References in this report (the "Quarterly Report") to "we," "us" or the
"Company" refer to ACE Convergence Acquisition Corp. References to our
"management" or our "management team" refer to our officers and directors,
references to the "Sponsor" refer to ACE Convergence Acquisition LLC. The
following discussion and analysis of the Company's financial condition and
results of operations should be read in conjunction with the financial
statements and the notes thereto contained elsewhere in this Quarterly Report.
Certain information contained in the discussion and analysis set forth below
includes forward-looking statements that involve risks and uncertainties.
Special Note Regarding Forward-Looking Statements
This Quarterly Report includes "forward-looking statements" that are not
historical facts and involve risks and uncertainties that could cause actual
results to differ materially from those expected and projected. All statements,
other than statements of historical fact included in this 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 and objectives of
management for future operations, are forward-looking statements. Words such as
"expect," "believe," "anticipate," "intend," "estimate," "seek" and variations
and similar words and expressions are intended to identify such forward-looking
statements. Such forward-looking statements relate to future events or future
performance, but reflect management's current beliefs, based on information
currently available. A number of factors could cause actual events, performance
or results to differ materially from the events, performance and results
discussed in the forward-looking statements. This quarterly report contains
revisions for previous reported periods and should be observed when reviewing
the Company's financial position. For information identifying important factors
that could cause actual results to differ materially from those anticipated in
the forward-looking statements, please refer to the Risk Factors section of the
Company's Annual Report on Form 10-K filed with the U.S. Securities and Exchange
Commission (the "SEC"). The Company's securities filings can be accessed on the
EDGAR section of the SEC's website at www.sec.gov. Except as expressly required
by applicable securities law, the Company disclaims any intention or obligation
to update or revise any forward-looking statements whether as a result of new
information, future events or otherwise.
Overview
We are a blank check company incorporated on March 31, 2020 as a Cayman Islands
exempted company for the purpose of effecting a merger, share exchange, asset
acquisition, share purchase, reorganization or similar business combination with
one or more businesses or entities. We have not selected any business
combination target and we have not, nor has anyone on our behalf, initiated any
substantive discussions, directly or indirectly, with any business combination
target. We intend to effectuate our initial business combination using cash from
the proceeds of this offering and the sale of the Private Placement Warrants,
our shares, debt or a combination of cash, equity 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.
Business Combination Developments
On May 24, 2021, in our Form 10-Q for the quarter ended March 31, 2021, we
disclosed that the SEC informed the Company that it was investigating certain
disclosures made in the Form S-4 relating to the Company's proposed business
combination with Achronix Semiconductor Corporation ("Achronix").
On July 11, 2021, we and Achronix entered into a termination and release
agreement, pursuant to which the parties agreed to mutually terminate the merger
agreement relating to the proposed business combination.
On October 27, 2021, the Company received a letter from the SEC in connection
with its investigation with the following response: "We have concluded the
investigation as to ACE Convergence Acquisition Corp. ("ACE"). Based on the
information we have as of this date, we do not intend to recommend an
enforcement action by the Commission against ACE."
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On October 13, 2021, we entered into the Merger Agreement with Tempo and Merger
Sub. Pursuant to the Tempo Business Combination contemplated by the Merger
Agreement, and subject to the satisfaction or waiver of certain conditions set
forth therein, Merger Sub will merge with and into Tempo, with Tempo surviving
the merger as a wholly owned subsidiary of the Company. Prior to the closing of
the Tempo Business Combination, the Company shall domesticate as a Delaware
corporation and shall be renamed "Tempo Automation Holdings, Inc."
An additional 10,200,000 shares of Domesticated ACE common stock will be
purchased (at a price of $10.00 per share) at the Closing by the PIPE Investors,
for a total aggregate purchase price of up to $102.0 million. In addition, the
Company has agreed to issue additional shares of Domesticated ACE common stock
to each PIPE Investor in the event that the volume weighted average price per
share of Domesticated ACE common stock during the 30 days commencing on the date
on which a registration statement registering the resale of the shares of
Domesticated ACE common stock acquired by the PIPE Investors is declared
effective is less than $10.00 per share (which registration statement the
Company has agreed to file pursuant to the subscription agreements entered into
in connection with the PIPE Investment). Certain PIPE Investors originally
subscribed for $25.0 million of ACE's 12.0% convertible senior notes due 2025,
but such subscription was terminated in January 2022 in connection with the
subscription by certain parties for $200.0 million of 15.5% convertible notes.
