Digital World Acquisition Corp. - Quarter Report: 2022 June (Form 10-Q)

☒	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 common stock, and one-half of one redeemable warrant		DWACU		The Nasdaq Stock Market LLC
Class A common stock, par value $0.0001 per share		DWAC		The Nasdaq Stock Market LLC
Redeemable warrants, each whole warrant exercisable for one share of Class A common stock at an exercise price of $11.50		DWACW		The Nasdaq Stock Market LLC

Large accelerated filer		☐		Accelerated filer		☐
Non-accelerated filer		☒		Smaller reporting company		☒
				Emerging growth company		☒

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PART I - FINANCIAL INFORMATION					1
Item 1.		Financial Statements			1
		Balance Sheet as of June 30, 2022 (Unaudited) and December 31, 2021			1
		Unaudited Statements of Operations for the Three and Six Months Ended June 30, 2022 and 2021			2
		Unaudited Condensed Statements of Changes in Stockholders’ Equity (Deficit) for the Three and Six Months Ended June 30, 2022 and 2021			3
		Unaudited Condensed Statement of Cash Flows for the Six Months Ended June 30, 2022 and 2021			4
		Notes to Condensed Financial Statements			5
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations			19
Item 3.		Quantitative and Qualitative Disclosures about Market Risk			23
Item 4.		Control and Procedures			23
PART II - OTHER INFORMATION					24
Item 1.		Legal Proceedings			24
Item 1A.		Risk Factors			25
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds			27
Item 3.		Defaults Upon Senior Securities			27
Item 4.		Mine Safety Disclosures			28
Item 5.		Other Information			28
Item 6.		Exhibits			28
SIGNATURES					29

		June 30, 2022 (unaudited)				December 31, 2021
ASSETS
Current assets
Cash		$	2,968			$	327,731
Prepaid assets			240,972				240,972
Total Current Assets			243,940				568,703
Prepaid assets			46,215				165,051
Cash Held in Trust Account			293,682,625				293,257,098
TOTAL ASSETS		$	293,972,780			$	293,990,852
LIABILITIES AND STOCKHOLDERS’ DEFICIT
Current liabilities
Accrued expenses		$	6,139,539			$	483,535
Franchise tax payable			300,000				200,000
Working capital loans			451,700				—
Total Current Liabilities			6,891,239				683,535
Deferred underwriter fee payable			10,062,500				10,062,500
TOTAL LIABILITIES			16,953,739				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			293,282,625				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			(16,264,430	)			(10,006,029	)
Total Stockholders’ Deficit			(16,263,584	)			(10,005,183	)
TOTAL LIABILITIES, REDEEMABLE COMMON STOCK AND STOCKHOLDERS’ DEFICIT		$	293,972,780			$	293,990,852

		Three Months Ended June 30, 2022				Three Months Ended June 30, 2021
Formation and operating costs		$	4,702,670			$	740
Loss from operation costs			(4,702,670	)			(740	)
Other income and expenses:
Interest earned on cash held in Trust Account			395,996				—
Loss before income taxes			(4,306,674	)			(740	)
Income tax expense			(34,713	)			—
Net loss		$	(4,341,387	)		$	(740	)
Weighted average shares outstanding of Class A common stock			30,027,234				—
Basic and diluted net income per Class A common stock		$	(0.12	)		$	(0.00	)
Weighted average shares outstanding of Class B common stock			7,187,500				7,500,000
Basic and diluted net income per Class B common stock		$	(0.12	)		$	(0.00	)

		Six Months Ended June 30, 2022				Six Months Ended June 30, 2021
Formation and operating costs		$	6,616,590			$	1,225
Loss from operation costs			(6,616,590	)			(1,225	)
Other income and expenses:
Interest earned on cash held in Trust Account			425,527				—
Loss before income taxes			(6,191,063	)			(1,225	)
Income tax expense			(34,713	)			—
Net loss		$	(6,225,776	)		$	(1,225	)
Weighted average shares outstanding of Class A common stock			30,027,234				—
Basic and diluted net income per Class A common stock		$	(0.17	)		$	(0.00	)
Weighted average shares outstanding of Class B common stock			7,187,500				7,500,000
Basic and diluted net income per Class B common stock		$	(0.17	)		$	(0.00	)

		Class A Common Stock								Class B Common Stock								Additional Paid-In Capital				Accumulated Deficit				Total Stockholders’ Deficit
		Shares				Amount				Shares				Amount
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	)			(332,625	)
Balance - June 30, 2022			1,277,234			$	127				7,187,500			$	719			$	—			$	(16,264,430	)		$	(16,263,584	)

		Class A Common Stock								Class B Common Stock								Additional Paid-In Capital				Accumulated Deficit				Total Stockholders’ Equity
		Shares				Amount				Shares				Amount
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			1,277,234				127				7,187,500				719				24,281				(485	)			24,515
Net loss			—				—				—				—				—				(740	)			(740	)
Balance - June 30, 2021			1,277,234			$	127				7,187,500			$	719			$	24,281			$	(1,225	)		$	23,775

(1)	The shares and the associated amounts have been retroactively restated to reflect the three-for-one stock split on July 1, 2021.

