| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 85-4293042 | |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Units, each consisting of one share of Class A one-half of one redeemable | DWACU | The Nasdaq Stock Market LLC | ||
Class A | DWAC | The Nasdaq Stock Market LLC | ||
DWACW | The Nasdaq Stock Market LLC |
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-accelerated filer | ☒ | Smaller reporting company | ☒ | |||
| Emerging growth company | ☒ | |||||
DIGITAL WORLD ACQUISITION CORP.
FORM 10-Q FOR FOR THE QUARTER ENDED SEPTEMBER 30, 2022MARCH 31, 2023
TABLE OF CONTENTS
i
Item 1. Financial Statements |
March 31, | December 31, | |||||||
2023 | 2022 | |||||||
ASSETS | (unaudited) | |||||||
| Current assets | ||||||||
| Cash | $ | 152,703 | $ | 989 | ||||
| Prepaid assets | 161,432 | 168,350 | ||||||
| Total Current Assets | 314,135 | 169,339 | ||||||
| Cash Held in Trust Account | 303,517,309 | 300,330,651 | ||||||
| TOTAL ASSETS | $ | 303,831,444 | $ | 300,499,990 | ||||
LIABILITIES, REDEEMABLE COMMON STOCK AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accrued expenses | $ | 18,524,787 | $ | 18,054,912 | ||||
| Note payable – Sponsor | 2,875,000 | 2,875,000 | ||||||
| Income taxes payable | 1,862,768 | 979,475 | ||||||
| Franchise tax payable | 532,500 | 400,000 | ||||||
| Working capital loans | 1,166,700 | 625,700 | ||||||
| Advances - related parties | 550,835 | 525,835 | ||||||
| Total Current Liabilities | 25,512,590 | 23,460,922 | ||||||
| Deferred underwriter fee payable | 10,062,500 | 10,062,500 | ||||||
| TOTAL LIABILITIES | 35,575,090 | 33,523,422 | ||||||
| Commitments and Contingencies | ||||||||
Class A common stock subject to possible redemption, $0.0001 par value, 200,000,000 shares authorized; 28,744,342 shares outstanding, at redemption value ($10.48 and $10.40 per share ), respectively | 301,122,041 | 298,951,176 | ||||||
| Stockholders’ Deficit | ||||||||
| Preferred stock, $0.0001 par value; 1,000,000 shares authorized; none issued and outstanding | — | — | ||||||
| Class A common stock, $0.0001 par value; 200,000,000 shares authorized; 1,277,234 issued and outstanding, excluding 28,744,342 shares subject to redemption | 127 | 127 | ||||||
| Class B common stock, $0.0001 par value; 10,000,000 shares authorized; 7,187,500 issued and outstanding | 719 | 719 | ||||||
Additional paid-in capital | — | — | ||||||
| Accumulated deficit | (32,866,533 | ) | (31,975,454 | ) | ||||
| Total Stockholders’ Deficit | (32,865,687 | ) | (31,974,608 | ) | ||||
TOTAL LIABILITIES, REDEEMABLE COMMON STOCK AND STOCKHOLDERS’ DEFICIT | $ | 303,831,444 | $ | 300,499,990 | ||||
| September 30, 2022 (unaudited) | December 31, 2021 | |||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash | $ | 1,012 | $ | 327,731 | ||||
Prepaid assets | 227,768 | 240,972 | ||||||
Total Current Assets | 228,780 | 568,703 | ||||||
Prepaid assets | — | 165,051 | ||||||
Cash Held in Trust Account | 297,884,582 | 293,257,098 | ||||||
TOTAL ASSETS | $ | 298,113,362 | $ | 293,990,852 | ||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
Current liabilities | ||||||||
Accrued expenses | $ | 11,022,242 | $ | 483,535 | ||||
Note payable – Sponsor | 2,875,000 | — | ||||||
Franchise tax payable | 350,000 | 200,000 | ||||||
Working capital loans | 581,700 | — | ||||||
Total Current Liabilities | 14,828,942 | 683,535 | ||||||
Deferred underwriter fee payable | 10,062,500 | 10,062,500 | ||||||
TOTAL LIABILITIES | 24,891,442 | 10,746,035 | ||||||
Commitments and Contingencies | ||||||||
Class A common stock subject to possible redemption, $0.0001 par value, 200,000,000 shares authorized; 28,750,000 shares outstanding, at redemption value | 297,177,323 | 293,250,000 | ||||||
Stockholders’ Deficit | ||||||||
Preferred stock, $0.0001 par value; 1,000,000 shares authorized; none issued and outstanding | — | — | ||||||
Class A common stock, $0.0001 par value; 200,000,000 shares authorized; 1,277,234 issued and outstanding, excluding 28,750,000 shares subject to redemption | 127 | 127 | ||||||
Class B common stock, $0.0001 par value; 10,000,000 shares authorized; 7,187,500 issued and outstanding | 719 | 719 | ||||||
Additional paid-in capital | — | — | ||||||
Accumulated deficit | (23,956,249 | ) | (10,006,029 | ) | ||||
Total Stockholders’ Deficit | (23,955,403 | ) | (10,005,183 | ) | ||||
TOTAL LIABILITIES, REDEEMABLE COMMON STOCK AND STOCKHOLDERS’ DEFICIT | $ | 298,113,362 | $ | 293,990,852 | ||||
For the Three months ended | ||||||||
March 31, | ||||||||
2023 | 2022 | |||||||
| Formation and operating costs | $ | 221,942 | $ | 397,734 | ||||
| Legal investigations costs | 669,137 | 2,742,708 | ||||||
| Franchise tax expense | 132,500 | 50,000 | ||||||
| Loss from operation costs | (1,023,579 | ) | (3,190,442 | ) | ||||
| Other income and expenses: | ||||||||
| Interest earned on cash held in Trust Account | 3,186,658 | 29,531 | ||||||
| Income (Loss) before income taxes | 2,163,079 | (3,160,911 | ) | |||||
| Income tax expense | (883,293 | ) | — | |||||
| Net income (loss) | $ | 1,279,786 | $ | (3,160,911 | ) | |||
| Weighted average shares outstanding of Class A common stock | 30,021,576 | 30,027,234 | ||||||
| Basic and diluted net income (loss) per Class A common stock | $ | 0.03 | $ | (0.08 | ) | |||
| Weighted average shares outstanding of Class B common stock | 7,187,500 | 7,187,500 | ||||||
| Basic and diluted net income (loss) per Class B common stock | $ | 0.03 | $ | (0.08 | ) | |||
Class A Common Stock | Class B Common Stock | Additional Paid-in | Accumulated | Stockholders’ | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
| Balance as of January 1, 2023 | 1,277,234 | $ | 127 | 7,187,500 | $ | 719 | $ | — | $ | (31,975,454 | ) | $ | (31,974,608 | ) | ||||||||||||||
| Net income | — | — | — | — | — | 1,279,786 | 1,279,786 | |||||||||||||||||||||
| Remeasurement of Class A common stock to redemption value | — | — | — | — | — | (2,170,865 | ) | (2,170,865 | ) | |||||||||||||||||||
| Balance March 31, 2023 | 1,277,234 | $ | 127 | 7,187,500 | $ | 719 | $ | — | $ | (32,866,533 | ) | $ | (32,865,687 | ) | ||||||||||||||
Class A | Class B | Additional | Total | |||||||||||||||||||||||||
Common Stock | Common Stock | Paid-In | Accumulated | Stockholders’ | ||||||||||||||||||||||||
Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
| Balance - January 1, 2022 | 1,277,234 | $ | 127 | 7,187,500 | $ | 719 | $ | — | $ | (10,572,814 | ) | $ | (10,571,968 | ) | ||||||||||||||
| Net loss | (3,160,911 | ) | (3,160,911 | ) | ||||||||||||||||||||||||
| Balance - March 31, 2022 | 1,277,234 | $ | 127 | 7,187,500 | $ | 719 | $ | — | $ | (13,733,725 | ) | $ | (13,732,879 | ) | ||||||||||||||
Three Months Ended September 30, | Three Months Ended September 30, | |||||||
| 2022 | 2021 | |||||||
Formation and operating costs | $ | 4,801,532 | $ | 160,072 | ||||
Loss from operation costs | (4,801,532 | ) | (160,072 | ) | ||||
Other income and expenses: | ||||||||