Such subscription also contemplates entry into a registration rights agreement
with respect to the resale of equity securities of Domesticated ACE held by such
parties from time to time. Additionally, in March 2022, a ACE SO3 SPV Limited
agreed to purchase an unsecured subordinated convertible note in an aggregate
principal amount of $20.0 million in connection with the Closing. Additionally,
the holder of such unsecured subordinated convertible note will be entitled to
registration rights with respect to all shares of Domesticated ACE common stock
issued to the holder upon conversion of the note. The proceeds of the PIPE
Investment, together with the amounts remaining in ACE's trust account as of
immediately following the effective time of the Tempo Business Combination, will
be retained by Domesticated ACE following the Closing.
Concurrently with the execution of the Merger Agreement, the Backstop Investor
entered into the Backstop Subscription Agreement with ACE, pursuant to, and on
the terms and subject to the conditions on which, the Backstop Investor
committed to purchase, following the Domestication and prior to or substantially
concurrently with the Closing, up to 2,500,000 shares of Domesticated ACE common
stock, in a private placement for a purchase price of $10.00 per share and an
aggregate purchase price of up to $25,000,000, to backstop certain redemptions
by ACE shareholders. On March 16, 2022, ACE and the Backstop Investor terminated
the Backstop Subscription Agreement in connection with the execution of the
Cantor Purchase Agreement.
On October 13, 2021, ACE entered into the Sponsor Support Agreement, by and
among ACE, the Sponsor, certain of ACE's directors and officers and Tempo,
pursuant to which the Sponsor and each director and officer of ACE agreed to,
among other things, vote in favor of the Merger Agreement and the transactions
contemplated thereby, in each case, subject to the terms and conditions
contemplated by the Sponsor Support Agreement.
On October 13, 2021, ACE entered into the Tempo Holders Support Agreement, by
and among ACE, Tempo and the Tempo Stockholders. Pursuant to the Tempo Holders
Support Agreement, the Tempo Stockholders agreed to, among other things, vote to
adopt and approve, upon the effectiveness of the Registration Statement (as
defined therein), the Merger Agreement and all other documents and transactions
contemplated thereby, in each case, subject to the terms and conditions of Tempo
Holders Support Agreement, and vote against any alternative merger, purchase of
assets or proposals that would impede, frustrate, prevent or nullify any
provision of the Merger, the Merger Agreement or the Tempo Holders Support
Agreement or result in a breach of any covenant, representation, warranty or any
other obligation or agreement thereunder.
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On March 16, 2022, ACE entered into the Cantor Purchase Agreement. Pursuant to
the Cantor Purchase Agreement, Domesticated ACE will have the right from time to
time at its option following the Closing to sell to CFPI up to $100.0 million of
Domesticated ACE common stock, subject to certain customary conditions and
limitations set forth in the Cantor Purchase Agreement. Sales of Domesticated
ACE common stock to CFPI under the Cantor Purchase Agreement, and the timing of
any sales, will be determined by Domesticated ACE from time to time in its sole
discretion and will depend on a variety of factors, including, among other
things, market conditions, the trading price of shares of Domesticated ACE
common stock and determinations by Domesticated ACE regarding the use of
proceeds of such sales. The net proceeds from any sales under the Cantor
Purchase Agreement will depend on the frequency with, and prices at, which the
shares of Domesticated ACE common stock are sold to CFPI. Domesticated ACE
expects to use the proceeds from any sales under the Cantor Purchase Agreement
for the payment of certain transaction expenses relating to the Business
Combination and working capital and general corporate purposes. Following the
Closing, and upon the initial satisfaction of the conditions to CFPI's
obligation to purchase shares of Domesticated ACE common stock set forth in the
Cantor Purchase Agreement, including that a registration statement registering
the resale of such shares of Domesticated ACE common stock under the Securities
Act is declared effective by the SEC and a final prospectus relating thereto is
filed with the SEC, Domesticated ACE will have the right, but not the
obligation, from time to time at its sole discretion until the first day of the
month next following the 36-month period from and after the Commencement, to
direct CFPI to purchase up to a specified maximum amount of shares of
Domesticated ACE as set forth in the Cantor Purchase Agreement by delivering
written notice to CFPI prior to the commencement of trading on any trading day.
