References in this report (the "Quarterly Report") to "we," "us" or the
"Company" refer to Inception Growth Acquisition Limited. References to our
"management" or our "management team" refer to our officers and directors,
references to the "Sponsor" refer to Soul Venture Partners 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" within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of 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 registration statement on Form S-1 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 as a Delaware corporation on March 4,
2021 and formed for the purpose of entering into a merger, share exchange, asset
acquisition, share purchase, recapitalization, 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 the
initial public offering and the sale of the Private Warrants, our capital stock,
debt or a combination of cash, stock and debt.
We presently have no revenue, have had losses since inception from incurring
formation costs and have had no operations other than the active solicitation of
a target business with which to complete a business combination. We have relied
upon the sale of our securities and loans from our officers and directors to
fund our operations.
On December 13, 2021, we consummated our initial public offering ("IPO") of
9,000,000 units (the "Units"), each Unit consisting of one share of common stock
of the Company, par value $0.0001 per share (the "Common Stock"), one-half of
one redeemable warrant (the "Warrant"), each whole Warrant entitling the holder
thereof to purchase one share of Common Stock for $11.50 per share, and one
right (the "Right") to receive one-tenth (1/10) of a share of Common Stock upon
consummation of an initial business combination. The Units were sold at a price
of $10.00 per Unit, generating aggregate gross proceeds to the Company of
$90,000,000. On December 9, 2021, the underwriters of the IPO fully exercised
their over-allotment option, and the closing and sale of an additional 1,350,000
Units (the "Over-Allotment Units") occurred on December 13, 2021. The issuance
by the Company of the Over-Allotment Units at a price of $10.00 per Unit
resulted in total gross proceeds of $13,500,000.
Simultaneously with the closing of the IPO and the sale of the over-allotment
units on December 13, 2021, the Company consummated the private placement
("Private Placement") with the Sponsor of 4,721,250 warrants (the "Private
Warrants") at a price of $1.00 per Private Warrant, generating total proceeds of
$4,721,250. These securities (other than our IPO securities) were issued
pursuant to an exemption from registration under the Securities Act of 1933, as
amended pursuant to Section 4(2) of the securities Act.
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The Private Warrants are identical to the warrants sold in the IPO except that
the Private Warrants will be non-redeemable and the shares of common stock
issuable upon exercise thereof are entitled to registration rights pursuant to
the Registration Rights Agreement, in each case so long as they continue to be
held by the Sponsor or their permitted transferees. Additionally, our Sponsor
has agreed not to transfer, assign, or sell any of the Private Warrants or
underlying securities (except in limited circumstances, as described in the
Registration Statement) until 30 days after the Company completes its initial
business combination.
Our management has broad discretion with respect to the specific application of
the net proceeds of the initial business combination and the Private Placement,
although substantially all of the net proceeds are intended to be applied
generally towards consummating a business combination.
Results of Operations
Our entire activity from inception up to December 13, 2021 was in preparation
for the initial public offering. Since the initial public offering, our activity
has been limited to the evaluation of business combination candidates, and we
will not be generating any operating revenues until the closing and completion
of our initial business combination. We expect to incur increased expenses as a
result of being a public company (for legal, financial reporting, accounting and
auditing compliance), as well as for due diligence expenses. We expect our
expenses to increase substantially after this period.
For the three and nine months ended September 30, 2022 we had a net income of
$342,224 and net loss of $39,607, respectively, which was comprised of general
and administrative expenses, dividend income and interest income.
For the three and nine months ended September 30, 2021 we had a net loss of
$37,666 and $90,190, respectively, which was comprised of general and
administrative expenses.
For the nine months ended September 30, 2022, cash used in operating activities
was $746,500, consisting primarily of a net loss of $39,607 and changes in our
operating assets and liabilities used cash of $706,893.
For the nine months ended September 30, 2021, cash used in operating activities
was $90,190, consisting primarily of a net loss of $90,190.
Liquidity and Going Concern
As of September 30, 2022, we had cash of $779,145. Until the consummation of
the initial public offering, the only source of liquidity was an initial
purchase of common stock by our Sponsor, monies loaned by the Sponsor under a
certain unsecured promissory note and advances from our Sponsor.