Interest earned on cash held in Trust Account | 1,326,957 | 902 | ||||||
Loss before income taxes | (3,474,575 | ) | (159,170 | ) | ||||
Income tax expense | (322,546 | ) | — | |||||
Net loss | $ | (3,797,121 | ) | $ | (159,170 | ) | ||
Weighted average shares outstanding of Class A common stock | 30,027,234 | 7,259,331 | ||||||
Basic and diluted net income per Class A common stock | $ | (0.10 | ) | $ | (0.01 | ) | ||
Weighted average shares outstanding of Class B common stock | 7,187,500 | 7,187,500 | ||||||
Basic and diluted net income per Class B common stock | $ | (0.10 | ) | $ | (0.01 | ) | ||
Nine Months Ended September 30, | Nine Months Ended September 30, | |||||||
| 2022 | 2021 | |||||||
Formation and operating costs | $ | 11,418,122 | $ | 161,297 | ||||
Loss from operation costs | (11,418,122 | ) | (161,297 | ) | ||||
Other income and expenses: | ||||||||
Interest earned on cash held in Trust Account | 1,752,484 | 902 | ||||||
Loss before income taxes | (9,665,638 | ) | (160,395 | ) | ||||
Income tax expense | (357,259 | ) | — | |||||
Net loss | $ | (10,022,897 | ) | $ | (160,395 | ) | ||
Weighted average shares outstanding of Class A common stock | 30,027,234 | 2,428,673 | ||||||
Basic and diluted net income per Class A common stock | $ | (0.27 | ) | $ | (0.02 | ) | ||
Weighted average shares outstanding of Class B common stock | 7,187,500 | 7,187,500 | ||||||
Basic and diluted net income per Class B common stock | $ | (0.27 | ) | $ | (0.02 | ) | ||
For the Three months ended March 31, | ||||||||
2023 | 2022 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | $ | 1,279,786 | $ | (3,160,911 | ) | |||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
| Interest earned on cash and marketable securities held in Trust Account | (3,186,658 | ) | (29,531 | ) | ||||
| Changes in operating assets and liabilities: | ||||||||
| Accrued expenses and income taxes payable | 1,353,168 | 2,434,635 | ||||||
| Prepaid insurance | 59,418 | 59,419 | ||||||
| Prepaid expenses | (52,500 | ) | — | |||||
| Franchise tax payable | 132,500 | 50,000 | ||||||
| Net cash used in operating activities | (414,286 | ) | (646,388 | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from working capital loan | 541,000 | 300,000 | ||||||
| Advances - related parties | 25,000 | 60,150 | ||||||
| Net cash provided by financing activities | 566,000 | 360,150 | ||||||
| Net change in cash | 151,714 | (286,238 | ) | |||||
| Cash at beginning of period | 989 | 327,731 | ||||||
| Cash at end of period | $ | 152,704 | $ | 41,493 | ||||
Non-cash investing and financing activities: | ||||||||
| Remeasurement of Class A common stock | $ | 2,341,672 | $ | — | ||||
| Class A | Class B | Additional | Total | |||||||||||||||||||||||||
| Common Stock | Common Stock | Paid-In | Accumulated | Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
Balance - December 31, 2021 | 1,277,234 | $ | 127 | 7,187,500 | $ | 719 | $ | — | $ | (10,006,029 | ) | $ | (10,005,183 | ) | ||||||||||||||
Net loss | — | — | — | — | — | (1,884,389 | ) | (1,884,389 | ) | |||||||||||||||||||
Balance - March 31, 2022 | 1,277,234 | 127 | 7,187,500 | 719 | — | (11,890,418 | ) | (11,889,572 | ) | |||||||||||||||||||
Net loss | — | — | — | — | — | (4,341,387 | ) | (4,341,387 | ) | |||||||||||||||||||
Remeasurement of Class A common stock to redemption value | — | — | — | — | — | (32,625 | ) | (32,625 | ) | |||||||||||||||||||
Balance - June 30, 2022 | 1,277,234 | 127 | 7,187,500 | 719 | $ | — | (16,264,430 | ) | (16,263,584 | ) | ||||||||||||||||||
Net loss | (3,797,121 | ) | (3,797,121 | ) | ||||||||||||||||||||||||
Contribution from sponsor | (2,875,000 | ) | (2,875,000 | ) | ||||||||||||||||||||||||
Remeasurement of Class A common stock to redemption value | (1,019,698 | ) | (1,019,698 | ) | ||||||||||||||||||||||||
| Balance - September 30, 2022 | 1,277,234 | $ | 127 | 7,187,500 | $ | 719 | $ | — | $ | (23,956,249 | ) | $ | (23,955,403 | ) | ||||||||||||||
| Class A | Class B | Additional | Total | |||||||||||||||||||||||||
| Common Stock | Common Stock | Paid-In | Accumulated | Stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||
Balance - December 31, 2020 | — | — | — | — | — | — | — | |||||||||||||||||||||
Issuance of Class B common stock to sponsor (1)(2) | — | $ | — | 7,187,500 | $ | 719 | $ | 24,281 | $ | — | $ | 25,000 | ||||||||||||||||
Net loss | — | — | — | — | — | (485 | ) | (485 | ) | |||||||||||||||||||
Balance - March 31, 2021 | — | — | 7,187,500 | 719 | 24,281 | (485 | ) | 24,515 | ||||||||||||||||||||
Net loss | — | — | — | — | — | (740 | ) | (740 | ) | |||||||||||||||||||
Balance - June 30, 2021 | — | — | 7,187,500 | 719 | 24,281 | $ | (1,225 | ) | 23,775 | |||||||||||||||||||
Net loss | — | — | — | — | — | (159,170 | ) | (159,170 | ) | |||||||||||||||||||
Class A common stock accretion to redemption value | — | — | — | — | (12,796,500 | ) | (7,184,020 | ) | (19,980,528 | ) | ||||||||||||||||||
Issuance of Class A common stock to investor | 1,133,484 | 113 | — | — | 11,334,272 | — | 11,334,840 | |||||||||||||||||||||
Issuance of Class A common stock to representative | 143,750 | 14 | — | — | 1,437,500 | (1,437,514 | ) | — | ||||||||||||||||||||
Balance – September 30, 2021 | 1,277,234 | $ | 127 | 7,187,500 | $ | 719 | $ | — | $ | (8,781,929 | ) | $ | (8,781,083 | ) | ||||||||||||||
| Nine Months Ended September 30, 2022 | Nine Months Ended September 30, 2021 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (10,022,897 | ) | $ | (160,395 | ) | ||
Adjustments to reconcile net income to net cash used in operating activities: | ||||||||
Interest earned on cash and marketable securities held in Trust Account | (1,752,484 | ) | (902 | ) | ||||
Changes in operating assets and liabilities: | ||||||||
Accrued expenses paid by promissory note | — | 485 | ||||||
Accrued expenses | 10,538,707 | 54,075 | ||||||
Due to related party | 11,000 | |||||||
Prepaid insurance | 178,255 | — | ||||||
Franchise tax payable | 150,000 | 149,042 | ||||||
Net cash (used in) provided by operating activities | (908,419 | ) | 52,820 | |||||
Cash flows from financing activities: | ||||||||
Cash flows from investing activities: | ||||||||
Investment of cash in Trust Account | (2,875,000 | ) | (293,250,000 | ) | ||||
Net cash used in investing activities | (2,875,000 | ) | (293,250,000 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from sale of Units | — | 287,500,000 | ||||||
Proceeds from sale of private placement warrants | — | 11,334,840 | ||||||
Proceeds from Sponsor note | 2,875,000 | 223,557 | ||||||
Repayment of Sponsor note | — | (223,557 | ) | |||||
Due from Sponsor | — | (1,702,958 | ) | |||||
Payment of due from Sponsor | — | 1,702,958 | ||||||
Payment of offering costs | — | (4,168,028 | ) | |||||
Proceeds from working capital loan | 581,700 | — | ||||||
Proceeds from issuance of Class B common stock to Sponsor | — | 25,000 | ||||||
Net cash provided by financing activities | 3,456,700 | 294,691,812 | ||||||
