References in this report (the "Quarterly Report") to "we," "us" or the
"Company" refer to Silver Crest Acquisition Corporation. References to our
"management" or our "management team" refer to our officers and directors, and
references to the "Sponsor" refer to Silver Crest Management LLC. The following
discussion and analysis of the Company's financial condition and results of
operations should be read in conjunction with the unaudited condensed 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, 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 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. 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 for the period ended December 31, 2021,
filed with the U.S. Securities and Exchange Commission (the "SEC"), and in Part
II, Item 1A of this report. 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 incorporated as a Cayman Islands exempted company
on September 3, 2020. The Company was incorporated 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 (a
"Business Combination"). 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
On August 13, 2021, the Company entered into an Agreement and Plan of Merger
(the "Merger Agreement") with TH International Limited, a Cayman Islands
exempted company ("THIL"), and Miami Swan Ltd, a Cayman Islands exempted company
and wholly owned subsidiary of THIL ("Merger Sub").
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Pursuant to the Merger Agreement, among other transactions and on the terms and
subject to the conditions set forth therein, (i) Merger Sub will merge with and
into the Company (the "First Merger"), with the Company surviving the First
Merger as a wholly owned subsidiary of THIL, (ii) the Company will merge with
and into THIL (the "Second Merger" and together with the First Merger, the
"Mergers"), with THIL surviving the Second Merger, (iii) immediately prior to
the effective time of the First Merger (the "First Effective Time"), each Class
B ordinary share of the Company outstanding immediately prior to the First
Effective Time will be automatically converted into one Class A ordinary share
of the Company and, after giving effect to such automatic conversion and the
Unit Separation (as defined below), at the First Effective Time and as a result
of the First Merger, each issued and outstanding Class A ordinary share will no
longer be outstanding and will automatically be converted into the right of the
holder thereof to receive one ordinary share of THIL ("THIL Ordinary Share"),
after giving effect to the Share Split (as defined below), and (iv) each issued
and outstanding Warrant will automatically and irrevocably be assumed by THIL
and converted into a corresponding warrant exercisable for THIL Ordinary Shares.
Immediately prior to the First Effective Time, our Class A ordinary shares and
Warrants comprising each issued and outstanding Unit, consisting of one Class A
Share and one-half of one Public Warrant, will be automatically separated ("Unit
Separation") and the holder thereof will be deemed to hold one Class A ordinary
share and one-half of one Public Warrant. No fractional Public Warrants will be
issued in connection with such separation such that if a holder of such Units
would be entitled to receive a fractional Public Warrant upon such separation,
the number of Public Warrants to be issued to such holder upon such separation
will be rounded down to the nearest whole number of Public Warrants and no cash
will be paid in lieu of such fractional Public Warrants.
Immediately prior to the First Effective Time, THIL will effect a share split of
each THIL Ordinary Share into such number of THIL Ordinary Shares, calculated in
accordance with the terms of the Merger Agreement, such that each THIL Ordinary
Share will have a value of $10.00 per share after giving effect to such share
split (the "Share Split").
On January 30, 2022, the Company entered into Amendment No. 1 (the "First
Amendment") to the previously disclosed Merger Agreement, dated August 13, 2021,
by and among the Company, THIL, and Merger Sub. Pursuant to the First Amendment,
the Company, THIL and Merger Sub agreed to extend the Termination Date (as
defined in the Merger Agreement) to March 1, 2022, after which either the
Company or THIL may terminate the Merger Agreement.
On March 9, 2022, the Company entered into Amendment No. 2 (the "Second
Amendment") to the previously disclosed Merger Agreement, dated August 13, 2021,
by and among the Company, THIL, and Merger Sub, as amended on January 30, 2022.
The Second Amendment amended the terms of the merger agreement to, among other
things: extend the termination date (as defined in the Merger Agreement) to June
30, 2022; reduce the pre-transaction equity value of THIL from $1.688 billion to
$1.4 billion; remove the minimum cash condition; shorten the exclusivity period
applicable to the Company to May 1, 2022; and simplify the board of directors to
a single class of directors each elected annually.
