References to the "Company," "Direct Selling Acquisition Corp.," "our," "us" or
"we" refer to Direct Selling Acquisition Corp. References to our "management" or
our "management team" refer to our officers and directors. 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 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 on Form 10-Q includes forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of 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 formed under the laws of the State of Delaware on
March 9, 2021, for the purpose of effecting a merger, capital stock exchange,
asset acquisition, stock purchase, reorganization or other similar Business
Combination with one or more businesses. We intend to effectuate our Business
Combination using cash from the proceeds of the Public Offering and the sale of
the Private Placement Warrants, 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.
Liquidity and Capital Resources
As of September 30, 2022, we had $721,369 in our operating bank account and
working capital of $826,489 (excluding income and Delaware franchise taxes).
In order to finance transaction costs in connection with a Business Combination
or any extension of the deadline by which the Company must consummate its
initial Business Combination or liquidate, the Sponsor or an affiliate of the
Sponsor or certain of the Company's officers and directors may, but are not
obligated to, provide the Company Working Capital Loans. If the Company
completes an initial Business Combination, the Company would repay such loaned
amounts out of the proceeds of the Trust Account released to the Company.
Otherwise, such loans would be repaid only out of funds held outside the Trust
Account. In the event that the initial Business Combination does not close, the
Company may use a portion of the working capital held outside the Trust Account
to repay such loaned amounts but no proceeds from the Trust Account would be
used to repay such loaned amounts. Up to $1,500,000 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,
including as to exercise price, exercisability and exercise period. As of
September 30, 2022, there were no amounts outstanding under any Working Capital
Loans.
The Company will have only 15 months from the closing of the Public Offering
(December 28, 2022) (or 18 months from the closing of the Public Offering if the
Company extends the time to complete a Business Combination by depositing into
the Trust Account for a three-month extension $2,300,000 ($0.10 per share)) or
any extended period of time that the Company may have to consummate an initial
Business Combination.
Based on the foregoing, management believes that the Company will have
sufficient working capital and borrowing capacity to meet its needs through the
earlier of the consummation of a Business Combination or one year from this
filing. Over this time period, the Company will be using these funds for paying
existing accounts payable, identifying and evaluating prospective initial
Business Combination candidates, performing due diligence on prospective target
businesses, paying for travel expenditures, selecting the target business to
merge with or acquire, and structuring, negotiating and consummating the
Business Combination.
Off-Balance Sheet Arrangements
As of September 30, 2022, we did not have any off-balance sheet arrangements.
Risks and Uncertainties
Management is currently evaluating 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 the Company's financial position, results of its operations,
and/or search for a target company, the specific impact is not readily
determinable as of the date of these financial statements. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Various social and political circumstances in the U.S. and around the world
(including wars and other forms of conflict, rising trade tensions between the
United States and China, and other uncertainties regarding actual and potential
shifts in the U.S. and foreign trade, economic and other policies with other
countries, terrorist acts, security operations and catastrophic events such as
fires, floods, earthquakes, tornadoes, hurricanes and global health epidemics),
may also contribute to increased market volatility and economic uncertainties or
deterioration in the U.S. and worldwide. Specifically, the conflict between
Russia and Ukraine and resulting market volatility could adversely affect the
Company's ability to complete a Business Combination. In response to the
conflict between Russia and Ukraine, the U.S. and other countries have imposed
sanctions or other restrictive actions against Russia. Any of the above factors,
including sanctions, export controls, tariffs, trade wars and other governmental
actions, could have a material adverse effect on the Company's ability to
complete a Business Combination and the value of the Company's securities.
Inflation Reduction Act of 2022
On August 16, 2022, the Inflation Reduction Act of 2022 (the "IR Act") was
signed into federal law. The IR Act provides for, among other things, a new U.S.
federal 1% excise tax on certain repurchases of stock by publicly traded U.S.
domestic corporations and certain U.S. domestic subsidiaries of publicly traded
foreign corporations occurring on or after January 1, 2023. The excise tax is
imposed on the repurchasing corporation itself, not its shareholders from which
shares are repurchased. The amount of the excise tax is generally 1% of the fair
market value of the shares repurchased at the time of the repurchase. However,
for purposes of calculating the excise tax, repurchasing corporations are
permitted to net the fair market value of certain new stock issuances against
the fair market value of stock repurchases during the same taxable year. In
addition, certain exceptions apply to the excise tax. The U.S. Department of the
Treasury (the "Treasury") has been given authority to provide regulations and
other guidance to carry out and prevent the abuse or avoidance of the excise
tax.
