business Combination[73] - The Business Combination Agreement with GloriFi was terminated on January 26, 2023, due to GloriFi's decision to wind down operations[78] NOTE 7. SHAREHOLDERS' DEFICIT - The Company is authorized to issue 5,000,000 preference shares, but none were issued or outstanding as of June 30, 2023, and December 31, 2022[80] - As of June 30, 2023, 4,646,574 Class A ordinary shares were subject to possible redemption, compared to 30,945,072 shares at December 31, 2022[81] - There were 7,736,268 Class B ordinary shares issued and outstanding, which convert to Class A shares on a one-for-one basis upon a Business Combination, subject to anti-dilution adjustments[82][83] NOTE 8. WARRANT LIABILITIES - There were 10,315,024 Public Warrants outstanding, exercisable on the later of one year from IPO closing or 30 days after a Business Combination, expiring five years after a Business Combination[85] - The Company may redeem Public Warrants at $0.01 per warrant if the Class A ordinary share price equals or exceeds $18.00 for 20 trading days within a 30-day period[88] - The Company may also redeem outstanding warrants at $0.10 per warrant if the Class A ordinary share price equals or exceeds $10.00 for 20 trading days within a 30-day period, with holders having a cashless exercise option[90] - There were 6,126,010 Private Placement Warrants outstanding, which are identical to Public Warrants but are not transferable/assignable/salable until 30 days post-Business Combination and are non-redeemable if held by initial purchasers or permitted transferees[92] NOTE 9. FAIR VALUE MEASUREMENTS - The Company classifies financial assets and liabilities using a fair value hierarchy (Level 1, 2, 3) based on the observability of inputs[93] Warrant Liabilities Fair Value (Level 2) | Liability | June 30, 2023 | December 31, 2022 | | :--------------------------------- | :------------ | :---------------- | | Public Warrants | $486,869 | $103,150 | | Private Placement Warrants | $289,148 | $61,260 | - Warrant liabilities are measured at fair value at inception and on a recurring basis, with changes recognized in the statements of operations. Valuation methods include Monte Carlo Simulation and public market prices[97][98] NOTE 10. SUBSEQUENT EVENTS - The Company did not identify any subsequent events requiring adjustment or disclosure in the unaudited condensed consolidated financial statements up to the date of issuance[100] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the Company's financial condition, operational results, business combination status, and liquidity challenges Overview - DHC Acquisition Corp. is a blank check company formed to effect a merger, share exchange, asset acquisition, share purchase, reorganization, or similar business combination[104] - The Business Combination Agreement with GloriFi was terminated on January 26, 2023, due to GloriFi's public announcement of winding down operations[104] - Shareholders approved an extension of the business combination period from March 4, 2023, to December 4, 2023. This was accompanied by redemptions of 26,298,498 Class A ordinary shares for approximately $269,585,000, which could adversely impact the ability to consummate a business combination[105] Results of Operations - The Company has not generated any operating revenues to date and does not expect to until after the completion of a Business Combination[107] Net Income (Loss) Summary | Period | 3 Months Ended June 30, 2023 | 3 Months Ended June 30, 2022 | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :--------------------- | :--------------------------- | :--------------------------- | :--------------------------- | :--------------------------- | | Net Income (Loss) | $(256,335) | $2,768,684 | $1,821,734 | $5,599,330 | - Net income/loss is primarily influenced by operating and formation costs, changes in the fair value of warrant liabilities, and interest earned on cash and investments held in the Trust Account[108][109][110][111] Liquidity and Capital Resources - Initial funding included $300,000,000 from the IPO, $9,000,000 from Private Placement Warrants, and $9,450,720 from the over-allotment option, totaling $309,450,720 placed in the Trust Account[112][113][114] Cash Used in Operating Activities | Period | 6 Months Ended June 30, 2023 | 6 Months Ended June 30, 2022 | | :--------------------- | :--------------------------- | :--------------------------- | | Cash Used | $(482,314) | $(455,829) | - As of June 30, 2023, the Trust Account held $48,590,022 in cash, significantly reduced by approximately $268,585,000 in redemptions. The funds are now in an interest-bearing cash bank account[117] - Management has determined that the Company's current liquidity and the mandatory liquidation date of December 4, 2023, if a business combination is not consummated, raise substantial doubt about its ability to continue as a going concern[122][123] Off-Balance