References in this report (the "Quarterly Report") to "we," "us" or the
"Company" refer to Iron Spark I Inc. References to our "management" or our
"management team" refer to our officers and directors, and references to the
"Sponsor" refer to Iron Spark I LLC. The following discussion and analysis of
the Company's financial condition and results of operations should be read in
conjunction with the unaudited condensed 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 (as defined below) 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 January 22, 2021 as a Delaware
corporation and formed for the purpose of effectuating a merger, capital stock
exchange, asset acquisition, stock purchase, reorganization or similar business
combination with one or more businesses, which we refer to throughout this
quarterly report as our "initial business combination". We intend to effectuate
our initial business combination using cash from the proceeds of our initial
public offering (the "Initial Public Offering") and the private placement of the
Private Placement Shares (as defined below), the proceeds of the sale of our
shares in connection with our initial business combination (pursuant to forward
purchase agreements or backstop agreements we may enter into following the
consummation of the Initial Public Offering or otherwise), shares issued to the
owners of the target, debt issued to bank or other lenders or the owners of the
target, or a combination of the foregoing.
Results of Operations
We have neither engaged in any operations nor generated any operating revenues
to date. Our only activities for the for the period from January 22, 2021
(inception) through September 30, 2022 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 initial business combination. We generate non-operating income
in the form of interest income on cash and cash equivalents held after the
Initial Public Offering. 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.
For the three months ended September 30, 2022, we had net loss of $(506,611),
which resulted from interest income on the trust account of $849,200, offset in
part by operating and formation costs of $1,172,209, income tax expense of
$133,602 and franchise tax expense of $50,000.
For the three months ended September 30, 2021, we had a net loss of $496,317,
which resulted from operating and formation costs of $374,016 and franchise tax
expense of $137,534, offset in part by a gain on the issuance of the
over-allotment option of $11,700 and interest income on the Trust Account of
$3,533.
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For the nine months ended September 30, 2022, we had a net loss of $9,226,679,
which resulted from operating and formation costs of $9,909,411, franchise tax
expense of $114,197, and income tax expense of $133,602, offset in part by
interest income on the trust account of $930,531.
For the period from January 22, 2021 (inception) through September 30, 2021, we
had a net loss of $606,308, which resulted from operating and formation costs of
$534,407 and franchise tax expense of $137,534, offset in part by a gain on the
issuance of the over-allotment option of $62,100 and interest income on the
Trust Account of $3,533.
Business Combination Agreement
On April 3, 2022, the Company entered in an Agreement and Plan of Merger (the
"Business Combination Agreement") with Hypebeast Limited ("Hypebeast"), a Cayman
Islands exempted company with its shares publicly traded with stock code "00150"
on the Main Board of the Stock Exchange of the Hong Kong Limited (the "HKSE")
and Hypebeast WAGMI Inc., a Delaware corporation and wholly owned subsidiary of
Hypebeast Limited ("Merger Sub"). In accordance with the terms and subject to
the conditions of the Business Combination Agreement the Company will conduct a
consolidation of its outstanding ordinary shares such that 30,000,000 ordinary
shares of the Company (each a "Consolidated Share") remain issued and
outstanding immediately after such share consolidation with a price of $10.00
per share immediately following such share consolidation (the
"Recapitalization").
Following the Recapitalization in accordance with the Companies Act (as amended)
of the Cayman Islands, the Merger Sub will merge with and into the Company in
accordance with the applicable provisions of the Delaware General Corporation
Law (the "Merger"), with the Company being the surviving entity and becoming a
wholly-owned subsidiary of Hypebeast (the "Surviving Corporation"). The Merger
will become effective at the time when the Certificate of Merger becomes
effective under the Delaware General Corporation Law (the "Effective Time").
Upon closing of the Business Combination, the Consolidated Shares will be dual
listed for trading on both the HKSE and the Nasdaq Capital Market LLC
("Nasdaq").
