TKB Critical Technologies 1(USCT) - 2021 Q4 - Annual Report

Part I Business TKB Critical Technologies 1 is a blank check company focused on acquiring businesses providing critical technologies to the U.S. industrial supply chain, with an IPO raising $230 million - The company is a blank check company, or SPAC, incorporated on April 20, 2021, to effect a merger, asset acquisition, or similar business combination[16] Initial Public Offering (IPO) and Private Placement Details | Item | Details | | :--- | :--- | | IPO Consummation Date | October 29, 2021 | | Units Offered | 23,000,000 units (including over-allotment) | | Price per Unit | $10.00 USD per unit | | Gross Proceeds (IPO) | $230,000,000 USD | | Private Placement Warrants | 10,750,000 warrants at $1.00 USD each | | Gross Proceeds (Private Placement) | $10,750,000 USD | | Amount Placed in Trust Account | $234,600,000 USD | - The company's strategic focus is on identifying businesses that provide critical technologies to the U.S. industrial supply chain, including advanced manufacturing, AI, automation, data security, energy storage, IoT, microelectronics, and robotics[16][21] - Key acquisition criteria include an enterprise value of $700 million or more, differentiated technologies with high barriers to entry, established customer relationships, and a strong management team ready for public markets[26][30] - Nasdaq rules require the initial business combination to have an aggregate fair market value of at least 80% of the assets held in the trust account at the time of the agreement[29] Risk Factors The company, a blank check entity with no operating history, faces significant risks including inability to complete a business combination, conflicts of interest, market volatility, and a "going concern" warning Risks Relating to Business Combination Risks include the 15-month deadline, potential cash depletion from redemptions, high competition, COVID-19 impacts, and liquidation if a deal is not completed - The requirement to complete an initial business combination within 15 months may give potential targets leverage in negotiations and limit due diligence time[54] - The ability of public shareholders to redeem shares for cash could make the company's financial condition unattractive to targets or hinder the ability to complete a desirable business combination[51][52] - The COVID-19 outbreak and related market volatility may materially adversely affect the search for a business combination and the operations of a potential target[57][58] - If a business combination is not completed within 15 months, the company will cease operations and redeem public shares, causing warrants to expire worthless[61][62] - The company may be deemed an investment company under the Investment Company Act if not careful, which would impose burdensome compliance requirements and restrict its activities[83] Risks Relating to the Post-Business Combination Company Post-combination risks include potential asset write-downs, loss of key personnel, challenges in assessing target management, and additional cross-border risks if the target is foreign - The post-combination company may be forced to write-down or write-off assets, restructure operations, or incur impairment charges, which could negatively affect financial results and security prices[119] - The success of the post-combination business will depend on key personnel, whose retention is not guaranteed, and their loss could negatively impact operations[122][126] - Structuring a business combination may result in the company owning less than 100% of the target, potentially leading to original public shareholders owning a minority interest and a loss of management control[127] - Acquiring a company with operations outside the U.S. would subject the company to additional risks, including currency fluctuations, tariffs, trade barriers, and complex regulatory environments[128][129] Risks Relating to Management Management's limited time commitment and conflicts of interest, driven by financial incentives tied to completing a business combination, pose significant risks - Executive officers and directors are not required to commit their full time to the company's affairs, creating potential conflicts of interest in allocating their time[136] - Officers and directors have fiduciary or contractual obligations to other entities, which may require them to present business opportunities to those entities before presenting them to the company[138] - The sponsor, executive officers, and directors will lose their entire investment if a business combination is not completed, creating a conflict of interest that may influence their motivation to complete any deal, regardless of its quality[144] Risks Relating to Securities Securities risks include potential Nasdaq delisting, worthless warrants, significant shareholder dilution from future share issuances, and the sponsor's nominal founder share purchase price - Public shareholders have no rights to the funds in the trust account except in specific, limited circumstances such as a redemption or liquidation[146] - The company's securities may be delisted from Nasdaq if it fails to meet continued or initial listing requirements in connection with a business combination, which would reduce liquidity and marketability[147][148] - The company may redeem unexpired public warrants prior to their exercise at a time that is disadvantageous to holders, potentially making them worthless[175][176] - The nominal purchase price of approximately $0.004 per share paid by the sponsor for founder shares will significantly dilute the implied value of public shares upon a business combination, potentially yielding substantial profit for the sponsor even with a falling share price[181][186] - Warrants