SEC Form 10-Q filed by TCW Special Purpose Acquisition Corp.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For
the quarterly period ended
For the transition period from ______________ to ______________
Commission
File Number
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
(Address of principal executive offices and zip code)
Registrant’s
telephone number, including area code:
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Units, each consisting of one share of Class A common stock, $0.0001 par value per share, and one-third of one redeemable warrant | TSPQ.U | New York Stock Exchange | ||
| Redeemable warrants, each whole warrant exercisable for one share of Class A common stock at an exercise price of $11.50 per share | TSPQ WS | New York Stock Exchange |
Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. ☒ NO ☐
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the Registrant was required to submit such files). ☒ NO ☐
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.:
| Large accelerated filer ☐ | Accelerated filer ☐ |
| Smaller
reporting company | |
| Emerging growth company |
If
an emerging growth company, indicate by the check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES
As of November 10, 2022, there were
TCW SPECIAL PURPOSE ACQUISITION CORP.
TABLE OF CONTENTS
i
PART 1 – FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
TCW SPECIAL PURPOSE ACQUISITION CORP.
CONDENSED BALANCE SHEETS
| September 30, 2022 | December 31, 2021 | |||||||
| (Unaudited) | (Audited) | |||||||
| ASSETS | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Total current assets | ||||||||
| Prepaid insurance - noncurrent | ||||||||
| Cash and Investments held in Trust Account | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued offering costs | ||||||||
| Accrued expenses | ||||||||
| Accrued expenses - related party | ||||||||
| Income tax payable | — | |||||||
| Franchise tax payable | ||||||||
| Convertible promissory note - related party (at fair value) | ||||||||
| Total current liabilities | ||||||||
| Warrant liabilities | ||||||||
| Deferred underwriting fee payable | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies (Note 7) | ||||||||
| Class A common stock, $ | ||||||||
| Stockholders’ Deficit: | ||||||||
| Preferred stock, $ | ||||||||
| Class A common stock, $ | ||||||||
| Class B common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Deficit | ( | ) | ( | ) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
1
TCW SPECIAL PURPOSE ACQUISITION CORP.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
| Three Months Ended September 30, 2022 | Three Months Ended September 30, 2021 | Nine Months Ended September 30, 2022 | Nine Months Ended September 30, 2021 | |||||||||||||
| Operating and formation costs | $ | $ | $ | $ | ||||||||||||
| Expensed offering costs | ||||||||||||||||
| Franchise tax expense | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest and dividend income on investments held in Trust Account | ||||||||||||||||
| Gain on change in fair value of warrant liabilities | ||||||||||||||||
| Gain on change in fair value of over-allotment option liability | — | |||||||||||||||
| Gain on expiration of over-allotment option liability | — | |||||||||||||||
| Gain on change in fair value of convertible promissory note - related party | ||||||||||||||||
| Income before income taxes | ||||||||||||||||
| Income tax expense | ( | ) | ( | ) | ||||||||||||
| Net income | $ | $ | $ | $ | ||||||||||||
| $ | $ | $ | $ | |||||||||||||
| $ | $ | $ | $ | |||||||||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
2
TCW SPECIAL PURPOSE ACQUISITION CORP.
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
(UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022
| Common Stock | Additional | Total | ||||||||||||||||||||||||||
| Class A | Class B | Paid-in | Accumulated | Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
| Balance - December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Proceeds received in excess of initial fair value of convertible promissory note - related party | — | — | ||||||||||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||
| Balance - March 31, 2022 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Proceeds received in excess of initial fair value of convertible promissory note - related party | — | — | ||||||||||||||||||||||||||
| Remeasurement of Class A common stock to redemption amount | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||
| Balance - June 30, 2022 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Proceeds received in excess of initial fair value of convertible promissory note - related party | — | — | ||||||||||||||||||||||||||
| Remeasurement of Class A common stock to redemption amount | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||
| Balance - September 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
3
TCW SPECIAL PURPOSE ACQUISITION CORP.
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
(UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021
| Total | ||||||||||||||||||||||||||||
| Common Stock | Additional | Stockholders’ | ||||||||||||||||||||||||||
| Class A | Class B | Paid-in | Accumulated | Equity | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||||||||
| Balance - December 31, 2020 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Excess of cash received over fair value of Private Placement Warrants | — | — | ||||||||||||||||||||||||||
| Remeasurement of Class A common stock to redemption amount | — | — | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance - March 31, 2021 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Forfeiture of Class B common stock | ( | ) | ( | ) | ||||||||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||
| Balance- June 30, 2021 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||
| Balance - September 30, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
4
TCW SPECIAL PURPOSE ACQUISITION CORP.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| Nine Months Ended September 30, 2022 | Nine Months Ended September 30, 2021 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash used in operating activities: | ||||||||
| Expensed offering costs | ||||||||
| Interest and dividend income on Trust Account | ( | ) | ( | ) | ||||
| Gain on change in fair value of over-allotment option liability | ( | ) | ||||||
| Gain on expiration of over-allotment option liability | ( | ) | ||||||
| Gain on change in fair value of warrant liabilities | ( | ) | ( | ) | ||||
| Gain on change in fair value of convertible promissory note - related party | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Accrued expenses | ||||||||
| Accrued expenses - related party | ( | ) | ||||||
| Income tax payable | ||||||||
| Franchise tax payable | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities: | ||||||||
| Proceeds from Trust Account to pay tax | — | |||||||
| Investment of cash into Trust Account | ( | ) | ||||||
| Net cash provided by (used in) investing activities | ( | ) | ||||||
| Cash Flows from Financing Activities: | ||||||||
| Proceeds from convertible promissory note - related party | ||||||||
| Proceeds from promissory note - related party | ||||||||
| Repayment of promissory note - related party | ( | ) | ||||||
| Advance from related party | ||||||||
| Repayment of advance from related party | ( | ) | ||||||
| Proceeds from initial public offering, net of underwriter’s discount paid | ||||||||
| Proceeds from sale of Private Placement Warrants | ||||||||
| Payment of offering costs | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||
| Net Change in Cash | ||||||||
| Cash - Beginning of period | ||||||||
| Cash - End of period | $ | $ | ||||||
| Supplemental disclosure of noncash investing and financing activities: | ||||||||
| Remeasurement of Class A common stock to redemption amount | $ | $ | ( | ) | ||||
| Initial classification of warrant liabilities | $ | $ | ||||||
| Deferred underwriting fee payable | $ | $ | ||||||
| Offering costs included in accrued offering costs | $ | $ | ||||||
| Reclassification of deferred offering costs to equity upon completion of the initial public offering | $ | $ | ||||||
| Forfeiture of Class B common stock | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
5
TCW SPECIAL PURPOSE ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
NOTE 1. DESCRIPTION OF BUSINESS ORGANIZATION, BUSINESS OPERATIONS, GOING CONCERN, AND RISKS AND UNCERTAINTIES
TCW Special Purpose Acquisition Corp. (the “Company” or “TCW”) is a blank check company incorporated in Delaware on December 21, 2020. The Company was 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 (a “Business Combination”).
