References to the "Company," "our," "us" or "we" refer to 7 Acquisition
Corporation. 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 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. 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 "Item
1A. Risk Factors" section of the Company's Annual Report on Form 10-K for the
year ended December 31, 2021 (the "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 newly incorporated blank check company formed as a Cayman Islands
exempted company whose business purpose is to effect a merger, share exchange,
asset acquisition, share purchase, reorganization, or similar business
combination with one or more businesses or entities. We have not identified any
business combination partner and we have not, nor has anyone on our behalf,
initiated any substantive discussions, directly or indirectly, with respect to
any potential business combination with us.
Our sponsor is 7 Acquisition Holdings, LLC ("Sponsor"). The registration
statement for our Initial Public Offering was declared effective on November 4,
2021. On November 9, 2021, we consummated the Initial Public Offering of
23,000,000 units (the "Units" and, with respect to the Class A ordinary shares
included in the Units being offered, the "Class A ordinary shares" or "public
shares"), including the issuance of 3,000,000 Units as a result of the
underwriter's exercise of its over-allotment option, at $10.00 per Unit,
generating gross proceeds of approximately $230,000,000, and incurring offering
costs of approximately $24,551,888, consisting of $4,600,000 of underwriting
discount, $8,050,000 deferred underwriting commissions, $686,869 of actual
offering costs, and $11,215,019 excess fair value of anchor investor shares.
Simultaneously with the closing of the Initial Public Offering, we consummated
the private placement ("Private Placement") of 11,350,000 warrants (each, a
"Private Placement Warrant" and collectively, the "Private Placement Warrants"),
at a price of $1.00 per Private Placement Warrant with our Sponsor, generating
gross proceeds of approximately $11,350,000.
Following the closing of the Initial Public Offering, the full exercise of the
over-allotment option and the sale of the Private Placement Warrants, an amount
of $234,600,000 ($10.20 per Unit) from the net proceeds of the sale of the Units
in the Initial Public Offering and the sale of the Private Placement Warrants
was placed in a trust account (the "Trust Account").
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We have until May 9, 2023 to consummate a Business Combination (the "Combination
Period") (or such longer period as provided in an amendment to the Company's
Amended and restated certificate of incorporation (an "Extension Period")).
However, if we have not completed a Business Combination within the Combination
Period, we will (i) cease all operations except for the purpose of winding up,
(ii) as promptly as reasonably possible but not more than ten business days
thereafter, redeem 100% of the public shares, at a per-share price, payable in
cash, equal to the aggregate amount then on deposit in the Trust Account,
including interest earned and not previously released to us to pay our taxes, if
any (less up to $100,000 of interest to pay dissolution expenses), divided by
the number of then issued and outstanding public shares, which redemption will
completely extinguish the rights of the public shareholders as shareholders
(including the right to receive further liquidating distributions, if any), and
(iii) as promptly as reasonably possible following such redemption, subject to
the approval of the Company's remaining public shareholders and its Board of
Directors, liquidate and dissolve, subject in each case to the Company's
obligations under Cayman Islands law to provide for claims of creditors and the
requirements of other applicable law.
Results of Operations
Our entire activity from March 4, 2021 (inception) through September 30, 2022
relates to our formation, the Initial Public Offering and, since the closing of
the Initial Public Offering, a search for a Business Combination candidate. We
will not be generating any operating revenues until the closing and completion
of our Business Combination at the earliest.
For the three months ended September 30, 2022, we had net income of $1,433,414,
which consisted of $311,950 of formation and operating expenses, offset by a
gain of $433,000 for the change in fair value of the warrant liability and an
unrealized gain of $1,060,801 on marketable securities held in trust, $1,563 of
interest earned on the checking account, and $250,000 of other income. In
comparison, for the three months ended September 30, 2021, we had no income or
loss.
For the nine months ended September 30, 2022, we had net income of $12,278,918,
which consisted of $940,266 of formation and operating expenses, offset by a
gain of $10,614,000 for the change in fair value of the warrant liability and an
unrealized gain of $1,413,148 on marketable securities held in trust, $1,770 of
interest earned on the checking account, and $250,000 of other income. In
comparison, for the period from March 4, 2021 (inception) through September 30,
2021, we had had net loss of $6,000, which consisted of $6,000 of formation and
operating expenses.
Liquidity, Capital Resources and Going Concern
As of September 30, 2022, the Company had $637,721 in operating cash and working
capital of $514,460 compared to $0 in operating cash and working capital
deficiency of $31,000 for the period from March 4, 2021 (inception) through
September 30, 2021.
