References in this report (the "Quarterly Report") to "we," "us" or the
"Company" refer to TCW Special Purpose Acquisition Corp. References to our
"management" or our "management team" refer to our officers and directors, and
references to the "Sponsor" refer to TCW Special Purpose Sponsor 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 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 filed with the U.S. Securities and Exchange
Commission (the "SEC") and Part II, Item 1A "Risk Factors" below. 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 in Delaware on December 21, 2020 and
formed for the purpose of entering into a merger, capital stock exchange, asset
acquisition, stock purchase, reorganization or similar business combination with
one or more businesses, which we refer to throughout this report as our initial
business combination. We are an early stage and emerging growth company and, as
such, are subject to all of the risks associated with early stage and emerging
growth companies. We intend to effectuate our "initial business combination"
using cash from the proceeds of our Initial Public Offering and the Private
Placement Warrants, the proceeds of the sale of our shares in connection with
our initial business combination (pursuant to forward purchase agreements or
backstop agreements we may enter into), shares issued to the owners of the
target, debt issued to bank or other lenders or the owners of the target, or a
combination of the foregoing.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date.
Our only activities for the period from December 20, 2020 (inception) through
March 31, 2022 were organizational activities, those necessary to prepare for
the Initial Public Offering, described below, and since the closing of the
Initial Public Offering, the search for a prospective initial business
combination. 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 cash and cash equivalents held after the
Initial Public Offering and non-operating income or expense in the form of
changes in the fair value of warrant liabilities and the convertible promissory
note - related party. We incur expenses as a result of being a public company
(for legal, financial reporting, accounting and auditing compliance), as well as
due diligence expenses.
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For the three months ended March 31, 2022, we had net income of $6,155,068,
which resulted from a gain on the change in fair value of warrant liabilities of
$6,665,225, a gain on the change in fair value of the convertible promissory
note - related party of $56,300, and interest income on investments held in the
trust account in the amount of $38,570, partially offset by operating and
formation costs of $555,027 and franchise tax expense of $50,000. The gains on
the change in fair value of warrant liabilities was due in large part to the
decrease in the publicly traded price of the Public Warrants. Operating and
formation costs consisted of expenses as a result of being a public company
(primarily for legal, financial reporting, accounting and auditing compliance),
as well as expenses incurred in our search for an initial business combination.
For the three months ended March 31, 2021, we had a net loss of $913,889, which
resulted from expensed offering costs of $1,323,595, operating and formation
costs of $99,216 and franchise tax expense of $49,315, partially offset in part
by a change in fair value of warrant liabilities of $459,675, a change in fair
value of the over-allotment option liability of $96,857 and interest income on
investments held in the Trust Account in the amount of $1,705.
Liquidity and Capital Resources
On March 4, 2021, we consummated the Initial Public Offering of 45,000,000 units
generating gross proceeds to the Company of $450,000,000. Simultaneously with
the closing of our Initial Public Offering, we completed the private sale of
7,333,333 Private Placement Warrants to our sponsor at a purchase price of $1.50
per warrant, generating gross proceeds of $11,000,000.
On March 4, 2021, the underwriters notified us of their intention to exercise
their over-allotment option. As such, on March 5, 2021, we consummated the sale
of an additional 1,393,299 Units, at $10.00 per unit, and the sale of an
additional 185,774 Private Placement Warrants, at $1.50 per Private Placement
Warrant, generating total gross proceeds of $14,211,651. A total of $13,932,990
of the net proceeds was deposited into a trust account, bringing the aggregate
proceeds held in the trust account to $463,932,990.
For the three months ended March 31, 2022, net cash used in operating activities
was $590,461, which was due to a change in fair value of warrant liabilities of
$6,665,225, change in fair value of convertible promissory note - related party
of $56,300, and interest income on investments held in the trust account of
$38,570, and a change in the fair value of convertible promissory note - related
party of $56,300, partially offset by net income of $6,155,068 and net changes
in working capital of $14,566.