On June 27, 2022, the Company entered into Amendment No. 3 (the "Third
Amendment") to the previously disclosed Merger Agreement, dated August 13, 2021,
by and among the Company, THIL, and Merger Sub, as amended on March 9, 2022. The
Third Amendment amended the terms of the merger agreement to extend the
termination date as defined in the Second Amendment to August 30, 2022.
The consummation of the proposed Merger is subject to certain conditions as
further described in the Merger Agreement. On August 18, 2022, the Company is
holding an Extraordinary General Meeting of Shareholders where shareholders will
vote on whether to approve the Merger.
For more information about the Merger Agreement and the proposed Merger, see our
Current Reports on Form 8-K filed with the SEC on August 16, 2021, August 19,
2021, January 31, 2022, March 9, 2022, June 27, 2022 and subsequent filings with
the SEC. Unless specifically stated, this Form 10-Q does not give effect to the
proposed Merger and does not contain a description of the risks associated with
the proposed Merger. Such risks and effects relating to the proposed Merger are
described in a Form F-4 registration statement filed by THIL.
On April 11, 2022, the Company entered into an unsecured, non-interest-bearing
promissory note with the Sponsor to borrow up to $850,000 to pay for working
capital to be payable on the earlier of January 19, 2023, or the consummation of
a Business Combination in which event the note will be repaid out of proceeds
from the trust account.
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Results of Operations
We have neither engaged in any operations nor generated any revenues to date.
Our only activities from September 3, 2020 (inception) through June 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 June 30, 2022, we had a net income of $17,802,528,
which primarily consists of a change in fair value of warrant liability of
$6,166,225, interest earned on investment held in Trust Account of $521,948 and
forgiveness of debt of $12,075,000, offset by formation and operation costs of
$960,645.
For the six months ended June 30, 2022, we had a net income of $20,702,255,
which primarily consists of a change in fair value of warrant liability of
$10,381,605, interest earned on investment held in Trust Account of $550,821 and
forgiveness of debt of $12,075,000, offset by formation and operation costs of
$2,305,171.
For the three months ended June 30, 2021, we had net loss of $10,865,039, which
primarily consists of interest earned on investment held in Trust Account of
$25,595 and interest income in bank of $23, offset by formation and operation
costs of $1,999,657 and a change in fair value of warrant liability of
$8,891,000.
For the six months ended June 30, 2021, we had net loss of $3,466,825, which
primarily consists of interest earned on investment held in Trust Account of
$75,364 and interest income in bank of $35, offset by formation and operation
costs of $3,019,224 and a change in fair value of warrant liability of $523,000.
Liquidity and Capital Resources
On January 19, 2021, we consummated the Initial Public Offering of 34,500,000
Units which includes the full exercise by the underwriter of its over-allotment
option in the amount of 4,500,000 Units, at $10.00 per Unit, generating gross
proceeds of $345 million which is described in Note 3. Simultaneously with the
closing of the Initial Public Offering, we consummated the sale of 8,900,000
Private Placement Warrants at a price of $1.00 per Private Placement Warrant in
a private placement to the Sponsor, generating gross proceeds of $8.9 million.
For the six months ended June 30, 2022, cash used in operating activities was
approximately $1.1 million. Net income of approximately $20.7 million was
affected by non-cash charges related to the change in fair value of the warrant
liabilities of approximately $10.4 million, forgiveness of debt of approximately
$12.1 million and interest earned on investment held in Trust Account of
approximately $0.6 million. Changes in operating assets and liabilities provided
approximately $1.2 million of cash for operating activities.