The purchase price of the shares of Domesticated ACE common stock that the
Company elects to sell pursuant to the Cantor Purchase Agreement will be 97% of
the volume weighted average price of the shares of Domesticated ACE common stock
during the applicable purchase date on which written notice has been timely
delivered to CFPI directing it to purchase shares of Domesticated ACE common
stock under the Cantor Purchase Agreement. In connection with the execution of
the Cantor Purchase Agreement, ACE agreed to issue shares of Domesticated ACE
common stock to CFPI as consideration for its irrevocable commitment to purchase
the shares of Domesticated ACE common stock upon the terms and subject to the
satisfaction of the conditions set forth in the Cantor Purchase Agreement. In
connection with ACE's entry into the Cantor Purchase Agreement, ACE and CFPI
entered into the Cantor Registration Rights Agreement, pursuant to which
Domesticated ACE has agreed to register for resale, pursuant to Rule 415 under
the Securities Act, the shares of Domesticated ACE common stock that are sold to
CFPI under the facility, including the shares of Domesticated ACE common stock
to be issued to CFPI as consideration for its irrevocable commitment to purchase
the shares of Domesticated ACE common stock, from time to time.
The Merger Agreement contemplates that, at the Closing, ACE will enter into
lock-up agreements with (i) the Sponsor and (ii) and certain former stockholders
of Tempo and Compass AC, in each case, restricting the transfer of Domesticated
ACE Common Stock from and after the Closing. The restrictions under the lock-up
agreements begin at the Closing and end on, among other things, in the case of
the Sponsor and certain former stockholders of Tempo, the date that is 365 days
after the Closing, and in the case of certain former stockholders of Compass AC,
the date that is 180 days after the Closing, or (in each case) upon the stock
price of Domesticated ACE reaching $12.00 (as adjusted for stock splits, stock
capitalizations, reorganizations, recapitalizations and the like) for any 20
trading days within any 30-trading day period commencing at least 150 days after
the Closing date.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date.
Our only activities from inception to March 31, 2022 were organizational
activities, those necessary to prepare for the Initial Public Offering,
described below, and, after the Initial Public Offering, identifying a target
company for a Business Combination. We do not expect to generate any operating
revenues until after the completion of our Business Combination. We generate
non-operating income in the form of interest income on marketable securities
held in the Trust Account. We incur expenses as a result of being a public
company (for legal, financial reporting, accounting and auditing compliance), as
well as for due diligence expenses in connection with completing a Business
Combination.
For the three months ended March 31, 2022, we had a net loss of $1,058,490,
which consists of operating costs of $1,138,897, offset by the change in fair
value of warrant liability of $72,693 and interest earned on investment held in
the Trust Account of $7,714.
For the three months ended March 31, 2021, we had a net loss of $11,524,429,
which consists of the change in fair value of warrant liability of $10,311,560
and operating costs of $1,252,982, offset by interest earned on investment held
in the Trust Account of $40,113.
Liquidity and Capital Resources
Until the consummation of the Initial Public Offering, the Company's only source
of liquidity was an initial purchase of Class B ordinary shares by our Sponsor
and loans from our Sponsor.
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On July 30, 2020, we consummated the Initial Public Offering of 23,000,000
Units, which includes the full exercise by the underwriters of their
over-allotment option in the amount of 3,000,000 Units, at $10.00 per Unit,
generating gross proceeds of $230,000,000. Simultaneously with the closing of
the Initial Public Offering, we consummated the sale of an aggregate of
6,600,000 Private Placement Warrants to our Sponsor at a price of $1.00 per
warrant, generating gross proceeds of $6,600,000.