The Company's liquidity needs up to November 9, 2021 had been satisfied through
a payment from the Sponsor of $25,000 for Class B ordinary shares, par value
$0.0001 per share ("Class B ordinary shares" and shares thereof, "Founder
Shares") (see Note 5), the Initial Public Offering and the issuance of the
Private Placement Warrants. Additionally, the Company drew on an unsecured
promissory note to pay certain offering costs.
Following the Initial Public Offering, the full exercise of the over-allotment
option and the sale of the Private Placement Warrants, a total of $234,600,000
was placed in the Trust Account. We incurred $24,551,888 in transaction costs,
$4,600,000 of underwriting discounts and commissions, $8,050,000 of deferred
underwriting fees, $686,869 of other offering costs, and $11,215,019 excess fair
value of anchor investor shares.
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
deferred underwriting fees and income taxes payable), to complete our Initial
Business Combination. To the extent that our capital stock or debt is used, in
whole or in part, as consideration to complete our Initial Business Combination,
the remaining proceeds held in the Trust Account will be used as working capital
to finance the operations of the target business or businesses, make other
acquisitions and pursue our growth strategies.
We intend to use the funds held outside the Trust Account primarily to identify
and evaluate target businesses, perform business due diligence on prospective
target businesses, travel to and from the offices, plants or similar locations
of prospective target businesses or their representatives or owners, review
corporate documents and material agreements of prospective target businesses,
and structure, negotiate and complete an Initial Business Combination.
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In order to fund working capital deficiencies or finance transaction costs in
connection with an Initial 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 an Initial Business
Combination, we may repay such loaned amounts out of the proceeds of the Trust
Account released to us. In the event that an Initial Business Combination does
not close, we may use a portion of the working capital held outside the Trust
Account to repay such loaned amounts, but no proceeds from our Trust Account
would be used for such repayment. Up to $1,500,000 of such loans may be
convertible into warrants at a price of $1.00 per warrant at the option of the
lender. The warrants would be identical to the Private Placement Warrants.
We do not believe we will need to raise additional funds in order to meet the
expenditures required for operating our business. However, if our estimate of
the costs of identifying a target business, undertaking in-depth due diligence
and negotiating an Initial Business Combination are less than the actual amount
necessary to do so, we may have insufficient funds available to operate our
business prior to our Initial Business Combination.
Moreover, we may need to obtain additional financing to complete our Initial
Business Combination, either because the transaction requires more cash than is
available from the proceeds held in our Trust Account, or because we become
obligated to redeem a significant number of our public shares upon completion of
the business combination, in which case we may issue additional securities or
incur debt in connection with such business combination. If we have not
consummated our initial business combination within the required time period
because we do not have sufficient funds available to us, we will be forced to
cease operations and liquidate the Trust Account.
Off-Balance Sheet Financing Arrangements
We have no obligations, assets or liabilities, which would be considered
off-balance sheet arrangements as of September 30, 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. The administrative services agreement to
pay the Sponsor a monthly fee of $2,500 for office space, operational support
and secretarial and administrative services has been waived by the Sponsor. The
Company has not paid any amounts under this agreement as of September 30, 2022.
The underwriter of the IPO is entitled to a deferred discount of $0.35 per Unit,
or $8,050,000 in the aggregate. The deferred discount will become payable to the
underwriter from the amounts held in the Trust Account solely in the event that
we complete a Business Combination, subject to the terms of the underwriting
agreement.
Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity
with accounting principles generally accepted in the United States 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 as our critical accounting policies:
Warrant Liabilities
The Company accounts for the Public Warrants and Private Placement Warrants
exercisable for the Company's ordinary shares that are not indexed to its own
shares as liabilities at fair value on the balance sheet. The Public Warrants
and Private Placement Warrants are subject to remeasurement at each balance
sheet date and any change in fair value is recognized as a component of other
income (expense), net on the statement of operations. The Company will continue
to adjust the liability for changes in fair value until the earlier of the
exercise or expiration of the Public Warrants and Private Placement Warrants. At
that time, the portion of the warrant liability related to the Public Warrants
and Private Placement Warrants will be reclassified to additional paid-in
capital.
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Class A Ordinary Shares Subject to Possible Redemption
The Company accounts for its Class A ordinary shares subject to possible
redemption in accordance with the guidance in Accounting Standards Codification
("ASC") Topic 480 "Distinguishing Liabilities from Equity." 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 the Company's control)
is classified as temporary equity. At all other times, ordinary shares is
classified as shareholders' equity. The Company's Class A ordinary shares
features certain redemption rights that are considered to be outside of the
Company's control and subject to occurrence of uncertain future events.
