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TCW SPECIAL PURPOSE ACQUISITION CORP.

(TSPQ)
Delayed Nyse  -  09:30 2022-11-25 am EST
9.980 USD    0.00%
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TCW SPECIAL PURPOSE ACQUISITION CORP. Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

08/15/2022 | 04:38pm EST

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 June 30, 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.

For the three months ended June 30, 2022, we had a net income of $1,814,910, which resulted from a gain on the change in fair value of warrant liabilities in the amount of $2,223,164, interest and dividend income in investments held in the trust account of $658,948, and a gain on the change in the fair value of convertible promissory note - related party of $54,200, offset in part by operating and formation costs of $977,376, income tax expense of $94,026 and franchise tax expense of $50,000.



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For the three months ended June 30, 2021, we had net income of $11,210,196, which resulted from a gain on the change in the fair value of warrant liabilities of $11,876,251, a gain on expiration of over-allotment option liability in the amount of $17,404, interest and dividend income on investments held in the trust account in the amount of $7,049, and a change in fair value of over-allotment option liability of $3,027, offset in part by operating and formation costs of $642,872 and franchise tax expense of $50,663.

The increase in operating and formation costs during the three months ended June 30, 2022 compared to the three months ended June 30, 2021 was primarily due to an increase in legal and accounting fees. The increase in interest and dividend income in investments held in the trust account during the three months ended June 30, 2022 compared to the three months ended June 30, 2021 was primarily due an increase in interest rates.

For the six months ended June 30, 2022, we had net income of $7,969,978, which resulted from a gain on the change in fair value of warrant liabilities of $8,888,389, interest and dividend income on investments held in the trust account in the amount of $697,518, and a gain on the change in fair value of the convertible promissory note - related party of $110,500, offset in part by operating and formation costs of $1,532,403, franchise tax expense of $100,000, and income tax expense of $94,026. The gains on the change in fair value of warrant liabilities was due in large part to the decrease in the public traded price of the public warrants.

For the six months ended June 30, 2021, we had a net income of $10,296,307, which resulted from a gain on the change in the fair value of warrant liabilities of $12,335,926, a change in fair value of over-allotment option liability of $99,884, a gain on expiration of over-allotment option liability of $17,404, and interest and dividend income on investments held in the trust account in the amount of $8,754, offset in part by expensed offering costs of $1,323,595, operating and formation costs of $742,088 and franchise tax expense of $99,978.

The increase in operating and formation costs during the six months ended June 30, 2022 compared to the six months ended June 30, 2021 was primarily due to the fact that the Company completed its Initial Public Offering in March 2021 and, therefore, did not incur the additional costs of being a public company during the entire prior year period. The increase in interest and dividend income in investments held in the trust account during the six months ended June 30, 2022 compared to the six months ended June 30, 2021 was primarily due an increase in interest rates.

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 six months ended June 30, 2022, net cash used in operating activities was $841,536, which was due to a gain on the change in fair value of warrant liabilities of $8,888,389, interest and dividend income on investments held in the trust account of $697,518, and a gain on the change in the fair value of convertible promissory note - related party of $110,500, offset in part by net income of $7,969,978, and net changes in working capital of $884,893, primarily due to an increase in accrued expenses.

For the six months ended June 30, 2021, net cash used in operating activities was $1,233,274, which was due to a gain on the change in fair value of warrant liabilities of $12,335,926, net changes in working capital of $391,208, primarily due to an increase in prepaid expenses, a gain on the change in the fair value of the over-allotment option liability of $99,884, a gain on expiration of over-allotment liability of $17,404, and interest and dividend income on investments held in the trust account of $8,754, offset in part by net income of $10,296,307 and expensed offering costs of $1,323,595.

There were no cash flows from investing activities for the six months ended June 30, 2022.

For the six months ended June 30, 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 six months ended June 30, 2022 net cash provided by financing activities of $900,000 was solely comprised of $900,000 in proceeds from working capital loans with TAMCO.

Net cash provided by financing activities for the six months ended June 30, 2021 of $465,437,230 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, proceeds from an advance from our Sponsor of $922,339 and proceeds from the issuance of a promissory note to our Sponsor of $165,058, offset by the repayment of an advance from our Sponsor of $922,339, payment of $488,261 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.



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As of June 30, 2022 and December 31, 2021, we had cash of $181,618 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.

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 June 30, 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.



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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 June 30, 2022 and December 31, 2021.




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 June 30, 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 Loan 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 Loan out of the proceeds of the Trust Account released to the Company. Otherwise, the Working Capital Loan 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 Loan, but no proceeds held in the Trust Account would be used to repay the Working Capital Loan. On January 6, 2022, February 16, 2022, April 6, 2022 and May 4, 2022, the Company drew $300,000, $200,000, $200,000 and $200,000 respectively, under the Working Capital Loan with TAMCO.




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 note under ASC 815. We have made the election under 815-15-25 to account for the note under the fair value option. Using the fair value option, the convertible promissory note is required to be recorded at its 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 note are recognized as non-cash gains or losses in the condensed statement of operations.



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Recent Accounting Standards and Estimates

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 condensed financial statements for the three and six months ended June 30, 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.

© Edgar Online, source Glimpses

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Financials (USD)
Sales 2021 - - -
Net income 2021 17,2 M - -
Net cash 2021 0,12 M - -
P/E ratio 2021 28,4x
Yield 2021 -
Capitalization 579 M 579 M -
EV / Sales 2020
EV / Sales 2021 -
Nbr of Employees -
Free-Float 80,0%
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Joseph R. Shaposhnik Chairman & Chief Executive Officer
Richard M. Villa Chief Financial Officer & Secretary
Brian S. Lee Independent Director
Carol P. Lowe Independent Director
David W. Rye Independent Director
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