Following the Initial Public Offering, the exercise of the over-allotment option
and the sale of the Private Placement Warrants, a total of $230,000,000 was
placed in the Trust Account. We incurred $13,273,096 in transaction costs,
including $4,600,000 of underwriting fees, $8,050,000 of deferred underwriting
fees and $623,096 of other offering costs in connection with the Initial Public
Offering and the sale of the Private Placement Warrants.
For the three months ended March 31, 2022, net cash used in operating activities
was $646,666. Net income of $1,058,490 was offset by change in the fair value of
the warrant liability of $72,693 and interest earned on investments of $7,714.
Changes in operating assets and liabilities provided $492,231 of cash from
operating activities.
For the three months ended March 31, 2021, net cash used in operating activities
was $764,933. Net loss of $11,524,429 was affected by interest income on
investment held in the Trust Account of $40,114 and change in fair value of
warrant liability of $10,311,560. Changes in operating assets and liabilities
provided $488,050 of cash from operating activities.
As of March 31, 2022, we had cash and marketable securities of $82,578,288, held
in the Trust Account. We intend to use substantially all of the funds held in
the Trust Account, including any amounts representing interest earned on the
Trust Account (less taxes payable (if applicable) and deferred underwriting
commissions) to complete our Business Combination. To the extent that our shares
or debt is used, in whole or in part, as consideration to complete our Business
Combination, the remaining proceeds held in the Trust Account will be used as
working capital to finance the operations of the post-Business Combination
entity, make other acquisitions and pursue our growth strategies.
As of March 31, 2022, we had no cash held outside of the Trust Account. We
intend to use the funds held outside the Trust Account primarily to identify and
evaluate target businesses, perform business due diligence on prospective target
businesses, travel to and from the offices, properties 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.
On August 12, 2020, we entered into the Working Capital Facility with ASIA-IO in
the net amount of $900,000. The funds from the Working Capital Facility shall be
utilized to finance transaction costs in connection with a business combination.
The Working Capital Facility is non-interest bearing, non-convertible and due to
be repaid upon the consummation of a business combination. In return, we
deposited $900,000 into an account held by ASIA-IO, from which we may make fund
withdrawals for up to $1,500,000. Any outstanding amounts deposited with ASIA-IO
upon the completion of a business combination or dissolution of the Company,
shall be returned to us. As of March 31, 2022 and December 31, 2021, the Company
had $829,294 and $527,756 borrowings under the Working Capital Facility,
respectively.
In order to fund working capital deficiencies or finance transaction costs in
connection with 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 funds as may be required. If we complete a business combination, we
would repay such loaned amounts. In the event that a business combination does
not close, we may use a portion of the working capital held outside the Trust
Account to repay such loaned amounts but no proceeds from our Trust Account
would be used for such repayment. Up to $1,500,000 of such loans may be
convertible into warrants identical to the Private Placement Warrants, at a
price of $1.00 per warrant at the option of the lender. As of March 31, 2022 and
December 31, 2021, the Company had $739,980 and $0 borrowings under the Working
Capital Loans, respectively. Management has determined the fair value of the
note is more accurately recorded at par since the conversion price is almost
150% higher than the value of the warrants. No arm's-length transaction by a
note holder would result in a conversion with this fact pattern, thus it is a
more accurate depiction with recording at par. As such no fair value change was
booked to the statement of operations.
Going Concern
As of March 31, 2022, the Company had no cash its operating bank accounts,
$82,297,901 in marketable securities held in the Trust Account to be used for a
Business Combination or to repurchase or redeem its ordinary shares in
connection therewith and a working capital deficit of $8,297,901.
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The Company intends to complete a Business Combination by July 13, 2022 or
during any Extension Period, as applicable. However, in the absence of a
completed Business Combination, the Company will require additional capital. The
Company as of March 31, 2022 has no cash held outside of trust and will require
further capital contribution from the Sponsor, management, or related parties.