are accounted for as a liability and re-measured at fair value each period, which can cause volatility in reported earnings and may make the company less attractive to a potential target[189] General Risk Factors General risks include the company's blank check status, a "going concern" warning, reduced disclosure as an emerging growth company, and limited shareholder protection due to Cayman Islands incorporation - The company is a blank check company with no operating history or revenues, providing no basis for investors to evaluate its ability to achieve its business objective[191] - The independent registered public accounting firm's report expresses substantial doubt about the company's ability to continue as a "going concern" due to expected significant acquisition costs[193] - As an "emerging growth company" and "smaller reporting company," the company is eligible for exemptions from certain disclosure requirements, which could make its securities less attractive to investors[194][196] - Incorporation in the Cayman Islands may limit investors' ability to protect their rights through U.S. federal courts, as Cayman Islands law differs significantly from U.S. corporate and securities law[207][208] Unresolved Staff Comments The company reports no unresolved staff comments from the Securities and Exchange Commission - None[212] Properties The company does not own real estate; its principal executive offices are provided by its sponsor for a monthly fee of $10,000 - The company's principal executive offices are located at 400 Continental Blvd, Suite 600, El Segundo, CA 90245[213] - The company pays its sponsor $10,000 per month for office space, utilities, and secretarial and administrative support[213] Legal Proceedings The company reports no litigation currently pending against it, its officers, or its directors - To the knowledge of management, there is no litigation currently pending against the company[214] Mine Safety Disclosures This item is not applicable to the company's operations - Not applicable[215] Part II Market for Registrant's Common Equity, Related Shareholder Matters, and Issuer Purchases of Equity Securities The company's securities trade on Nasdaq, with limited record holders, no dividends paid, and $234.6 million from IPO proceeds placed in a trust account Market Information | Security | Trading Symbol | Exchange | | :--- | :--- | :--- | | Units | USCTU | Nasdaq Global Market | | Class A ordinary shares | USCT | Nasdaq Global Market | | Warrants | USCTW | Nasdaq Global Market | - As of March 11, 2022, there was one holder of record for units, one for Class A ordinary shares, five for Class B ordinary shares, and two for warrants[219] - The company has not paid any cash dividends and does not intend to prior to completing its initial business combination[220] - From the IPO and private placement, a total of $234,600,000 USD was placed in a U.S.-based trust account[226] Reserved This item is reserved and contains no information - Item 6 is reserved[228] Management's Discussion and Analysis of Financial Condition and Results of Operations The blank check company reported $8.6 million net income driven by a non-cash warrant gain, but its $750,562 cash outside trust account raises going concern doubts Results of Operations (Inception to Dec 31, 2021) | Item | Amount (USD) | | :--- | :--- | | Net Income | $8,644,188 | | Key Drivers | | | Change in fair value of warrant liability (Gain) | $10,457,500 | | Formation and operating costs (Expense) | ($1,817,262) | Liquidity and Capital Resources (as of Dec 31, 2021) | Item | Amount (USD) | | :--- | :--- | | Cash held outside trust account | $750,562 | | Marketable securities held in trust account | $234,603,942 | - The company's ability to continue as a going concern is in substantial doubt, as it expects to incur significant costs and may need to raise additional funds prior to a business combination[232][244] - The underwriters are entitled to a deferred fee of $8,800,000 USD, payable from the trust account only upon completion of an initial business combination[247] Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, the company is not required to provide information for this item - The company is a smaller reporting company and is not required to provide the information under this item[257] Financial Statements and Supplementary Data The company's financial statements and related notes are included in the report, beginning on page F-1 - The company's financial statements and notes begin on page F-1 of the report[258] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[259] Controls and Procedures Management concluded disclosure controls were ineffective as of December 31, 2021, due to a material weakness in accounting for redeemable Class A shares, with remediation efforts underway - Management concluded that disclosure controls and procedures were not effective as of December 31, 2021[261] - A material weakness was identified in internal control over financial reporting, specifically the failure to properly measure Class A ordinary shares subject to possible redemption at their redemption value instead of their issuance price[262] - Remediation efforts include performing additional post-closing reviews, consulting with subject matter experts, and retaining an additional consultant[265] Other Information The company reports no other information under this item - None[267] Disclosure Regarding Foreign Jurisdictions that Prevent Inspections This item is not applicable to the company - Not applicable[268] Part III Directors, Executive Officers and Corporate Governance This section details the company's seven directors and executive officers, board structure, and independent Audit and Compensation Committees, with William Zerella