Accordingly, at September 30, 2022, Class A ordinary shares subject to possible
redemption is presented at redemption value as temporary equity, outside of the
shareholders' equity section of the Company's balance sheet.
Net Income (Loss) per Ordinary Share
Net income per ordinary share is computed by dividing net income by the weighted
average number of ordinary shares outstanding during the period. Ordinary shares
subject to possible redemption at September 30, 2022, which are not currently
redeemable and are not redeemable at fair value, have been excluded from the
calculation of basic net income per ordinary share since such shares, if
redeemed, only participate in their pro rata share of the Trust Account
earnings. The Company has not considered the effect of the warrants sold in the
Initial Public Offering and the private placement to purchase an aggregate of
11,350,000 Private Placement Warrants in the calculation of diluted income per
share, since the exercise of the warrants is contingent upon the occurrence of
future events and the inclusion of such warrants would be anti-dilutive. As a
result, diluted net income per ordinary share is the same as basic net income
per ordinary share for the periods presented.
The Company's statements of operations includes a presentation of net income per
ordinary share subject to possible redemption and allocates the net income into
the two classes of stock in calculating net earnings per ordinary share, basic
and diluted. For redeemable Class A ordinary shares, net income per ordinary
share is calculated by dividing the net income by the weighted average number of
Class A ordinary shares subject to possible redemption outstanding since
original issuance. For non-redeemable Class B ordinary shares, net income per
share is calculated by dividing the net income by the weighted average number of
non-redeemable Class B ordinary shares outstanding for the period. Nonredeemable
Class B ordinary shares include the founder shares as these shares do not have
any redemption features and do not participate in the income earned on the Trust
Account. As of September 30, 2022, the Company did not have any dilutive
securities or other contracts that could, potentially, be exercised or converted
into ordinary shares and then share in the earnings of the Company. As a result,
diluted net income per ordinary share is the same as basic net income per
ordinary share for the periods presented.
Recent Accounting Pronouncements
In August 2020, the Financial Accounting Standards Board issued ASU No. 2020-06,
"Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives
and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for
Convertible Instruments and Contracts in an Entity's Own Equity" ("ASU
2020-06"), which simplifies accounting for convertible instruments by removing
major separation models required under current GAAP. ASU 2020-06 removes certain
settlement conditions that are required for equity contracts to qualify for the
derivative scope exception, and it also simplifies the diluted earnings per
share calculation in certain areas. ASU 2020-06 is effective on January 1, 2022,
with early adoption permitted. We are currently assessing the impact, if any,
that ASU 2020-06 would have on our financial position, results of operations or
cash flows.
Our management does not believe that there are any other recently issued, but
not yet effective, accounting pronouncements, if currently adopted, would have a
material effect on our balance sheet.
Impact of COVID-19
Management continues to evaluate the impact of the COVID-19 pandemic and has
concluded that while it is reasonably possible that COVID-19 could have a
negative effect on our financial position, results of operations and/or search
for a target company, the specific impact is not readily determinable as of the
balance sheet date. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Off-Balance Sheet Arrangements
As of September 30, 2022, we did not have any off-balance sheet arrangements.
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JOBS Act
On April 5, 2012, the Jumpstart Our Business Startups Act of 2012 (the "JOBS
Act") was signed into law. The JOBS Act contains provisions that, among other
things, relax certain reporting requirements for qualifying public companies. We
qualify as an "emerging growth company" under the JOBS Act and are allowed to
comply with new or revised accounting pronouncements based on the effective date
for private (not publicly traded) companies. We elected to delay the adoption of
new or revised accounting standards, and as a result, we may not comply with new
or revised accounting standards on the relevant dates on which adoption of such
standards is required for non-emerging growth companies. As a result, our
financial statements may not be comparable to companies that comply with new or
revised accounting pronouncements as of public company effective dates.
As an "emerging growth company," we are not required to, among other things, (i)
provide an auditor's attestation report on our system of internal controls over
financial reporting, (ii) provide all of the compensation disclosure that may be
required of non-emerging growth public companies, (iii) comply with any
requirement that may be adopted by the Public Company Accounting Oversight Board
regarding mandatory audit firm rotation or a supplement to the auditor's report
providing additional information about the audit and the financial statements
(auditor discussion and analysis), and (iv) disclose comparisons of the chief
executive officer's compensation to median employee compensation. These
exemptions will apply for a period of five (5) years following the completion of
our IPO or until we otherwise no longer qualify as an "emerging growth company."
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