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 on March 31, 2022 (the "SEC"), the Risk Factors section of the
Company's quarterly report on the June 30, 2022 Form 10-Q filed with the SEC on
August 15, 2022, 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 banks or other lenders or the owners of the target, or a
combination of the foregoing.
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 ability to
complete an initial Business Combination 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 ability to complete an initial Business Combination.
Recent Developments
On October 4, 2022, the Company and TAMCO entered into an amendment (the "Loan
Amendment") to the Working Capital Loan (as defined in Note 6 to the interim
unaudited condensed financial statements included herein) in order to increase
the aggregate principal amount of borrowings by the Company to an aggregate
principal amount of up to $2,500,000.
The Loan Amendment also amends the Working Capital Loan to provide that the
maximum portion of the unpaid principal amount of the Working Capital Note that,
at TAMCO's election, may be converted into warrants to purchase shares of the
Company's common stock upon the consummation of the Company's initial business
combination shall not exceed $2,000,000.
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
September 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 September 30, 2022, we had a net income of
$1,641,937, which resulted from a gain on the change in fair value of warrant
liabilities in the amount of $3,752,558, interest and dividend income on
investments held in the trust account of $1,151,438, and a gain on the change in
the fair value of convertible promissory note - related party of $69,200, offset
in part by operating and formation costs of $2,941,936, income tax expense of
$339,323 and franchise tax expense of $50,000.
For the three months ended September 30, 2021, we had net income of $7,176,396,
which resulted from a gain on the change in fair value of warrant liabilities of
$7,584,568 and interest income on investments held in the trust account in the
amount of $7,128, partially offset by operating and formation costs of $365,689
and franchise tax expense of $49,611.
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The increase in operating and formation costs during the three months ended
September 30, 2022 compared to the three months ended September 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 September 30, 2022 compared to the three months ended
September 30, 2021 was primarily due an increase in interest rates.
For the nine months ended September 30, 2022, we had net income of $9,611,915,
which resulted from a gain on the change in fair value of warrant liabilities of
$12,640,947, interest and dividend income on investments held in the trust
account in the amount of $1,848,956, and a gain on the change in fair value of
the convertible promissory note - related party of $179,700, offset in part by
operating and formation costs of $4,474,339, franchise tax expense of $150,000,
and income tax expense of $433,349. 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 nine months ended September 30, 2021, we had a net income of
$17,472,703, which resulted from a gain on the change in the fair value of
warrant liabilities of $19,920,494, a gain on change in fair value of
over-allotment option liability of $99,884, interest and dividend income on
investments held in the trust account in the amount of $15,882, and a gain on
expiration of over-allotment option liability of $17,404, offset in part by
expensed offering costs of $1,323,595, operating and formation costs of
$1,107,777 and franchise tax expense of $149,589.
The increase in operating and formation costs during the nine months ended
September 30, 2022 compared to the nine months ended September 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 nine months
ended September 30, 2022 compared to the nine months ended September 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 nine months ended September 30, 2022, net cash used in operating
activities was $2,195,369, which was due to a gain on the change in fair value
of warrant liabilities of $12,640,947, interest and dividend income on
investments held in the trust account of $1,848,956, and a gain on the change in
the fair value of convertible promissory note - related party of $179,700,
offset in part by net income of $9,611,915, and net changes in working capital
of $2,862,319, primarily due to an increase in accrued expenses.
For the nine months ended September 30, 2021, net cash used in operating
activities was $1,319,138, which was due to a gain on the change in fair value
of warrant liabilities of $19,920,494, a gain on the change in the fair value of
the over-allotment option liability of $99,884, net changes in working capital
of $61,772 primarily due to an increase in prepaid expenses, a gain on
expiration of over-allotment liability of $17,404, and interest and dividend
income on investments held in the trust account of $15,882, offset in part by
net income of $17,472,703 and expensed offering costs of $1,323,595.
26
For the nine months ended September 30, 2022 net cash provided by in investing
activities of $278,088 was the result of proceeds transferred from our Trust
Account used to pay taxes.
For the nine months ended September 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 nine months ended September 30, 2022 net cash provided by financing
activities of $2,000,000 was solely comprised of $2,000,000 in proceeds from
working capital loans from TAMCO.
Net cash provided by financing activities for the nine months ended September
30, 2021 of $465,437,231 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
$488,260 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 September 30, 2022 and December 31, 2021, we had cash of $205,873 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 (i) will be extended to June 4, 2023 if a letter of intent,
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) may be extended 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 the end of the Combination
Period, 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.
27
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of September 30, 2022 or
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 September 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 September 30, 2022 and December 31, 2021.
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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, May 4, 2022, July 19, 2022, and August 31,
2022 the Company drew $300,000, $200,000, $200,000, $200,000, $750,000, and
$350,000 respectively, under the Working Capital Loan with TAMCO.
On October 4, 2022, the Company and TAMCO entered into an amendment to the
Working Capital Loan (the "Loan Amendment") in order to increase the aggregate
principal amount of borrowings by the Company to an aggregate principal amount
of up to $2,500,000. See Note 12 for additional details.
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.
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 nine months ended September 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.
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