The Company is not limited to a particular industry or geographic region for purposes of consummating a Business Combination. The Company is an early stage and emerging growth company and, as such, the Company is subject to all of the risks associated with early stage and emerging growth companies.
As of September 30, 2022, the Company had not commenced any operations. All activity for the period from December 20, 2020 (inception) through September 30, 2022 relates to the Company’s formation, the initial public offering (“Initial Public Offering”) as described below, and since the closing of the Initial Public Offering, the search for a prospective initial Business Combination. The Company will not generate any operating revenues until after the completion of its initial Business Combination, at the earliest. The Company generates non-operating income in the form of interest and dividend income on investments held in a trust account from the proceeds derived from 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.
The registration statement for the Company’s
Initial Public Offering was declared effective on March 1, 2021. On March 4, 2021, the Company consummated the Initial Public
Offering of
Simultaneously
with the closing of the Initial Public Offering, the Company consummated the sale of
Following the closing of the Initial Public Offering
on March 4, 2021, an amount of $
On
March 4, 2021, the underwriters notified the Company of their intention to exercise their over-allotment option. As such, on March 5,
2021, the Company consummated the sale of an additional
Transaction
costs related to the issuances described above amounted to $
The
Company’s management has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering
and the sale of the Private Placement Warrants, although substantially all of the net proceeds are intended to be applied generally toward
consummating a Business Combination. The Company must complete a Business Combination with one or more target businesses that together
have an aggregate fair market value of at least
6
TCW SPECIAL PURPOSE ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
The
Company will provide its holders of the outstanding Public Shares (the “public stockholders”) with the opportunity to redeem
all or a portion of their Public Shares upon the completion of a Business Combination either (i) in connection with a stockholder meeting
called to approve the Business Combination or (ii) by means of a tender offer. The decision as to whether the Company will seek stockholder
approval of a Business Combination or conduct a tender offer will be made by the Company, solely in its discretion. The public stockholders
will be entitled to redeem their Public Shares for a pro rata portion of the amount then in the Trust Account (initially anticipated
to be $
The
Company will proceed with a Business Combination only if the Company has net tangible assets of at least $
Notwithstanding
the above, if the Company seeks stockholder approval of a Business Combination and it does not conduct redemptions pursuant to the tender
offer rules, the Amended and Restated Certificate of Incorporation provides that a public stockholder, together with any affiliate of
such stockholder or any other person with whom such stockholder is acting in concert or as a “group” (as defined under Section
13 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), will be restricted from redeeming its shares
with respect to more than an aggregate of
The Sponsor has agreed to waive (i) redemption
rights with respect to any Founder Shares and Public Shares held in connection with the completion of an initial Business Combination,
(ii) redemption rights with respect to any Founder Shares and Public Shares held in connection with a stockholder vote to approve an amendment
to the Amended and Restated Certificate of Incorporation to modify the substance or timing of the Company’s obligation to allow
redemption in connection with an initial Business Combination or to redeem
7
TCW SPECIAL PURPOSE ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
The Company will have until March 4, 2023
to complete a Business Combination, which period (i) will be extended to June 4, 2023 if a letter of intent, agreement in principle or
definitive agreement for a 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 the Amended and Restated Certificate of Incorporation (as so extended, the “Combination
Period”). If the Company is unable to complete a Business Combination within the Combination Period, the Company will (i) cease
all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter,
redeem the Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including
interest earned on the funds held in the Trust Account and not previously released to the Company to pay taxes (less up to $
The
underwriters have agreed to waive their rights to their deferred underwriting commission (see Note 7) held in the Trust Account in the
event the Company does not complete a Business Combination within in the Combination Period and, in such event, such amounts will be
included with the other funds held in the Trust Account that will be available to fund the redemption of the Public Shares. In the event
of such distribution, it is possible that the per share value of the assets remaining available for distribution will be less than the
Initial Public Offering price per Unit ($
In
order to protect the amounts held in the Trust Account, the Sponsor has agreed to be liable to the Company if and to the extent any claims
by a third party for services rendered or products sold to the Company, or a prospective target business with which the Company has discussed
entering into a transaction agreement, reduce the amount of funds in the Trust Account to below (1) $
Going Concern
As of September 30, 2022, the Company had
$
While the Company expects to have sufficient access to additional sources of capital if necessary, other than the Working Capital Loan (as defined in Note 6) and Commitment Letter (as defined in Note 6), 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.
The Company will have until March 4, 2023 to complete a Business Combination, which period (i) will be extended to June 4, 2023 if a letter of intent, agreement in principle or definitive agreement for a Business Combination is in place as of March 4, 2023 or (ii) may be extended as a result of an amendment to the Amended and Restated Certificate of Incorporation. If a 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 a Business Combination during the Combination Period.
8
TCW SPECIAL PURPOSE ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
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 the Company’s plans to raise additional capital (to the extent ultimately necessary) or to consummate a 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.
Risks and Uncertainties
Management continues to evaluate the impact of the COVID-19 pandemic, rising interest rates and increased inflation and their macro-economic impact on the Company’s business objectives and has concluded that while it is reasonably possible that the virus, interest rates and/or inflation could have a negative effect on the Company’s financial position, results of its operations, and/or search for a target company, the specific impact is not readily determinable as of the date of these unaudited condensed financial statements. The unaudited condensed financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Various social and political circumstances in the U.S. and around the world (including wars and other forms of conflict, including rising trade tensions between the United States and China, and other uncertainties regarding actual and potential shifts in the U.S. and foreign, trade, economic and other policies with other countries, terrorist acts, security operations and catastrophic events such as fires, floods, earthquakes, tornadoes, hurricanes and global health epidemics), may also contribute to increased market volatility and economic uncertainties or deterioration in the U.S. and worldwide, including increases in inflation and supply chain headwinds. Specifically, the military conflict between Russia and Ukraine, and resulting market volatility could adversely affect the Company’s ability to complete a business combination. In response to the conflict between Russia and Ukraine, the U.S. and other countries have imposed sanctions or other restrictive actions against Russia. Any of the above factors, including sanctions, export controls, tariffs, trade wars and other governmental actions, could have a material adverse effect on the Company’s ability to complete a business combination and the value of the Company’s securities. The unaudited condensed financial statements do not include any adjustments that might result from the outcome of this uncertainty.