If the Company is unable to raise additional capital, it may be required to take
additional measures to conserve liquidity, which could include, but not
necessarily be limited to, suspending the pursuit of a Business Combination. The
Company cannot provide any assurance that new financing will be available to it
on commercially acceptable terms, if at all. These conditions raise substantial
doubt about the Company's ability to continue as a going concern through one
year from the date of these financial statements if a Business Combination is
not consummated. These financial statements do not include any adjustments
relating to the recovery of the recorded assets or the classification of the
liabilities that might be necessary should the Company be unable to continue as
a going concern.
We have until July 13, 2022, or any Extension Period, as applicable, to
consummate a business combination. It is uncertain that we 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. Management has determined that the mandatory liquidation, should a
business combination not occur, and potential subsequent dissolution raises
substantial doubt about our ability to continue as a going concern. No
adjustments have been made to the carrying amounts of assets or liabilities
should we be required to liquidate after July 13, 2022.
Off-Balance Sheet Financing Arrangements
We have no obligations, assets or liabilities, which would be considered
off-balance sheet arrangements as of March 31, 2022. We do not participate in
transactions that create relationships with unconsolidated entities or financial
partnerships, often referred to as variable interest entities, which would have
been established for the purpose of facilitating off-balance sheet arrangements.
We have not entered into any off-balance sheet financing arrangements,
established any special purpose entities, guaranteed any debt or commitments of
other entities, or purchased any non-financial assets.
Contractual Obligations
We do not have any long-term debt, capital lease obligations, operating lease
obligations or long-term liabilities, other than as described below.
We entered into an agreement to pay our Sponsor a monthly fee of $10,000 for
office space, administrative and support services. We began incurring these fees
on July 2020 and will continue to incur these fees on a monthly basis until the
earlier of the completion of the Business Combination and the Company's
liquidation.
We have an agreement to pay the underwriters a deferred fee of $8,050,000, which
will become payable to them from the amounts held in the Trust Account solely in
the event that the Company completes a Business Combination, subject to the
terms of the underwriting agreement.
Critical Accounting Policies
The preparation of condensed consolidated financial statements and related
disclosures in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities at the date of the financial statements, and
income and expenses during the periods reported. Actual results could materially
differ from those estimates. We have identified the following critical
accounting policies:
Warrant Liability
We account for the Warrants in accordance with the guidance contained in ASC
815-40 under which the Warrants do not meet the criteria for equity treatment
and must be recorded as liabilities. Accordingly, we classify the Warrants as
liabilities at their fair value and adjust the Warrants to fair value at each
reporting period. This liability is subject to re-measurement at each balance
sheet date until exercised, and any change in fair value is recognized in our
statement of operations. The Private Warrants (and the Public Warrants for
periods where no observable traded price was available) are valued using a
Modified Black Scholes Model. For periods subsequent to the detachment of the
Public Warrants from the Units, the Public Warrant quoted market price was used
as the fair value as of each relevant date.
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Ordinary shares subject to possible redemption
We account for our ordinary shares subject to possible redemption in accordance
with the guidance in Accounting Standards Codification ("ASC") Topic 480
"Distinguishing Liabilities from Equity." Ordinary shares subject to mandatory
redemption is classified as a liability instrument and is measured at fair
value. Conditionally redeemable ordinary shares (including ordinary shares 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, ordinary
shares are classified as shareholders' equity. Our ordinary shares feature
certain redemption rights that are considered to be outside of our control and
subject to occurrence of uncertain future events. Accordingly, ordinary shares
subject to possible redemption is presented as temporary equity, outside of the
shareholders' deficit section of our condensed consolidated balance sheets.
Net income (loss) per ordinary share
Net loss per ordinary share is computed by dividing net loss by the weighted
average number of ordinary shares outstanding during the period. We apply the
two-class method in calculating earnings per share. Accretion associated with
the redeemable shares of Class A ordinary shares is excluded from earnings per
share as the redemption value approximates fair value.
Recent Accounting Standards
Management does not believe that any other recently issued, but not yet
effective, accounting standards, if currently adopted, would have a material
effect on our unaudited condensed consolidated interim financial statements.
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ACE CONVERGENCE ACQUISITION CORP. 