For the three months ended March 31, 2021, net cash used in operating activities
was $1,188,927, which was due to net changes in working capital of $1,040,396,
net loss of $913,889, a change in fair value of warrant liabilities of $459,675,
a change in the fair value of the over-allotment option liability of $96,857,
and interest income on investments held in the trust account of $1,705,
partially offset by expensed offering costs of $1,323,595 and net changes in
working capital of $1,040,396.
For the three months ended March 31, 2021, net cash used in investing activities
of 463,932,990 was the result of the amount of net proceeds from our Initial
Public Offering being deposited to the trust account.
For the three months ended March 31, 2022 net cash provided by financing
activities of $500,000 was solely comprised of $500,000 in proceeds from working
capital loans with TAMCO.
Net cash provided by financing activities for the three months ended March 31,
2021 of $465,686,406 was comprised of $454,654,330 in proceeds from the issuance
of Units in the Initial Public Offering net of underwriter's discount paid,
$11,278,661 in proceeds from the issuance of warrants in a private placement to
our Sponsor, and proceeds from the issuance of a promissory note to our Sponsor
of $165,058, partially offset by the payment of $239,085 for offering costs
associated with the Initial Public Offering and repayment of the outstanding
balance on the promissory note to our Sponsor of $172,558.
As of March 31, 2022 and December 31, 2021, we had cash of $32,693 and $123,154,
respectively, held outside 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.
While we expect to have sufficient access to additional sources of capital if
necessary, other than the Working Capital Loan described below under
"Contractual Obligations" and a commitment letter with TAMCO pursuant to which
TAMCO committed to sustaining the Company, at a minimum, for a period of one
year from March 31, 2022 by providing cash infusions for working capital
shortfalls, as necessary, there is no current commitment on the part of any
financing source to provide additional capital and no assurances can be provided
that such additional capital will ultimately be available if necessary.
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We will have until March 4, 2023 to complete our initial business combination,
which period can be extended to (i) June 4, 2023 if an agreement in principle or
definitive agreement for our initial business combination (an "Agreement in
Principle Event") is in place as of March 4, 2023 or (ii) any extended period of
time that we may have to consummate our initial business combination as a result
of an amendment to our amended and restated certificate of incorporation (as so
extended, the "Combination Period"). If our initial business combination is not
consummated by March 4, 2023 and an extension has not been effected as described
above, there will be a mandatory liquidation and subsequent dissolution of the
Company. Management plans to continue its efforts to consummate our initial
business combination during the Combination Period.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern for a period of time within one year after the date that the
accompanying condensed financial statements are issued. There is no assurance
that our plans to raise additional capital (to the extent ultimately necessary)
or to consummate our initial business combination will be successful or
successful within the Combination Period (including any extended period of time
as described above). The accompanying condensed financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of March 31, 2022 and
December 31, 2021.
Contractual Obligations
Registration Rights
The holders of the Founder Shares, Private Placement Warrants and warrants that
may be issued upon conversion of Working Capital Loans (and any Class A common
stock issuable upon the exercise of the Private Placement Warrants) have
registration rights to require us to register a sale of any of its securities
held by them pursuant to a registration rights agreement. The holders of these
securities are entitled to make up to three demands, excluding short form
demands, that we register such securities. In addition, the holders have certain
"piggy-back" registration rights with respect to registration statements filed
subsequent to the completion of a business combination. We will bear the
expenses incurred in connection with the filing of any such registration
statements.
Underwriting Agreement
We granted the underwriters a 45-day option to purchase up to 6,750,000
additional units to cover over-allotments at the Initial Public Offering price,
less the underwriting discounts and commissions. On March 5, 2021 the
underwriters purchased an additional 1,393,299 units at an offering price of
$10.00 per unit, generating additional gross proceeds of $13,932,990 to us.
The underwriters were paid a cash underwriting fee of $0.20 per unit, or
$9,278,660 in the aggregate. In addition, $0.35 per unit, or $16,237,655 in the
aggregate will be payable to the underwriters for deferred underwriting
commissions. The deferred fee will become payable to the underwriters from the
amounts held in the trust account solely in the event that we complete a
business combination, subject to the terms of the underwriting agreement.
