The following discussion and analysis of the Company's financial condition and
results of operations should be read in conjunction with our audited
consolidated financial statements and the notes related thereto which are
included in "Item 8. Financial Statements and Supplementary Data" of this Annual
Report on Form 10-K. Certain information contained in the discussion and
analysis set forth below includes forward-looking statements. Our actual results
may differ materially from those anticipated in these forward-looking statements
as a result of many factors, including those set forth under "Cautionary Note
Regarding Forward-Looking Statements and Risk Factor Summary," "Item 1A. Risk
Factors" and elsewhere in this Annual Report on Form 10-K.
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 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.
Terminated Agreement
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." The SEC provided this notice
pursuant to the guidelines set out in the final paragraph of Securities Act
Release No. 5310 (the text of this release can be found at:
http://www.sec.gov/divisions/enforce/wells-release.pdf).
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 immediately be renamed "Tempo Automation Holdings, Inc."
On or prior to the execution of the Merger Agreement, ACE entered into
subscription agreements with the PIPE Investors, pursuant to, and on the terms
and subject to the conditions of which: (i) certain of the PIPE Investors have
collectively subscribed for 8,200,000 shares of the Domesticated ACE Common
Stock for an aggregate purchase price equal to $82,000,000 pursuant to the PIPE
Common Stock Subscription Agreements and (ii) an affiliate of the Sponsor has
committed to purchase no less than $25,000,000 of ACE's 12% convertible senior
notes due 2025 pursuant to the PIPE Convertible Note Subscription Agreement.
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 has
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 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,
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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.
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 December 31, 2020 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 year ended December 31, 2021, we had a net income of $5,846,503, which
consists of the change in fair value of warrant liability of $12,722,918 and
interest earned on marketable securities held in the Trust Account of $66,897,
offset by operating costs of $6,943,312. Operating costs for the year ended
December 31, 2021 compared to the period from March 31, 2020 (inception) through
December 31, 2020 was significantly higher primarily due to legal fees related
to completing a business combination.
For the period from March 31, 2020 (inception) through December 31, 2020, we had
a net loss of $9,188,357, which consists of operating costs of $1,125,460,
change in fair value of warrant liability of $7,487,000, and transaction costs
allocated to warrants of $667,259, offset by interest earned on marketable
securities held in the Trust Account of $91,362.
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.
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.
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For the year ended December 31, 2021, net cash used in operating activities was
$1,311,782. Net income of $5,846,503 was impacted by the change in fair value of
warrant liability of $12,722,918 and interest earned on marketable securities
held in Trust Account of $66,897. Changes in operating assets and liabilities
provided $5,631,530 of cash from operating activities.
For the period from March 31, 2020 through December 31, 2020, net cash used in
operating activities was $607,940. Net loss of $9,188,357 was impacted by change
in fair value of warrant liability of $7,487,000, transaction costs allocated to
warrants of $667,259, interest earned on marketable securities held in Trust
Account of $91,362, and payment of formation costs through a promissory note of
$1,548. Changes in operating assets and liabilities provided $515,972 of cash
from operating activities.
As of December 31, 2021 and 2020, we had cash and marketable securities of
$230,158,259 and $230,091,362, respectively, 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 December 31, 2021 and 2020, we had cash of $8,390 and $792,416,
respectively, 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 December 31, 2021 and 2020, the Company had
$527,756 and no borrowing, respectively, borrowings under the Working Capital
Loans.
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.
Going Concern
As of December 31, 2021, the Company had $8,390 in its operating bank accounts,
$230,158,259 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 $6,666,868.
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 may require additional capital. 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.
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
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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 December 31, 2021. 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
in 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 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 consolidated 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 Placement 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.
Ordinary Shares Subject to Possible Redemption
We account for our Class A ordinary shares subject to possible redemption in
accordance with the guidance in Accounting Standards Codification ("ASC") Topic
480 "Distinguishing Liabilities from Equity." Class A 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, Class
A ordinary shares subject to possible redemption is presented as temporary
equity, outside of the shareholders' deficit section of our consolidated balance
sheets.
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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. Accretion
associated with the redeemable shares of Class A ordinary shares is excluded
from earnings per share as the redemption value approximates fair value. Net
Income (loss) is allocated pro rata between Class A and Class B ordinary shares.
Recent Accounting Standards
In August 2020, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update ("ASU") 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) ("ASU 2020-06") to simplify accounting for
certain financial instruments. ASU 2020-06 eliminates the current models that
require separation of beneficial conversion and cash conversion features from
convertible instruments and simplifies the derivative scope exception guidance
pertaining to equity classification of contracts in an entity's own equity. The
new standard also introduces additional disclosures for convertible debt and
freestanding instruments that are indexed to and settled in an entity's own
equity. ASU 2020-06 amends the diluted earnings per share guidance, including
the requirement to use the if-converted method for all convertible instruments.
ASU 2020-06 is effective January 1, 2024 and should be applied on a full or
modified retrospective basis, with early adoption permitted beginning on January
1, 2021. We adopted ASU 2020-06 effective as of January 1, 2021. The adoption of
ASU 2020-06 did not have an impact on our consolidated financial statements.
Management does not believe that any recently issued, but not yet effective,
accounting standards, if currently adopted, would have a material effect on our
consolidated financial statements.
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ACE CONVERGENCE ACQUISITION CORP. 