At the Effective Time, each share of Class A common stock of the Company, par
value $0.0001 per share (each a "SPAC Class A Share") and each share of Class B
common stock of the Company, par value $0.0001 per share (each a "SPAC Class B
Share;" and each SPAC Class A Share and SPAC Class B Share is referred to as a
"SPAC Share") (other than the SPAC Shares owned by the Company as treasury
shares, the SPAC Shares owned by any of Company's direct or indirect
wholly-owned subsidiaries, and any SPAC Redeeming Shares (as defined below))
will cease to be outstanding and will automatically be converted into the right
to receive, without interest, one Consolidated Share. The holders of the SPAC
Shares outstanding immediately prior to the Effective Time will cease to have
any rights with respect to such the SPAC Shares, except as provided by the
Business Combination Agreement or by law. The "SPAC Redeeming Shares" means any
SPAC Class A Shares in respect of which the eligible holder (as determined in
accordance with the Amended and Restated Certificate of Incorporation and the
By-Laws of the SPAC (the "SPAC Charter"), which shall not include the "Sponsor"
or any other holder of SPAC Class B Shares) thereof has validly exercised (and
not validly revoked, withdrawn or lost) his, her or its redemption right.
Holders of SPAC Redeeming Shares will receive $10.00 per SPAC Share at the
closing of the Merger (the "Closing").
At Closing, each eligible stockholder of the Company (which shall not include
the Sponsor or any other holder of SPAC Class B Shares) who has not exercised
his, her or its redemption right shall receive a cash dividend in the amount of
$0.05, without interest, with respect to each SPAC Non-Redeeming Share (as
defined below) (collectively, the "SPAC Closing Dividends"); and following the
payment of SPAC Closing Dividends, the Sponsor shall receive an amount in cash
equal to all amounts in the trust account established for the purpose of holding
the net proceeds of SPAC's initial public offering (the "Trust Account") in
excess of $10.00 per SPAC Non-Redeeming Share prior to the payment of any
transaction expenses and, for avoidance of doubt, without taking into account
any proceeds from any private placements at the Closing.
All shares of capital stock of the Merger Sub that are issued and outstanding
immediately prior to the Effective Time will, by virtue of the Merger and
without further action on the part of Hypebeast, be automatically converted into
and become one validly issued, fully paid and non-assessable share of common
stock of the Surviving Corporation issued in the name of Hypebeast, which share
of common stock will be the only shares of the Surviving Corporation's capital
stock that are issued and outstanding immediately after the Effective Time. Each
certificate evidencing ownership of shares of Merger Sub common stock will, as
of the Effective Time, evidence ownership of such share of common stock of the
Surviving Corporation.
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PIPE Subscription Agreements
On April 3, 2022 and concurrently with the execution of the Business Combination
Agreement, Hypebeast entered into subscription agreements (the "PIPE
Subscription Agreements") with certain third-party investors (the "PIPE
Investors"), pursuant to which the PIPE Investors agreed to purchase, severally
and not jointly, and Hypebeast agreed to issue, allot and credit as fully
paid-up to PIPE Investors, 1,333,500 ordinary shares of Hypebeast (after taking
into account the Recapitalization) at a price of $10.00 per share.
On July 28, 2022, Hypebeast entered into a subscription agreement in
substantially the same form as the PIPE Subscription Agreements (a "Permitted
Equity Subscription Agreement"), including with respect to registration rights,
with one third-party investor (the "Additional PIPE Investor"), pursuant to
which the Additional PIPE Investor agreed to subscribe for, and Hypebeast agreed
to allot and issue to the Additional PIPE Investor, an aggregate of 200,000
ordinary shares of Hypebeast (after taking into account the Recapitalization)
(the "Additional Subscription Shares") at a subscription price of $10.00 per
share (such subscription and issuance, the "Additional PIPE Investment").
Liquidity and Capital Resources
On June 11, 2021, we consummated the Initial Public Offering of 15,000,000
shares of Class A common stock (the "Public Shares") at $10.00 per Public Share,
generating gross proceeds of $150,000,000. Simultaneously with the closing of
the Initial Public Offering, the Sponsor purchased an aggregate of 1,090,000
shares of Class A common stock at a price of $10.00 per share (the "Private
Placement Shares"), generating gross proceeds of $10,900,000.
On June 16, 2021, the underwriters partially exercised their over-allotment
option and purchased an additional 1,680,000 shares (the "Over-Allotment
Shares"), and the sale of an additional 100,800 shares (the "Over-Allotment
Private Placement Shares") at $10.00 per share, generating total gross proceeds
of $1,008,000.