For the six months ended June 30, 2021, cash used in operating activities was
approximately $0.7 million. Net loss of approximately $3 million was affected by
non-cash charges related to the change in fair value of the warrant liabilities
of approximately $0.5 million, transaction costs associated with the warrant
liabilities of approximately $0.8 million and interest earned on investment held
in Trust Account of approximately $75,300. Changes in operating assets and
liabilities used approximately $1.5 million of cash for operating activities.
As of June 30, 2022, we had cash and marketable securities held in the Trust
Account of $345,655,280 (including $655,280 of interest income) consisting of
U.S. Treasury Bills with a maturity of 185 days or less. We may withdraw
interest from the Trust Account to pay taxes, if any. 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.
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As of June 30, 2022, we had cash of $41,455. We have been using the funds held
outside the Trust Account primarily to undertake tasks in connection with the
Merger. If the Merger is not consummated, we will use such funds again 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 $1.5 million of such Working Capital Loans may be
convertible into warrants of the post-Business Combination entity at a price of
$1.00 per warrant. 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.
On April 11, 2022, the Company entered into an unsecured, non-interest-bearing
promissory note with the Sponsor to borrow up to $850,000 to pay for working
capital to be payable on the earlier of January 19, 2023, or the consummation of
a Business Combination.
In connection with the Company's assessment of going concern considerations in
accordance with Financial Accounting Standard Board's ("FASB") Accounting
Standards Update ("ASU") 2014-15, "Disclosures of Uncertainties about an
Entity's Ability to Continue as a Going Concern," the Company has until January
19, 2023, 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. Management has determined
that the liquidity condition and mandatory liquidation, should a Business
Combination not occur, and potential subsequent dissolution, raise substantial
doubt about the Company's ability to continue as a going concern. Management
intends to complete a Business Combination; however, the Company cannot
guarantee that a Business Combination will take place. No adjustments have been
made to the carrying amounts of assets or liabilities should the Company be
required to liquidate after January 19, 2023.
Off-Balance Sheet Arrangements
We have no obligations, assets or liabilities, which would be considered
off-balance sheet arrangements as of June 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 an
affiliate of our sponsor a monthly fee of $10,000 for office space, utilities
and secretarial and administrative support. We began incurring these fees in
January 2021 and will continue to incur these fees monthly until the earlier of
the completion of the Business Combination and our liquidation.
The underwriter is entitled to a deferred fee of $0.35 per Unit, or $12,075,000
in the aggregate. The deferred fee will become payable to the underwriter 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. On June 9, 2022, UBS Securities LLC informed the Company that the
right to the Deferred Discount referred in Sections 1 and 4(oo) of the
underwriting agreement has been waived.
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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:
Warrant Liabilities
We do not use derivative instruments to hedge exposures to cash flow, market, or
foreign currency risks. We evaluate all of our financial instruments, including
issued stock purchase warrants, to determine if such instruments are derivatives
or contain features that qualify as embedded derivatives, pursuant to Accounting
Standards Codification ("ASC") Topic 480 and ASC 815. We account for the
Warrants 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 condensed
statements of operations. The Private Placement Warrants and the Public Warrants
for periods where no observable traded price was available are valued using a
Monte Carlo simulation. For periods subsequent to the detachment of the Public
Warrants from the Units, the Public Warrant quoted market price was used as the
fair value as of each relevant 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 ASC 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' deficit
section of our condensed balance sheets.
Net Income (Loss) Per Ordinary Share
Net income (loss) per ordinary share is computed by dividing net loss by the
weighted average number of ordinary shares outstanding during the period. The
Company has two classes of shares, which are referred to as class A ordinary
shares and class B ordinary shares. Income and losses are shared pro rate
between the two classes of shares. Accretion associated with the redeemable
shares of Class A ordinary shares is excluded from earnings per share as the
redemption value approximates fair value.
Recent Accounting Standards
Management does not believe that any other recently issued, but not yet
effective, accounting standards, including the standard referenced in the next
paragraph, if currently adopted, would have a material effect on our condensed
financial statements.
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