TPB ACQUISITION CORPORATION I

(TPBA)
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TPB ACQUISITION CORP I Management's Discussion and Analysis of Financial Condition and Results of Operations. (form 10-Q)

11/15/2021 | 04:16pm EDT

References to the "Company," "TPB Acquisition Corp I," "our," "us" or "we" refer to TPB Acquisition Corporation I. The following discussion and analysis of the Company's financial condition and results of operations should be read in conjunction with the unaudited condensed interim financial statements and the notes thereto contained elsewhere in this report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q 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 Securities Exchange Act of 1934, as amended (the "Exchange Act"). We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "may," "should," "could," "would," "expect," "plan," "anticipate," "believe," "estimate," "continue," or the negative of such terms or other similar expressions. 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 filed with the U.S. Securities and Exchange Commission (the "SEC") and those described in our other filings with 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.

Overview

We are a blank check company incorporated as a Cayman Islands exempted company on February 8, 2021. We were formed for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses or entities (the "Business Combination").

We are not limited to a particular industry or geographic region for purposes of consummating a Business Combination. We are in an early stage and emerging growth company and, as such, we are subject to all of the risks associated with early stage and emerging growth companies.

All activity through September 30, 2021, relates to our formation and the initial public offering (the "Initial Public Offering"), which is described below and, subsequent to the Initial Public Offering, identifying a prospective target for an initial Business Combination. We will not generate any operating revenues until after the completion of its initial Business Combination, at the earliest. We will generate non-operating income in the form of interest income from the proceeds derived from the Initial Public Offering held in trust. December 31st is our fiscal year end.

Our sponsor is TPB Acquisition Sponsor I, LLC (the "Sponsor"). The registration statement for our Initial Public Offering was declared effective on August 10, 2021. On August 13, 2021, we consummated our Initial Public Offering of 17,500,000 units (the "Units" and, with respect to the Class A ordinary shares included in the Units being offered, the "Public Shares"), at $10.00 per Unit, generating gross proceeds of $175.0 million, and incurring offering costs of approximately $10.5 million, of which approximately $6.1 million and approximately $489,000 was for deferred underwriting commissions (see Note 6 to our condensed interim financial statements) and offering costs allocated to derivate warrant liabilities, respectively. On August 17, 2021, we consummated a partial exercise by the underwriters of their over-allotment option for 536,299 additional Units, generating gross proceeds of approximately $5.4 million (the "Over-Allotment"), and incurring offering costs of $295,000, of which $188,000 was for deferred underwriting commissions.

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Simultaneously with the closing of the Initial Public Offering, we consummated the private placement ("Private Placement") of 4,000,000 warrants (each, a "Private Placement Warrant" and collectively, the "Private Placement Warrants"), at a price of $1.50 per Private Placement Warrant to the Sponsor, generating proceeds of $6.0 million (see Note 4 to our financial statements). Concurrent with the consummation of the Over-Allotment on August 17, 2021, the Sponsor purchased 71,507 additional Private Placement Warrants, generating proceeds of $107,260 (the "Second Private Placement").

Upon the closing of the Initial Public Offering, Over-Allotment, Private Placement and the Second Private Placement, $180.4 million ($10.00 per Unit) of the net proceeds of the Initial Public Offering and the Private Placement was placed in a trust account (the "Trust Account"), located in the United States, and only invested in U.S. government treasury obligations with a maturity of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act of 1940, as amended (the "Investment Company Act"), which invest only in direct U.S. government treasury obligations, as determined by us, until the earlier of (i) the completion of a Business Combination and (ii) the distribution of the funds held in the Trust Account, as described below.

Results of Operations

Our entire activity from February 8, 2021 (inception) through August 13, 2021, was in preparation for an Initial Public Offering and, subsequent to the Initial Public Offering, identifying a prospective target for an initial Business Combination. We will not generate any operating revenues until the closing and completion of our initial Business Combination, at the earliest.

For the three months ended September 30, 2021, we had a net loss of approximately $1.1 million which consisted of approximately $367,000 of general and administrative expenses, approximately $17,000 of general and administrative expenses related party, approximately $654,000 loss upon issuance of private placement warrants, approximately $577,000 of offering costs associated with derivative warrant liabilities, partially offset by approximately $700 income from investments held in the Trust Account, and approximately $496,000 from the change in fair value of derivative warrant liabilities.

For the period from February 8, 2021 (inception) through September 30, 2021, we had a net loss of approximately $1.2 million which consisted of approximately $432,000 of general and administrative expenses, approximately $17,000 of general and administrative expenses related party, approximately $654,000 of loss upon issuance of private placement warrants, approximately $577,000 of offering costs associated with derivative warrant liabilities, partially offset by approximately $700 of income from investments held in the Trust Account, and approximately $496,000 from the change in fair value of derivative warrant liabilities.

