References in this report (the "Quarterly Report") to "we," "us" or the
"Company" refer to DILA Capital Acquisition Corp. References to our "management"
or our "management team" refer to our officers and directors, and references to
the "Sponsor" refer to DILA Capital Sponsor Group, LLC. 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 Quarterly Report. Certain information
contained in the discussion and analysis set forth below includes
forward-looking statements that involve risks and uncertainties.
Special Note Regarding Forward-Looking Statements
This Quarterly Report includes "forward-looking statements" within the meaning
of Section 27A of the Act of 1933 and Section 21E of the Exchange Act that are
not historical facts and involve risks and uncertainties that could cause actual
results to differ materially from those expected and projected. All statements,
other than statements of historical fact included in this Form 10-Q including,
without limitation, statements in this "Management's Discussion and Analysis of
Financial Condition and Results of Operations" regarding the completion of the
Proposed Business Combination (as defined below), the Company's financial
position, business strategy and the plans and objectives of management for
future operations, are forward-looking statements. Words such as "expect,"
"believe," "anticipate," "intend," "estimate," "seek" and variations and similar
words and expressions are intended to identify such forward-looking statements.
Such forward-looking statements relate to future events or future performance,
but reflect management's current beliefs, based on information currently
available. A number of factors could cause actual events, performance or results
to differ materially from the events, performance and results discussed in the
forward-looking statements, including that the conditions of the Proposed
Business Combination are not satisfied. For information identifying important
factors that could cause actual results to differ materially from those
anticipated in the forward-looking statements, please refer to the Risk Factors
section of the Company's Annual Report on Form 10-K filed with the U.S.
Securities and Exchange Commission (the "SEC"). The Company's securities filings
can be accessed on the EDGAR section of the SEC's website at www.sec.gov. Except
as expressly required by applicable securities law, the Company disclaims any
intention or obligation to update or revise any forward-looking statements
whether as a result of new information, future events or otherwise.
This Management's Discussion and Analysis of Financial Condition and Results of
Operations has been amended and restated to give effect to the restatement of
our financial statements as of June 30, 2021. Management identified errors made
in its historical financial statements where, at the closing of our Initial
Public Offering, we improperly valued our Class A common stock subject to
possible redemption. We previously determined the Class A common stock subject
to possible redemption to be equal to the redemption value of $10.00 per share
of Class A common stock while also taking into consideration a redemption cannot
result in net tangible assets being less than $5,000,001. Management determined
that the Class A common stock issued during the Initial Public Offering can be
redeemed or become redeemable subject to the occurrence of future events
considered outside of the Company's control. Therefore, management concluded
that the redemption value should include all Class A common stock subject to
possible redemption, resulting in the Class A common stock subject to possible
redemption being equal to their redemption value. As a result, management has
noted a reclassification error related to temporary equity and permanent equity.
This resulted in a restatement to the initial carrying value of the Class A
common stock subject to possible redemption with the offset recorded to
additional paid-in capital (to the extent available), accumulated deficit and
Class A common stock.
Overview
We are a blank check company formed under the laws of the State of Delaware on
December 30, 2020 for the purpose of effecting a merger, share exchange, asset
acquisition, stock purchase, recapitalization, reorganization or other similar
business combination with one or more businesses or entities. We intend to
effectuate our Business Combination using cash from the proceeds of the Initial
Public Offering and the sale of the Private Placement Units, our capital stock,
debt or a combination of cash, stock and debt.
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.
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Results of Operations
We have neither engaged in any operations nor generated any revenues to date.
Our only activities from January 1, 2021 (commencement of operations) through
September 30, 2022 were organizational activities, those necessary to prepare
for, the Initial Public Offering, described below, and identifying a target
company for a Business Combination. We do not expect to generate any operating
revenues until after the completion of our Business Combination. We generate
non-operating income in the form of interest income on marketable securities
held in the Trust Account. We incur 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 September 30, 2022, we had a net income of $14,389,
which consists of interest earned on marketable securities held in the Trust
Account of $245,495, interest earned on the operating account of $1 and an
unrealized gain on marketable securities held in our Trust Account of $19,311,
offset by operating costs of $244,932 and provision for income taxes of $5,486.
