References in this report (the "Quarterly Report") to "we," "us" or the
"Company" refer to TCW Special Purpose Acquisition Corp. References to our
"management" or our "management team" refer to our officers and directors, and
references to the "Sponsor" refer to TCW Special Purpose Sponsor LLC. The
following discussion and analysis of the Company's financial condition and
results of operations should be read in conjunction with the unaudited condensed
financial statements and the notes thereto contained elsewhere in this Quarterly
Report. Certain information contained in the discussion and analysis set forth
below includes forward-looking statements that involve risks and uncertainties.
Special Note Regarding Forward-Looking Statements
This Quarterly Report includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended (the "Securities Act")
and Section 21E of the Exchange Act that are not historical facts, and involve
risks and uncertainties that could cause actual results to differ materially
from those expected and projected. All statements, other than statements of
historical fact included in this Quarterly Report including, without limitation,
statements in this "Management's Discussion and Analysis of Financial Condition
and Results of Operations" regarding the Company's financial position, business
strategy and the plans and objectives of management for future operations, are
forward-looking statements. Words such as "expect," "believe," "anticipate,"
"intend," "estimate," "seek" and variations and similar words and expressions
are intended to identify such forward-looking statements. Such forward-looking
statements relate to future events or future performance, but reflect
management's current beliefs, based on information currently available. A number
of factors could cause actual events, performance or results to differ
materially from the events, performance and results discussed in the
forward-looking statements. For information identifying important factors that
could cause actual results to differ materially from those anticipated in the
forward-looking statements, please refer to the Risk Factors section of the
Company's final prospectus for its initial public offering (the "Initial Public
Offering") filed with the U.S. Securities and Exchange Commission (the "SEC")
and Part II, Item 1A "Risk Factors" below. The Company's securities filings can
be accessed on the EDGAR section of the SEC's website at www.sec.gov. Except as
expressly required by applicable securities law, the Company disclaims any
intention or obligation to update or revise any forward-looking statements
whether as a result of new information, future events or otherwise.
Overview
We are a blank check company incorporated on December 21, 2020 as a Delaware
corporation and formed for the purpose of effectuating a merger, capital stock
exchange, asset acquisition, stock purchase, reorganization or similar business
combination with one or more businesses, which we refer to throughout this
Quarterly Report as our "initial business combination". We intend to effectuate
our initial business combination using cash from the proceeds of the Initial
Public Offering and the private placement of the Private Placement Warrants (as
defined below), the proceeds of the sale of our shares in connection with our
initial business combination (pursuant to forward purchase agreements or
backstop agreements we may enter into following the consummation of the Initial
Public Offering or otherwise), shares issued to the owners of the target, debt
issued to bank or other lenders or the owners of the target, or a combination of
the foregoing.
Results of Operations
We have neither engaged in any operations nor generated any operating revenues
to date. Our only activities for the nine months ended September 30, 2021 were
organizational activities, those necessary to prepare for the Initial Public
Offering, described below, and, after our Initial Public Offering, identifying a
target company for a business combination. We do not expect to generate any
operating revenues until after the completion of our initial business
combination. We generate non-operating income in the form of interest income on
cash and cash equivalents held after the Initial Public Offering. We incur
expenses as a result of being a public company (for legal, financial reporting,
accounting and auditing compliance), as well as for due diligence expenses.
For the three months ended 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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For the nine months ended September 30, 2021, we had net income of $17,361,240,
which resulted from a gain on the change in fair value of warrant liabilities of
$19,920,494 and interest income on investments held in the trust account in the
amount of $15,882, partially offset by expensed offering costs of $1,317,770,
operating and formation costs of $1,107,777 and franchise tax expense of
$149,589.
Liquidity and Capital Resources
On March 4, 2021, we consummated an Initial Public Offering of 45,000,000 units
(the "Units) generating gross proceeds to the Company of $450,000,000.
Simultaneously with the closing of the Initial Public Offering, we completed the
private sale of 7,333,333 warrants to TCW Special Purpose Sponsor LLC at a
purchase price of $1.50 per warrant (the "Private Placement Warrants"),
generating gross proceeds of $11,000,000.
