References in this report (the "Quarterly Report") to "we," "us," "Digital
World" or the "Company" refer to Digital World Acquisition Corp. References to
our "management" or our "management team" refer to our officers and directors,
and references to the "Sponsor" refer to ARC Global Investments II 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.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended (the "Securities Act")
and Section 21E of the Securities Exchange Act of 1934, as amended (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 Quarterly Report including, without limitation, statements in
this "Management's Discussion and Analysis of Financial Condition and Results of
Operations" regarding the Company's financial position, business strategy and
the plans, objectives of management for future operations and the proposed
Transactions with TMTG (as described below), 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. 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 filings 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.
Overview
We are a blank check company formed under the laws of the State of Delaware on
December 11, 2020, 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 (the "Business Combination").
We intend to effectuate our Business Combination using cash from the proceeds of
our initial public offering (the "Initial Public Offering") and the sale of the
private placement units (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.
Proposed Business Combination
The Company entered into the Merger Agreement, dated as of October 20, 2021 (as
amended by the First Amendment to Agreement and Plan of Merger, dated May 11,
2022, and as it may be further amended or supplemented from time to time) with
Merger Sub, TMTG, the Sponsor in the capacity as the representative for certain
stockholders of the Company, and TMTG's General Counsel, in the capacity as the
representative for stockholders of TMTG. Subject to the terms and conditions set
forth therein, (i) upon the consummation of the transactions contemplated by the
Merger Agreement (the "Closing"), Merger Sub will merge with and into TMTG (the
"Merger" and, together with the other transactions contemplated by the Merger
Agreement, the "Transactions"), with TMTG continuing as the surviving
corporation in the Merger and a wholly-owned subsidiary of the Company. In the
Merger, (i) all shares of TMTG common stock (together, "TMTG Stock") issued and
outstanding immediately prior to the effective time of the Merger (the
"Effective Time") (other than those properly exercising any applicable
dissenters rights under Delaware law) will be converted into the right to
receive the Merger Consideration; (ii) each outstanding option to acquire shares
of TMTG common stock (whether vested or unvested) will be assumed by the Company
and automatically converted into an option to acquire shares of the Company
common stock, with its price and number of shares equitably adjusted based on
the conversion ratio of the shares of TMTG common stock into the Merger
Consideration and (iii) each outstanding restricted stock unit of TMTG shall be
converted into a restricted stock unit relating to shares of the Company's
common stock. At the Closing, the Company will change its name to "Trump Media &
Technology Group Corp.".
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The aggregate Merger Consideration to be paid pursuant to the Merger Agreement
to the TMTG Stockholders as of immediately prior to the Effective Time will be
an amount equal to $875,000,000, subject to adjustments for TMTG's closing debt,
net of cash and unpaid transaction expenses, plus the additional contingent
right to receive certain earnout shares after the Closing, provided that it
shall exclude any additional shares issuable upon conversion of certain TMTG
convertible notes. The Merger Consideration to be paid to TMTG Stockholders will
be paid solely by the delivery of new shares of the Company's common stock, with
each valued at the price per share at which each share of the Company's common
stock is redeemed or converted pursuant to the redemption by the Company of its
public stockholders in connection with the Company's initial Business
Combination, as required by the Company's Amended and Restated Certificate of
Incorporation and by-laws and the Company's Initial Public Offering prospectus.
The Merger Consideration will be subject to a post-Closing true up 90 days after
the Closing.
The Merger Agreement contains a number of representations and warranties by each
of the Company and TMTG as of the date of the Merger Agreement and as of the
date of the Closing. Each party agreed in the Merger Agreement to use its
commercially reasonable efforts to effect the Closing. The Merger Agreement also
contains certain customary covenants by each of the parties during the period
between the signing of the Merger Agreement and the earlier of the Closing or
the termination of the Merger Agreement.
Consummation of the Transactions is subject to customary conditions of the
respective parties, including the approval of the Transactions by the Company's
stockholders in accordance with the Company's Amended and Restated Certificate
of Incorporation and the completion of a redemption offer whereby the Company
will be providing its public stockholders with the opportunity to redeem their
shares of Class A common stock for cash equal to their pro rata share of the
aggregate amount on deposit in the Company's Trust Account (as defined below).
Simultaneously with the execution of the Merger Agreement, the majority
stockholder of TMTG entered into a voting agreement (the "Voting Agreement")
with the Company and TMTG. Under the Voting Agreement, the TMTG Stockholder
agreed to vote all of his shares of TMTG Stock in favor of the Merger Agreement
and related transactions and to otherwise take certain other actions in support
of the Merger Agreement and related transactions and the other matters submitted
to the TMTG Stockholders for their approval.