NOTE 2. REVISION OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
In
the Company’s previously issued financial statements for the nine months ended September 30, 2021, the Company did not record
a liability for the underwriters’ 45-day option at the Initial Public Offering to purchase up to
In accordance with SEC Staff Accounting Bulletin No. 99, Materiality, and SEC Staff Accounting Bulletin No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements; the Company evaluated the change and has determined that the related impact was not material to any previously presented financial statements. As such the Company corrected the error in the financial statements for the year ended December 31, 2021, included in its Annual Report on Form 10-K and is reporting the revision to the prior year interim periods in this Quarterly Report.
The
impact of the revision on the condensed statement of operations for the nine months ended September 30, 2021 was an increase in
expensed offering costs and loss from operations of $
9
TCW SPECIAL PURPOSE ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed financial statements of the Company are presented in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the SEC.
Certain information or footnote disclosures normally included in annual financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a complete presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited condensed financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented. The accompanying unaudited condensed financial statements should be read in conjunction with the Company’s annual report on Form 10-K as filed with the SEC on March 31, 2022 (the “Annual Report”). The accompanying condensed balance sheet as of December 31, 2021 was derived from the audited balance sheet as of December 31, 2021 included in the Annual Report. The interim results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022 or for any future periods.
Emerging Growth Company
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. The Company has elected to implement the aforementioned exemptions.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s unaudited condensed financial statements with another public company, which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Use of Estimates
The preparation of the unaudited condensed financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed financial statements and the reported amounts of revenues and expenses during the reporting period.
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the unaudited condensed financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from those estimates. The initial valuation of the Public Warrants (as defined in Note 4) and Class A common stock subject to redemption, and the initial valuation and subsequent valuations of the Private Placement Warrants and convertible promissory note - related party required management to make significant judgement in its estimates.
10
TCW SPECIAL PURPOSE ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
Cash and Cash Equivalents
The Company considers all short-term investments
with an original maturity of three months or less when purchased to be cash equivalents. The Company did not have any cash equivalents
as of September 30, 2022 and December 31, 2021. As of September 30, 2022 and December 31, 2021, the Company had operating
cash (i.e., cash held outside the Trust Account) of $
Cash and Investments Held in Trust Account
As of September 30, 2022, the assets held in the Trust Account were held in a non-interest bearing cash account. As of December 31, 2021, the assets held in the Trust Account were held in money market funds, which were invested in U.S. Treasury securities.
Class A Common Stock Subject to Possible Redemption
All
of the
The Company recognizes changes in redemption value
immediately as they occur and adjusts the carrying value of redeemable common stock to equal the redemption value at the end of each reporting
period. Increases or decreases in the carrying amount of redeemable common stock are affected by charges against additional paid-in capital
(to the extent available) and accumulated deficit. The redemption value of the redeemable common stock as of September 30, 2022 increased
as the income earned on the Trust Account exceeds the Company’s expected tax obligations plus up to $
As of September 30, 2022 and December 31, 2021, the Class A common stock subject to redemption reflected in the condensed balance sheets are reconciled in the following table:
11
TCW SPECIAL PURPOSE ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
Warrant Liabilities
The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480 and ASC Topic 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common stock, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding.
For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the condensed statements of operations. The initial fair value of the Public Warrants was estimated using a Monte Carlo simulation approach and the fair value of the Private Placement Warrants was estimated using a Modified Black-Scholes model (see Note 11).
Convertible Promissory Note - Related Party
The Company accounts for the convertible promissory note under ASC 815. The Company has made the election under ASC 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 statements of operations.
Offering Costs Associated with the Initial Public Offering
The
Company complies with the requirements of ASC Topic 340, Other Assets and Deferred Costs (“ASC 340”) and SEC Staff Accounting
Bulletin Topic 5A - Expenses of Offering. Offering costs consist principally of professional and registration fees incurred through
the balance sheet date that are related to the Initial Public Offering. Offering costs directly attributable to the issuance of an equity
contract to be classified in equity are recorded as a reduction in equity. Offering costs for equity contracts that are classified as
assets and liabilities are expensed immediately. The Company incurred offering costs amounting to $
Income Taxes
The Company complies with the accounting and reporting requirements of ASC Topic 740, Income Taxes (“ASC 740”), which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the unaudited condensed financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
Under ASC 740-270, tax expense for interim periods should be measured using an estimated annual effective tax rate. Exceptions under ASC 740-270-30-36 and ASC 740-270-25-3 include circumstances where a reliable estimate of ordinary income or loss cannot be made. The Company believes there is a high degree of uncertainty in estimating annual pretax earnings due to changes in the fair value of warrant liabilities and the convertible promissory note, which have a material effect on the Company’s ordinary income. Therefore, the Company has used a discrete effective tax rate method to calculate interim income tax expense.
12
TCW SPECIAL PURPOSE ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
ASC 740 prescribes a recognition threshold and a measurement attribute for the unaudited condensed financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits, if any, as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of September 30, 2022 and December 31, 2021. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position. The Company is subject to income tax examinations by major taxing authorities since inception.
On August 16, 2022, President Biden
signed into law the Inflation Reduction Act of 2022, which, among other things, imposes a
See Note 10 for additional information on income taxes for the periods presented.
Net Income Per Share of Common Stock
Net income per common share is computed by dividing
net income by the weighted-average number of shares of common stock outstanding during the period. The remeasurement of Class A common
stock subject to redemption to redemption value is excluded from the earnings per share as the redemption value approximates fair value.
