References in this report (the "Quarterly Report") to "we," "us" or the
"Company" refer to ION Acquisition Corp 3 Ltd. References to our "management" or
our "management team" refer to our officers and directors. 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" within the meaning
of Section 27A of the Securities Act of 1933, as amended (the "Securities Act")
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") 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 Form 10-Q 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 Risk Factors section of the
Company's final prospectus for its Initial Public Offering filed with the SEC on
May 3, 2021. 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 in the Cayman Islands on February 4,
2021, formed for the purpose of effecting a merger, amalgamation, share
exchange, asset acquisition, share purchase, reorganization or other similar
Business Combination with one or more businesses. We intend to effectuate our
Business Combination using cash derived from the proceeds of the Initial Public
Offering and the sale of the Private Placement Shares, our shares, debt or a
combination of cash, shares 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.
Revision of Previously Issued Financial Statements
In connection with the preparation of the Company's financial statements as of
September 30, 2021, management determined it should revise its previously
reported financial statements. The Company determined that it had improperly
valued its Class A ordinary shares subject to possible redemption at the closing
of the Company's Initial Public Offering. The Company previously determined the
Class A ordinary shares subject to possible redemption to be equal to the
redemption value of $10.00 per Class A ordinary share, while also taking into
consideration a redemption cannot result in net tangible assets being less than
$5,000,001. Management determined that the Class A ordinary shares issued during
the Initial Public Offering can be redeemed or become redeemable subject to the
occurrence of future events considered outside the Company's control. Therefore,
management concluded that the redemption value should include all Class A
ordinary shares subject to possible redemption, resulting in the Class A
ordinary shares subject to possible redemption being equal to their redemption
value. In accordance with SEC Staff Accounting Bulletin No. 99, "Materiality,"
and SEC Staff Accounting Bulletin No. 108, "Considering the Effects of Prior
Year Misstatements when Quantifying Misstatements in Current Year Financial
Statements," the Company evaluated the changes and has determined that the
related impact was not material to any previously presented financial
statements. Therefore, the Company will present this revision in a prospective
manner in all future filings. Under this approach, the previously issued IPO
Balance Sheet and Form 10-Qs will not be amended, but historical amounts
presented in the current and future filings will be recast to be consistent with
the current presentation, and an explanatory footnote will be provided. As a
result, management has noted a reclassification adjustment related to temporary
equity and permanent equity. This resulted in an adjustment to the initial
carrying value of the Class A ordinary shares subject to possible redemption
with the offset recorded to additional paid-in capital (to the extent
available), accumulated deficit and Class A ordinary shares.
In connection with the change in presentation for the Class A ordinary shares
subject to redemption, the Company also revised its net loss per ordinary share
calculation. In order to determine the net income (loss) attributable to both
the redeemable Class A ordinary shares and the non-redeemable Class A shares and
Class B shares, the Company first considered the total income (loss) allocable
to both sets of shares. This is calculated using the total net income (loss)
less any dividends paid. For purposes of calculating net income (loss) per
share, any remeasurement of the accretion to redemption value of the redeemable
ordinary shares subject to possible redemption was considered to be dividends
paid to the public shareholders.
Results of Operations
We have neither engaged in any operations nor generated any operating revenues
to date. Our only activities from inception through September 30, 2021 were
organizational activities and those necessary to prepare for the Initial Public
Offering, described below. We do not expect to generate any operating revenues
until after the completion of our initial 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 searching for, and
completing, a Business Combination.
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For the three months ended September 30, 2021, we had a net loss of $210,881,
which consisted of formation and operating expenses of $214,137 offset by
interest earned in marketable securities held in the Trust Account of $3,256.
For the period from February 4, 2021 (inception) through September 30, 2021, we
had a net loss of $356,822, which consisted of formation and operating expenses
of $363,689 offset by interest earned on marketable securities held in the Trust
Account of $6,867.
Liquidity and Capital Resources
On May 4, 2021, we consummated the Initial Public Offering of 25,300,000 Class A
ordinary shares of the Company, par value $0.0001 per share (the "Shares"), at a
price of $10.00 per Share, which gives effect to the full exercise by the
underwriters of their over-allotment option in the amount of 3,300,000 Shares,
generating gross proceeds of $253,000,000. Simultaneously with the closing of
the Initial Public Offering, we consummated the sale of 756,000 Private
Placement Shares to the Sponsor at a price of $10.00 per Private Placement
Share, generating gross proceeds of $7,560,000.
Following the Initial Public Offering, the full exercise of the over-allotment
option, and the sale of the Private Placement Shares, a total of $253,000,000
was placed in the Trust Account. We incurred $14,457,724 in transaction costs,
including $5,060,000 of underwriting fees, $8,855,000 of deferred underwriting
fees and $542,724 of other offering costs.
