DRAGONEER GROWTH OPPORTUNITIES CORP. III References in this report (the "Quarterly Report") to "we," "us" or the "Company" refer toDragoneer Growth Opportunities Corp. III . References to our "management" or our "management team" refer to our officers and directors, and references to the "Sponsor" refer toDragoneer Growth Opportunities Holdings III. 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 Securities 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 final prospectus for its Initial Public Offering filed with theU.S. Securities and Exchange Commission (the "SEC"). The Company's securities filings can be accessed on the EDGAR section of theSEC'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. Overview We are a blank check company incorporated in theCayman Islands onSeptember 25, 2020 formed for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses or entities. We intend to effectuate our Business Combination using cash derived from the proceeds of the Initial Public Offering and the sale of the Private Placement Warrants, our shares, debt or a combination of cash, shares 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. Recent Developments OnJune 18, 2021 , we entered into a convertible promissory note with the Sponsor pursuant to which the Sponsor agreed to loan us up to an aggregate principal amount of$3,000,000 (the "Convertible Promissory Note"), which we drew in full on the same day. The Convertible Promissory Note is non-interest bearing and due on the date on which we consummate a Business Combination. If we do not consummate a Business Combination, we may use a portion of any funds held outside the Trust Account to repay the Convertible Promissory Note; however, no proceeds from the Trust Account may be used for such repayment. If such funds are insufficient to repay the Convertible Promissory Note, the unpaid amounts would be forgiven. Up to$3,000,000 of the Convertible Promissory Note may be converted into warrants at a price of$1.00 per warrant at the option of the Sponsor. The warrants would be identical to the Private Placement Warrants. Results of Operations We have neither engaged in any operations nor generated any revenues to date. Our only activities throughJune 30, 2021 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 will 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 endedJune 30, 2021 , we had a net loss of$3,955,375 , which relates to formation and operating costs of$365,526 , a change in fair value of warrant liability of$3,021,878 , a loss on the issuance of the private Placement Warrants of$515,358 , and interest expense related to the authorization of the debt discount of$52,613 . For the six months endedJune 30, 2021 , we had a net loss of$10,506,403 , which consisted primarily of formation and operating costs of$435,889 , a change in fair value of warrant liability of$2,209,144 , a loss on the issuance of the private Placement Warrants of$7,767,566 , interest expense related to the amortization of the debt discount of$52,613 , and transaction costs allocable to the warrant liability of$41,191 . Liquidity and Capital Resources OnMarch 25, 2021 , we consummated the Initial Public Offering of 40,000,000 Class A Public Shares at$10.00 per Public Share, generating gross proceeds of$400,000,000 . Simultaneously with the closing of the Initial Public Offering, we consummated the sale of 10,000,000 Private Placement Warrants at a price of$1.00 per Private Placement Warrant in a private placement to the Sponsor, generating gross proceeds of$10,000,000 . OnMay 6, 2021 , the underwriters partially exercised their over-allotment option, resulting in an additional 3,067,606 Public Shares issued for an aggregate amount of$30,676,060 . In connection with the underwriters' partial exercise of their over-allotment option, the Company also consummated the sale of 613,522 Private Placement Warrants at$1.00 per Private Placement Warrant, generating total gross proceeds of$613,522 . A total of$30,676,060 was deposited into the Trust Account, bringing the aggregate proceeds held in the Trust Account to$430,676,060 . 16
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For the six months ended
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As of June 30, 2021 , we had cash held in the Trust Account of $430,676,061 .
Interest income on the balance in the Trust Account may be used by us to pay
taxes. Through June 30, 2021 , we have not withdrawn any interest earned from the
Trust Account.
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 share capital 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.
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 $3,000,000 of such loans may be convertible into warrants
at a price of $1.00 per warrant, at the option of the lender. The warrants would
be identical to the Private Placement Warrants.
On June 18, 2021 , we entered into a convertible promissory note with the Sponsor
pursuant to which the Sponsor agreed to loan us up to an aggregate principal
amount of $3,000,000 (the "Convertible Promissory Note"), which we drew in full
on the same day. The Convertible Promissory Note is
non-interest
bearing and due on the date on which we consummate a Business Combination. If we
do not consummate a Business Combination, we may use a portion of any funds held
outside the Trust Account to repay the Convertible Promissory Note; however, no
proceeds from the Trust Account may be used for such repayment. If such funds
are insufficient to repay the Convertible Promissory Note, the unpaid amounts
would be forgiven. Up to $3,000,000 of the Convertible Promissory Note may be
converted into warrants at a price of $1.00 per warrant at the option of the
Sponsor. The warrants would be identical to the Private Placement Warrants.
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 estimate of
the costs of identifying a target business, undertaking
in-depth
due diligence and negotiating a Business Combination are less than the actual
amount necessary to do so, we may have insufficient funds available to operate
our business prior to our Business Combination. Moreover, we may need to obtain
additional financing either to complete our Business Combination or because we
become obligated to redeem a significant number of our Public Shares upon
consummation of our Business Combination, in which case we may issue additional
securities or incur debt in connection with such Business Combination.