Upon Closing, (i) certain senior executive officers of TMTG who own shares of
TMTG and (ii) stockholders of TMTG who own more than 10% of the issued and
outstanding shares of TMTG Stock immediately prior to the Effective Time (each,
a "Significant Stockholder") shall entered into a Lock-Up Agreement with the
Company and the Sponsor (each, a "Lock-Up Agreement"). Pursuant to the Lock-Up
Agreement, with respect to the shares received as merger consideration, each
Significant Stockholder shall agree not to, during the period commencing from
the Closing and ending on the earliest of (a) the six-month anniversary of the
Closing, (b) the date on which the closing price of the Company's common stock
equals or exceeds $12.00 per share for any 20 trading days within any 30 trading
day period commencing at least 150 days after the Closing and (c) the date that
the Company consummates a liquidation, merger, share exchange or other similar
transaction with an unaffiliated third party that results in all of the Company
stockholders having the right to exchange their equity holdings in the Company
for cash, securities or other property: (i) lend, offer, pledge, hypothecate,
encumber, donate, assign, sell, contract to sell, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase, or otherwise transfer or dispose of, directly or
indirectly, any restricted securities, (ii) enter into any swap or other
arrangement that transfers to another, in whole or in part, any of the economic
consequences of ownership of the restricted securities, or (iii) publicly
disclose the intention to do any of the foregoing.
The Merger Agreement and related agreements are further described in the
registration statement on Form S-4 (as amended, the "Form S-4"), which was filed
with the SEC on May 16, 2022 and includes a preliminary proxy statement of the
Company, and a prospectus in connection with the proposed Transactions. For
additional information regarding the Merger Agreement and the Transactions
contemplated therein, including a discussion of risks and uncertainties
associated with the Merger and TMTG, please see the Form S-4.
On December 4, 2021, in support of the Transactions, the Company entered into
securities purchase agreements (the "SPAs") with certain institutional
accredited investors (the "PIPE Investors"), pursuant to which the investors
agreed to purchase an aggregate of 1,000,000 shares of the Company's Series A
Convertible Preferred Stock (the "Preferred Stock"), at a purchase price of
$1,000 per share of Preferred Stock, for an aggregate commitment of
$1,000,000,000 in a private placement (the "PIPE") to be consummated
concurrently with the Transactions. The shares of Preferred Stock have an
initial conversion price per share of $33.60 and are initially convertible into
an aggregate of 29,761,905 shares of common stock. The closing of the PIPE is
conditioned on the concurrent closing of the Transactions and other closing
conditions as set forth in the SPA. Pursuant to the SPAs, each of the PIPE
Investors may terminate its respective SPA, among other things, if the closing
of the PIPE has not occurred on or prior to September 20, 2022. Between
September 19, 2022 and September 23, 2022, the Company received termination
notices from PIPE Investors representing approximately $138.5 million of the
PIPE.
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Results of Operations
We have neither engaged in any operations nor generated any revenues to date.
Our only activities from inception through September 30, 2022 were
organizational activities and those necessary to prepare for the Initial Public
Offering and the search for targets for our initial Business Combination,
including the proposed Merger with TMTG. We do not expect to generate any
operating revenues until after the completion of our initial 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 in connection with our search
for targets for our initial Business Combination.
For the three months ended September 30, 2022, we had a net loss of $3,797,121,
which consists of general and administrative costs of $4,801,532 and taxes of
$322,546, partially offset by interest income on the assets in the Trust Account
of $1,326,957.
For the nine months ended September 30, 2022, we had a net loss of $10,022,897,
which consists of general and administrative costs of $11,418,122 and taxes of
$357,259, partially offset by interest income on the assets in the Trust Account
of $1,752,484.
For the three months ended September 30, 2021, we had a net loss of $159,170,
which consists of general and administrative costs of $160,072 and $902 interest
earned on trust.
For the nine months ended September 30, 2021, we had a net loss of $160,395,
which consists of general and administrative costs of $161,297 and $902 interest
earned on trust.
Liquidity and Capital Resources
Until the consummation of the Initial Public Offering, our only source of
liquidity was an initial purchase of Class B common stock by the Sponsor and
loans from our Sponsor.
On September 8, 2021, we consummated the Initial Public Offering of 28,750,000
Units, at a price of $10.00 per Unit, generating gross proceeds of $287,500,000.
Simultaneously with the closing of the Initial Public Offering, we consummated
the sale of 1,133,484 Placement Units at a price of $10.00 per Placement Unit in
a private placement to our Sponsor, generating gross proceeds of $11,334,840.