On March 4, 2021, the underwriters notified the Company of their intention to
partially exercise their over-allotment option. As such, on March 5, 2021, the
Company consummated the sale of an additional 1,393,299 Units, at $10.00 per
Unit, and the sale of an additional 185,774 Private Placement Warrants, at $1.50
per Private Placement Warrant, generating total gross proceeds of $14,211,651. A
total of $13,932,990 of the net proceeds was deposited into a trust account,
bringing the aggregate proceeds held in the trust account to $463,932,990.
For the nine months ended September 30, 2021, net cash used in operating
activities was $1,319,138, which was due to non-cash adjustments to net income
related to a change in fair value of warrant liabilities of $19,920,494,
interest income on investments held in the trust account of $15,882, and changes
in working capital of $61,772, partially offset by net income of $17,361,240 and
expensed offering costs added back to net income of $1,317,770.
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 the
Initial Public Offering and the private placement sale of warrants being
deposited to the trust account.
Net cash provided by financing activities for the 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 the advance from a related party of
$922,339 and proceeds from the issuance of a promissory note to our Sponsor of
$165,058, partially offset by the repayment of advance to a related party 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, 2021, we had cash of $185,103 held outside the trust
account. We intend to use the funds held outside the trust account primarily to
identify and evaluate target businesses, perform business due diligence on
prospective target businesses, travel to and from the offices, plants or similar
locations of prospective target businesses or their representatives or owners,
review corporate documents and material agreements of prospective target
businesses, and structure, negotiate and complete a business combination.
In order to finance transaction costs in connection with a Business Combination,
the Sponsor or an affiliate of the Sponsor or certain of the Company's directors
and officers may, but are not obligated to, loan us funds as may be required
("Working Capital Loans").
On June 17, 2021, we entered into a $2,000,000 Working Capital Loan with TCW
Asset Management Company LLC, an affiliate of our Sponsor. The Working Capital
Loan bears no interest and is payable upon the consummation of the initial
Business Combination or the winding up of the Company. The Working Capital 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 Loans may be convertible into warrants of the post-Business Combination
entity at a price of $1.50 per warrant. The warrants would be identical to the
Private Placement Warrants. If we complete a Business Combination, we would
repay the Working Capital Loans out of the proceeds of the Trust Account
released to us. Otherwise, the Working Capital Loan would be repaid only out of
funds held outside the Trust Account. In the event that a Business Combination
does not close, we may use a portion of proceeds held outside the Trust Account
to repay the Working Capital Loan, but no proceeds held in the Trust Account
would be used to repay the Working Capital Loan.
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As of September 30, 2021, we had not drawn any amount on the Working Capital
Loan.
We do not believe we will need to raise additional funds following the Initial
Public Offering in order to meet the expenditures required for operating our
business prior to our initial business combination. However, if our estimates of
the costs of identifying a target business, undertaking in-depth due diligence
and negotiating an initial business combination are less than the actual amount
necessary to do so, we may have insufficient funds available to operate our
business prior to our initial business combination. Moreover, we may need to
obtain additional financing either to complete our business combination or
because we become obligated to redeem a significant number of Public Shares upon
completion of our business combination, in which case we may issue additional
securities or incur debt in connection with such business combination. In
addition, we intend to target businesses larger than we could acquire with the
net proceeds of our Initial Public Offering and the sale of the private
placement warrants and may as a result be required to seek additional financing
to complete such proposed initial business combination. Subject to compliance
with applicable securities laws, we would only complete such financing
simultaneously with the completion of our business combination. If we are unable
to complete our initial business combination because we do not have sufficient
funds available to us, we will be forced to cease operations and liquidate the
trust account. In addition, following our business combination, if cash on hand
is insufficient, we may need to obtain additional financing in order to meet our
obligations.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of September 30, 2021.
Contractual Obligations
Registration Rights
The holders of the Founder Shares, Private Placement Warrants and warrants that
may be issued upon conversion of Working Capital Loans (and any Class A common
stock issuable upon the exercise of the Private Placement Warrants) will have
registration rights to require the Company to register a sale of any of its
securities held by them pursuant to a registration rights agreement. The holders
of these securities are entitled to make up to three demands, excluding short
form demands, that the Company register such securities. In addition, the
holders have certain "piggy-back" registration rights with respect to
registration statements filed subsequent to the completion of a business
combination. The Company will bear the expenses incurred in connection with the
filing of any such registration statements.