Class B common stock subject to forfeiture is included in the calculation of basic income per share as of the date that the forfeiture
contingency has lapsed (see Note 9). Class B common stock subject to forfeiture is included in the calculation of diluted income per share
as of the beginning of the interim period in which the forfeiture contingency lapsed. The Company has not considered the effect of the
Public Warrants, Private Placement Warrants and warrants issuable upon conversion of the Working Capital Loan to purchase an aggregate
of
The following table reflects the calculation of basic and diluted net income per common share (in dollars, except share amounts):
September 30, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2021 | |||||||||||||||||||||||||||||
Concentration of Credit Risk
Financial
instruments that potentially subject the Company to concentration of credit risk consist of a cash account in a financial institution
which, at times may exceed the Federal depository insurance coverage of $
13
TCW SPECIAL PURPOSE ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
Fair Value of Financial Instruments
The Company applies ASC Topic 820, Fair Value Measurement (“ASC 820”), which establishes a framework for measuring fair value and clarifies the definition of fair value within that framework. ASC 820 defines fair value as an exit price, which is the price that would be received for an asset or paid to transfer a liability in the Company’s principal or most advantageous market in an orderly transaction between market participants on the measurement date. The fair value hierarchy established in ASC 820 generally requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs reflect the assumptions that market participants would use in pricing the asset or liability and are developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the entity’s own assumptions based on market data and the entity’s judgments about the assumptions that market participants would use in pricing the asset or liability and are to be developed based on the best information available in the circumstances.
The carrying amounts reflected in the balance sheet for current assets and current liabilities (with the exception of the convertible promissory note - related party) approximate fair value due to their short-term nature.
Level 1 — Assets and liabilities with unadjusted, quoted prices listed on active market exchanges. Inputs to the fair value measurement are observable inputs, such as quoted prices in active markets for identical assets or liabilities.
Level 2 — Inputs to the fair value measurement are determined using prices for recently traded assets and liabilities with similar underlying terms, as well as direct or indirect observable inputs, such as interest rates and yield curves that are observable at commonly quoted intervals.
Level 3 — Inputs to the fair value measurement are unobservable inputs, such as estimates, assumptions, and valuation techniques when little or no market data exists for the assets or liabilities.
See Note 11 for additional information on assets and liabilities measured at fair value.
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, 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 as of and 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 the Company’s unaudited condensed financial statements.
NOTE 4. INITIAL PUBLIC OFFERING
Pursuant
to the Initial Public Offering, the Company sold
14
TCW SPECIAL PURPOSE ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
NOTE 5. PRIVATE PLACEMENT
Simultaneously
with the closing of the Initial Public Offering, the Sponsor purchased an aggregate of
NOTE 6. RELATED PARTY TRANSACTIONS
Founder Shares
In December 2020, the Sponsor paid $
The
Sponsor has agreed that, subject to certain limited exceptions, the Founder Shares will not be transferred, assigned, sold or released
from escrow until the earlier of (a) one year after the completion of a Business Combination or (b) the date on which the Company completes
a liquidation, merger, capital stock exchange or other similar transaction after a Business Combination that results in all of the Company’s
stockholders having the right to exchange their Class A common stock for cash, securities or other property. Notwithstanding the foregoing,
if (i) the closing price of the Company’s Class A common stock equals or exceeds $
Promissory Note – Related Party
On
December 28, 2020, the Company issued an unsecured promissory note to the Sponsor (the “Promissory Note”), pursuant to which
the Company had access to $
15
TCW SPECIAL PURPOSE ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
Related Party Loans
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 the Company funds as may be required (“Working Capital Loans”).
On
June 17, 2021, the Company entered into a $
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 $
On January 6, 2022, February 16, 2022, April 6,
2022, May 4, 2022, July 19, 2022, and August 31, 2022 the Company drew $
Administrative Support Agreement
The
Company entered into an agreement, commencing on the effective date of the Initial Public Offering, to pay the Sponsor a total of $
Advance from Related Party
On
February 25, 2021, the Sponsor advanced $
Contingent Warrants
In
December 2021, the board of directors approved an amendment to a contract to increase the number of warrants issuable to a person affiliated
with the Company from
Commitment Letter
On March 31, 2022, TAMCO signed a commitment letter (the “Commitment Letter”) 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.
16
TCW SPECIAL PURPOSE ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
NOTE 7. COMMITMENTS AND CONTINGENCIES
Registration Rights
The holders of the Founder Shares, Private Placement Warrants and warrants that may be issued upon conversion of Working Capital Loans (including the Working Capital Loan with TAMCO as discussed in Note 6) (and any Class A common stock issuable upon the exercise of the Private Placement Warrants) 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
The
underwriters were paid a cash underwriting fee of $
Financial Advisory Agreement
On
August 9, 2021, the Company entered into an agreement with TAMCO, an affiliate of the Sponsor, to provide strategic advice and assistance
to the Company 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, the Company has agreed to pay TAMCO (a) a transaction fee equal to
17
TCW SPECIAL PURPOSE ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
NOTE 8. WARRANTS
Public Warrants may only be exercised for a whole
number of shares. No fractional shares will be issued upon exercise of the Public Warrants. The Public Warrants will become exercisable
on the later of (a) 30 days after the completion of a Business Combination or (b) one year from the closing of the Initial Public Offering.
The Public Warrants will expire
The Company will not be obligated to deliver any Class A common stock pursuant to the exercise of a warrant and will have no obligation to settle such warrant exercise unless a registration statement under the Securities Act with respect to the Class A common stock underlying the warrants is then effective and a prospectus relating thereto is current, subject to the Company satisfying its obligations with respect to registration, or a valid exemption from registration is available. No warrant will be exercisable and the Company will not be obligated to issue a share of Class A common stock upon exercise of a warrant unless the share of Class A common stock issuable upon such warrant exercise has been registered, qualified or deemed to be exempt under the securities laws of the state of residence of the registered holder of the warrants.
The Company has agreed that as soon as practicable, but in no event later than 15 business days after the closing of a Business Combination, it will use its commercially reasonable efforts to file with the SEC and have an effective registration statement covering the shares of Class A common stock issuable upon exercise of the warrants. The Company will use its commercially reasonable efforts to cause the same to become effective and to maintain the effectiveness of such registration statement, and a current prospectus relating thereto, until the expiration of the warrants in accordance with the provisions of the warrant agreement. If a registration statement covering the Class A common stock issuable upon exercise of the warrants is not effective by the sixtieth (60th) business day after the closing of a Business Combination, warrant holders may, until such time as there is an effective registration statement and during any period when the Company will have failed to maintain an effective registration statement, exercise warrants on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act or another exemption. Notwithstanding the above, if the Company’s Class A common stock are at the time of any exercise of a warrant not listed on a national securities exchange such that they satisfy the definition of a “covered security” under Section 18(b)(1) of the Securities Act, the Company may, at its option, require holders of Public Warrants who exercise their warrants to do so on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act and, in the event the Company so elects, the Company will not be required to file or maintain in effect a registration statement, and in the event the Company does not so elect, the Company will use its commercially reasonable efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available.