For the nine months ended September 30, 2022, we had a net loss of $347,270,
which consists of operating costs of $666,918 and provision for income taxes of
$5,486, offset by an unrealized gain on marketable securities held in our Trust
Account of $10,562, interest earned on marketable securities held in the Trust
Account of $314,558, and interest earned on the operating account of $14.
For the three months ended September 30, 2021, we had a net loss of $201,733,
which consists of operating costs of $212,107, offset by an unrealized gain on
marketable securities held in our Trust Account of $3,510, interest income on
marketable securities held in the Trust Account of $6,851, and interest income
on the operating account of $13.
For the nine months ended September 30, 2021, we had a net loss of $275,247,
which consists of an operating costs of $285,197, offset by unrealized gain on
marketable securities held in our Trust Account of $2,239, interest income on
marketable securities held in the Trust Account of $7,698, and interest income
on operating account of $13.
Liquidity and Going Concern
On June 17, 2021, we completed the Initial Public Offering of 5,500,000 Units,
at $10.00 per Unit, generating gross proceeds of $55,000,000. Simultaneously
with the closing of the Initial Public Offering, we consummated the sale of
283,750 Units at a price of $10.00 per Private Placement Unit in a private
placement to the Sponsor, generating gross proceeds of $2,837,500.
On June 29, 2021, in connection with the underwriters' partial exercise of their
over-allotment option, we consummated the sale of an additional 329,980 Units at
a price of $10.00 per Unit, generating total gross proceeds of $3,299,800. In
addition, we also consummated the sale of an additional 8,250 Private Placement
Units at $10.00 per Private Unit, generating total gross proceeds of $82,500.
Following the Initial Public Offering, the partial exercise of the
over-allotment option, and the sale of the Private Placement Units, a total of
$58,299,805 was placed in the Trust Account. We incurred $2,343,755 in Initial
Public Offering related costs, including $1,457,495 of underwriting fees and
$886,260 of other costs, which includes $411,896 of fair value of the Unit
Purchase Option.
For the nine months ended September 30, 2022, cash used in operating activities
was $562,412. Net loss of $347,270 was affected by unrealized gain on marketable
securities held in our Trust Account of $10,562 and interest earned on
marketable securities held in the Trust Account of $314,558. Changes in
operating assets and liabilities provided $109,978 of cash for operating
activities.
For the nine months ended September 30, 2021, cash used in operating activities
was $547,680. Net loss of $275,247 was affected by interest earned on marketable
securities held in the Trust Account of $7,698 and an unrealized gain on
marketable securities held in the Trust Account of $2,239. Changes in operating
assets and liabilities used $262,496 of cash for operating activities.
As of September 30, 2022, we had cash and marketable securities held in the
Trust Account of $58,368,764 consisting of U.S. Treasury Bills with a maturity
of 185 days or less. Interest income on the balance in the Trust Account may be
used by us to pay taxes. Through September 30, 2022, we have withdrawn $271,455
of interest earned from the Trust Account to pay for tax obligations and
reimburse for taxes paid out of the operating account.
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We intend to use substantially all of the funds held in the Trust Account,
including any amounts representing interest earned on the Trust Account (less
income taxes payable), to complete our Business Combination. To the extent that
our capital stock or debt is used, in whole or in part, as consideration to
complete our Business Combination, the remaining proceeds held in the Trust
Account will be used as working capital to finance the operations of the target
business or businesses, make other acquisitions and pursue our growth
strategies.
As of September 30, 2022, we had cash of $138,681. 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 a Business Combination.
In order to fund working capital deficiencies or finance transaction costs in
connection with a Business Combination, the Sponsor, or certain of our officers
and directors or their affiliates may, but are not obligated to, loan us funds
as may be required. If we complete a Business Combination, we would repay such
loaned amounts. In the event that a Business Combination does not close, we may
use a portion of the working capital held outside the Trust Account to repay
such loaned amounts but no proceeds from our Trust Account would be used for
such repayment. Up to $1,500,000 of such loans may be convertible into units at
a price of $10.00 per unit, at the option of the lender. The units would be
identical to the Private Units.