(2)

On September 2, 2021, the Sponsor surrendered an aggregate of 1,437,500 shares of Class B common stock for no consideration, resulting in an aggregate of 7,187,500 shares of Class B common stock issued and outstanding. All shares and associated amounts have been retroactively restated to reflect the surrender of these shares (see Note 7).

		Six Months Ended June 30, 2022				Six Months Ended June 30, 2021
Cash flows from operating activities:
Net loss		$	(6,225,776	)		$	(1,225	)
Adjustments to reconcile net income to net cash used in operating activities:
Interest earned on cash and marketable securities held in Trust Account			(425,527	)			—
Changes in operating assets and liabilities:
Accrued expenses paid by promissory note			—				485
Accrued expenses			5,656,004				—
Prepaid insurance			118,836				—
Franchise tax payable			100,000				—
Net cash used in operating activities			(776,463	)			(740	)
Cash flows from financing activities:
Proceeds from working capital loan			451,700				—
Proceeds from issuance of Class B common stock to Sponsor			—				25,000
Net cash provided by financing activities			451,700				25,000
Net change in cash			(324,763	)			24,260
Cash at beginning of period			327,731				—
Cash at end of period		$	2,968			$	24,260
Non-cash investing and financing activities:
Accrued deferred offering costs		$	—			$	82,460
Remeasurement of Class A common stock		$	32,625				—

•

in whole and not in part;

•

at a price of $0.01 per warrant;

•

at any time after the warrants become exercisable;

•

upon not less than 30 days’ prior written notice of redemption to each warrant holder;

•

if, and only if, the reported last sale price of the Class A common stock equals or exceeds $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, and recapitalizations) for any 20 trading days within a 30-trading day period commencing at any time after the warrants become exercisable and ending on the third business day prior to the notice of redemption to warrant holders; and

•

if, and only if, there is a current registration statement in effect with respect to the shares of Class A common stock underlying such warrants.

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 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.

Upon Closing, (i) certain senior executive officers of TMTG who own shares of TMTG and (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 Agreement with the Company and the Sponsor (each, a Agreement”). Pursuant to the 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 anniversary of the Closing, (b) the date on which the closing price of the Company’s common stock equals or exceeds $12.00 per share 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 consummates a liquidation, merger, share exchange or other similar transaction with an unaffiliated third party that results in all of 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 (as amended, the “Form 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 which was initially filed with the SEC on May 16, 2022.

We have neither engaged in any operations nor generated any revenues to date. Our only activities from inception through June 30, 2022 were organizational activities and those necessary to prepare for the Initial Public Offering and the search for targets for our initial 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. We generate income in the form of interest income on marketable securities held in the Trust Account. We incur expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence in connection with our search for targets for our initial Business Combination.

For the six months ended June 30, 2022, net decrease in cash was $324,763 and was comprised of net cash used in operating activities of $776,463 and net cash provided by financing activities of $451,700Net cash used in operating activities of $776,463 consisted of a net loss of $6,225,776 partially offset by a change in accrued expenses of $5,656,004. Net cash provided by financing activities of $451,700consisted of proceeds from working capital loans.

In November 2021, our Sponsor committed to provide loans of up to an aggregate of $1,000,000 to the Company through September 8, 2022 (or up to March 8, 2023 if the Company extends the maximum time to complete a Business Combination), which loans will be bearing, unsecured and will be payable upon the consummation of a Business Combination. At June 30, 2022, $451,700 was outstanding under this commitment.

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 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.

We did not have any sheet arrangements as of June 30, 2022.

Our results of operations and our ability to complete an initial Business Combination may be adversely affected by various factors that could cause economic uncertainty and volatility in the financial markets, many of which are beyond our control. Our business could be impacted by, among other things, downturns in the 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 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.

As required by Rules and 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 June 30, 2022. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules and under the Exchange Act) were effective.