Net change in cash | (326,719 | ) | 1,494,632 | |||||
Cash at beginning of period | 327,731 | — | ||||||
Cash at end of period | $ | 1,012 | $ | 1,494,632 | ||||
Non-cash investing and financing activities: | ||||||||
Deferred underwriting fee payable | — | 10,062,500 | ||||||
Remeasurement of Class A common stock | $ | 1,052,323 | — | |||||
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis summarizes the significant factors affecting our operating results, financial condition, liquidity and cash flows as of and for the periods presented below. The following discussion and analysis should be read in conjunction with our financial statements and the related notes thereto. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties. |
References in this report (the “Quarterly Report”) to “we,” “us,” “Digital World” or the “Company” refer to Digital World Acquisition Corp. References to our “management” or our “management team” refer to our officers and directors, and references to the “Sponsor” refer to ARC Global Investments II 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.
Cautionary Note Regarding Forward-Looking StatementsCAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report (as defined below), including, without limitation, statements under “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations,” includes “forward-looking statements”forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”)(as defined below) and Section 21E of the Securities Exchange Act (as defined below). These forward-looking statements can be identified by the use of 1934, as amended (the “Exchange Act”)forward-looking terminology, including the words “believes,” “estimates,” “anticipates,” “expects,” “intends,” “plans,” “may,” “will,” “potential,” “projects,” “predicts,” “continue,” or “should,” or, in each case, their negative or other variations or comparable terminology. There can be no assurance that actual results will not materially differ from expectations. Such statements include, but are not limited to, any statements relating to our ability to consummate any acquisition or other business combination and any other statements that are not statements of current or historical facts,facts. These statements are based on management’s current expectations, but actual results may differ materially due to various factors, including, but not limited to:
our ability to complete the Business Combination or the PIPE;
our success in retaining or recruiting, or changes required in, our officers, key employees or directors following the Business Combination;
our officers and directors allocating their time to other businesses and potentially having conflicts of interest with our business or in approving the Business Combination, as a result of which they would then receive expense reimbursements;
our potential ability to obtain additional financing to complete the Business Combination;
the competitive environment in which our successor will operate following the Business Combination;
our public securities’ potential liquidity and trading;
the lack of a liquid market for our securities;
the use of proceeds not held in the Trust Account or available to us from interest income on the Trust Account balance; or
our financial performance.
The forward-looking statements contained in this Report are based on our current expectations and beliefs concerning future developments and their potential effects on us. Future developments affecting us may not be those that we have anticipated. These forward-looking statements involve a number of risks, and uncertainties (some of which are beyond our control) or other assumptions that couldmay cause actual results or performance to differbe materially different 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, objectives of management for future operations and the proposed Transactions with TMTG (as described below), areexpressed or implied by these forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify suchShould one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these 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 filings 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 orWe undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.otherwise, except as may be required under applicable securities laws.
Overview
We are a blank check company formed under the laws of the State of Delaware on December 11, 2020, for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or other similar business combination with one or more businesses (the “Business Combination”). We intend to effectuate our Business Combination using cash from the proceeds of our initial public offering (the “Initial Public Offering”) and the sale of the private placement units (the “Private Placement Units”), our capital stock, debt or a combination of cash, stock 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.
ProposedTMTG Business Combination
The Company entered into the Merger Agreement, dated as ofOn October 20, 2021, (as amended by the First Amendment towe entered into a Merger Agreement and Plan of Merger, dated May 11, 2022, and as it may be further amended or supplemented from time to time) with Merger Sub, TMTG, the Sponsorour sponsor, in the capacity as theour representative for certain stockholders, of the Company, and TMTG’s General Counsel,Chief Legal Officer, in the capacity as the representative for stockholders of TMTG. Subject
Pursuant to the Merger Agreement, subject to the terms and conditions set forth therein, (i) upon the consummation of the transactions contemplated by the Merger Agreement (the “Closing”),Closing, Merger Sub will merge with and into TMTG, (the “Merger” and, together with the other transactions contemplated by the Merger Agreement, the “Transactions”), with TMTG continuing as the surviving corporation in the Merger and a wholly-owned subsidiary of the Company. In the Merger, (i) all shares of TMTG common stock (together, “TMTG Stock”)Stock issued and outstanding immediately prior to the effective time of the Merger (the “Effective Time”)Effective Time (other than those properly exercising any applicable dissenters rights under Delaware law) will be converted into the right to receive the Merger Consideration;consideration; (ii) each outstanding option to acquire shares of TMTG common stockStock (whether vested or unvested) will be assumed by the Company and automatically converted into an option to acquire shares of the CompanyCompany’s common stock, with its price and number of shares equitably adjusted based on the conversion ratio of the shares of TMTG common stockStock into the Merger Considerationconsideration and (iii) each outstanding restricted stock unit of TMTG shall be converted into a restricted stock unit relating to shares of the Company’s common stock. At the Closing, the Company will change its name to “Trump Media & Technology Group Corp.”.