On December 13, 2021, we consummated the Initial Public Offering of 10,350,000
units (the "Public Units"), which includes the full exercise by the underwriter
of its over-allotment option in the amount of 1,350,000 Public Units, at $10.00
per Public Unit, generating gross proceeds of $103,500,000. Simultaneously with
the closing of the Initial Public Offering, we consummated the sale of 4,721,250
Warrants (the "Private Warrants") at a price of $1.00 per warrant in a private
placement to Soul Venture Partners LLC (the "Sponsor"), generating gross
proceeds of $4,721,250.
Transaction costs amounted to $4,832,697, consisting of $1,811,250 of
underwriting fees, $2,587,500 of deferred underwriting fees and $433,947 of
other offering costs. In addition, at December 13, 2021, cash of $1,498,937 were
held outside of the Trust Account and is available for the payment of offering
costs and for working capital purposes net with $104,535,000 transferred to the
Trust Account on December 13, 2021.
We intend to use substantially all of the funds held in the trust account,
including any amounts representing interest earned on the trust account to
complete our initial business combination (less deferred underwriting
commissions). We may withdraw interest to pay taxes. We estimate our annual
franchise tax obligations, based on the number of shares of our common stock
authorized and outstanding after the completion of this offering, to be
$200,000, which is the maximum amount of annual franchise taxes payable by us as
a Delaware corporation per annum, which we may pay from funds from this offering
held outside of the trust account or from interest earned on the funds held in
our trust account and released to us for this purpose. Our annual income tax
obligations will depend on the amount of interest and other income earned on the
amounts held in the trust account. We expect the interest earned on the amount
in the trust account will be sufficient to pay our income and franchise taxes.
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.
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Prior to the completion of our initial business combination, we will have
available to us the approximately $780,000 of proceeds held outside the trust
account. We will use these funds 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.
The Company initially had 15 months from the consummation of this offering to
consummate the initial business combination. If the Company does not complete a
business combination within 9 months from the consummation of the Public
Offering, the Company will trigger an automatic winding up, dissolution and
liquidation pursuant to the terms of the amended and restated memorandum and
articles of association. As a result, this has the same effect as if the Company
had formally gone through a voluntary liquidation procedure under the Companies
Law. Accordingly, no vote would be required from our shareholders to commence
such a voluntary winding up, dissolution and liquidation. However, the Company
may extend the period of time to consummate a business combination nine times
(for a total of up to 21 months from the consummation of the Public Offering to
complete a business combination). If the Company is unable to consummate the
Company's initial business combination by March 13, 2023 (unless further
extended), the Company will, as promptly as possible but not more than ten
business days thereafter, redeem 100% of the Company's outstanding public shares
for a pro rata portion of the funds held in the Trust Account, including a pro
rata portion of any interest earned on the funds held in the Trust Account and
not necessary to pay taxes, and then seek to liquidate and dissolve. However,
the Company may not be able to distribute such amounts as a result of claims of
creditors which may take priority over the claims of the Company's public
shareholders. In the event of dissolution and liquidation, the public rights
will expire and will be worthless.
Accordingly, the Company may not be able to obtain additional financing. 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, curtailing operations, suspending the pursuit of a
potential transaction, and reducing overhead expenses. 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 if a business combination is
not consummated by March 13, 2023 (unless further extended). These unaudited
condensed consolidated 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.
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 other than an agreement to pay our Sponsor
a monthly fee of $10,000 for general and administrative services, including
office space, utilities and administrative services to us. We began incurring
these fees on March 4, 2021 and will continue to incur these fees monthly until
the earlier of the completion of the business combination and our liquidation.
Also, we are committed to the below:
Registration Rights
The holders of the Founder Shares, the Private Placement Warrants (and their
underlying securities) and the warrants that may be issued upon conversion of
the Working Capital Loans (and their underlying securities) are entitled to
registration rights pursuant to a registration rights agreement signed on the
effective date of the Public Offering. The holders of a majority of these
securities are entitled to make up to two demands that we register such
securities. The holders of the majority of the Founder Shares can elect to
exercise these registration rights at any time commencing three months prior to
the date on which these shares are to be released from escrow. The holders of a
majority of the Private Placement Warrants and warrants issued in payment of
Working Capital Loans made to us (or underlying securities) can elect to
exercise these registration rights at any time after we consummate a Business
Combination. In addition, the holders have certain "piggy-back" registration
rights with respect to registration statements filed subsequent to the
completion of a Business Combination. We will bear the expenses incurred in
connection with the filing of any such registration statements.