The SEC also issued an order of examination pursuant to Section 8(e) of the Securities Act, with respect to the Form 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 history for equity in the Sponsor, and certain forward-looking information about TMTG referenced in the Form 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 can be expected to delay effectiveness of the Form 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 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, seeking a subset of the same or similar documents demanded in subpoenas to Digital World and its directors. Certain current and former TMTG personnel have also recently received individual grand jury subpoenas.

These subpoenas, and the underlying investigations by the SEC and the U.S. Department of Justice, can be expected to delay effectiveness of the Form which could materially delay, materially impede, or prevent the consummation of the Transactions.

As of the date of this Quarterly Report, except as set forth below, there have been no material changes from the risk factors previously disclosed in our final prospectus dated September 2, 2021 and filed with the SEC on September 8, 2021, our annual report on Form for the year ended December 31, 2021 and filed with the SEC on April 13, 2022, our Registration Statement on Form that was initially filed with the SEC on May 16, 2022, and our quarterly report on Form for the quarter ended March 31, 2022 and filed with the SEC on May 19, 2022. 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 or that we currently deem immaterial may also impair our business or results of operations.

As described further above, the SPAC Rule Proposals relate, among other matters, to the circumstances in which SPACs such as the Company could potentially be subject to the Investment Company Act and the regulations thereunder. The SPAC Rule Proposals would provide a safe harbor for such companies from the definition of “investment company” under Section 3(a)(1)(A) of the Investment Company Act, provided that a SPAC satisfies certain criteria, including a limited time period to announce and complete a transaction. Specifically, to comply with the safe harbor, the SPAC Rule Proposals would require a company to file a report on Form announcing that it has entered into an agreement with a target company for a business combination no later than 18 months after the effective date of its registration statement for its Initial Public Offering (the “IPO Registration Statement”). The company would then be required to complete its initial business combination no later than 24 months after the effective date of the IPO Registration Statement.

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 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, and we expect that we will, on or prior to the anniversary of the effective date of the Registration Statement, instruct Continental Stock Transfer & Trust Company, 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 in cash until the earlier of consummation of our initial business combination or liquidation of the Company. Following such liquidation, we would likely receive minimal interest, if

In addition, even prior to the anniversary of the effective date of the Registration Statement, we may be deemed to be an investment company. The longer that the funds in the Trust Account are held in short-term U.S. government treasury obligations or in money market funds invested exclusively in such securities, even prior to the anniversary, the greater the risk that we may be considered an unregistered investment company, in which case we may be required to liquidate the Company. Accordingly, we may determine, in our discretion, to liquidate the securities held in the Trust Account at any time, even prior to the anniversary, and instead hold all funds in the Trust Account in cash, which would further reduce the dollar amount our public stockholders would receive upon any redemption or liquidation of the Company.

Certain federally licensed businesses in the United States, such as broadcasters and airlines, may be subject to rules or regulations that limit foreign ownership. In addition, CFIUS is an interagency committee authorized to review certain transactions involving foreign investment in the United States by foreign persons in order to determine the effect of such transactions on the national security of the United States. Were we considered to be a “foreign person” under such rules and regulations, any proposed business combination between us and a U.S. business engaged in a regulated industry or which may affect national security could be subject to such foreign ownership restrictions and/or CFIUS review. The scope of CFIUS was expanded by the Foreign Investment Risk Review Modernization Act of 2018 (“FIRRMA”) to include certain investments in sensitive U.S. businesses and certain acquisitions of real estate even with no underlying U.S. business. FIRRMA, and subsequent implementing regulations that are now in force, also subject certain categories of investments to mandatory filings. If our potential initial business combination with a U.S. business falls within the scope of foreign ownership restrictions, we may be unable to consummate an initial business combination with such business. In addition, if our potential business combination falls within CFIUS’s jurisdiction, we may be required to make a mandatory filing or determine to submit a voluntary notice to CFIUS, or to proceed with the initial business combination without notifying CFIUS and risk CFIUS intervention, before or after closing the initial business combination. CFIUS may decide to block or delay our initial business combination, impose conditions to mitigate national security concerns with respect to such initial business combination or order us to divest all or a portion of a U.S. business of the combined company if we had proceeded without first obtaining CFIUS clearance. The foreign ownership limitations, and the potential impact of CFIUS, may limit the attractiveness of a transaction with us or prevent us from pursuing certain initial business combination opportunities that we believe would otherwise be beneficial to us and our shareholders. As a result, the pool of potential targets with which we could complete an initial business combination may be limited and we may be adversely affected in terms of competing with other special purpose acquisition companies which do not have similar foreign ownership issues.

None

The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form