19
The aggregate Merger Consideration to be paid pursuant to the Merger Agreement to the TMTG Stockholders as of immediately prior to the Effective Time will be an amount equal to $875,000,000, subject to adjustments for TMTG’s closing debt, net of cash and unpaid transaction expenses, plus the additional contingent right to receive certain earnout shares after the Closing, provided that it shall exclude any additional shares issuable upon conversion of certain TMTG convertible notes. The Merger Consideration to be paid to TMTG Stockholders will be paid solely by the delivery of new shares of the Company’s common stock, with each valued at the price per share at which each share of the Company’s common stock is redeemed or converted pursuant to the redemption by the Company of its public stockholders in connection with the Company’s initial Business Combination, as required by the Company’s Amended and Restated Certificate of Incorporation and by-laws and the Company’s Initial Public Offering prospectus. The Merger Consideration will be subject to a post-Closing true up 90 days after the Closing.
The Merger Agreement contains a number of representations and warranties by each of the Company and TMTG as of the date of the Merger Agreement and as of the date of the Closing. Each party agreed in the Merger Agreement to use its commercially reasonable efforts to effect the Closing. The Merger Agreement also contains certain customary covenants by each of the parties during the period between the signing of the Merger Agreement and the earlier of the Closing or the termination of the Merger Agreement.
Consummation of the TransactionsTMTG Business Combination is subject to customary conditions of the respective parties, including regulatory approval and the approval of the TransactionsMerger by the Company’sour stockholders in accordance with the Company’s Amendedour amended and Restated Certificaterestated certificate of Incorporationincorporation and the completion of a redemption offer whereby the Companywe will be providing itsour public stockholders with the opportunity to redeem their shares of our Class A common stock for cash equal to their pro rata share of the aggregate amount on deposit in the Company’s Trust Account (as defined below).our trust account. The Merger Agreement can be terminated by
Simultaneously with the execution
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either party if any of the Merger Agreement, the majority stockholder of TMTG entered into a voting agreementclosing conditions have not been satisfied or waived by September 20, 2022, which has been extended to June 8, 2023 (the “Voting Agreement”“Outside Date”) with, provided that the Company and TMTG. Undershall have the Voting Agreement,right to extend the TMTG Stockholder agreed to vote all of his shares of TMTG Stock in favorOutside Date if it obtains an extension of the Merger Agreement and related transactions and to otherwise take certain other actions in supportdeadline by which it must complete its business combination (an “Extension”) for the shortest of the Merger Agreement and related transactions and the other matters submitted to the TMTG Stockholders for their approval.
Upon Closing, (i) certain senior executive officers of TMTG who own shares of TMTG andthree months, (ii) stockholders of TMTG who own more than 10% of the issued and outstanding shares of TMTG Stock immediately prior to the Effective Time (each, a “Significant Stockholder”) shall entered into a Lock-Up Agreement with the Company and the Sponsor (each, a “Lock-Up Agreement”). Pursuant to the Lock-Up Agreement, with respect to the shares received as merger consideration, each Significant Stockholder shall agree not to, during the period commencing from the Closing and ending on the earliest of (a) the six-month anniversary of the Closing, (b) the date on which the closing price of the Company’s common stock equals or exceeds $12.00 per sharelast day for any 20 trading days within any 30 trading day period commencing at least 150 days after the Closing and (c) the date that the Company consummatesto consummate a liquidation, merger, share exchange or other similar transaction with an unaffiliated third party that results in all ofbusiness combination after such Extension and (iii) such period as determined by the Company stockholders having the right to exchange their equity holdings in the Company for cash, securities or other property: (i) lend, offer, pledge, hypothecate, encumber, donate, assign, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any restricted securities, (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the restricted securities, or (iii) publicly disclose the intention to do any of the foregoing.
The Merger Agreement and related agreements are further described in the registration statement on Form S-4 (as amended, the “Form S-4”), which was filed with the SEC on May 16, 2022 and includes a preliminary proxy statement of the Company, and a prospectus in connection with the proposed Transactions. For additional information regarding the Merger Agreement and the Transactions contemplated therein, including a discussion of risks and uncertainties associated with the Merger and TMTG, please see the Form S-4.Company.
On December 4, 2021, in support of the Transactions,TMTG Business Combination, the Company entered into securities purchase agreements (the “SPAs”)certain SPAs with certain institutional accredited investors (the “PIPE Investors”),PIPE Investors, pursuant to which the investorsPIPE Investors agreed to purchase up to an aggregate of 1,000,000 shares of the Company’s Series A Convertible Preferred Stock (the “Preferred Stock”), atfor a purchase price of $1,000 per share of Preferred Stock, for an aggregate commitment of up to $1,000,000,000 in a private placement (the “PIPE”)PIPE to be consummated concurrently with the Transactions.TMTG Business Combination. The shares of Preferred Stock have an initial conversion price per share of $33.60 and are initiallycurrently convertible into an aggregate of 29,761,905 shares of the Company’s common stock.stock, subject to upward adjustment. The closing of the PIPE is conditioned on the concurrent closing of the TransactionsTMTG Business Combination and other customary closing conditions as set forth inand is terminable by the SPA.PIPE Investors if the TMTG Business Combination has not closed by the Outside Date. Pursuant to the SPAs,SPA, each of the PIPE Investors may terminate its respective SPA, among other things, if the closing of the PIPE has not occurred on or prior to September 20, 2022. Between September 19, 2022 and September 23, 2022,As a result, the Company received termination notices from certain PIPE Investors, representing approximately $138.5 millionwho originally agreed to purchase up to 251,500 shares of the PIPE.Company’s Series A Convertible Preferred Stock.
As indicated in the accompanying financial statements, on March 31, 2023, we had approximately $152,704 in cash. We have incurred and continue to incur significant costs in the pursuit of our initial business combination. We cannot assure shareholders that our plans to complete our initial business combination will be successful.
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Results of Operations
We have neither engaged in any operations nor generated any revenues to date. Our only activities from inception through September 30, 2022March 31, 2023 were organizational activities and those necessary to prepare for the Initial Public Offeringinitial public offering and the search for targets for our initial Business Combination,business combination, including the proposed Merger with TMTG. We do not expect to generate any operating revenues until after the completion of our initial Business Combination.business combination. We generate non-operating income in the form of interest income on marketable securities held in the Trust Account.held. 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 in connection with our search for targets for our initial Business Combination.business combination.
For the three months ended September 30,March 31, 2023, we had net income of $1,450,593, which consists primarily of $3,186,658 of interest earned on cash held in Trust Account, partially offset by general and administrative costs of $221,942, legal investigation costs of $669,137 and income tax expense of $794,986.
For the three months ended March 31, 2022, we had a net loss of $3,797,121,$3,202,814, which consists primarily of general and administrative costs of $4,801,532$397,734 and taxeslegal investigation costs of $322,546, partially offset$2,742,708.
Factors That May Adversely Affect Our Results of Operations
Our results of operations and our ability to complete an initial business combination may be adversely affected by interest income on the assetsvarious factors that could cause economic uncertainty and volatility in the Trust Accountfinancial markets, many of $1,326,957.