Sheet Arrangements - The Company has no obligations, assets, or liabilities considered off-balance sheet arrangements as of June 30, 2023[124] Contractual Obligations - The Company has an agreement to pay an affiliate of its Sponsor $10,000 per month for administrative services until a Business Combination or liquidation[125] - A deferred underwriting fee of $10,830,775 is payable to the underwriters only upon the completion of a Business Combination[126] Critical Accounting Policies - Warrant liabilities are classified as liabilities at fair value and re-measured at each balance sheet date, with changes recognized in the statements of operations. Valuation uses Monte Carlo simulation or public market prices[128] - Class A ordinary shares subject to possible redemption are classified as temporary equity at redemption value due to redemption rights outside the Company's control[129] - Net income (loss) per ordinary share is computed using the two-class method, excluding accretion associated with redeemable Class A ordinary shares[130] - The Company is assessing the impact of ASU 2020-06, effective January 1, 2024, which simplifies accounting for certain financial instruments[131] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, DHC Acquisition Corp. is not required to provide quantitative and qualitative disclosures about market risk - The Company is not required to provide quantitative and qualitative disclosures about market risk due to its status as a smaller reporting company[132] Item 4. Controls and Procedures The Company's CEO and CFO concluded that disclosure controls and procedures were not effective as of June 30, 2023, primarily due to issues with review and approval procedures for quarterly financial statements. Management plans to enhance these procedures - The Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were not effective as of June 30, 2023, specifically regarding review and approval procedures for quarterly financial statements[133] - Management intends to enhance review and approval procedures for quarterly financial statements through improved analyses by personnel and third-party professionals[133] - There were no material changes in internal control over financial reporting during the fiscal quarter ended June 30, 2023[134] Part II. Other Information This part covers legal proceedings, risk factors, equity sales, defaults, mine safety, other information, and exhibits Item 1. Legal Proceedings DHC Acquisition Corp. reported no legal proceedings as of the filing date - The Company reported no legal proceedings[134] Item 1A. Risk Factors There have been no material changes to the risk factors previously disclosed in the Company's Annual Report on Form 10-K for the period ended December 31, 2022 - There have been no material changes to the risk factors disclosed in the Company's Annual Report on Form 10-K for the period ended December 31, 2022[135] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds This section details the unregistered sales of equity securities, specifically Private Placement Warrants, and the use of proceeds from the Initial Public Offering and related transactions - The Initial Public Offering generated $300,000,000 from the sale of 30,000,000 Units at $10.00 per unit[136] - The Sponsor consummated the private placement of 6,000,000 Warrants at $1.50 per warrant, generating $9,000,000, and an additional 126,010 Private Placement Warrants for $189,015, under the Section 4(a)(2) exemption[137][139] - An aggregate of $309,450,720 from the IPO, over-allotment option, and Private Placement Warrants was placed in the Trust Account[140] Item 3. Defaults Upon Senior Securities DHC Acquisition Corp. reported no defaults upon senior securities - The Company reported no defaults upon senior securities[141] Item 4. Mine Safety Disclosures DHC Acquisition Corp. reported no mine safety disclosures - The Company reported no mine safety disclosures[141] Item 5. Other Information DHC Acquisition Corp. reported no other information - The Company reported no other information[141] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, covering organizational documents, agreements, and certifications - Key exhibits include the Memorandum and Articles of Association, Amendment to the Amended and Restated Memorandum and Articles of Association, Form of Non-Redemption Agreements, and certifications from the Principal Executive Officer and Principal Financial Officer[143] - Inline XBRL documents (Instance, Schema, Calculation, Definition, Labels, Presentation Linkbase Documents, and Cover Page Interactive Data File) are filed as part of the report[143] Part III. Signatures This part contains the required signatures for the Form 10-Q filing - The report was signed on August 14, 2023, by Christopher Gaertner, serving as both Co-Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial and Accounting Officer) for DHC Acquisition Corp[145]