Once the Public Warrants become exercisable, the Company may redeem the Public Warrants (except with respect to the Private Placement Warrants):
| ● | in whole and not in part; |
| ● | at a price of $0.01 per Public Warrant; |
| ● | upon a minimum of 30 days’ prior written notice of redemption to each warrant holder; and |
| ● | if, and only if, the closing price of the Class A common stock equals or exceeds $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within a 30-trading day period ending three trading days before the Company sends the notice of redemption to the warrant holders. |
The Company will not redeem the warrants as described above unless a registration statement under the Securities Act covering the issuance of the Class A common stock issuable upon exercise of the warrants is then effective and a current prospectus relating to those shares of Class A common stock is available throughout the 30-day redemption period. If and when the warrants become redeemable by the Company, the Company may exercise its redemption right even if the Company is unable to register or qualify the underlying securities for sale under all applicable state securities laws.
18
TCW SPECIAL PURPOSE ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
Once the Public Warrants become exercisable, the Company may redeem the Public Warrants:
| ● | in whole and not in part; |
| ● | at $0.10 per warrant upon a minimum of 30 days’ prior written notice of redemption provided that holders will be able to exercise their warrants on a cashless basis prior to redemption and receive that number of shares determined by reference to an agreed table based on the redemption date and the value (as defined below) of the Company’s Class A common stock except as otherwise described below; |
| ● | if, and only if, the closing price of the Company’s Class A common stock equals or exceeds $10.00 per Public Share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within the 30-trading day period ending three trading days before the Company sends the notice of redemption to the warrant holders; and |
| ● | if the closing price of the Company’s Class A common stock for any 20 trading days within a 30-trading day period ending three trading days before the Company sends notice of redemption to the warrant holders is less than $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like), the Private Placement Warrants must also be concurrently called for redemption on the same terms as the outstanding Public Warrants, as described above. |
The value of the Company’s Class A common
stock shall mean the volume weighted average price of the Company’s Class A common stock during the 10 trading days immediately
following the date on which the notice of redemption is sent to the holders of warrants. This redemption feature differs from the typical
warrant redemption features used in other blank check offerings. The Company will provide its warrant holders with the final value no
later than one business day after the 10 trading day period described above ends. In no event will the warrants be exercisable in connection
with this redemption feature for more than
If the Company calls the Public Warrants for redemption, management will have the option to require all holders that wish to exercise the Public Warrants to do so on a “cashless basis,” as described in the warrant agreement. The exercise price and number of shares of Class A common stock issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, or recapitalization, reorganization, merger or consolidation. However, except as described below, the warrants will not be adjusted for issuance of Class A common stock at a price below its exercise price. If the Company is unable to complete a Business Combination within the Combination Period and the Company liquidates the funds held in the Trust Account, holders of warrants will not receive any of such funds with respect to their warrants, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with the respect to such warrants. Accordingly, the warrants may expire worthless.
In addition, if (x) the Company issues additional shares of Class A common stock or equity-linked securities for capital raising purposes in connection with the closing of its initial Business Combination at an issue price or effective issue price of less than $9.20 per share of Class A common stock (with such issue price or effective issue price to be determined in good faith by the Company’s board of directors and, in the case of any such issuance to its Sponsor or its affiliates, without taking into account any Founder Shares held by its Sponsors or such affiliates, as applicable, prior to such issuance) (the “Newly Issued Price”), (y) the aggregate gross proceeds from such issuances represent more than 60% of the total equity proceeds, and interest thereon, available for the funding of the Company’s initial Business Combination on the date of the consummation of such initial Business Combination (net of redemptions), and (z) the volume weighted average trading price of the Company’s Class A common stock during the 20 trading day period starting on the trading day prior to the day on which the Company consummates its initial Business Combination (such price, the “Market Value”) is below $9.20 per share, the exercise price of the warrants will be adjusted (to the nearest cent) to be equal to 115% of the higher of the Market Value and the Newly Issued Price, the $18.00 per share redemption trigger price described above under Redemption of warrants when the price per share of Class A common stock equals or exceeds $18.00 will be adjusted (to the nearest cent) to be equal to 180% of the higher of the Market Value and the Newly Issued Price, and the $10.00 per share redemption trigger price described above under Redemption of warrants when the price per share of Class A common stock equals or exceeds $10.00 will be adjusted (to the nearest cent) to be equal to the higher of the Market Value and the Newly Issued Price.
The Private Placement Warrants are identical to the Public Warrants underlying the Units being sold in the Initial Public Offering, except that the Private Placement Warrants and the Class A common stock issuable upon the exercise of the Private Placement Warrants will not be transferable, assignable or salable until 30 days after the completion of a Business Combination, subject to certain limited exceptions. Additionally, the Private Placement Warrants will be exercisable on a cashless basis and be non-redeemable so long as they are held by the initial purchasers or their permitted transferees. If the Private Placement Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Placement Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.
19
TCW SPECIAL PURPOSE ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
As of September 30, 2022 and December 31,
2021, there were
The accounting treatment of derivative financial instruments required that the Company record the warrants as derivative liabilities at fair value upon the closing of the Initial Public Offering. The Public Warrants were allocated a portion of the proceeds from the issuance of the Units equal to its fair value. The warrant liabilities are subject to re-measurement at each balance sheet date. With each such re-measurement, the warrant liabilities are adjusted to current fair value, with the change in fair value recognized in the Company’s statement of operations. The Company will reassess the classification at each balance sheet date. If the classification changes as a result of events during the period, the warrants will be reclassified as of the date of the event that causes the reclassification. There was no change in the classification of warrant liabilities as of September 30, 2022 and December 31, 2021.
NOTE 9. STOCKHOLDERS’ DEFICIT
Preferred stock — The Company
is authorized to issue
Class A common stock — The
Company is authorized to issue up to
Class B common stock — The
Company is authorized to issue up to
In January 2021, the Company effected a 1:1.20
stock split of Class B common stock, resulting in an aggregate of
Holders of Class A common stock and Class B common stock will vote together as a single class on all other matters submitted to a vote of shareholders except as required by law. Prior to an initial Business Combination, holders of Class B common stock will have the right to elect all of the Company’s directors and may remove members of the board of directors for any reason.