For the nine months ended September 30, 2022, net cash used in operating
activities was $685,079, which was due to our net loss of $9,226,679 and
interest income on the trust account of $930,531, offset in part by changes in
working capital of $9,472,131.
For the period from January 22, 2021 (inception) through September 30, 2021, net
cash used in operating activities was $986,643, which was due to our net loss of
$606,308, changes in working capital of $321,821, gain on issuance of
over-allotment option of $62,100, and interest income on the Trust Account of
$3,533 partially offset by Operating costs allocated to the issuance of the
over-allotment option of $7,119.
For the nine months ended September 30, 2022, we had no cash flows from
investing activities.
For the period from January 22, 2021 (inception) through September 30, 2021, net
cash used in investing activities of $173,472,000 was the result of the amount
of net proceeds from the Initial Public Offering and the sale of Private
Placement Shares being deposited to the Trust Account.
For the nine months ended September 30, 2022, net cash provided by financing
activities was $325,000, which was the due to proceeds received from a
convertible note from related party our Sponsor of $395,000, partially offset by
payment of offering costs of $70,000.
For the period from January 22, 2021 (inception) through September 30, 2021, net
cash provided by financing activities was $175,126,874, which was comprised of
the net proceeds from the initial public offering, net of underwriter's discount
paid of $163,464,000, proceeds from the sale of private placement shares of
$11,908,000, proceeds from the advance from a related party of $60,000 and
proceeds from the sale of common stock to the Sponsor of $25,000, offset in part
by payment of offering costs of $330,126.
Going Concern Consideration
As of September 30, 2022, we had $134,614 in cash held outside of the Trust
Account and working capital deficit of $9,718,637. we incurred and expects to
continue to incur significant costs in pursuit of its acquisition plans. We
anticipate that the cash held outside of the Trust Account as of September 30,
2022, will not be sufficient to allow us to operate until June 11, 2023, the
date at which the Company must complete a Business Combination. While we expect
to have sufficient access to additional sources of capital under Working Capital
Loans, there is no current commitment on the part of any financing source to
provide additional capital and no
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assurances can be provided that such additional capital will ultimately be
available if necessary. Further, if a Business Combination is not consummated
June 11, 2023, there will be a mandatory liquidation and subsequent dissolution
of the Company. These conditions raise substantial doubt about our ability to
continue as a going concern for a period of time within one year after the date
that these condensed financial statements are issued.
We plan to address this uncertainty through a Business Combination as discussed
above. There is no assurance that our plans to consummate a Business Combination
will be successful or successful within the Combination Period. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of September 30, 2022 and
December 31, 2021.
Contractual Obligations
Consulting Agreement
The Company entered into an agreement with a related party on January 26, 2021,
to pay the related party a total of $25,000 per month for research, financial
analysis, due diligence, bookkeeping and other administrative services from
formation through the Business Combination. For the three and nine months ended
September 30, 2022, the Company incurred $75,000 and $225,000, respectively, in
expenses under this agreement. For the three months ended September 30, 2021 and
for the period from January 22, 2021 (inception) through September 30, 2021, the
Company incurred $75,000 and $130,000, respectively, in expenses under this
agreement. As of September 30, 2022 and December 31, 2021, $100,000 and $25,000,
respectively, related to this agreement is recorded in due to related parties on
the condensed balance sheets.
Administrative Support Agreement
The Company entered into an agreement, commencing on the effective date of the
Initial Public Offering, to pay the Sponsor a total of $10,000 per month for
office space, administrative and support services. Upon the completion of the
Business Combination or the Company's liquidation, the Company will cease paying
these monthly fees. For the three and nine months ended September 30, 2022, the
Company incurred $30,000 and $90,000, respectively, in expenses under this
agreement. For the three months ended September 30, 2021 and for the period from
January 22, 2021 (inception) through September 30, 2021, the Company did not
incur any expenses under this agreement. As of September 30, 2022 and December
31, 2021, $157,333 and $67,333, respectively, related to this agreement is
recorded in due to related parties on the condensed balance sheets.
