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. 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 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.
Recent Developments
On January 7, 2021, we entered into an Agreement and Plan of Merger (the "Merger
Agreement") with Merger Sub, and Achronix Semiconductor Corporation, a Delaware
corporation ("Achronix"). On July 11, 2021, the Company and Achronix terminated
the Merger Agreement in a mutual decision not to pursue the Business
Combination.
On July 13, 2021, the Company withdrew the registration statement on Form S-4.
The Company has been subject to inquiries by the SEC since May 2021 regarding
certain disclosures in the Form S-4. As of August 16, 2021, such inquires remain
ongoing.
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Results of Operations
We have neither engaged in any operations nor generated any revenues to date.
Our only activities from inception to June 30, 2021 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 June 30, 2021, we had a net loss of $1,042,594, which
consists of the change in the fair value of the warrant liability of $171,825
and operating costs of $885,864, offset by interest income on marketable
securities held in the Trust Account of $15,095.
For the six months ended June 30, 2021, we had a net loss of $12,567,023, which
consists of the change in the fair value of the warrant liability of $10,483,385
and operating costs of $2,138,846 offset by interest income on marketable
securities held in the Trust Account of $55,208.
For the period from March 30, 2020 (inception) through June 30, 2020, we had a
net loss of $4,734, which consists of operating costs of $4,734.
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.
For the six months ended June 30, 2021, net cash used in operating activities
was $880,323. Net loss of $12,567,023 was offset by noncash loss derived from
the change in the fair value of the warrant liability of $10,483,385 and
interest earned on investments of $55,209. Changes in operating assets and
liabilities provided $1,258,524 of cash from operating activities.
For the period from March 30, 2020 (inception) through June 30, 2020, net cash
used in operating activities was $1,698. Net loss of $4,734 was offset by the
formation cost paid through promissory note of $1,548. Changes in operating
assets and liabilities provided $1,488 of cash from operating activities.
As of December 31, 2020, we had cash and marketable securities of $230,091,362
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.
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As of June 30, 2021, we had cash and marketable securities of $230,146,571 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, 2020, we had cash of $792,416 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.
As of June 30, 2021, we had cash of $2,093 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 $600,000. 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 ASIO-IO, from which we may make fund
withdrawals for up to $1,500,000. Any outstanding amounts deposited with ASIO-IO
upon the completion of a Business Combination or dissolution of the Company,
shall be returned to us. In November 2020, the deposit amount was reduced by
$850,000. As of June 30, 2021, the Company had no outstanding borrowing under
the working capital facility.
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.
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 and consummating 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.
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Going Concern
We have until January 30, 2022 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
January 30, 2022.
Off-Balance Sheet Financing Arrangements
We have no obligations, assets or liabilities, which would be considered
off-balance sheet arrangements as of June 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.
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 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 Monte
Carlo simulation. 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' equity section of our condensed balance sheets.
Net income (loss) per ordinary share
We apply the two-class method in calculating earnings per share. Net income per
ordinary share, basic and diluted for redeemable ordinary shares is calculated
by dividing the interest income earned on the Trust Account, by the weighted
average number of redeemable ordinary shares outstanding since original issuance
outstanding for the period. Net loss per ordinary share, basic and diluted for
non-redeemable ordinary shares is calculated by dividing the net income (loss),
less income attributable to redeemable ordinary shares, by the weighted average
number of non-redeemable ordinary shares outstanding for the period.
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, 2022 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 financial statements.
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 interim financial statements.
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, 2022 and should be applied on a full or
modified retrospective basis, with early adoption permitted beginning on January
1, 2021. The Company is currently assessing the impact, if any, that ASU 2020-06
would have on its financial position, results of operations or cash flows.
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