The Class B common stock will automatically convert
into shares of Class A common stock concurrently with or immediately following the consummation of an initial Business Combination, or
earlier at the option of the holder, on a one-for-one basis, subject to adjustment for stock splits, stock dividends, reorganizations,
recapitalizations and the like, and subject to further adjustment. In the case that additional shares of Class A common stock or equity-linked
securities are issued or deemed issued in connection with an initial Business Combination, the number of shares of Class A common stock
issuable upon conversion of all Founder Shares will equal, in the aggregate, on an as-converted basis,
20
TCW SPECIAL PURPOSE ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
NOTE 10. INCOME TAXES
The Company’s effective tax rate for the
three and nine months ended September 30, 2022 was
NOTE 11. FAIR VALUE MEASUREMENTS
The following table presents information about the Company’s financial assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2022 and December 31, 2021, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:
Description | Amount at Fair Value | Level 1 | Level 2 | Level 3 | ||||||||||||
| September 30, 2022 | ||||||||||||||||
| Liabilities | ||||||||||||||||
| Warrant liability – Public Warrants | $ | $ | $ | $ | ||||||||||||
| Warrant liability – Private Placement Warrants | $ | $ | $ | $ | ||||||||||||
| Convertible promissory note - related party | $ | $ | $ | $ | ||||||||||||
| December 31, 2021 | ||||||||||||||||
| Assets | ||||||||||||||||
| Investments held in Trust Account: | ||||||||||||||||
| Money Market investments | $ | $ | $ | $ | ||||||||||||
| Liabilities | ||||||||||||||||
| Warrant liability – Public Warrants | $ | $ | $ | $ | ||||||||||||
| Warrant liability – Private Placement Warrants | $ | $ | $ | $ | ||||||||||||
The Company utilized a Monte Carlo simulation
model for the initial valuation of the Public Warrants. The subsequent measurement of the Public Warrants beginning April 21, 2021 is
classified as Level 1 due to the use of an observable market quote in an active market under the ticker TSPQ.WS. The quoted price of the
Public Warrants was $
21
TCW SPECIAL PURPOSE ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
The Company utilizes a Modified Black-Scholes model to value the Private Placement Warrants at each reporting period, with changes in fair value recognized in the statement of operations. The estimated fair value of the Private Placement Warrant liability was initially determined using Level 3 inputs. As of September 30, 2022 and December 31, 2021 the Private Placement Warrants are classified as Level 2 due to the use of an observable market quote for a similar asset in an active market.
Transfers to/from Levels 1, 2 and 3 are recognized at the end of the reporting period. The estimated fair value of the Public Warrants transferred from a Level 3 measurement to a Level 1 fair value measurement as of June 30, 2021 after the Public Warrants were separately listed and traded, as described above. The estimated fair value of the Private Placement Warrants transferred from a Level 3 measurement to a Level 2 fair value measurement as of June 30, 2021 due to the use of an observable market quote for a similar asset in an active market.
The following table provides the significant inputs used in the Modified Black-Scholes model to measure the fair value of the Private Placement Warrants:
| As of September 30, 2022 | As of December 31, 2021 | |||||||
| Stock price | $ | $ | ||||||
| Strike price | $ | $ | ||||||
| Probability of completing a Business Combination | % | % | ||||||
| Dividend yield | % | % | ||||||
| Remaining term (in years) | ||||||||
| Volatility | % | % | ||||||
| Risk-free rate | % | % | ||||||
| Fair value of warrants, per whole warrant | $ | $ | ||||||
22
TCW SPECIAL PURPOSE ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
The convertible promissory note - related party was valued using a combination of Black-Scholes and Discounted Cash Flows methods, which are considered to be Level 3 fair value measurements. The estimated fair value of the convertible promissory note - related party was based on the following significant inputs:
Amounts bolded below represent Working Capital Loan draws | ||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||
| As
of September 30, 2022 | As
of August 31, 2022 (Initial Measurement) | As
of July 19, 2022 (Initial Measurement) | As
of June 30, 2022 | As
of May 4, 2022 (Initial Measurement) | As
of April 6, 2022 (Initial Measurement) | As
of February 16, 2022 (Initial Measurement) | As
of January 6, 2022 (Initial Measurement) | |||||||||||||||||||||||||
| Warrant price | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Conversion price | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
| Expected term | ||||||||||||||||||||||||||||||||
| Warrant volatility | % | % | % | % | % | % | % | % | ||||||||||||||||||||||||
| Risk free rate | % | % | % | % | % | % | % | % | ||||||||||||||||||||||||
| Discount rate | % | % | % | % | % | % | % | % | ||||||||||||||||||||||||
| Probability of completing a Business Combination | % | % | % | % | % | % | % | % | ||||||||||||||||||||||||
| Fair value convertible promissory note - related party | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
The following table provides a summary of the changes in the fair value of the Company’s Level 3 financial instruments that are measured at fair value on a recurring basis:
| Fair value as of December 31, 2021 | $ | |||
| Initial measurement of draw on convertible promissory note - related party on January 6, 2022 | ||||
| Initial measurement of draw on convertible promissory note - related party on February 16, 2022 | ||||
| Change in fair value | ( | ) | ||
| Fair value as of March 31, 2022 | ||||
| Initial measurement of draw on convertible promissory note - related party on April 6, 2022 | ||||
| Initial measurement of draw on convertible promissory note - related party on May 4, 2022 | ||||
| Change in fair value | ( | ) | ||
| Fair value as of June 30, 2022 | ||||
| Initial measurement of draw on convertible promissory note - related party on July 19, 2022 | ||||
| Initial measurement of draw on convertible promissory note - related party on August 31, 2022 | ||||
| Change in fair value | ( | ) | ||
| Fair value as of September 30, 2022 | $ |
| Fair value as of December 31, 2020 | $ | |||
| Initial measurement of warrants as of March 4, 2021 | ||||
| Initial measurement of over-allotment option | ||||
| Initial measurement of over-allotment warrants | ||||
| Change in fair value | ( | ) | ||
| Fair value as of March 31, 2021 | ||||
| Transfer of Public Warrants to Level 1 measurement | ( | ) | ||
| Transfer of Private Placement Warrants to Level 2 measurement | ( | ) | ||
| Change in fair value | ( | ) | ||
| Fair value as of June 30, 2021 | ||||
| Change in fair value | ||||
| Fair value as of September 30, 2021 | $ |
23
TCW SPECIAL PURPOSE ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
The Company recognized gains in connection with
changes in the fair value of warrant liabilities of $
The Company recognized a gain on the change in
fair value of the convertible promissory note - related party of $
NOTE 12. SUBSEQUENT EVENTS
The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the unaudited condensed financial statements were issued. Based upon this review, other than as described below, the Company did not identify any subsequent events that would have required adjustment or disclosure in the unaudited condensed financial statements.
