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 final prospectus for its initial public offering (the "Initial Public
Offering") 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 on December 21, 2020 as a Delaware
corporation and formed for the purpose of effectuating 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
Quarterly Report as our "initial business combination". We intend to effectuate
our initial business combination using cash from the proceeds of the Initial
Public Offering and the private placement of the Private Placement Warrants (as
defined below), 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 following the consummation of the Initial
Public Offering or otherwise), 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 operating revenues
to date. Our only activities for the six month period ended June 30, 2021 were
organizational activities, those necessary to prepare for the Initial Public
Offering, described below, and, after our Initial Public Offering, identifying a
target company for a 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. 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, 2021, we had net income of $11,189,765,
which resulted from a gain on the change in fair value of warrant liabilities of
$11,876,251 and interest income on investments held in the Trust Account in the
amount of $7,049, partially offset by operating and formation costs of $642,872
and franchise tax expense of $50,663.
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For the six months ended June 30, 2021, we had net income of $10,184,844, which
resulted from a gain on the change in fair value of warrant liabilities of
$12,335,926 and interest income on investments held in the Trust Account in the
amount of $8,754, partially offset by expensed offering costs of $1,317,770,
operating and formation costs of $742,088 and franchise tax expense of $99,978.
Liquidity and Capital Resources
On March 4, 2021, we consummated an Initial Public Offering of 45,000,000 units
(the "Units) generating gross proceeds to the Company of $450,000,000.
Simultaneously with the closing of the Initial Public Offering, we completed the
private sale of 7,333,333 warrants to TCW Special Purpose Sponsor LLC at a
purchase price of $1.50 per warrant (the "Private Placement Warrants"),
generating gross proceeds of $11,000,000.
On March 4, 2021, the underwriters notified the Company of their intention to
partially exercise their over-allotment option. As such, on March 5, 2021, the
Company 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 the Trust Account,
bringing the aggregate proceeds held in the Trust Account to $463,932,990.
For the six months ended June 30, 2021, net cash used in operating activities
was $1,233,274, which was due to non-cash adjustments to net income related to a
change in fair value of warrant liabilities of $12,335,926, interest income on
investments held in the Trust Account of $8,754, and changes in working capital
of $391,208, partially offset by net income of $10,184,844 and expensed offering
costs added back to net income of $1,317,770.
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 the Initial
Public Offering and the private placement sale of warrants being deposited to
the Trust Account.
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 the advance from a related party of $922,339 and
proceeds from the issuance of a promissory note to our Sponsor of $165,058,
offset by the repayment of advance to a related party 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.
As of June 30, 2021, we had cash of $270,966 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.
In order to finance transaction costs in connection with a Business Combination,
the Sponsor or an affiliate of the Sponsor or certain of the Company's directors
and officers may, but are not obligated to, loan us funds as may be required
("Working Capital Loans").
On June 17, 2021, we entered into a $2,000,000 Working Capital Loan with TCW
Asset Management Company LLC, an affiliate of our 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 Loans
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 we complete a Business Combination, we would
repay the Working Capital Loans out of the proceeds of the Trust Account
released to us. 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, we 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.
As of June 30, 2021, we had not drawn any amount on the Working Capital Loan.
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We do not believe we will need to raise additional funds following the Initial
Public Offering in order to meet the expenditures required for operating our
business prior to our initial business combination. However, if our estimates of
the costs of identifying a target business, undertaking in-depth due diligence
and negotiating an initial 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 initial 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 public shares upon
completion of our business combination, in which case we may issue additional
securities or incur debt in connection with such business combination. In
addition, we intend to target businesses larger than we could acquire with the
net proceeds of our Initial Public Offering and the sale of the private
placement warrants and may as a result be required to seek additional financing
to complete such proposed initial 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 initial 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.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of June 30, 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) will have
registration rights to require the Company 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 the Company 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. The Company will bear the expenses incurred in connection with the
filing of any such registration statements.
Underwriting Agreement
The Company 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 the
Company. In April 2021, the remaining portion of the over-allotment option
expired. As a result 1,339,175 shares of Class B common stock were forfeited.
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 the Company completes
a business combination, subject to the terms of the underwriting agreement.
Critical Accounting Policies
The preparation of 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 account for the Private Placement Warrants and the redeemable warrants (the
"Public Warrants") that were included in units issued by the Company in its
Initial Public Offering (collectively, the "Warrants") in accordance with
Accounting Standards Codification ("ASC") 815-40, Derivatives and
Hedging-Contracts in Entity's Own Equity ("ASC 815"), under which the Warrants
do not meet the criteria for equity classification and must be recorded as
liabilities. As the Warrants meet the definition of a derivative as contemplated
in ASC 815, the Warrants are measured at fair value at inception and at each
reporting date in accordance with ASC 820, Fair Value Measurement, with changes
in fair value recognized in the statement of operations in the period of change.
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Common stock subject to possible redemption
The Company accounts for its common stock subject to possible redemption in
accordance with the guidance in Accounting Standards Codification ("ASC") Topic
480 Distinguishing Liabilities from Equity. 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 are either within the control of the holder or
subject to redemption upon the occurrence of uncertain events not solely within
the Company's control) is classified as temporary equity. At all other times,
common stock is classified as stockholders' equity. The Company's common stock
features certain redemption rights that are considered to be outside of the
Company's control and subject to occurrence of uncertain future events. As of
June 30, 2021 and December 31, 2020, 42,127,660 and no shares of Class A common
stock subject to possible redemption are presented at redemption value as
temporary equity, outside of the stockholders' equity section of the Company's
balance sheet, respectively.
Net Income Per Share of Common Stock
Net income per common share is computed by dividing net rincome by the
weighted-average number of shares of common stock outstanding during the period.
The Company has not considered the effect of the Warrants sold in the Initial
Public Offering and private placement to purchase an aggregate of 22,983,540
shares in the calculation of diluted income per share, since the exercise of the
Warrants are contingent upon the occurrence of future events and the inclusion
of such Warrants would be anti-dilutive.
Our statement of operations includes a presentation of net income per share for
common shares subject to possible redemption and applies the two-class method in
calculating net income per share. Net earnings per common share, basic and
diluted, for Class A redeemable common stock is calculated by dividing the
allocable interest income earned on the Trust Account, net of applicable
franchise and income taxes, by the weighted average number of Class A common
stock subject to possible redemption outstanding since original issuance. Net
income per share, basic and diluted, for Class A and Class B non-redeemable
common stock is calculated by dividing the net income, adjusted for income
attributable to Class A redeemable common stock, by the weighted average number
of Class A and Class B non-redeemable common stock outstanding for the period.
Class B non-redeemable common stock includes the Founder Shares as these shares
do not have any redemption features and do not participate in the income earned
on the Trust Account.
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, 2022 and should be applied on a full or
modified retrospective basis, with early adoption permitted beginning on January
1, 2021. We are currently assessing the impact, if any, that ASU 2020-06 would
have on our financial position, results of operations or cash flows.
Management does not believe that any recently issued, but not yet effective,
accounting standards, if currently adopted, would have a material effect on our
condensed financial statements.
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