Any redemption or other repurchase that occurs after December 31, 2022, in
connection with a Business Combination, extension vote or otherwise, may be
subject to the excise tax. Whether and to what extent the Company would be
subject to the excise tax in connection with a Business Combination, extension
vote or otherwise would depend on a number of factors, including (i) the fair
market value of the redemptions and repurchases in connection with the Business
Combination, extension or otherwise, (ii) the structure of a Business
Combination, (iii) the nature and amount of any "PIPE" or other equity issuances
in connection with a Business Combination (or otherwise issued not in connection
with a Business Combination but issued within the same taxable year of a
Business Combination) and (iv) the content of regulations and other guidance
from the Treasury. In addition, because the excise tax would be payable by the
Company and not by the redeeming holder, the mechanics of any required payment
of the excise tax have not been determined. The foregoing could cause a
reduction in the cash available on hand to complete a Business Combination and
in the Company's ability to complete a Business Combination.
Results of Operations
As of September 30, 2022, we had not commenced any operations. All activity for
the period from March 9, 2021 (inception) through September 30, 2022 relates to
our formation and the Public Offering, and, since the closing of the Public
Offering, a search for a Business Combination candidate. We have neither engaged
in any operations nor generated any revenues to date. We will not generate any
operating revenues until after the completion of our initial Business
Combination, at the earliest. We will generate non-operating income in the form
of interest income on cash and cash equivalents from the proceeds derived from
the Public Offering. We expect 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.
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For the three months ended September 30, 2022, we had net income of $1,343,981,
which consisted of $928,000 of a change in fair value of warrant liability,
interest income earned on investments held in the Trust Account of $1,058,397
and the Company's operating bank interest income of $1,303, partially offset by
operating costs amounting to $431,682 and provision for income tax of $212,037.
For the nine months ended September 30, 2022, we had net income of $9,790,293,
which consisted of $10,208,000 of a change in fair value of warrant liability,
interest income earned on investments held in the Trust Account of $1,396,280
and the Company's operating bank interest income of $1,521, partially offset by
operating costs amounting to $1,575,253 and provision for income tax of
$240,255.
For the three months ended September 30, 2021, we had a net loss of $665,953
which consisted of formation and operating costs amounting to $160,580 and
$505,566 of offering expenses related to warrants offset by interest income
earned on cash held in trust account amounting to $193.
For the period from March 9, 2021 (inception) to September 30, 2021, we had a
net loss of approximately $666,572, which consisted of formation and operating
costs amounting to $161,199 and $505,566 of offering expenses related to
warrants offset by interest income earned on cash held in trust account
amounting to $193.
Contractual Obligations
We do not have any long-term debt obligations, capital lease obligations,
operating lease obligations, purchase obligations or long-term liabilities.
Administrative Services Agreement
Commencing on the date that our securities were first listed on the NYSE, we
agreed to pay our Sponsor $10,000 per month for office space, utilities and
secretarial and administrative support services. Upon the earlier of the
completion of the initial Business Combination or our liquidation, we will cease
paying such monthly fees. For the three and nine months ended September 30,
2022, $30,000 and $90,000, respectively, was incurred for the administrative
service fee.
Registration Rights
The holders of the (i) founder shares, which were issued in a private placement
prior to the closing of the Public Offering, (ii) Private Placement Warrants,
which were issued in a private placement simultaneously with the closing of the
Public Offering and the shares of Class A common stock underlying such Private
Placement Warrants and (iii) Private Placement Warrants that may be issued upon
conversion of Working Capital Loans will have registration rights to require the
Company to register a sale of any of the Company's securities held by them
pursuant to a registration rights agreement signed on the effective date of the
Public Offering. The holders of these securities are entitled to make up to
three demands, excluding short form demands, that the Company register such
securities. In addition, the holders have certain "piggy-back" registration
rights with respect to registration statements filed subsequent to the Company's
completion of the initial Business Combination. The Company will bear the
expenses incurred in connection with the filing of any such registration
statements.
Underwriting Agreement
The underwriters were paid a cash underwriting discount of two percent (2%) of
the gross proceeds of the Public Offering (including the exercise of the
over-allotment option), or $4,600,000. Additionally, the underwriters will be
entitled to a deferred underwriting discount of 3.5% or $8,050,000 of the gross
proceeds of the Public Offering (including the exercise of the over-allotment
option), held in the Trust Account upon the completion of the Company's initial
Business Combination subject to the terms of the underwriting agreement.
Critical Accounting Policies and Estimates
We describe our significant accounting policies in Note 2 - Significant
Accounting Policies, of the Notes to Financial Statements included in this
report. Our audited financial statements have been prepared in accordance with
GAAP. Certain of our accounting policies require that the Company's management
apply significant judgments in defining the appropriate assumptions integral to
financial estimates. On an ongoing basis, the Company's management reviews the
accounting policies, assumptions, estimates and judgments to ensure that our
financial statements are presented fairly and in accordance with GAAP. Judgments
are based on historical experience, terms of existing contracts, industry trends
and information available from outside sources, as appropriate. However, by
their nature, judgments are subject to an inherent degree of uncertainty, and,
therefore, actual results could differ from our estimates.
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