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 $
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 $
On October 19, 2022, Nanxi Liu was appointed to the Company’s board of directors and audit committee.
24
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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.
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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.
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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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Item 3. Quantitative and Qualitative Disclosures About Market Risk.
As of September 30, 2022 and December 31, 2021, we were not subject to any market or interest rate risk. Following the consummation of our initial public offering, the net proceeds received into the trust account have been invested in cash since March 10, 2021. Due to the nature of the cash, we believe there will be no associated material exposure to interest rate risk.
We have not engaged in any hedging activities during the three and nine months ended September 30, 2022 and 2021. We do not expect to engage in any hedging activities with respect to the market risk to which we are exposed.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in company reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2022. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, due to the material weakness described below, the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were not effective as of September 30, 2022.
Management concluded that a material weakness in internal control over financial reporting existed relating to the accounting treatment for complex financial instruments. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
Changes in Internal Control over Financial Reporting
During the most recently completed fiscal quarter, there has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. In light of the prior restatement of our unaudited condensed financial statements, we have and plan to continue to enhance our processes to identify and appropriately apply applicable accounting requirements to better evaluate and understand the nuances of the complex accounting standards that apply to our unaudited condensed financial statements. Our plans at this time include providing enhanced access to accounting literature, research materials and documents and increased communication among our personnel and third-party professionals with whom we consult regarding complex accounting applications. The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
There is no material litigation, arbitration or governmental proceeding currently pending against us or any members of our management team in their capacity as such.
Item 1A. Risk Factors.
Factors that could cause our actual results to differ materially from those in this Quarterly Report are any of the risks described in the Company’s annual report on Form 10-K as filed with the SEC on March 31, 2022, and on the Company’s June 30, 2022, Form 10-Q as filed the SEC on August 15, 2022. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. As of the date of this Quarterly Report, other than as provided below, there have been no material changes to the risk factors disclosed in the Company’s annual report on Form 10-K as filed with the SEC on March 31, 2022, and on the Company’s June 30, 2022, Form 10-Q as filed the SEC on August 15, 2022.
Changes in laws or regulations, or a failure to comply with any laws and regulations, may adversely affect our business, including our ability to negotiate and complete our initial business combination, and results of operations.
We are subject to laws and regulations enacted by national, regional and local governments. In particular, we are required to comply with certain SEC and other legal requirements. Compliance with, and monitoring of, applicable laws and regulations may be difficult, time consuming and costly. Those laws and regulations and their interpretation and application may also change from time to time and those changes could have a material adverse effect on our business, investments and results of operations. In addition, a failure to comply with applicable laws or regulations, as interpreted and applied, could have a material adverse effect on our business, including our ability to negotiate and complete our initial business combination, and results of operations.
On March 30, 2022, the SEC issued proposed rules (the “2022 Proposed Rules”) relating to, among other items, enhancing disclosures in business combination transactions involving SPACs and private operating companies; amending the financial statement requirements applicable to transactions involving shell companies; effectively limiting the use of projections in SEC filings in connection with proposed business combination transactions; increasing the potential liability of certain participants in proposed business combination transactions; and the extent to which SPACs could become subject to regulation under the Investment Company Act. The 2022 Proposed Rules, if adopted, whether in the form proposed or in revised form, and certain positions and legal conclusions expressed by the SEC in connection with the 2022 Proposed Rules, may materially adversely affect our ability to negotiate and complete our business combination and may increase the costs and time related thereto.
If we are deemed to be an investment company under the Investment Company Act, we may be required to institute burdensome compliance requirements and our activities may be restricted, which may make it difficult for us to complete our initial business combination.
If we are deemed to be an investment company under the Investment Company Act, our activities may be restricted, including, without limitation:
| ● | restrictions on the nature of our investments; |
| ● | restrictions on the issuance of securities; and |
| ● | restrictions on the enforceability of agreements entered into by us, each of which may make it difficult for us to complete our initial business combination. In addition, we may have imposed upon us burdensome requirements, including, without limitation: |
| ● | registration as an investment company with the SEC (which may be impractical and would require significant changes in, among other things, our capital structure); |
| ● | adoption of a specific form of corporate structure; and |
| ● | reporting, record keeping, voting, proxy and disclosure requirements and compliance with other rules and regulations that we are not currently subject to. |
In order not to be regulated as an investment company under the Investment Company Act, unless we can qualify for an exclusion, we must ensure that we are engaged primarily in a business other than investing, reinvesting or trading in securities and that our activities do not include investing, reinvesting, owning, holding or trading “investment securities” constituting more than 40% of our assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis. Our business is to identify and complete a business combination and thereafter to operate the post-transaction business or assets for the long term. We do not plan to buy businesses or assets with a view to resale or profit from their resale. We do not plan to buy unrelated businesses or assets or to be a passive investor.
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The 2022 Proposed Rules would provide a safe harbor for SPACs from the definition of “investment company” under Section 3(a)(1)(A) of the Investment Company Act, provided that they satisfy certain conditions that limit a SPAC’s duration, asset composition, business purpose and activities. The duration component of the proposed safe harbor rule would require a SPAC to file a Current Report on Form 8-K with the SEC announcing that it has entered into an agreement with the target company (or companies) to engage in an initial business combination no later than 18 months after the effective date of the SPAC’s registration statement for its initial public offering. The SPAC would then be required to complete its initial business combination no later than 24 months after the effective date of its registration statement for its initial public offering. Although the 2022 Proposed Rules, including the proposed safe harbor rule, have not yet been adopted, there is uncertainty in the SEC’s view of the applicability of the Investment Company Act to a SPAC that does not complete its initial business combination within the proposed time frame set forth in the proposed safe harbor rule or otherwise falls outside of the other provisions of the safe harbor.