The Company will need to raise additional capital through loans or additional
investments from its Sponsor, stockholders, officers, directors, or third
parties. The Company's officers, directors and Sponsor may, but are not
obligated to, loan the Company funds, from time to time or at any time, in
whatever amount they deem reasonable in their sole discretion, to meet the
Company's working capital needs. Accordingly, the Company may not be able to
obtain additional financing. If the Company is unable to raise additional
capital, it 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 a potential transaction, 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. These conditions
raise substantial doubt about the Company's ability to continue as a going
concern for at least one year from the date that the financial statement was
issued. These financial statements do not include any adjustments relating to
the recovery of the recorded assets or the classification of the liabilities
that might be necessary should the Company be unable to continue as a going
concern.
Off-Balance Sheet Arrangements
We have no obligations, assets or liabilities, which would be considered
off-balance sheet arrangements as of September 30, 2022. We do not participate
in transactions that create relationships with unconsolidated entities or
financial partnerships, often referred to as variable interest entities, which
would have been established for the purpose of facilitating off-balance sheet
arrangements. We have not entered into any off-balance sheet financing
arrangements, established any special purpose entities, guaranteed any debt or
commitments of other entities, or purchased any non-financial assets.
Contractual obligations
We do not have any long-term debt, capital lease obligations, operating lease
obligations or long-term liabilities, other than an agreement to pay the Sponsor
a monthly fee of $10,000 for general and administrative services, including
office space, utilities and administrative support. We began incurring these
fees on June 14, 2021 and will continue to incur these fees monthly until the
earlier of the completion of the Business Combination and our liquidation.
We have engaged EarlyBirdCapital the underwriter in the Initial Public Offering,
as an advisor in connection with our Business Combination to assist in holding
meetings with the Company stockholders to discuss the potential Business
Combination and the target business' attributes, introduce the Company to
potential investors that are interested in purchasing its securities in
connection with its initial Business Combination, assist in obtaining
stockholder approval for the Business Combination and assist with press releases
and public filings in connection with the Business Combination. The Company will
pay EarlyBirdCapital a cash fee for such services upon the consummation of its
initial business combination in an amount equal to 3.5% of the gross proceeds of
the Initial Public Offering.
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Critical Accounting Policies
The preparation of condensed financial statements and related disclosures in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and income and expenses
during the periods reported. Actual results could materially differ from those
estimates. We have identified the following critical accounting policies:
Common Stock Subject to Possible Redemption
We account for our common stock subject to possible conversion in accordance
with the guidance in Accounting Standards Codification ("ASC") Topic 480
"Distinguishing Liabilities from Equity." Common stock subject to mandatory
redemption is classified as a liability instrument and measured at fair value.
Conditionally redeemable common stock (including common stock that features
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) is classified as temporary equity. At all other times, common stock is
classified as stockholders' equity. Our common stock features certain redemption
rights that are considered to be outside of our control and subject to
occurrence of uncertain future events. Accordingly, common stock subject to
possible redemption is presented at redemption value as temporary equity,
outside of the stockholders' equity section of our condensed balance sheets.
Net Loss Per Common Share
Net loss per common stock is computed by dividing net loss by the weighted
average number of common shares outstanding during the period. We apply the
two-class method in calculating earnings per share. Accretion associated with
the redeemable shares of Class A common stock is excluded from loss per share as
the redemption value approximates fair value.
Recent Accounting Standards
In August 2020, the Financial Accounting Standards Board ("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) ("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, with early adoption permitted beginning on
January 1, 2021. The Company adopted ASU 2020-06 on January 1, 2021. The
adoption of ASU 2020-06 did not have an impact on the Company's financial
statements.
Management does not believe that any other recently issued, but not yet
effective, accounting standards, if currently adopted, would have a material
effect on our condensed financial statements.
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