Financial Advisory Agreement
On August 9, 2021, we entered into an agreement with TAMCO, an affiliate of our
sponsor, to provide strategic advice and assistance to us in connection with a
business combination, including providing assistance in connection with the
financing of the business combination. As consideration for the services to be
rendered, we have agreed to pay TAMCO (a) a transaction fee equal to 50% of the
aggregate merger & acquisition financial advisory fees paid or payable in
connection with a business combination, payable at or promptly following the
closing of a business combination and (b) a placement fee equal to 20% of the
aggregate placement fees paid or payable in connection with any Private
Investment in Public Equity financing raised as part of a business combination,
payable at or promptly following the closing of a business combination. In
addition to such fees, we will reimburse TAMCO for TAMCO's reasonable,
documented and customary out-of-pocket expenses (including reasonable legal and
other professional fees, expenses and disbursements) incurred in connection with
the services to be provided by TAMCO, up to an amount not to exceed $50,000. If
we do not complete a business combination within the combination period, neither
we nor TAMCO shall have any liability or continuing obligation to the other
party except for any fees accrued and expenses incurred by TAMCO. There are no
costs accrued under the advisory agreement as of March 31, 2022 and December 31,
2021.
Working Capital Loan
On June 17, 2021, we entered into a $2,000,000 Working Capital Loan with TAMCO,
an affiliate of the Sponsor. The Working Capital Loan bears no interest and is
payable upon the consummation of the initial Business Combination or the winding
up of the Company. The Working Capital Loan would either be repaid upon
consummation of a Business Combination, without interest, or, at the lender's
discretion, up to $2,000,000 of such Working Capital Loans may be convertible
into warrants of the post-Business Combination entity at a price of $1.50 per
warrant. The warrants would be identical to the Private Placement Warrants. If
the Company completes a Business Combination, the Company would repay the
Working Capital Loans out of the proceeds of the Trust Account released to the
Company. Otherwise, the Working Capital Loans would be repaid only out of funds
held outside the Trust Account. In the event that a Business Combination does
not close, the Company may use a portion of proceeds held outside the Trust
Account to repay the Working Capital Loans, but no proceeds held in the Trust
Account would be used to repay the Working Capital Loans. On January 6, 2022 and
February 16, 2022, the Company drew $300,000 and $200,000, respectively, under
the Working Capital Loan with TAMCO. On April 6, 2022 and May 4, 2022, the
Company drew an additional $200,000 each, for an aggregate of $400,000, from the
Working Capital Loan with TAMCO. To date there is $900,000 outstanding under the
Working Capital Loan.
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Contingent Warrants
On July 12, 2021, our board of directors approved a contract to issue 100,000
warrants to a person affiliated with us. The warrant issuance is contingent upon
our completion of a business combination. Accordingly, no expense has been
recorded as of March 31, 2022 and December 31, 2021.
Critical Accounting Policies
The preparation of unaudited 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 unaudited condensed
financial statements, and income and expenses during the periods reported.
Actual results could materially differ from those estimates. We have not
identified any changes to the critical accounting policies included in our
annual report included in Form 10-K filed with the SEC on March 31, 2022, except
as follows:
Convertible Promissory Note - Related Party
We account for the convertible promissory notes under ASC 815. We have made the
election under 815-15-25 to account for the notes under the fair value option.
Using the fair value option, the convertible promissory notes are required to be
recorded at their initial fair value on the date of issuance, and each balance
sheet thereafter. Differences between the face value of the note and fair value
at issuance are recognized as either an expense in the statement of operations
(if issued at a premium) or as a capital contribution (if issued at a discount).
Changes in the estimated fair value of the notes are recognized as non-cash
gains or losses in the statement of operations.
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, 2024 for emerging growth companies and
should be applied on a full or modified retrospective basis, with early adoption
permitted beginning on January 1, 2021. The Company early adopted ASU 2020-06
effective January 1, 2021 using the modified retrospective method of transition.
The adoption of ASU 2020-06 did not have a material impact on the financial
statements for the three months ended March 31, 2022 and 2021.
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 unaudited condensed financial statements.
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