Liquidity and Capital Resources

As of September 30, 2021 we had approximately $895,000 in our operating bank account and working capital of approximately $1.2 million.

Our liquidity needs prior to the consummation of the Initial Public Offering were satisfied through the cash contribution of $25,000 from the Sponsor to purchase 7,187,500 Class B ordinary shares (the "Founder Shares"), and the loan from the Sponsor of approximately $300,000 under the Note. We repaid the Note in full on August 16, 2021. Subsequent to the consummation of the Initial Public Offering, our liquidity has been satisfied through the net proceeds from the consummation of the Initial Public Offering and the Private Placement held outside of the Trust Account. In addition, in order to finance transaction costs in connection with a Business Combination, the Sponsor or an affiliate of the Sponsor, or certain of our officers and directors may, but are not obligated to, provide us Working Capital Loans. As of September 30, 2021, there were no amounts outstanding under any Working Capital Loan.

Based on the foregoing, management believes that we will have sufficient working capital and borrowing capacity to meet our needs through the earlier of the consummation of a Business Combination or one year from this filing. Over this time period, we will be using the funds held outside of the Trust Account for paying existing accounts payable, identifying and evaluating prospective initial Business Combination candidates, performing due diligence on prospective target businesses, paying for travel expenditures, selecting the target business to merge with or acquire, and structuring, negotiating and consummating the Business Combination.


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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 the Sponsor a monthly fee of $10,000 for general and administrative services, including office space, utilities and administrative support. We began incurring these fees on August 10, 2021 and will continue to incur these fees monthly until the earlier of the completion of the Business Combination and our liquidation. In the three months ended September 30, 2021, and for the period from February 8, 2021 (inception) through September 30, 2021, we incurred approximately $17,000 of such fees, presented as general and administrative fees - related party on the accompanying unaudited condensed interim statements of operations. At September 30, 2021, $17,000 is accrued and presented in the accrued expenses on the accompanying unaudited condensed balance sheet.

The underwriters are entitled to a deferred fee of $0.35 per unit issued in the Initial Public Offering, or approximately $6.3 million 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.

Forward Purchase Agreements

On August 10, 2021, we entered into a forward purchase agreement with the Sponsor, pursuant to which the Sponsor agreed to purchase up to an aggregate of 2,500,000 Units (the "Forward Purchase Units"), at a price of $10.00 per Unit, for an aggregate purchase price of up to $25,000,000. The purchase of the Forward Purchase Units is expected to take place in one or more private placements, with the full amount to have been purchased no later than simultaneously with the closing of the Business Combination. The forward purchase warrants included in the Forward Purchase Units will be exercised on the same terms as the Public Warrants.

We also entered into additional forward purchase agreements on August 10, 2021, whereby additional forward purchasers agreed to purchase up to an aggregate of 8,750,000 Class A ordinary shares (the "Forward Purchase Shares"), at a price of $10.00 per share, for an aggregate purchase price of up to $87,500,000 in connection with the closing of the initial Business Combination. The additional forward purchasers may satisfy their funding commitments with respect to a number of additional Forward Purchase Shares by (i) committing to purchase some or all of the additional Forward Purchase Shares allocated to such additional forward purchaser, (ii) executing a non-redemption agreement with respect to an equal number of Public Shares held by it (on a share-for-share basis such that the agreement not to redeem one Public Shares shall be deemed to satisfy a commitment to purchase one additional Forward Purchase Share), or (iii) a combination of the foregoing. Any purchases of the additional Forward Purchase Shares are expected to take place in one or more private placements, but no later than simultaneously with the closing of the Business Combination. Pursuant to the additional forward purchase agreements, the Sponsor agreed to transfer up to 50% (not to exceed 2,187,500 Founder Shares), but not less than 10% (not to exceed 437,500 Founder Shares), of the Founder Shares outstanding as of the closing of the Initial Public Offering to fully subscribing additional forward purchasers. In addition, the Sponsor agreed that the remaining Founder Shares held by it will be subject to price-based vesting conditions. Such shares will vest in three equal installments when the price of the Class A ordinary shares on Nasdaq equals or exceeds $10.00, $12.50 and $15.00 for any 20 trading days within any 30 trading-day period, commencing on the date of the closing of the initial Business Combination and ending on the third anniversary thereof. The Sponsor will forfeit any remaining Founder Shares for no consideration to the extent the trading price thresholds described above are not met during the specified period.

