References in this report (the "Quarterly Report") to "we," "us" or the
"Company" refer to Tekkorp Digital Acquisition Corp. References to our
"management" or our "management team" refer to our officers and directors, and
references to the "Sponsor" refer to Tekkorp JEMB LLC. The following discussion
and analysis of the Company's financial condition and results of operations
should be read in conjunction with the financial statements and the notes
thereto contained elsewhere in this Quarterly Report. Certain information
contained in the discussion and analysis set forth below includes
forward-looking statements that involve risks and uncertainties.
Special Note Regarding Forward-Looking Statements
This Quarterly Report includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act
that are not historical facts and involve risks and uncertainties that could
cause actual results to differ materially from those expected and projected. All
statements, other than statements of historical fact included in this Form 10-Q
including, without limitation, statements in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations", the Company's
financial position, business strategy and the plans and objectives of management
for future operations, are forward-looking statements. Words such as "expect,"
"believe," "anticipate," "intend," "estimate," "seek" and variations and similar
words and expressions are intended to identify such forward-looking statements.
Such forward-looking statements relate to future events or future performance,
but reflect management's current beliefs, based on information currently
available. A number of factors could cause actual events, performance or results
to differ materially from the events, performance and results discussed in the
forward-looking statements. For information identifying important factors that
could cause actual results to differ materially from those anticipated in the
forward-looking statements, please refer to the Risk Factors section of the
Company's Annual Report on Form 10-K filed with the U.S. Securities and Exchange
Commission (the "SEC"). The Company's securities filings can be accessed on the
EDGAR section of the SEC's website at www.sec.gov. Except as expressly required
by applicable securities law, the Company disclaims any intention or obligation
to update or revise any forward-looking statements whether as a result of new
information, future events or otherwise.
Overview
We are a blank check company incorporated in the Cayman Islands on August 14,
2020 formed for the purpose of effecting a merger, share exchange, asset
acquisition, share purchase, reorganization or similar business combination with
one or more businesses. We intend to effectuate our Business Combination using
cash derived from the proceeds of the Initial Public Offering and the sale of
the Private Placement Warrants, our shares, debt or a combination of cash,
shares and debt.
We expect to continue to incur significant costs in the pursuit of our
acquisition plans. We cannot assure you that our plans to complete a Business
Combination will be successful.
Results of Operations
We have neither engaged in any operations nor generated any operating revenues
to date. Our only activities from inception through March 31, 2022 were
organizational activities, those necessary to prepare for the Initial Public
Offering, described below, and identifying a target company for a Business
Combination. We do not expect to generate any operating revenues until after the
completion of our Business Combination, at the earliest. We generate
non-operating income in the form of interest income on marketable securities
held in the Trust Account. We incur expenses as a result of being a public
company (for legal, financial reporting, accounting and auditing compliance), as
well as for due diligence expenses.
For the three months ended March 31, 2022, we had net income of $4,217,525,
which consists of the change in fair value of warrant liabilities of $6,630,000,
change in fair value of the convertible promissory note - related party of
$5,269 and interest earned on marketable securities held in our Trust Account of
$20,784, offset by operating costs of $2,438,528.
For the three months ended March 31, 2021, we had a net income of $31,274,019,
which consisted of changes in fair value of warrant liabilities of $31,825,000
and interest earned on marketable securities held in out Trust Account of $
3,757, offset by operating costs of $554,738.
17
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 three months ended March 31, 2022, cash used in operating activities was
$294,204. Net income of $4,217,525 was affected by the change in fair value of
warrant liabilities of $6,630,000, change in fair value of convertible
promissory note - related party of $5,269 and interest earned on marketable
securities held in the Trust Account of $20,784. Changes in operating assets and
liabilities provided $2,144,324 of cash for operating activities.
For the three months ended March 31, 2021, cash used in operating activities was
$143,579. Net income of $31,274,019 was affected by the change in fair value of
warrant liabilities of $31,825,000 and interest earned on marketable securities
held in the Trust Account of $3,757. Changes in operating assets and liabilities
provided $411,159 of cash from operating activities.
As of March 31, 2022, we had marketable securities held in the Trust Account of
$250,039,298 (including $39,298 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 March 31, 2022, we had cash of $88,734. We intend to use the funds held
outside the Trust Account primarily to identify and evaluate target businesses,
perform business due diligence on prospective target businesses, travel to and
from the offices, plants or similar locations of prospective target businesses
or their representatives or owners, review corporate documents and material
agreements of prospective target businesses, structure, negotiate and complete a
Business Combination.
In order to fund working capital deficiencies or finance transaction costs in
connection with a Business Combination, the Sponsor, or certain of our officers
and directors or their affiliates may, but are not obligated to, loan us funds
as may be required. On February 1, 2022, we issued a convertible promissory note
to our Sponsor for aggregate proceeds of $500,000. On February 9, 2022, the we
drew down an aggregate of $250,000 under the convertible promissory note which
remains outstanding as of March 31, 2022. On May 4, 2022, we drew down an
additional $200,000 under the convertible promissory note. If we complete a
Business Combination, we would repay such loaned amounts upon the closing of
such Business Combination using funds held outside and/or inside the Trust
Account. 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.
18
Off-Balance Sheet Arrangements
We have no obligations, assets or liabilities, which would be considered
off-balance sheet arrangements as of March 31, 2022. 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.
Critical Accounting Estimates and Policies
The preparation of condensed financial statements and related disclosures in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and income and expenses
during the periods reported. Actual results could materially differ from those
estimates. We have identified the following critical accounting policies:
Warrant Liabilities
We account for the 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.
Convertible Promissory Notes - Related Party
We account for our convertible promissory notes under ASC 815, Derivatives and
Hedging ("ASC 815"). Under 815-15-25, the election can be at the inception of a
financial instrument to account for the instrument under the fair value option
under ASC 825. We have made such election for our convertible promissory notes.
Using the fair value option, the convertible promissory notes 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 notes are
recognized as a non-cash gain or loss in the condensed statements of operations.
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 condensed balance sheets.
Net Income (Loss) Per Ordinary Share
Net income (loss) per ordinary share is computed by dividing net income (loss)
by the weighted average number of ordinary shares outstanding during the period.
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, 2023 for smaller reporting
companies and should be applied on a full or modified retrospective basis, with
early adoption permitted beginning on January 1, 2021. The Company is currently
assessing the impact, if any, that ASU 2020-06 would have on its financial
position, results of operations or cash flows.
Management does not believe that any other recently issued, but not yet
effective, accounting standards, if currently adopted, would have a material
effect on our condensed financial statements.
19
© Edgar Online, source Glimpses