References to the "Company," "our," "us" or "we" refer to Tekkorp Digital
Acquisition Corp. The following discussion and analysis of the Company's
financial condition and results of operations should be read in conjunction with
the audited financial statements and the notes related thereto which are
included in "Item 8. Financial Statements and Supplementary Data" of this Annual
Report on Form 10-K. Certain information contained in the discussion and
analysis set forth below includes forward-looking statements. Our actual results
may differ materially from those anticipated in these forward-looking statements
as a result of many factors. Certain information contained in the discussion and
analysis set forth below includes forward-looking statements. Our actual results
may differ materially from those anticipated in these forward-looking statements
as a result of many factors, including those set forth under "Cautionary Note
Regarding Forward-Looking Statements and Risk Factor Summary," "Item 1A. Risk
Factors" and elsewhere in this Annual Report on Form 10-K.
Overview
We are a blank check company incorporated in the Cayman Islands on August 14,
2020 formed for the purpose of effecting a merger, share exchange, asset
acquisition, share purchase, reorganization or similar business combination with
one or more businesses. We intend to effectuate our Business Combination using
cash derived from the proceeds of the Initial Public Offering and the sale of
the Private Placement Warrants, our shares, debt or a combination of cash,
shares and debt.
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We expect to continue to incur significant costs in the pursuit of our
acquisition plans. We cannot assure you that our plans to complete a Business
Combination will be successful.
Results of Operations
We have neither engaged in any operations nor generated any operating revenues
to date. Our only activities from inception through December 31, 2021 were
organizational activities, those necessary to prepare for the Initial Public
Offering, described below, and identifying a target company for a Business
Combination. We do not expect to generate any operating revenues until after the
completion of our Business Combination, at the earliest. We generate
non-operating income in the form of interest income on marketable securities
held in the Trust Account. We incur expenses as a result of being a public
company (for legal, financial reporting, accounting and auditing compliance), as
well as for due diligence expenses.
For the year ended December 31, 2021, we had net income of $31,504,114, which
consists of the change in fair value of warrant liabilities of $37,745,000 and
interest earned on marketable securities held in our Trust Account of $15,758,
offset by operating costs of $6,256,644.
For the period from August 14, 2020 (inception) through December 31, 2020, we
had a net loss of $38,981,816, which consisted of operating and formation costs
of $237,704, the change in fair value of warrant liabilities of $38,330,000, and
transaction costs attributable to warrant liabilities of $416,868, offset by
interest earned on marketable securities held in the Trust Account of $2,756.
Liquidity, Capital Resources and Going Concern
On October 26, 2020, we consummated the Initial Public Offering of 25,000,000
Units, at $10.00 per Unit, generating gross proceeds of $250,000,000.
Simultaneously with the closing of the Initial Public Offering, we consummated
the sale of 7,000,000 Private Placement Warrants at a price of $1.00 per Private
Placement Warrant in a private placement to the Sponsor, Robin Chhabra, the
Company's President, and a trust for the benefit of the issue of Eric
Matejevich, the Company's Chief Financial Officer, generating gross proceeds of
$7,000,000.
For the year ended December 31, 2021, cash used in operating activities was
$788,131. Net income of $31,504,114 was affected by the change in fair value of
warrant liabilities of $37,745,000 and interest earned on marketable securities
held in the Trust Account of $15,758. Changes in operating assets and
liabilities provided $5,468,513 of cash for operating activities.
For the period from August 14, 2020 (inception) through December 31, 2020, cash
used in operating activities was $1,068,280. Net loss of $38,981,816 was
affected by the change in fair value of warrant liabilities of $38,330,000,
transaction costs attributable to warrant liabilities of $416,868, formation
costs paid by the Sponsor in exchange for issuance of Founder Shares of $5,000
and interest earned on marketable securities held in the Trust Account of
$2,756. Changes in operating assets and liabilities used $835,576 of cash from
operating activities.
As of December 31, 2021, we had marketable securities held in the Trust Account
of $250,018,514 (including $18,514 of interest income) consisting of money
market funds which invest in U.S. Treasury securities with a maturity of 185
days or less. We may withdraw interest from the Trust Account to pay taxes, if
any. We intend to use substantially all of the funds held in the Trust Account,
including any amounts representing interest earned on the Trust Account (less
income taxes payable), to complete our Business Combination. To the extent that
our share capital or debt is used, in whole or in part, as consideration to
complete our Business Combination, the remaining proceeds held in the Trust
Account will be used as working capital to finance the operations of the target
business or businesses, make other acquisitions and pursue our growth
strategies.
As of December 31, 2021, we had cash of $132,938. We intend to use the funds
held outside the Trust Account primarily to identify and evaluate target
businesses, perform business due diligence on prospective target businesses,
travel to and from the offices, plants or similar locations of prospective
target businesses or their representatives or owners, review corporate documents
and material agreements of prospective target businesses, structure, negotiate
and complete a Business Combination.
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In order to fund working capital deficiencies or finance transaction costs in
connection with a Business Combination, the Sponsor, or certain of our officers
and directors or their affiliates may, but are not obligated to, loan us funds
as may be required. If we complete a Business Combination, we would repay such
loaned amounts. In the event that a Business Combination does not close, we may
use a portion of the working capital held outside the Trust Account to repay
such loaned amounts but no proceeds from our Trust Account would be used for
such repayment. Up to $1,500,000 of such loans may be convertible into warrants
at a price of $1.00 per warrant, at the option of the lender. The warrants would
be identical to the Private Placement Warrants.