Following the Initial Public Offering and the sale of the Placement Units, a
total of $293,250,000 was placed in a U.S.-based trust account ("Trust
Account"), maintained by Continental Stock Transfer & Trust Company, acting as
trustee. We incurred $15,668,029 in transaction costs, including $3,593,750 of
underwriting fees, $10,062,500 of deferred underwriting fees, fair value of
representative shares of $1,437,500 and $574,279 of other offering costs.
For the nine months ended September 30, 2022, the net decrease in cash was
$326,719 and was comprised of net cash used in operating activities of $908,419,
net cash used on investing activities of $2,875,000 and net cash provided by
financing activities of $3,456,700. Net cash used in operating activities of
$908,419 consisted of a net loss of $10,022,897, interest income on the assets
in the Trust Account of $1,752,484 partially offset by a change in accrued
expenses of $10,538,707, change in franchise tax payable of $150,000 and change
in prepaid insurance of $178,255. Net cash used in investing activities of
$2,875,000 consisted of funds deposited into the Trust Account in connection
with the extension of the termination date for the Company's initial Business
Combination from September 8, 2022 to December 8, 2022. Net cash provided by
financing activities of $3,456,700 consisted of funds provided by the Sponsor.
For the nine months ended September 30, 2021, the net increase in cash was
$1,494,632. Cash provided by operating activities was $52,820. Net loss of
$160,395 was offset by changes in franchise tax payable and accrued expenses.
Net cash used in investing activities of $293,250,000 consisted of funds
deposited into the Trust Account in connection with the IPO. Cash provided by
financing activities of $294,691,812 consisted of funds from the IPO.
As of September 30, 2022, we had cash of $297,884,582 held in 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 to
complete our initial Business Combination. We may withdraw interest to pay
taxes. To the extent that our capital stock or debt is used, in whole or in
part, as consideration to complete our initial 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 $1,012 outside of the Trust Account. 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.
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In order to fund working capital deficiencies or finance transaction costs in
connection with a Business Combination, our Sponsor or an affiliate of our
Sponsor or certain of our officers and directors may, but are not obligated to,
loan us funds as may be required. If we complete a Business Combination, we may
repay such loaned amounts out of the proceeds of the Trust Account released to
us. 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. Initially 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 Placement Units.
In November 2021, our Sponsor committed to provide loans of up to an aggregate
of $1,000,000 to the Company through December 8, 2022 (or up to March 8, 2023 if
the Company extends the maximum time to complete a Business Combination), which
loans will be non-interest bearing, unsecured and will be payable upon the
consummation of a Business Combination. At September 30, 2022, $581,700 was
outstanding under this commitment.
In November 2022, the Sponsor amended the November 2021 Commitment to provide
loans of up to an aggregate of $1,000,000 to the Company through December 8,
2022, which loans will be non-interest bearing, unsecured and will be payable
upon the consummation of a Business Combination.
On May 12, 2022, we entered into an amendment (the "Amendment to the Insider
Letter") to that certain letter agreement, dated September 2, 2021 ("Insider
Letter"), with the Sponsor and our directors, officers or other initial
shareholders named therein (the "Insiders"). Pursuant to the Insider Letter,
among other matters, the Sponsor and the Insiders agreed in Section 9 thereof,
that the Sponsor, an affiliate of the Sponsor or certain of our officers and
directors may make non-interest bearing loans to us to finance transaction costs
in connection with our Business Combination and that, at the option of the
lender, up to $1,500,000 of such loans may be convertible into our units, at a
price of $10.00 per unit, upon consummation of the Business Combination. Under
the Amendment to the Insider Letter, each of the Sponsor and the Insiders have
agreed to revise the terms of the Insider Letter to increase the aggregate
principal amount of loans by the Sponsor, its affiliates or our officers and
directors that can be converted into our units from $1,500,000 to $30,000,000.
The securities issuable upon conversion of such loans are subject to stockholder
approval at the special meeting of the Company's stockholders to be held to
approve the Business Combination.
On September 8, 2022, the Company issued a promissory note (the "Note") in the
aggregate principal amount of $2,875,000 to the Sponsor, in connection with the
extension of the termination date for the Company's initial Business Combination
from September 8, 2022 to December 8, 2022. The Note bears no interest and is
repayable in full upon the earlier of (i) the date on which the Company
consummates its initial Business Combination and (ii) the date that the winding
up of the Company is effective. At the election of the Sponsor and subject to
certain conditions, all of the unpaid principal amount of the Note may be
converted into units of the Company (the "Conversion Units") upon consummation
of the initial Business Combination with the total Conversion Units so issued
shall be equal to: (x) the portion of the principal amount of the Note being
converted divided by (y) the conversion price of ten dollars ($10.00), rounded
up to the nearest whole number of units. As of September 30, 2022, there was
$2,875,000 outstanding under this Note.