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Underwriting Agreement
We are committed to pay the Deferred Fee ranged between $1,000,000 to
$2,250,000, which should equal to the greater of 1) $1,000,000 and 2) 2.5% of
the cash remaining in the Trust Fund with a maximum amount of $2,250,000. The
deferred fee can be paid in cash.
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity
with accounting principles generally accepted in the United States of America
("GAAP") 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 not identified any significant accounting policies.
? Warrant accounting
We account for warrants as either equity-classified or liability-classified
instruments based on an assessment of the warrant's specific terms and
applicable authoritative guidance in Financial Accounting Standards Board
("FASB") Accounting Standards Codification ("ASC") 480, "Distinguishing
Liabilities from Equity" ("ASC 480") and ASC 815, "Derivatives and Hedging"
("ASC 815"). The assessment considers whether the warrants are freestanding
financial instruments pursuant to ASC 480, meet the definition of a liability
pursuant to ASC 480, and whether the warrants meet all of the requirements for
equity classification under ASC 815, including whether the warrants are indexed
to our own common stock and whether the warrant holders could potentially
require "net cash settlement" in a circumstance outside of our control, among
other conditions for equity classification. This assessment, which requires the
use of professional judgment, is conducted at the time of warrant issuance and
as of each subsequent quarterly period end date while the warrants are
outstanding.
For issued or modified warrants that meet all of the criteria for equity
classification, the warrants are required to be recorded as a component of
equity at the time of issuance. For issued or modified warrants that do not meet
all the criteria for equity classification, the warrants are required to be
recorded as liabilities at their initial fair value on the date of issuance, and
each balance sheet date thereafter. Changes in the estimated fair value of the
warrants are recognized as a non-cash gain or loss on the statements of
operations.
As the warrants issued upon the IPO and private placements meet the criteria for
equity classification under ASC 480, therefore, the warrants are classified as
equity.
? Common stock subject to possible redemption
We account for its common stock subject to possible redemption in accordance
with the guidance in ASC Topic 480 "Distinguishing Liabilities from Equity."
Common stocks subject to mandatory redemption (if any) are classified as a
liability instrument and are measured at fair value. Conditionally redeemable
common stocks (including common stocks 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, common stocks are classified as
shareholders' equity. Our common stocks feature certain redemption rights that
are subject to the occurrence of uncertain future events and considered to be
outside of our control. Accordingly, at September 30, 2022 and December 31,
2021, 10,350,000 shares of common stock subject to possible redemption,
respectively, are presented as temporary equity, outside of the shareholders'
equity section of our balance sheet.
? Offering costs
We comply with the requirements of the ASC 340-10-S99-1 and SEC Staff Accounting
Bulletin ("SAB") Topic 5A - "Expenses of Offering". Offering costs consist
principally of professional and registration fees incurred through the balance
sheet date that are related to the Public Offering and that were charged to
shareholders' equity upon the completion of the Public Offering.
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? Net loss per share
We calculate net loss per share in accordance with ASC Topic 260, "Earnings per
Share." In order to determine the net income (loss) attributable to both the
redeemable shares and non-redeemable shares, we first considered the
undistributed income (loss) allocable to both the redeemable common stock and
non-redeemable common stock and the undistributed income (loss) is calculated
using the total net loss less any dividends paid. We then allocated the
undistributed income (loss) ratably based on the weighted average number of
shares outstanding between the redeemable and non-redeemable common stock. Any
remeasurement of the accretion to the redemption value of the common stock
subject to possible redemption was considered to be dividends paid to the public
stockholders. As of September 30, 2022, we have not considered the effect of the
warrants sold in the Initial Public Offering and private warrants to purchase an
aggregate of 9,896,250 shares in the calculation of diluted net loss 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 and we did not
have any other dilutive securities and other contracts that could, potentially,
be exercised or converted into common stock and then share in our earnings. As a
result, diluted loss per share is the same as basic loss per share for the
period presented.
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INCEPTION GROWTH ACQUISITION LIMITED 