Forwhich are beyond our control. Our business could be impacted by, among other things, the nine months ended September 30, 2022, we had a net loss of $10,022,897, which consists of general and administrative costs of $11,418,122 and taxes of $357,259, partially offset by interest income on the assetspending legal proceedings against us, downturns in the Trust Accountfinancial 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 $1,752,484.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 business and our ability to complete an initial business combination.
For the three months ended September 30, 2021, we had a net loss of $159,170, which consists of general and administrative costs of $160,072 and $902 interest earned on trust.
For the nine months ended September 30, 2021, we had a net loss of $160,395, which consists of general and administrative costs of $161,297 and $902 interest earned on trust.23
Liquidity and Capital Resources
Until the consummation of the Initial Public Offering,initial public offering, our only source of liquidity was an initial purchase of Class B common stock by the Sponsorour sponsor and loans from our Sponsor.sponsor.
On September 8, 2021, we consummated the Initial Public Offeringinitial public offering of 28,750,000 Units,units, at a price of $10.00 per Unit,unit, generating gross proceeds of $287,500,000. Simultaneously with the closing of the Initial Public Offering,initial public offering, we consummated the sale of 1,133,484 Placement Unitsplacement units at a price of $10.00 per Placement Unitplacement unit in a private placement to our Sponsor,sponsor, generating gross proceeds of $11,334,840.
Following the Initial Public Offeringinitial public offering and the sale of the Placement Units,placement units, a total of $293,250,000 was placed in a U.S.-based trust account, (“Trust Account”), maintained by Continental, Stock Transfer & Trust Company, acting as trustee. We incurred $15,668,029 in transaction costs, including $3,593,750 of underwriting fees, $10,062,500 of deferred underwriting fees, fair value of representative shares of $1,437,500 and $574,279 of other offering costs.
For the ninethree months ended September 30, 2022, theMarch 31, 2023, net decreaseincrease in cash was $326,719$151,714 and was comprised of net cash used in operating activities of $908,419, net cash used on investing activities of $2,875,000$414,286 and net cash provided by financing activities of $3,456,700.$566,000. Net cash used in operating activities of $908,419$414,286 consisted of net income of $1,450,593 and a change of accrued expense of $469,875, partially offset by interest earned on assets held in the Trust Account of $3,186,658. Net cash provided by financing activities of $541,000 consisted of proceeds from working capital loans.
For the three months ended March 31, 2022, net decrease in cash was $286,238 and was comprised of net cash used in operating activities of $646,388 and net cash provided by financing activities of $360,150. Net cash used in operating activities of $646,388 consisted of a net loss of $10,022,897, interest income on the assets in the Trust Account of $1,752,484$3,202,814 partially offset by a change in accrued expenses of $10,538,707, change in franchise tax payable of $150,000 and change in prepaid insurance of $178,255. Net cash used in investing activities of $2,875,000 consisted of funds deposited into the Trust Account in connection with the extension of the termination date for the Company’s initial Business Combination from September 8, 2022 to December 8, 2022.$2,476,538. Net cash provided by financing activities of $3,456,700$360,150 consisted of funds provided by the Sponsor.
For the nine months ended September 30, 2021, the net increase in cash was $1,494,632. Cash provided by operating activities was $52,820. Net loss of $160,395 was offset by changes in franchise tax payableproceeds from working capital loans and accrued expenses. Net cash used in investing activities of $293,250,000 consisted of funds deposited into the Trust Account in connection with the IPO. Cash provided by financing activities of $294,691,812 consisted of fundsadvances from the IPO.related parties.
As of September 30, 2022,March 31, 2023, we had cash of $297,884,582$303,517,309 held in the Trust Account.trust account. We intend to use substantially all of the funds held in the Trust Account,trust account, including any amounts representing interest earned on the Trust Accounttrust account to complete our initial Business Combination.business combination. We may withdraw interestcash to pay taxes. To the extent that our capital stock or debt is used, in whole or in part, as consideration to complete our initial Business Combination,business combination, the remaining proceeds held in the Trust Accounttrust 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.
On April 21, 2023, the Company issued two promissory notes (one for $625,700 and the other for $500,000) in the aggregate principal amount of $1,125,700 to the sponsor to pay costs and expenses in connection with completing an initial business combination. Each of the two notes bears no interest and is repayable in full upon the earlier of (i) the date on which the Company consummates its initial business combination and (ii) the date that the winding up of the Company is effective. At the election of the sponsor and subject to certain conditions, all of the unpaid principal amount of each of the two notes may be converted into units of the Company (the “Conversion Units”) immediately prior to the consummation of an initial business combination with the total Conversion Units so issued equal to: (x) the portion of the principal amount of the respective note being converted divided by (y) the conversion price of ten dollars ($10.00), rounded up to the nearest whole number of units. The issuances of the two notes were made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act.
As of September 30, 2022,March 31, 2023, we had cash of $1,012$152,704 outside of the Trust Account.trust account. We intend to use the funds held outside the Trust Accounttrust account primarily to complete the TMTG Business Combination, or if the TMTG Business is not consummated, 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.business combination.
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In order to fund working capital deficiencies or finance transaction costs in connection with the Company’s assessment of going concern considerations in accordance with Financial Accounting Standard Board’s Account Standards Update (“ASU”) 2014-15, “Disclosure of Uncertainties about an Entity’s Ability to Continue as a Business Combination, our Sponsor or an affiliate of our Sponsor or certain of our officers and directors may, but are not obligated to, loan us fundsGoing Concern” as may be required. If we complete a Business Combination, we may repay such loaned amounts out of the proceeds of the Trust Account released to us. 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. Initially up to $1,500,000 of such loans may be convertible into units, at a price of $10.00 per unit, at the option of the lender. The units would be identical to the Placement Units.
In November 2021, our Sponsor committed to provide loans of up to an aggregate of $1,000,000 tostated above, the Company through Decemberhas until June 8, 20222023 (or up to March 8, 2023 if the Company extends the maximum time to complete a Business Combination), which loans will be non-interest bearing, unsecured and will be payable upon the consummation of a Business Combination. At September 30, 2022, $581,700 was outstanding under this commitment.
In November 2022, the Sponsor amended the November 2021 Commitment to provide loans of up to an aggregate of $1,000,000 to the Company through December 8, 2022, which loans will be non-interest bearing, unsecured and will be payable upon the consummation of a Business Combination.
On May 12, 2022, we entered into an amendment (the “Amendment to the Insider Letter”) to that certain letter agreement, dated September 2, 2021 (“Insider Letter”), with the Sponsor and our directors, officers or other initial shareholders named therein (the “Insiders”). Pursuant to the Insider Letter, among other matters, the Sponsor and the Insiders agreed in Section 9 thereof, that the Sponsor, an affiliate of the Sponsor or certain of our officers and directors may make non-interest bearing loans to us to finance transaction costs in connection with our Business Combination and that, at the option of the lender, up to $1,500,000 of such loans may be convertible into our units, at a price of $10.00 per unit, upon consummation of the Business Combination. Under the Amendment to the Insider Letter, each of the Sponsor and the Insiders have agreed to revise the terms of the Insider Letter to increase the aggregate principal amount of loans by the Sponsor, its affiliates or our officers and directors that can be converted into our units from $1,500,000 to $30,000,000. The securities issuable upon conversion of such loans are subject to stockholder approval at the special meeting of the Company’s stockholders to be held to approve the Business Combination.