Off-Balance
Sheet Arrangements
We have no obligations, assets or liabilities, which would be considered
off-balance
sheet arrangements as of June 30, 2021 . 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
The underwriters are entitled to a deferred fee of $0.35 per Public Share, or
$15,073,661 in the aggregate. The deferred fee will become payable to the
underwriters from the amounts held in the Trust Account solely in the event that
the Company completes a Business Combination, subject to the terms of the
underwriting agreement.
The Company entered into a forward purchase agreement pursuant to which an
affiliate of the Sponsor agreed to purchase an aggregate of up to 5,000,000
forward purchase shares for $10.00 per share, or up to $50,000,000 in the
aggregate, in a private placement to close substantially concurrently with the
initial Business Combination. The Company will determine in its sole discretion
the specific number of forward purchase shares that it sells to the purchaser,
if any. The funds from the sale of forward purchase shares may be used as part
of the consideration to the sellers in the initial Business Combination,
expenses in connection with the initial Business Combination or for working
capital in the post transaction company. The obligations under the forward
purchase agreement do not depend on whether any public shareholders elect to
redeem their shares and provide the Company with a minimum funding level for the
initial Business Combination.
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:
Warrant Liability
We account for the warrants issued in connection with our Initial Public
Offering in accordance with the guidance contained in ASC 815 under which the
warrants do not meet the criteria for equity treatment and must be recorded as
liabilities. Accordingly, we classify the warrants as liabilities at their fair
value and adjust the warrants to fair value at each reporting period. This
liability is subject to
re-measurement
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 was
estimated using a Modified Black Scholes Option Pricing Model.
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Derivative Financial Instruments
We evaluate our financial instruments to determine if such instruments are
derivatives or contain features that qualify as embedded derivatives in
accordance with ASC Topic 815, "Derivatives and Hedging". For derivative
financial instruments that are accounted for as liabilities, the derivative
instrument is initially recorded at its fair value on the issuance date and is
then revalued at each reporting date, with changes in the fair value reported in
the statements of operations. The classification of derivative instruments,
including whether such instruments should be recorded as liabilities or as
equity, is evaluated at the end of each reporting period. Derivative liabilities
are classified in the balance sheet as current or
non-current
based on whether or not
net-cash
settlement or conversion of the instrument could be required within 12 months of
the balance sheet date.
Class A Ordinary Shares Subject to Possible Redemption
We account for our ordinary shares subject to possible conversion in accordance
with the guidance in Accounting Standards Codification ("ASC") Topic 480
"Distinguishing Liabilities from Equity." Ordinary shares subject to mandatory
redemption are classified as a liability instrument and 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, ordinary shares
are classified as shareholders' equity. Our ordinary shares feature certain
redemption rights that are considered to be outside of our control and subject
to occurrence of uncertain future events. Accordingly, ordinary shares subject
to possible redemption are presented at redemption value as temporary equity,
outside of the shareholders' equity section of our condensed balance sheets.
Net Loss Per Ordinary Share
We apply the
two-class
method in calculating earnings per share. Net income per ordinary share, basic
and diluted for Class A redeemable ordinary shares is calculated by dividing the
interest income earned on the Trust Account by the weighted average number of
Class A redeemable ordinary shares outstanding since original issuance. Net loss
per ordinary share, basic and diluted for Class B
non-redeemable
ordinary shares is calculated by dividing the net income (loss), less income
attributable to Class A redeemable ordinary shares, by the weighted average
number of Class B
non-redeemable
ordinary shares outstanding for the periods presented.
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 .
We adopted ASU
2020-06
effective January 1,2021 . The adoption of ASU
2020-06
did not have a significant 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not required for smaller reporting companies.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure that information
required to be disclosed by us in our Exchange Act reports is recorded,
processed, summarized, and reported within the time periods specified in the
SEC's rules and forms, and that such information is accumulated and communicated
to our management, including our principal executive officer and principal
financial officer or persons performing similar functions, as appropriate to
allow timely decisions regarding required disclosure.
As required by Rules
13a-15
and
15d-15
under the Exchange Act, our Chief Executive Officer and Chief Operating Officer
(Principal Financial Officer) carried out an evaluation of the effectiveness of
the design and operation of our disclosure controls and procedures as of
June 30, 2021 . Based upon their evaluation, our Chief Executive Officer and
Chief Operating Officer (Principal Financial Officer) 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 due to a material weakness in
internal controls over financial reporting related to inaccurate accounting for
the Private Placement Warrants. In light of this material weakness, we performed
additional analysis as deemed necessary to ensure that our financial statements
were prepared in accordance with GAAP. Accordingly, management believes that the
unaudited condensed consolidated financial statements included in this Quarterly
Report on Form 10-Q present fairly in all material respects our financial
position, results of operations and cash flows for the periods presented.
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Changes in Internal Control over Financial Reporting
During the fiscal quarter ended
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