The proceeds of any purchases under the forward purchase agreements will not be deposited in the Trust Account. The Forward Purchase Shares will not have any redemption rights in connection with the Business Combination or in connection with certain amendments to out amended and restated memorandum and articles of association and will not be entitled to liquidating distributions from the Trust Account if we fail to complete the Business Combination within the Combination Period. Forward purchase shares will be subject to certain registration rights, as long as such Forward Purchase Shares are held by the Sponsor, the additional forward purchasers or the forward transferees. The forward purchase shares, to the extent issued prior to the record date for a shareholder vote on the Business Combination or any other matter, will have the right to vote on such matter with all other outstanding Class A ordinary shares.

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Critical Accounting Policies and Estimates

This management's discussion and analysis of our financial condition and results of operations is based on our unaudited condensed financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these unaudited condensed interim financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in our unaudited condensed interim financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to fair value of financial instruments and accrued expenses. We base our estimates on historical experience, known trends and events and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We have identified the following as our critical accounting policies:

Derivative Financial Instruments

We do use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. We evaluate all of our financial instruments, including issued stock purchase warrants and forward purchase agreements, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to FASB ASC 480 and FASB ASC Topic 815, "Derivatives and Hedging" ("ASC 815"). The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity is re-assessed at the end of each reporting period. Derivative warrant liabilities are classified as non-current liabilities as their liquidation is not reasonably expected to require the use of current assets or require the creation of current liabilities.

The warrants issued in connection with the Initial Public Offering (the "Public Warrants") and the Private Placement Warrants are recognized as derivative liabilities in accordance with ASC 815. Accordingly, we recognize the warrant instruments as liabilities at fair value and adjusts the instruments to fair value at each reporting period. The liabilities are subject to re-measurement at each balance sheet date until exercised, and any change in fair value will be recognized in our unaudited condensed Statement of operations. The fair value of the Public Warrants issued in connection with the Public Offering and Private Placement Warrants were initially and subsequently measured at fair value using a Monte Carlo simulation model. Derivative warrant liabilities are classified as non-current liabilities as their liquidation will not be reasonably expected to require the use of current assets or require the creation of current liabilities.

Class A Ordinary Shares Subject to Possible Redemption

We account for its Class A ordinary shares subject to possible redemption in accordance with the guidance in ASC 480. Shares of Class A ordinary shares subject to mandatory redemption (if any) are classified as liability instruments and are measured at fair value. Shares of conditionally redeemable Class A ordinary shares (including Class A 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 the Company's control) are classified as temporary equity. At all other times, shares of Class A ordinary shares are classified as shareholders' equity. The Company's Class A ordinary shares feature certain redemption rights that are considered to be outside of the Company's control and subject to the occurrence of uncertain future events. Accordingly, as of September 30, 2021, 18,036,299 shares of Class A ordinary shares subject to possible redemption are presented as temporary equity, outside of the shareholders' equity section of our unaudited condensed balance sheet.

Effective with the closing of the Initial Public Offering (including exercise of the over-allotment option), the Company recognized the accretion from initial book value to redemption amount, which resulted in charges against additional paid-in capital (to the extent available) and accumulated deficit.

Net Loss per Ordinary Share

We comply with accounting and disclosure requirements of FASB ASC Topic 260, "Earnings Per Share." We have two classes of shares, which are referred to as Class A ordinary shares and Class B ordinary shares. Income and losses are shared pro rata between the two classes of shares. Net income (loss) per ordinary share is calculated by dividing the net income (loss) by the weighted average number of ordinary shares outstanding for the respective period.

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We do not consider the effect of the warrants issued in connection with the Initial Public Offering (including exercise of the over-allotment option) and the Private Placement to purchase an aggregate of 10,083,600 ordinary shares in the calculation of diluted income (loss) per share, because their exercise is contingent upon future events and their inclusion would be anti-dilutive under the treasury stock method. Accretion associated with the redeemable Class A ordinary shares is excluded from earnings per share as the redemption value approximates fair value.

Recent Accounting Pronouncements

In August 2020, the FASB issued Accounting Standards Update ("ASU") No. 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): Accounting for Convertible Instruments and Contracts in an Entity's Own Equity ("ASU 2020-06"), which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU also removes certain settlement conditions that are required for equity-linked contracts to qualify for the derivative scope exception, and it simplifies the diluted earnings per share calculation in certain areas. The Company adopted ASU 2020-06 on February 8, 2021 (inception) using a modified retrospective method for transition. Adoption of the ASU did not impact our financial position.

Management does not believe that any other recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material effect on our unaudited condensed interim financial statements.

Off-Balance Sheet Arrangements

As of September 30, 2021, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K and did not have any commitments or contractual obligations.

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Managers and Directors
David Friedberg Chairman & Chief Executive Officer
William Hauser Chief Financial Officer
Kerry Whorton Cooper Independent Director
Neil Renninger Independent Director
April Underwood Independent Director
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