On September 8, 2022, the Company issued a promissory note (the “Note”) in the aggregate principal amount of $2,875,000 to the Sponsor, in connection with the extension of the termination date for the Company’s initial Business Combination from September 8, 2022 to December 8, 2022. The Note bears no interest and is repayable in full upon the earlier of (i) the date on which the Company consummates its initial Business Combination and (ii) the date that the winding up of the Company is effective. At the election of the Sponsor and subject to certain conditions, all of the unpaid principal amount of the Note may be converted into units of the Company (the “Conversion Units”) upon consummation of the initial Business Combination with the total Conversion Units so issued shall be equal to: (x) the portion of the principal amount of the Note being converted divided by (y) the conversion price of ten dollars ($10.00), rounded up to the nearest whole number of units. As of September 30, 2022, there was $2,875,000 outstanding under this Note.
We believe we will need to raise additional funds in order to meet the expenditures required for operating our business. Additionally, 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 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 consummation of our Business Combination, in which case we may issue additional securities or incur debt in connection with such 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 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.
Management anticipates that the $1,012 held outside of the Trust Account as of September 30, 2022 may not be sufficient to allow the Company to meet its needs through the earlier of the consummation of a Business Combination or December 8, 2022 (or up to March 8, 2023 if the Company extends the maximum time to complete a Business Combination), the liquidation date should a Business Combination not be consummate. Over this time period, the Company will be using the funds held outside of the Trust Account and additional funds it will need to raise for paying existing accounts payable, identifying and evaluating prospective initial Business Combination candidates, performing due diligence on prospective target businesses, paying for travel expenditures, selecting the target business to merge with or acquire, and structuring, negotiating and consummating the Business Combination.
The Company has filed a definitive proxy statement dated August 25, 2022 with the SEC to hold a special meeting of its stockholders (the “Extension Meeting”) for approval to further amend the Company’s Amended and Restated Certificate of Incorporation (the “Extension Amendment”) to extend the period of time for completing an initial Business Combination, in three-month increments, until September 8, 2023 or such earlier date as determined by the Company’s Board of Directors. The Extension Amendment would effectively provide for an additional six months, past the two three-month extensions permitted by the Company’s existing governing documents, to complete an initial Business Combination. The Extension Meeting was originally scheduled for September 6, 2022 and was adjourned to September 8, 2022, October 10, 2022, November 3, 2022 and November 22, 2022.
The Company has until December 8, 2022 (or up to March 8, 2023 if the Company extends the maximum time to complete a Business Combination) to consummate a Business Combination. It is uncertain that the Company will be able to consummate a Business Combination by this time. If a Business Combination is not consummated by this date, there will be a mandatory liquidation and subsequent dissolution of the Company. Additionally, the Company has incurred and expects to incur significant costs in pursuit of its acquisition plans. The Company lacks the financial resources it needs to sustain operations for a reasonable period of time, which is considered to be one year from the date of the issuance of the financial statements. As a result, these factors raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of September 30, 2022.March 31, 2023.
Contractual Obligations
We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities, other than an agreement to pay the Working Capital Loans, and each of Renatus and an affiliate of our Sponsorsponsor a monthly fee of $15,000 for office space, administrative and support services to us. We will incur these fees monthly until the earlier of the completion of our initial Business Combinationbusiness combination and our liquidation.
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The underwriters are entitled to a deferred fee of $0.35 per unit, or $10,062,500 in the aggregate. The deferred fee will become payable to the underwriters solely in the event that the Company completes a Business Combination,business combination, subject to the terms of the underwriting agreement.
Critical Accounting Policies and Estimates
Class A Common Stock Subject to Possible Redemption
We account for our Class A common stock subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” Class A common stock subject to mandatory redemption is classified as a liability instrument and is measured at fair value. Conditionally redeemable common stock (including common stock that features redemption rights that is either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control) is classified as temporary equity. At all other times, shares of common stock are classified as stockholders’ equity. Our shares of Class A common stock feature certain redemption rights that are considered to be outside of our control and subject to occurrence of uncertain future events. Accordingly, Class A common stock subject to possible redemption is presented as temporary equity, outside of the stockholders’ equity section of our condensed interim balance sheets.
Factors That May Adversely Affect our Results of OperationsDerivative Financial Instruments
Our results of operationsThe Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC Topic 815, “Derivatives and our ability to complete an initial Business Combination may be adversely affected by various factors that could cause economic uncertaintyHedging”. Derivative instruments are initially recorded at fair value on the grant date and volatilityre-valued at each reporting date, with changes in the financial markets, manyfair value reported in the statements of whichoperations. Derivative assets and liabilities are beyond our control. Our businessclassified in the balance sheet as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be impacted by, among other things, downturnsrequired within 12 months of the balance sheet date. The Company accounts for the warrants in accordance with the guidance contained in ASC 815-40. The Company has determined that the warrants qualify for equity treatment in the Company’s 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 business and our ability to complete an initial Business Combination.statements.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk |
Not applicable for smaller reporting companies.
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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 our reports filed or submitted under the Exchange Act is accumulated and communicated to our 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 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of our disclosure controls and procedures as of September 30, 2022.March 31, 2023. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that due to the Company’s material weaknesses in accounting for accruals our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under under the Exchange Act) were not effective due to a material weakness in internal control over financial reporting existed relating to financial reporting systems and accounting for accruals.accruals, which resulted in the restatement of the previously issued financials statements included in the 2022 Form 10-K 10-K/A filed with the SEC on October 30, 2023.
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.
To address this material weakness, we are assessing our resource needs as well as roles and responsibilities with a particular focus on accounting and financial reporting staff and will make changes as needed.
Changes in Internal Control Over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the fiscal quarter covered by this Quarterly Report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings. Except as indicated below, to the knowledge of our management team, there is no litigation currently pending or contemplated against us, or against any of our property. |
We are cooperating with a Financial Industry Regulatory Authority, Inc. (“FINRA”)FINRA inquiry concerning events (specifically, a review of trading) that preceded the public announcement of the Merger Agreement. According to FINRA’s request, the inquiry should not be construed as an indication that FINRA has determined that any violations of Nasdaq rules or federal securities laws have occurred, nor as a reflection upon the merits of the securities involved or upon any person who effected transactions in such securities.
We are also cooperating with an SEC investigation, including responding to several document requests and subpoenas from the SEC to us and certain of our directors seeking various documents and information regarding, among other things, meetings of our Board of Directors; communications withOn October 20, 2023, Robert Lowinger (the “Plaintiff”) filed a complaint against Rocket One Capital, LLC (“Rocket One”), Michael Shvartsman, Bruce Garelick, and the evaluation of potential targets, including TMTG; communications relating to TMTG; agreements with and payments made to certain advisors; investors, including investor meetings and agreements; the appointment of certain of our officers and directors; policies and procedures relating to trading; and documents sufficient to identify banking, telephone, and email addresses; our due diligence regarding TMTG, communications regarding and due diligence of potential targets other than TMTG; and relationships between and among Digital World (and/or certain of Digital World’s officers and directors) and other entities (including the Sponsor and certain advisors, including Digital World’s underwriter and financial advisor in its Initial Public Offering). According to the SEC’s request and subpoena, the investigation does not mean that the SEC has concluded that anyone violated the law or that the SEC has a negative opinion of us or any person, entity, or security. Any resolution of the inquiry or investigation, as well as proceedings by the SEC, FINRA, or other governmental or regulatory authorities, could resultCompany in the imposition of significant fines, penalties, injunctions, prohibitions on the conduct of our business, damage to our reputation and other sanctions against us, including restrictions on our activities.