We do not believe that our principal activities currently subject us to the Investment Company Act. To this end, the proceeds held in the trust account were invested only in United States “government securities” within the meaning of Section 2(a)(16) of the Investment Company Act having a maturity of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 promulgated under the Investment Company Act which invest only in direct U.S. government treasury obligations. Pursuant to the trust agreement, the trustee is not permitted to invest in other securities or assets. By restricting the investment of the proceeds to these instruments, and by having a business plan targeted at acquiring and growing businesses for the long term (rather than on buying and selling businesses in the manner of a merchant bank or private equity fund), we do not believe we are an “investment company” within the meaning of the Investment Company Act.
Further, to mitigate the risk of us being deemed to have been operating as an unregistered investment company (including under the subjective test of Section 3(a)(1)(A) of the Investment Company Act), we have instructed the trustee with respect to the trust account to liquidate the U.S. government securities or money market funds held in the trust account and thereafter to hold all funds in the trust account in cash until the earlier of consummation of our Business Combination or liquidation. As a result, following such liquidation, we have and will likely continue to receive minimal interest, if any, on the funds held in the Trust Account, which will reduce the dollar amount our public stockholders would receive upon any redemption or liquidation of the Company.
The Initial Public Offering was not intended for persons seeking a return on investments in government securities or investment securities. The trust account is intended as a holding place for funds pending the earliest to occur of: (i) the completion of our primary business objective, which is a business combination; (ii) the redemption of any public shares properly submitted in connection with a stockholder vote to amend our amended and restated certificate of incorporation to modify the substance or timing of our obligation to provide for the redemption of our public shares in connection with our initial business combination or to redeem 100% of our public shares if we do not complete our initial business combination by March 4, 2023 (or June 4, 2023 if an Agreement in Principle Event has occurred, or such other date to which the end of the Combination Period may have been extended ); and (iii) absent an initial business combination by March 4, 2023 (or June 4, 2023 if an Agreement in Principle Event has occurred, or such other date to which the end of the Combination Period may have been extended), our return of the funds held in the trust account to our public stockholders as part of our redemption of the public shares. Because we have invested only in permitted instruments, we believe we are not an investment company. Nevertheless, we have not entered into a definitive business combination agreement within 18 months after the effective date of our registration statement relating to the Initial Public Offering, and may not complete our Business Combination within 24 months of such date. As a result, it is possible that a claim could be made that we have been operating as an unregistered investment company. If we were deemed to be an investment company for purposes of the Investment Company Act, we might be required to terminate our efforts to complete an initial business combination and instead be required to liquidate. If we are required to liquidate, our investors would not be able to realize the benefits of owning stock in a successor operating business, including the potential appreciation in the value of our stock and warrants following such a transaction, and our warrants would expire without value.
The geopolitical conditions resulting from the recent invasion of Ukraine by Russia and subsequent sanctions against Russia, Belarus and related individuals and entities and the status of debt and equity markets could materially adversely affect our search for a Business Combination
United States and global markets are experiencing volatility and disruption following the military invasion of Ukraine by Russia in February 2022. In response to such invasion, NATO deployed additional military forces to eastern Europe, and the United States, the United Kingdom, the European Union and other countries have announced various sanctions and restrictive actions against Russia, Belarus and related individuals and entities, including the removal of certain financial institutions from the SWIFT payment system. Certain countries, including the United States, have also provided and may continue to provide military aid or other assistance to Ukraine during the ongoing military conflict, increasing geopolitical tensions with Russia. These actions have created global security concerns that could have a lasting impact on regional and global economies. Although the length and impact of the ongoing military conflict in Ukraine is highly unpredictable, the conflict could lead to market disruptions, including significant volatility in commodity prices, credit and capital markets, as well as supply chain interruptions. Additionally, Russian military actions and the resulting sanctions could adversely affect the global economy and financial markets and lead to instability and lack of liquidity in capital markets. Any of the abovementioned factors, or any other negative impact on the global economy, capital markets or other geopolitical conditions resulting from the Russian invasion of Ukraine and subsequent sanctions, could adversely affect our search for a Business Combination and any target business with which we may ultimately consummate a Business Combination.
Recent increases in interest rates and/or inflation in the United States and elsewhere could make it more difficult for us to consummate a Business Combination.
Recent increases in interest rates and/or inflation in the United States and elsewhere may be leading to increased price volatility for publicly traded securities, including ours, and may lead to other national, regional and international economic disruptions, any of which could make it more difficult for us to consummate a Business Combination.
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The Excise Tax included in the Inflation Reduction Act of 2022 may decrease the value of our securities, hinder our ability to consummate an initial Business Combination, and decrease the amount of funds available for distribution to our stockholders in the event of a liquidation or in connection with redemptions of our common stock after December 31, 2022.
On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022 (the “Inflation Reduction Act”), which, among other things, imposes a 1% excise tax on the fair market value of stock repurchased by publicly traded U.S. corporations and certain U.S. subsidiaries of publicly traded non-U.S. corporations beginning in 2023, with certain exceptions and adjustments (the “Excise Tax”). For purposes of calculating the Excise Tax, repurchasing corporations are permitted to net the fair market value of certain new stock issuances against the fair market value of stock repurchases during the same taxable year. Because we are a Delaware corporation and our securities trade on the New York Stock Exchange, we will likely be considered a “covered corporation” within the meaning of the Inflation Reduction Act. While not free from doubt, absent any further guidance from Congress or the U.S. Department of the Treasury, there is significant risk that the Excise Tax will apply to any redemptions of our common stock after December 31, 2022, including redemptions in connection with an initial Business Combination and any amendment to our certificate of incorporation to extend the time to consummate an initial Business Combination, unless an exemption is available. The Excise Tax may make a transaction with us less appealing to potential business combination targets, which may potentially hinder our ability to enter into and consummate an initial Business Combination. Consequently, the value of your investment in our securities may decrease as a result of the Excise Tax. Further, the application of the Excise Tax in the event of a liquidation after December 31, 2022 is uncertain, and could impact the per-share amount that would otherwise be received by our stockholders in connection with our liquidation.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits, Financial Statement Schedules.
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
| * | Filed herewith. |
| ** | Furnished herewith. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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TCW Special Purpose Acquisition Corp. | ||
| Date: November 10, 2022 | By: | /s/ Joseph R. Shaposhnik | |
| Name: | Joseph R. Shaposhnik | ||
| Title: | Chief Executive Officer | ||
| Date: November 10, 2022 | By: | /s/ Richard Villa | |
| Name: | Richard Villa | ||
| Title: | Chief Financial Officer and Secretary | ||
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