For the period from February 4, 2021 (inception) through September 30, 2021,
cash used in operating activities was $811,763. Net loss of $356,822 was
affected by the payment of formation costs through the issuance of Class B
ordinary shares of $5,000, interest earned on marketable securities held in the
Trust Account of $6,867, and changes in operating assets and liabilities, which
used $453,074 of cash from operating activities.
We intend to use substantially all of the funds held in the Trust Account,
including any amounts representing interest earned on the Trust Account, which
interest shall be net of taxes payable and excluding deferred underwriting
commissions, to complete our Business Combination. We may withdraw interest from
the Trust Account to pay taxes, if any. To the extent that our share capital or
debt is used, in whole or in part, as consideration to complete a 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,
structure, negotiate and complete a Business Combination.
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 may
repay such loaned amounts out of the proceeds of the Trust Account released to
us. 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. Upon completion of a business combination, up to $1,500,000 of such
loans may be convertible into private placement shares, at a price of $10.00 per
private placement share, at the option of the lender. The private placement
shares would be identical to the Private Placement Shares.
We believe we will not 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 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 initial 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 completion of
our Business Combination, in which case we may issue additional securities or
incur debt in connection with such Business Combination.
Off-Balance Sheet Financing Arrangements
We have no obligations, assets or liabilities, which would be considered
off-balance sheet arrangements as of September 30, 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.
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Contractual Obligations
We do not have any long-term debt, capital lease obligations, operating lease
obligations or long-term liabilities, other than an agreement to pay the Sponsor
a monthly fee of $10,000 for office space, utilities and administrative and
support services. We began incurring these fees on April 29, 2021 and will
continue to incur these fees monthly until the earlier of the completion of the
Business Combination and our liquidation. The underwriters are entitled to a
deferred fee of $0.35 per share, or $8,855,000 in the aggregate. The deferred
fee will become payable to the underwriters 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.
The underwriters are entitled to a deferred fee of $0.35 per Share, or
$8,855,000 in the aggregate. The deferred fee will become payable to the
underwriters 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.
We entered into forward purchase agreements, pursuant to which the forward
purchase investors (ION Crossover Partners LP, ION Asset Management Ltd., The
Phoenix Insurance Company Ltd. and The Phoenix Excellence Pension and Provident
Fund Ltd.) agreed to purchase an aggregate of up to 12,000,000 Class A ordinary
shares, at a purchase price of $10.00 per share, or up to $120.0 million in the
aggregate, in private placements that will close substantially concurrently with
the closing of the Company's initial Business Combination. Any reduction in the
number of forward purchase shares will be made in the Company's sole discretion.
The forward purchase shares are identical to the Public Shares, except that the
holders thereof will have certain registration rights. The forward purchase
agreements and the registration rights agreement also provide that the forward
purchase investors are entitled to registration rights with respect to the
forward purchase shares. The proceeds from the sale of the forward purchase
shares may be used as part of the consideration to the sellers in a Business
Combination, expenses in connection with a Business Combination or for working
capital in the post-business combination company. The forward purchases are
required to be made regardless of whether any Class A ordinary shares are
redeemed by the Public Shareholders and are intended to provide the Company with
a minimum funding level for a Business Combination. No forward purchase investor
will have the ability to approve the Business Combination prior to the signing
of a material definitive agreement. The forward purchase shares will be issued
only in connection with the closing of a Business Combination.
Critical Accounting Policies
The preparation of 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:
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." Ordinary shares subject to
mandatory redemption are classified as a liability instrument and measured at
fair value. Conditionally redeemable ordinary shares (including ordinary shares
that feature redemption rights that are either within the control of the holder
or subject to redemption upon the occurrence of uncertain events not solely
within our control) are classified as temporary equity. At all other times,
ordinary shares are classified as shareholders' equity. Our Class A ordinary
shares - Public 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 - Public Shares subject to possible
redemption are presented at redemption value as temporary equity, outside of the
shareholders' equity section of our condensed balance sheets.
Net Income (Loss) Per Ordinary Share
We apply the two-class method in calculating net income (loss) per ordinary
share. In order to determine the net income (loss) attributable to both the
redeemable Class A ordinary shares and the non-redeemable Class A shares and
Class B shares, we first considered the total income (loss) allocable to both
sets of shares. This is calculated using the total net income (loss) less any
dividends paid. For purposes of calculating net income (loss) per share, any
remeasurement of the accretion to redemption value of the ordinary shares
subject to possible redemption was considered to be dividends paid to the public
shareholders.
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 financial statements.
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