The SEC also issued an order of examination pursuant to Section 8(e) of the Securities Act, with respect to the Form S-4 relating to the Transactions with TMTG, and a further subpoena in support thereof. This subpoena seeks additional documents and information with respect to, among other things, communications regarding and due diligence of potential targets other than TMTG, relationships between and among Digital World (and/or certain of Digital World’s officers and directors) and other entities (including the Sponsor) and certain advisors, including Digital World’s underwriter and financial advisor in its Initial Public Offering), the holders of ownership interests in the Sponsor, certain elements of the transaction historyU.S. District Court for equity in the Sponsor, and certain forward-looking information about TMTG referenced in the Form S-4. Any resolution of the investigation could result in the imposition of significant penalties, injunctions, prohibitions on the conduct of Digital World’s business, damage to its reputation and other sanctions against Digital World. In addition, the Section 8(e) order of examination of the Form S-4 can be expected to delay effectiveness of the Form S-4, which could materially delay, materially impede, or prevent the consummation of the Transactions.
In addition, Digital World and each member of its board of directors received grand jury subpoenas seeking certain of the same documents demanded in the above-referenced SEC subpoenas, along with requests relating to Digital World’s S-1 filings, communications with or about multiple individuals, and information regarding Rocket One Capital. Digital World has been informed that on June 27, 2022 TMTG received a subpoena from the SEC seeking documents relating to, among other things, Digital World and other potential counterparties for a business transaction involving TMTG. Digital World has also been informed that on June 30, 2022, TMTG was served with a subpoena, issued by a federal grand jury sitting in the Southern District of New York,York. According to the complaint, the Company has been named as a party in the lawsuit because the Plaintiff is seeking a subsetrelief for the benefit of the same or similar documents demandedCompany. In the complaint, the Plaintiff contends that, in subpoenas2021, Mr. Garelick and Rocket One were directors of the Company and that they purchased securities of the Company. The Plaintiff further alleges that within a six-month period from the date of their purchases, both Mr. Garelick and Rocket One sold securities in the Company and realized profits from those sales. Additionally, the Plaintiff alleges that Mr. Shvartsman had a financial interest in the profits resulting from Rocket One’s purchases and sales of the Company’s securities. According to the Plaintiff, under Section 16(b) of the Exchange Act (15 U.S.C. §78p(b)), Rocket One, Mr. Shvartsman, and Mr. Garelick are each required to disgorge certain trading profits to the Company. As of the date of this report, the Company has not filed a response to the complaint. The case is Lowinger v. Rocket One Capital, LLC, et al., No. 1:23-cv-9243 (S.D.N.Y. Oct. 20, 2023).
Settlement in Principle
As previously disclosed in the Company’s Form 8-K filed with the SEC on July 3, 2023, the Company was the subject of an investigation (the “Investigation”) by the SEC with respect to certain statements, agreements and the timing thereof included in the Company’s registration statements on Form S-1 (the “Form S-1”) in connection with its IPO and Form S-4 relating to the business combination between the Company and TMTG.
On July 3, 2023, the Company reached an agreement in principle (the “Settlement in Principle”) in connection with the Investigation. The Settlement in Principle was subject to approval by the SEC.
On July 20, 2023, the SEC approved the Settlement in Principle, announcing settled charges against Digital World and its directors. Certain current and former TMTG personnel have also recently received individual grand jury subpoenas.
These subpoenas,entered a cease-and-desist order (the “Order”) finding that Digital World violated certain antifraud provisions of the Securities Act and the underlying investigationsExchange Act, in connection with Digital World’s IPO filings on Form S-1 and the Form S-4 concerning certain statements, agreements and omissions relating to the timing and discussions Digital World had with TMTG regarding the proposed business combination. In the Order, Digital World agreed (i) that any amended Form S-4 filed by Digital World will be materially complete and accurate with respect to certain statements, agreements and omissions relating to the timing and discussions that Digital World had with TMTG regarding the proposed business combination and (ii) to pay a civil money penalty in an amount of $18 million to the SEC promptly after the closing of any merger or a comparable business combination or transaction, whether with TMTG or any other entity.
Section 5.2 of the Merger Agreement provides that without the prior written consent of TMTG (such consent not to be unreasonably withheld, conditioned or delayed) the Company shall not settle or compromise any claim, action or proceeding, including any suit, action, claim, proceeding or investigation relating to the Merger Agreement or the transactions contemplated thereby, in excess of $100,000. As such, the Company has kept TMTG appraised of the discussions with the SEC and the U.S. Department of Justice, can be expectedSettlement in Principle. Nevertheless, TMTG is not a party to delay effectivenessthe Settlement in Principle or any related negotiation and it has not provided its consent to such settlement. Although the Company believes that it has complied with Section 5.2 of the Form S-4, which could materially delay, materially impede, or preventMerger Agreement, TMTG may disagree and try to terminate the consummation of the Transactions.Merger Agreement.
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Lee Jacobson was previously the Chief Executive Officer of Apmetrix, Inc., a Delaware corporation. Apmetrix, Inc. was an enterprise data management company that had a dispute with its licensor over the adequacy of the technology being licensed and the corresponding royalty payments, ultimately filing a bankruptcy petition that began on December 15, 2016 and terminated on December 13, 2019. To the knowledge of our management, with the exception of the above disclosure, 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. |
As a smaller reporting company under Rule 12b-2 of the Exchange Act, we are not required to include risk factors in this Quarterly Report. However, as of the date of this Quarterly Report, except as set forth below, there have been no material changes from the riskpartial list of material risks, uncertainties and other factors that could have a material effect on the Company and its operations, previously disclosed in our (i) final prospectus dated September 2, 2021, as filed with the SEC on September 8, 2021, (ii) Annual Report on Form 10-K 10-K/A for the year ended December 31, 2021, as filed with the SEC on April 13, 2022, (iii) Registration Statement on Form S-4 that was initially filed with the SEC on May 16, 2022, (iv) Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, as filed with the SEC on May 19, 2022, (v) QuarterlyOctober 30, 2023.
The ability of our stockholders to exercise redemption rights with respect to a large number of our shares may not allow us to complete the Business Combination or optimize our capital structure.
Unless extended, the Merger Agreement may be terminated at any time in accordance with its terms, including by either us or TMTG after December 31, 2023, the SPAs may be terminated upon the termination of the Merger Agreement, and you may not have the chance to vote on the Business Combination or redeem our shares until the liquidation date.
We have not obtained an opinion from an independent investment banking firm or another independent firm, and consequently, you may have no assurance from an independent source that the terms of the Business Combination are fair to our stockholders from a financial point of view.