Convertible Note - Related Party
On August 24, 2022, the Company issued two (2) unsecured promissory notes, in
the aggregate principal amount of $395,000 (the "Notes"). The first note was
issued in three separate payments (May 31, 2022 of $100,000, August 3, 2022 of
$25,000, and August 18, 2022 of $20,000) totaling the amount of $145,000 by the
Sponsor and the second note was issued on September 1, 2022 in the amount of
$250,000 by Joshua L. Spear, the Company's Chief Executive Officer. The Notes do
not bear interest and mature upon closing of a Business Combination by the
Company. In addition, the Notes may be converted by the holder into common stock
of the Company at a price of $10.00 per share.
Registration Rights
The holders of the founder shares and Private Placement Shares that may be
issued upon conversion of working capital loans will have registration rights to
require the Company to register a sale of any of its securities held by them
pursuant to a registration rights agreement. The holders of these securities are
entitled to make up to three demands, excluding short form demands, that the
Company register such securities. In addition, the holders have certain
"piggy-back" registration rights with respect to registration statements filed
subsequent to the completion of a business combination. The Company will bear
the expenses incurred in connection with the filing of any such registration
statements.
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Underwriting Agreement
The Company granted the underwriter a 45-day option to purchase up to 2,250,000
additional shares of Class A common stock to cover over-allotments at the
Initial Public Offering price, less the underwriting discounts and commissions.
On June 16, 2021, the underwriters partially exercised the over-allotment option
and purchased an additional 1,680,000 shares of Class A common stock for an
aggregate purchase price of $16,800,000. The remaining 570,000 shares were not
exercised by the underwriter and expired on July 26, 2021.
The underwriter was paid a cash underwriting fee of $0.20 per share, or
$3,336,000 in the aggregate, upon the closing of the Initial Public Offering. In
addition, $0.35 per share, or $5,838,000 in the aggregate will be payable to the
underwriter for deferred underwriting commissions. The deferred fee will become
payable to the underwriter from the amounts held in the trust account solely in
the event that we complete our initial business combination, subject to the
terms of the underwriting agreement.
Termination of Financial Advisor
On November 14, 2022, Morgan Stanley terminated its engagement as a financial
advisor to the Company with respect to the Business Combination. Effective as of
November 14, 2022, Morgan Stanley's services as financial advisor pursuant to
the advisory engagement letter were terminated without liability or continuing
obligation of either Morgan Stanley or the Company.
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 condensed 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:
Common stock subject to possible redemption
All of the 16,680,000 shares of Class A common stock sold as part of the units
in the Initial Public Offering contain a redemption feature which allows for the
redemption of such Public Shares in connection with the Company's liquidation,
if there is a shareholder vote or tender offer in connection with our initial
business combination and in connection with certain amendments to our amended
and restated certificate of incorporation. In accordance with SEC and its
staff's guidance on redeemable equity instruments, which has been codified in
Accounting Standards Codification ("ASC") Topic 480, Distinguishing Liabilities
from Equity, redemption provisions not solely within the control of the Company
require common stock subject to redemption to be classified outside of permanent
equity. Therefore, all Class A common stock has been classified outside of
permanent equity.
We recognize changes in redemption value immediately as they occur and adjusts
the carrying value of redeemable common stock to equal the redemption value at
the end of each reporting period. Increases or decreases in the carrying amount
of redeemable common stock are affected by charges against additional paid in
capital and accumulated deficit.
Net Loss Per Common Share
We comply with accounting and disclosure requirements of ASC 260, Earnings Per
Share. Net loss per common share is computed by dividing net loss by the
weighted-average number of shares of common stock outstanding during the period.
Remeasurement associated with the redeemable shares of Class A common stock is
excluded from net loss per share as the redemption value approximates fair
value. Therefore, the loss per share calculation allocates losses shared pro
rata between Class A and Class B common stock. As a result, the calculated net
loss per share is the same for Class A and Class B shares of common stock. The
Company does not have any dilutive securities and other contracts that could,
potentially, be exercised or converted into shares of common stock and then
share in the earnings of the Company. As a result, diluted loss per share is the
same as basic loss per share for the periods presented.
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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, 2023 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.
Management does not believe that any other recently issued, but not yet
effective, accounting standards, if currently adopted, would have a material
effect on the Company's condensed financial statements.
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