as the audit committee financial expert Executive Officers and Directors | Name | Position | | :--- | :--- | | Angela Blatteis | Co-Chief Executive Officer, Chief Financial Officer, Director | | Greg Klein | Co-Chief Executive Officer, Director | | Philippe Tartavull | Executive Chairman | | Frank Levinson | Director | | Michael Herson | Director | | Ryan O'Hara | Director | | William Zerella | Director | - The board of directors is divided into three classes with staggered three-year terms[279] - The board has two standing committees: an Audit Committee and a Compensation Committee, each composed solely of independent directors[282] - William Zerella chairs the Audit Committee and qualifies as an "audit committee financial expert"[283][284] Executive Compensation No cash compensation has been paid to executive officers or directors; an affiliate receives $10,000 monthly for services, and directors hold indirect interests in founder shares - None of the executive officers or directors have received any cash compensation for services rendered[296] - The company pays an affiliate of its sponsor $10,000 per month for office space, secretarial, and administrative services[296] - Directors have each received interests in the sponsor, representing an indirect interest in 25,000 founder shares as compensation for their service[296] Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters As of March 11, 2022, the sponsor owned 98.3% of Class B shares, with officers and directors owning 100% as a group, while several institutional investors held over 5% of Class A shares Beneficial Ownership of Class B Ordinary Shares (as of March 11, 2022) | Beneficial Owner | Shares | % of Class | | :--- | :--- | :--- | | TKB Sponsor I, LLC | 5,650,000 | 98.3% | | All officers and directors as a group (7 individuals) | 5,750,000 | 100% | - Beneficial owners of more than 5% of Class A ordinary shares include Saba Capital Management, L.P. (7.1%), Beryl Capital Management LLC (8.7%), and Atalaya Capital Management LP (8.3%)[302] Certain Relationships and Related Transactions, and Director Independence Related party transactions include the sponsor's purchase of founder shares and private placement warrants, a $10,000 monthly administrative fee, and a repaid $300,000 promissory note, with four directors deemed independent - On April 29, 2021, the sponsor purchased 5,750,000 founder shares for $25,000 USD[309] - The sponsor purchased 10,750,000 private placement warrants for $10,750,000 USD simultaneously with the IPO closing[310] - An administrative support agreement is in place for the company to pay an affiliate of the sponsor $10,000 per month for office space and services[311] - The board of directors has determined that Messrs. Levinson, Herson, O'Hara and Zerella are "independent directors" as defined by Nasdaq listing standards[319] Principal Accountant Fees and Services Marcum LLP served as the principal accountant, with total audit fees of $50,470 from inception to December 31, 2021, and all services pre-approved Accountant Fees (Inception to Dec 31, 2021) | Fee Category | Amount (USD) | | :--- | :--- | | Audit Fees | $50,470 | | Audit-Related Fees | $0 | | Tax Fees | $0 | | All Other Fees | $0 | Part IV Exhibits, Financial Statement Schedules This section lists the financial statements and various exhibits filed as part of the Form 10-K - This item contains the index to the financial statements and a list of all exhibits filed with the report[328][330] Form 10-K Summary This item is not applicable - Not applicable[331] Financial Statements Report of Independent Registered Public Accounting Firm Marcum LLP issued a fair opinion on financial statements but expressed substantial doubt about the company's "going concern" ability due to expected acquisition costs - The auditor's report contains an explanatory paragraph regarding "Going Concern," citing that the company has incurred and expects to continue to incur significant costs, which raises substantial doubt about its ability to continue operations[337] Financial Statements Data Audited financial statements for inception to December 31, 2021, show total assets of $236.1 million, total liabilities of $19.8 million, and net income of $8.6 million Balance Sheet Highlights (as of Dec 31, 2021) | Account | Amount (USD) | | :--- | :--- | | Total Assets | $236,094,004 | | Marketable securities held in Trust Account | $234,603,942 | | Total Liabilities | $19,833,666 | | Warrant Liability | $10,680,000 | | Class A ordinary shares subject to possible redemption | $234,600,000 | | Total Shareholders' Deficit | ($18,339,662) | Statement of Operations Highlights (Inception to Dec 31, 2021) | Account | Amount (USD) | | :--- | :--- | | Loss from operations | ($1,817,262) | | Change in fair value of warrant liability | $10,457,500 | | Net income | $8,644,188 | Notes to Financial Statements Notes detail accounting policies, warrant and redeemable share treatment, related party transactions, going concern uncertainty, and commitments like deferred underwriting fees - The company accounts for its public and private placement warrants as liabilities at fair value, with changes in fair value recognized in the statement of operations each reporting period[382][420] - Class A ordinary shares subject to possible redemption are classified as temporary equity and are presented at their redemption value of $10.20 USD per share[385] - The company has entered into several consulting and broker agreements where fees are contingent upon the successful consummation of an initial business combination[430][431] - The fair value of public warrants was transferred from a Level 3 to a Level 1 measurement, and private warrants to a Level 2 measurement, following the start of public trading[433]