You may be unable to ascertain the merits or risks of TMTG’s operations.
There is no assurance that our diligence will reveal all material risks that may be present with regard to TMTG.
We are dependent upon our executive officers and directors and their departure could adversely affect our ability to operate and to consummate the initial business combination; our executive officers and directors also allocate their time to other businesses, thereby causing potential conflicts of interest that could have a negative impact on our ability to complete the initial business combination.
If the conditions to the Merger are not met, the Business Combination may not occur.
The process of taking a company public by means of a business combination with a special purpose acquisition company is different from taking a company public through an underwritten offering and may create risks for our unaffiliated investors. You may not have the same benefits as an investor in an underwritten public offering.
There are risks to our stockholders who are not affiliates of the Sponsor of becoming stockholders of the combined entity through the Business Combination rather than acquiring securities of TMTG directly in an underwritten public offering, including no independent due diligence review by an underwriter and conflicts of interest of the Sponsor.
Our directors may decide not to enforce the indemnification obligations of our Sponsor, resulting in a reduction in the amount of funds in the Trust Account available for distribution to our public stockholders.
Even if we consummate the Business Combination, there is no guarantee that the warrants will ever be in the money; they may expire worthless or the terms of warrants may be amended.
The exercise of discretion by our directors and officers in agreeing to changes to the terms of or waivers of closing conditions in the Merger Agreement may result in a conflict of interest when determining whether such changes to the terms of the Merger Agreement or waivers of conditions are appropriate and in the best interests of our stockholders.
If the funds held outside of our Trust Account are insufficient to allow it to operate until at least September 8, 2024, our ability to complete an initial business combination may be adversely affected.
We may not have sufficient funds to satisfy indemnification claims of its directors and executive officers.
For the complete list of risks relating to our operations, the Business Combination and the PIPE, see the section titled “Risk Factors” contained in our (i) Registration Statement on Form S-1, (ii) Annual Report on Form 10-Q10-K, as amended, for the quarteryear ended June 30,December 31, 2022, as filed with the SEC on August 23, 2022,October 30, 2023, (iii) Registration Statement on Form S-4 and (vi)(iv) the definitive proxy statement dated August 25, 2022, as filed with the SEC on August 25, 2022, as supplemented.July 17, 2023. 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 orrisks could arise that we currently deem immaterial may also impairaffect our business or results of operations.
A new 1% U.S. federal excise tax could be imposed on usability to consummate an initial business combination. We may disclose changes to such risk factors or disclose additional risk factors from time to time in connection with redemptions by us of our shares in connection with a Business Combination or other stockholder vote pursuant to which stockholders would have a right to submit their shares for redemption (a “Redemption Event”).
On August 16, 2022, the IR Act was signed into federal law. The IR Act provides for, among other things, a new U.S. federal 1% excise tax on certain repurchases (including redemptions) of stock by publicly traded domestic (i.e., U.S.) corporations and certain domestic subsidiaries of publicly traded foreign corporations. The excise tax is imposed on the repurchasing corporation itself, not its stockholders from which shares are repurchased. The amount of the excise tax is generally 1% of the fair market value of the shares repurchased at the time of the repurchase. However, 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. In addition, certain exceptions apply to the excise tax. The Treasury Department has been given authority to provide regulations and other guidance to carry out, and prevent the abuse or avoidance of the excise tax. The IR Act applies only to repurchases that occur after December 31, 2022.
Any redemption or other repurchase that occurs after December 31, 2022, in connection with a Redemption Event may be subject to the excise tax. Whether and to what extent we would be subject to the excise tax in connection with a Redemption Event would depend on a number of factors, including (i) the fair market value of the redemptions and repurchases in connectionfuture filings with the Redemption Event, (ii) the structure of the Business Combination, (iii) the nature and amount of any “PIPE” or other equity issuances in connection with the Business Combination (or otherwise issued not in connection with the Redemption Event but issued within the same taxable year of the Business Combination) and (iv) the content of regulations and other guidance from the Treasury. In addition, because the excise tax would be payable by us, and not by the redeeming holder, the mechanics of any required payment of the excise tax have not been determined. The foregoing could cause a reduction in the cash available on hand to complete a Business Combination and in our ability to complete a Business Combination.SEC.
To mitigate the risk that we might be deemed to be an investment company for purposes of the Investment Company Act of 1940, as amended (the “Investment Company Act”), we may, at any time, instruct the trustee to liquidate the securities held in the Trust Account and instead to hold the funds in the Trust Account in cash items until the earlier of the consummation of our initial Business Combination or our liquidation. As a result, following the liquidation of securities in the Trust Account, we would likely receive minimal interest, if any, on the funds held in the Trust Account, which would reduce the dollar amount our public stockholders would receive upon any redemption or liquidation of the Company.
The funds in the Trust Account have, since our Initial Public Offering, been held only in U.S. government treasury obligations with a maturity of 185 days or less or in money market funds investing solely in U.S. government treasury obligations and meeting certain conditions under Rule 2a-7 under the Investment Company Act. However, to mitigate the risk of us being deemed to be an unregistered investment company (including under the subjective test of Section 3(a)(1)(A) of the Investment Company Act) and thus subject to regulation under the Investment Company Act, we may, at any time, instruct Continental, the trustee with respect to the Trust Account, to liquidate the U.S. government treasury obligations or money market funds held in the Trust Account and thereafter to hold all funds in the Trust Account as cash items until the earlier of the consummation of our initial Business Combination or the liquidation of the Company. Following such liquidation, we would likely receive minimal interest, if any, on the funds held in the Trust Account. However, interest previously earned on the funds held in the Trust Account still may be released to us to pay our taxes, if any, and certain other expenses as permitted. As a result, any decision to liquidate the securities held in the Trust Account and thereafter to hold all funds in the Trust Account in cash items would reduce the dollar amount our public stockholders would receive upon any redemption or liquidation of the Company.
In the event that we may be deemed to be an investment company, we may be required to liquidate the Company.
There is substantial doubt about our ability to continue as a “going concern.”
In connection with our assessment of going concern considerations under applicable accounting standards, management has determined that liquidity condition and date for mandatory liquidation and subsequent dissolution raise substantial doubt about our ability to continue as a going concern through approximately one year from the date the financial statements were issued.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. |
None.
Item 3. Defaults Upon Senior Securities. |
None.
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Item 4. Mine Safety Disclosures. |
Not Applicable.
Item 5. Other Information. |
None.
Item 6. Exhibits |
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
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| 101.INS* | Inline XBRL Instance Document | |
| 101.SCH* | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB* | Inline XBRL Taxonomy Extension Labels Linkbase Document | |
| 101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104* | Cover Page Interactive Data File. | |
| * | Filed herewith. |
| ** | Furnished herewith. |
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| DIGITAL WORLD ACQUISITION CORP. | ||||||
| Date: November | By: | /s/ | ||||
| Name: | ||||||
| Title: | Interim Chief Executive Officer and Director (Principal Executive Officer) | |||||
| Date: November | By: | /s/ | ||||
| Name: | ||||||
| Title: | Chief Financial Officer (Principal Financial and Accounting Officer) | |||||
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