Underwriting Agreement
The Company granted the underwriters a 45-day option to purchase up to 6,750,000
additional Units to cover over-allotments at the Initial Public Offering price,
less the underwriting discounts and commissions. On March 5, 2021 the
underwriters purchased an additional 1,393,299 Units at an offering price of
$10.00 per Unit, generating additional gross proceeds of $13,932,990 to the
Company. In April 2021, the remaining portion of the over-allotment option
expired.
The underwriters were paid a cash underwriting fee of $0.20 per Unit, or
$9,278,660 in the aggregate. In addition, $0.35 per Unit, or $16,237,655 in the
aggregate will be payable to the underwriters for deferred underwriting
commissions. The deferred fee will become payable to the underwriters from the
amounts held in the Trust Account solely in the event that the Company completes
a business combination, subject to the terms of the underwriting agreement.
Financial Advisory Agreement
On August 9, 2021, the Company entered into an agreement with TCW Asset
Management Company LLC ("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 24 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 ("PIPE") financing raised as part of a Business
Combination, payable at or promptly following the closing of a Business
Combination. In addition to such fees, the Company 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 the Company does not complete a Business
Combination within the Combination Period, neither the Company 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, 2021.
Contingent Warrants
On July 12, 2021, the board of directors approved a contract to issue 100,000
warrants to a person affiliated with the Company. The warrant issuance is
contingent upon the Company's completion of a Business Combination. Accordingly,
no expense has been recorded as of September 30, 2021.
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Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity
with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and income and expenses
during the periods reported. Actual results could materially differ from those
estimates. We have identified the following critical accounting policies:
Warrant Liabilities
We account for the Private Placement Warrants and the redeemable warrants (the
"Public Warrants") that were included in units issued by the Company in its
Initial Public Offering (collectively, the "Warrants") in accordance with
Accounting Standards Codification ("ASC") 815-40, Derivatives and
Hedging-Contracts in Entity's Own Equity ("ASC 815"), under which the Warrants
do not meet the criteria for equity classification and must be recorded as
liabilities. As the Warrants meet the definition of a derivative as contemplated
in ASC 815, the Warrants are measured at fair value at inception and at each
reporting date in accordance with ASC 820, Fair Value Measurement, with changes
in fair value recognized in the statement of operations in the period of change.
Common stock subject to possible redemption
All of the 46,393,299 shares of Class A common stock sold as part of the Units
in the Initial Public Offering contain a redemption feature which allows for the
redemption of such shares of Class A common stock in connection with the
Company's liquidation, if there is a stockholder vote or tender offer in
connection with our business combination and in connection with certain
amendments to the Company's second amended and restated certificate of
incorporation. In accordance with SEC and its staff's guidance on redeemable
equity instruments, which has been codified in Accounting Standards Codification
("ASC") 480-10-S99, redemption provisions not solely within the control of the
Company require common stock subject to redemption to be classified outside of
permanent equity. Therefore, all Class A common stock has been classified
outside of permanent equity.
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 and accumulated deficit.
Net Income Per Common Share
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 Company has not considered the effect of the Warrants sold in the Initial
Public Offering and private placement to purchase an aggregate of 22,983,540
shares in the calculation of diluted income per share, since the exercise of the
Warrants are contingent upon the occurrence of future events and the inclusion
of such Warrants would be anti-dilutive.
Recent Accounting Standards
In August 2020, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update ("ASU") 2020-06, Debt - Debt with Conversion and
Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in
Entity's Own Equity (Subtopic 815-40) ("ASU 2020-06") to simplify accounting for
certain financial instruments. ASU 2020-06 eliminates the current models that
require separation of beneficial conversion and cash conversion features from
convertible instruments and simplifies the derivative scope exception guidance
pertaining to equity classification of contracts in an entity's own equity. The
new standard also introduces additional disclosures for convertible debt and
freestanding instruments that are indexed to and settled in an entity's own
equity. ASU 2020-06 amends the diluted earnings per share guidance, including
the requirement to use the if-converted method for all convertible instruments.
ASU 2020-06 is effective January 1, 2022 and should be applied on a full or
modified retrospective basis, with early adoption permitted beginning on January
1, 2021. We are currently assessing the impact, if any, that ASU 2020-06 would
have on our financial position, results of operations or cash flows.
Management does not believe that any recently issued, but not yet effective,
accounting standards, if currently adopted, would have a material effect on our
condensed financial statements.
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