References in this report (the "Quarterly Report") to "we," "us" or the
"Company" refer to Tekkorp Digital Acquisition Corp. References to our
"management" or our "management team" refer to our officers and directors, and
references to the "Sponsor" refer to Tekkorp JEMB LLC. The following discussion
and analysis of the Company's financial condition and results of operations
should be read in conjunction with the 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 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 Form 10-Q
including, without limitation, statements in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations", 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"). 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.
This Management's Discussion and Analysis of Financial Condition and Results of
Operations has been amended and restated to give effect to the restatement of
our financial statements as of December 31, 2020, March 31, 2021 and June
30, 2021. Management identified errors made in its historical financial
statements where, at the closing of our Initial Public Offering, we improperly
valued our Class A ordinary shares subject to possible redemption. We previously
determined the Class A ordinary shares subject to possible redemption to be
equal to the redemption value of $10.00 per share of Class A ordinary share
while also taking into consideration a redemption cannot result in net tangible
assets being less than $5,000,001. Management determined that the Class A
ordinary shares issued during the Initial Public Offering can be redeemed or
become redeemable subject to the occurrence of future events considered outside
of the Company's control. Therefore, management concluded that the redemption
value should include all Class A ordinary shares subject to possible redemption,
resulting in the Class A ordinary shares subject to possible redemption being
equal to their redemption value. As a result, management has noted a
reclassification error related to temporary equity and permanent equity. This
resulted in a restatement to the initial carrying value of the Class A ordinary
shares subject to possible redemption with the offset recorded to additional
paid-in capital (to the extent available), accumulated deficit and Class A
ordinary shares.
Overview
We are a blank check company incorporated in the Cayman Islands on August 14,
2020 formed for the purpose of effecting a merger, share exchange, asset
acquisition, share purchase, reorganization or similar business combination with
one or more businesses. 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.
Results of Operations
We have neither engaged in any operations nor generated any operating revenues
to date. Our only activities from inception through September 30, 2021 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, at the earliest. 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 September 30, 2021, we had net income of $1,612,602,
which consists of the change in fair value of warrant liabilities of $3,190,000
and interest earned on marketable securities held in our Trust Account of
$3,841, offset by operational costs of $1,581,239.
For the nine months ended September 30, 2021, we had net income of $28,831,128,
which consists of the change in fair value of warrant liabilities of $33,065,000
and interest earned on marketable securities held in our Trust Account of
$11,397, offset by operational costs of $4,245,269.
For the period from August 14, 2020 (inception) through September 30, 2020, we
had a net loss of $5,000, which consisted of formation and operational costs.
21
Liquidity, Capital Resources and Going Concern
On October 26, 2020, we consummated the Initial Public Offering of 25,000,000
Units, at $10.00 per Unit, generating gross proceeds of $250,000,000.
Simultaneously with the closing of the Initial Public Offering, we consummated
the sale of 7,000,000 Private Placement Warrants at a price of $1.00 per Private
Placement Warrant in a private placement to the Sponsor, Robin Chhabra, the
Company's President, and a trust for the benefit of the issue of Eric
Matejevich, the Company's Chief Financial Officer, generating gross proceeds of
$7,000,000.
For the nine months ended September 30, 2021, cash used in operating activities
was $563,156. Net income of $28,831,128 was affected by the change in fair value
of warrant liabilities of $33,065,000 and interest earned on marketable
securities held in the Trust Account of $11,397. Changes in operating assets and
liabilities provided $3,682,113 of cash for operating activities.
As of September 30, 2021, we had marketable securities held in the Trust Account
of $250,014,153 (including $14,153 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.
As of September 30, 2021, we had cash of $357,913. 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, 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 $1,500,000 of such loans may be convertible into warrants
at a price of $1.00 per warrant, at the option of the lender. The warrants would
be identical to the Private Placement Warrants.
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 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 our 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.
To the extent we need to raise additional funds to operate our business, the
Company's management believes that the Sponsor will provide Working Capital
Loans that will provide sufficient liquidity to meet the Company's working
capital needs through the earlier of the consummation of a Business Combination
and one year from the date of this filing. If the Company is unable to raise
additional capital, it may be required to take additional measures to conserve
liquidity, which could include, but not necessarily include or be limited to,
curtailing operations, suspending the pursuit of a potential transaction and
reducing overhead expenses. The Company cannot provide any assurance that new
financing will be available to it on commercially acceptable terms or if at all.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern through one year from the date of these financial statements
if a Business Combination is not consummated. These financial statements do not
include any adjustments relating to the recovery of the recorded assets or the
classification of the liabilities that might be necessary should the Company be
unable to continue as a going concern.
22
Off-Balance Sheet Arrangements
We have no obligations, assets or liabilities, which would be considered
off-balance sheet arrangements as of September 30, 2021. 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 the Sponsor a monthly fee of $10,000 for office space, utilities
and secretarial and administrative support. We began incurring these fees on
October 21, 2020 and will continue to incur these fees monthly until the earlier
of the completion of the Business Combination or our liquidation.
The underwriters are entitled to a deferred fee of $0.35 per share, or
$8,050,000 in the aggregate. 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.
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 account for the Public Warrants (as defined in Note 4) and Private Placement
Warrants (together with the Public Warrants, the "Warrants") in accordance with
the guidance contained in ASC 815-40, 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 in respect of each reporting period. This liability is
subject to re-measurement at each balance sheet date until the Warrants are
exercised, and any change in fair value is recognized in the statements of
operations. The Private Placement Warrants and the Public Warrants for periods
where no observable traded price was available are valued using a lattice model,
specifically a binomial lattice model incorporating the Cox-Ross-Rubenstein
methodology.
23
Class A Ordinary Shares Subject to Possible Redemption
We account for our Class A ordinary shares subject to possible conversion in
accordance with the guidance in Accounting Standards Codification ("ASC") Topic
480 "Distinguishing Liabilities from Equity." Class A 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,
Class A ordinary shares are classified as shareholders' equity. Our Class A
ordinary shares feature certain redemption rights that are considered to be
outside of our control and subject to occurrence of uncertain future events.
Accordingly, all Class A ordinary shares subject to possible redemption are
presented at redemption value as temporary equity, outside of the shareholders'
equity section of our condensed balance sheets.
Net Income (Loss) Per Ordinary Share
Net income (loss) per ordinary share is computed by dividing net income (loss)
by the weighted average number of ordinary shares outstanding during the period.
We apply the two-class method in calculating income (loss) per ordinary share.
Subsequent measurement of the redeemable Class A ordinary shares is excluded
from income (loss) per ordinary share as the redemption value approximates fair
value.
Recent Accounting Standards
In August 2020, the FASB issued 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 its financial position, results of operations or cash flows.
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 condensed financial statements
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