We believe we will need to raise additional funds in order to meet the
expenditures required for operating our business. Additionally, 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. Subject
to compliance with applicable securities laws, we would only complete such
financing simultaneously with the completion of our Business Combination. If we
are unable to complete our Business Combination because we do not have
sufficient funds available to us, we will be forced to cease operations and
liquidate the Trust Account. In addition, following our Business Combination, if
cash on hand is insufficient, we may need to obtain additional financing in
order to meet our obligations.
Management anticipates that the $1,012 held outside of the Trust Account as of
September 30, 2022 may not be sufficient to allow the Company to meet its needs
through the earlier of the consummation of a Business Combination or December 8,
2022 (or up to March 8, 2023 if the Company extends the maximum time to complete
a Business Combination), the liquidation date should a Business Combination not
be consummate. Over this time period, the Company will be using the funds held
outside of the Trust Account and additional funds it will need to raise 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.
The Company has filed a definitive proxy statement dated August 25, 2022 with
the SEC to hold a special meeting of its stockholders (the "Extension Meeting")
for approval to further amend the Company's Amended and Restated Certificate of
Incorporation (the "Extension Amendment") to extend the period of time for
completing an initial Business Combination, in three-month increments, until
September 8, 2023 or such earlier date as determined by the Company's Board of
Directors. The Extension Amendment would effectively provide for an additional
six months, past the two three-month extensions permitted by the Company's
existing governing documents, to complete an initial Business Combination. The
Extension Meeting was originally scheduled for September 6, 2022 and was
adjourned to September 8, 2022, October 10, 2022, November 3, 2022 and
November 22, 2022.
The Company has until December 8, 2022 (or up to March 8, 2023 if the Company
extends the maximum time to complete a Business Combination) to consummate a
Business Combination. It is uncertain that the Company will be able to
consummate a Business Combination by this time. If a Business Combination is not
consummated by this date, there will be a mandatory liquidation and subsequent
dissolution of the Company. Additionally, the Company has incurred and expects
to incur significant costs in pursuit of its acquisition plans. The Company
lacks the financial resources it needs to sustain operations for a reasonable
period of time, which is considered to be one year from the date of the issuance
of the financial statements. As a result, these factors raise substantial doubt
about the Company's ability to continue as a going concern.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of September 30, 2022.
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 an
affiliate of our Sponsor a monthly fee of $15,000 for office space,
administrative and support services to us. We will incur these fees monthly
until the earlier of the completion of our initial Business Combination and our
liquidation.
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The underwriters are entitled to a deferred fee of $0.35 per unit, or
$10,062,500 in the aggregate. The deferred fee will become payable to the
underwriters solely in the event that the Company completes a Business
Combination, subject to the terms of the underwriting agreement.
Critical Accounting Estimates
Class A Common Stock Subject to Possible Redemption
We account for our Class A common stock subject to possible redemption in
accordance with the guidance in Accounting Standards Codification ("ASC") Topic
480 "Distinguishing Liabilities from Equity." Class A common stock subject to
mandatory redemption is classified as a liability instrument and is measured at
fair value. Conditionally redeemable common stock (including common stock that
features redemption rights that is 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, shares of
common stock are classified as stockholders' equity. Our shares of Class A
common stock feature certain redemption rights that are considered to be outside
of our control and subject to occurrence of uncertain future events.
Accordingly, Class A common stock subject to possible redemption is presented as
temporary equity, outside of the stockholders' equity section of our condensed
interim balance sheets.
Factors That May Adversely Affect our Results of Operations
Our results of operations and our ability to complete an initial Business
Combination may be adversely affected by various factors that could cause
economic uncertainty and volatility in the financial markets, many of which are
beyond our control. Our business could be impacted by, among other things,
downturns in the financial markets or in economic conditions, increases in oil
prices, inflation, increases in interest rates, supply chain disruptions,
declines in consumer confidence and spending, the ongoing effects of the
COVID-19 pandemic, including resurgences and the emergence of new variants, and
geopolitical instability, such as the military conflict in the Ukraine. We
cannot at this time fully predict the likelihood of one or more of the above
events, their duration or magnitude or the extent to which they may negatively
impact our business and our ability to complete an initial Business Combination.
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TRUMP MEDIA & TECHNOLOGY GROUP CORP. 