If our estimate of the costs of identifying a target business, undertaking
in-depth due diligence and negotiating a Business Combination are less than the
actual amount necessary to do so, we may have insufficient funds available to
operate our business prior to our initial Business Combination. Moreover, we may
need to obtain additional financing either to complete our Business Combination
or because we become obligated to redeem a significant number of our Public
Shares upon completion of our Business Combination, in which case we may issue
additional securities or incur debt in connection with such Business
Combination.
To the extent we need to raise additional funds to operate our business, the
Company's management believes that the Sponsor will provide Working Capital
Loans that will provide sufficient liquidity to meet the Company's working
capital needs through the earlier of the consummation of a Business Combination
and one year from the date of this filing. If the Company is unable to raise
additional capital, it may be required to take additional measures to conserve
liquidity, which could include, but not necessarily include or be limited to,
curtailing operations, suspending the pursuit of a potential transaction and
reducing overhead expenses. The Company cannot provide any assurance that new
financing will be available to it on commercially acceptable terms or if at all.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern through October 26, 2022, the date that we will be required
to cease all operations, except for the purpose of winding up, if a Business
Combination is not consummated. The financial statements do not include any
adjustments relating to the recovery of the recorded assets or the
classification of the liabilities that might be necessary should the Company be
unable to continue as a going concern.
Off-Balance Sheet Financing Arrangements
We have no obligations, assets or liabilities, which would be considered
off-balance sheet arrangements as of December 31, 2021. We do not participate in
transactions that create relationships with unconsolidated entities or financial
partnerships, often referred to as variable interest entities, which would have
been established for the purpose of facilitating off-balance sheet arrangements.
We have not entered into any off-balance sheet financing arrangements,
established any special purpose entities, guaranteed any debt or commitments of
other entities, or purchased any non-financial assets.
Contractual Obligations
We do not have any long-term debt, capital lease obligations, operating lease
obligations or long-term liabilities, other than an agreement to pay an
affiliate of the Sponsor a monthly fee of $10,000 for office space, utilities
and secretarial and administrative support. We began incurring these fees on
October 21, 2020 and will continue to incur these fees monthly until the earlier
of the completion of the Business Combination or our liquidation.
The underwriter is entitled to a deferred fee of $0.35 per Unit, or $8,050,000
in the aggregate. The deferred fee will become payable to the underwriters from
the amounts held in the Trust Account solely in the event that we complete a
Business Combination, subject to the terms of the underwriting agreement.
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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 Warrants in accordance with the guidance contained in ASC
815-40, under which the warrants do not meet the criteria for equity treatment
and must be recorded as liabilities. Accordingly, we classify the warrants as
liabilities at their fair value and adjust the warrants to fair value in respect
of each reporting period. This liability is subject to re-measurement at each
balance sheet date until the warrants are exercised, and any change in fair
value is recognized in the statements of operations. The Private Placement
Warrants and the Public Warrants for periods where no observable traded price
was available are valued using a lattice model, specifically a binomial lattice
model incorporating the Cox-Ross-Rubenstein methodology.
Class A Ordinary Shares Subject to Redemption
We account for our Class A ordinary shares subject to possible conversion in
accordance with the guidance in Accounting Standards Codification ("ASC") Topic
480 "Distinguishing Liabilities from Equity." Class A ordinary shares subject to
mandatory redemption are classified as a liability instrument and are measured
at fair value. Conditionally redeemable ordinary shares (including ordinary
shares that feature redemption rights that are either within the control of the
holder or subject to redemption upon the occurrence of uncertain events not
solely within our control) are classified as temporary equity. At all other
times, ordinary shares are classified as shareholders' equity. Our Class A
ordinary shares feature certain redemption rights that are considered to be
outside of our control and subject to occurrence of uncertain future events.
Accordingly, Class A ordinary shares subject to possible redemption are
presented at redemption value as temporary equity, outside of the shareholders'
deficit section of our balance sheets.
Net Income (Loss) Per Ordinary Share
Net income (loss) per ordinary share is computed by dividing net income (loss)
by the weighted average number of ordinary shares outstanding during the period.
Subsequent measurement of the redeemable Class A ordinary shares is excluded
from income (loss) per ordinary share as the redemption value approximates fair
value. We calculate our earnings per share to allocate net income (loss) pro
rata to Class A and Class B ordinary shares. This presentation contemplates a
Business Combination as the most likely outcome, in which case, both classes of
ordinary shares share pro rata in the income (loss) of the Company.
Recent Accounting Standards
In August 2020, the FASB issued ASU 2020-06, Debt - "Debt with Conversion and
Other Options" (Subtopic 470-20) and "Derivatives and Hedging - Contracts in
Entity's Own Equity" (Subtopic 815-40) ("ASU 2020-06") to simplify accounting
for certain financial instruments. ASU 2020-06 eliminates the current models
that require separation of beneficial conversion and cash conversion features
from convertible instruments and simplifies the derivative scope exception
guidance pertaining to equity classification of contracts in an entity's own
equity. The new standard also introduces additional disclosures for convertible
debt and freestanding instruments that are indexed to and settled in an entity's
own equity. ASU 2020-06 amends the diluted earnings per share guidance,
including the requirement to use the if-converted method for all convertible
instruments. ASU 2020-06 is effective January 1, 2022 and should be applied on a
full or modified retrospective basis, with early adoption permitted beginning on
January 1, 2021. We will adopt ASU 2020-06 on January 1, 2022 on a modified
retrospective basis. The adoption of ASU 2020-06 is not expected to have an
impact our financial position, results of operations or cash flows.
Management does not believe that any other recently issued, but not yet
effective, accounting standards, if currently adopted, would have a material
effect on our financial statements.
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