References in this report (the "Quarterly Report") to "we," "us" or the
"Company" refer to Lionheart III Corp References to our "management" or our
"management team" refer to our officers and directors, and references to the
"Sponsor" refer to Lionheart Equities, 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
completion of the Proposed Business Combination (as defined below), 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, including that the conditions of
the Proposed Business Combination are not satisfied. 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 Annual Report on Form 10-K 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 formed under the laws of the State of Delaware on
January 14, 2021 for the purpose of entering into a merger, capital stock
exchange, asset acquisition, stock purchase, reorganization or similar business
combination with one or more businesses or entities (the "Business
Combination"). We intend to effectuate our Business Combination using cash from
the proceeds of the Initial Public Offering and the sale of the Private
Placement Warrants, our capital stock, debt or a combination of cash, stock 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.
Proposed Business Combination
On July 26, 2022, we entered into a Business Combination Agreement (as it may be
amended, supplemented or otherwise modified from time to time, the "BCA") and a
scheme implementation deed ("SID") by and among us, Security Matters Limited, a
publicly traded company on the Australian Securities Exchange ("ASX")("SMX"),
Empatan Public Limited Company, a public limited company incorporated in Ireland
("Parent"), and Aryeh Merger Sub, Inc., a Delaware corporation and a wholly
owned subsidiary of Parent ("Merger Sub"). See Note 6 to Item 1 above for a
description of the BCA, the SID and the transactions contemplated thereby.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date.
Our only activities from January 14, 2021 (inception) through September 30, 2022
were organizational activities, those necessary to prepare for the Initial
Public Offering, described below, and 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.
For the three months ended September 30, 2022, we had net loss of $1,870,904,
which consisted of operating costs of $2,327,837 and a provision for income
taxes of $101,735, offset by interest earned on marketable securities held in
the Trust Account of $558,668.
For the nine months ended September 30, 2022, we had net loss of $3,223,607,
which consisted of operating costs of $3,840,607 and a provision for income
taxes of $115,301, offset by interest earned on marketable securities held in
the Trust Account of $732,301.
For the three months ended September 30, 2021, we had net loss of $2,830, which
consisted of operating and formation costs.
For the period from January 14, 2021 (inception) through September 30, 2021, we
had net loss of $3,859, which consisted of operating and formation costs.
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Liquidity and Capital Resources
On November 8, 2021, we consummated the Initial Public Offering of 12,500,000
Units, which includes the full exercise by the underwriter of its over-allotment
option in the amount of 1,000,000 Units, at $10.00 per Unit, generating gross
proceeds of $125,000,000. Simultaneously with the closing of the Initial Public
Offering, we consummated the sale of 2,000,000 Private Placement Warrant at a
price of $1.00 per Private Placement Warrant and the sale of 400,000 Private
Placement Units in a private placement to the Sponsor, Nomura, and the
Underwriters, generating gross proceeds of $6,000,000.
Following the Initial Public Offering on November 8, 2021, including the full
exercise of the over-allotment option, and the Private Placement, a total of
$126,250,000 (or $10.10 per Unit) was placed in the Trust Account. We incurred
$7,438,270 in Initial Public Offering related costs, including $2,500,000 of
underwriting fees, $4,375,000 of deferred underwriting fees, and $513,270 of
other offering costs.
For the nine months ended September 30, 2022, cash used in operating activities
was $911,630. Net loss of $3,223,607 was affected by interest earned on
marketable securities held in the Trust Account of $732,301. Changes in
operating assets and liabilities provided $3,044,278 of cash for operating
activities.
For the period from January 14, 2021 (inception) through September 30, 2021,
cash used in operating activities was $410. Net loss of $3,859 was affected by
changes in operating assets and liabilities, which provided $3,449 of cash for
operating activities.
As of September 30, 2022, we had marketable securities held in the Trust Account
of $126,983,891 (including approximately $734,000 of interest income) consisting
of money market funds primarily invested in U.S. Treasury Bills. Interest income
on the balance in the Trust Account may be used by us to pay taxes. Through
September 30, 2022, we have not withdrawn any interest earned from 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
income taxes payable), to complete our Business Combination. To the extent that
our capital stock 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 target
business or businesses, make other acquisitions and pursue our growth
strategies.
As of September 30, 2022, we had cash of $490,218. 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, and structure,
negotiate and complete a Business Combination.
In order to fund working capital deficiencies or finance transaction costs in
connection with a Business Combination, the Sponsor, or certain of our officers
and directors or their affiliates 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 Working Capital Loans may be
convertible into units of the post-Business Combination entity at a price of
$10.00 per unit. The units would be identical to the Private Placement Units.
Going Concern
We have until November 8, 2022 to consummate an initial business combination.
The Company has the ability to extend the mandatory liquidation date up to
May 8, 2023, as needed, provided that the Company deposit $412,500 per month
into the Trust Account. It is uncertain that we will have sufficient liquidity
to fund the working capital needs of the Company until the liquidation date
and/or through twelve months from the issuance of this report. Additionally, it
is uncertain that we will be able to consummate an initial business combination
by this time. The Company may not have sufficient liquidity to fund the working
capital needs of the Company until November 8, 2022, the liquidation date. If an
initial business combination is not consummated by the liquidation date, there
will be a mandatory liquidation and subsequent dissolution. The Company intends
to complete its initial business combination before the mandatory liquidation
date; however, there can be no assurance that the Company will be able to
consummate any business combination. Management has determined that the
Company's liquidity condition and the mandatory liquidation, should an initial
business combination not occur, and potential subsequent dissolution raise
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 November 8, 2022.
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Off-Balance Sheet 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 the Sponsor
a total of $15,000 per month for office space, utilities and secretarial and
administrative support. We began incurring these fees on November 2, 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 Unit, or $4,375,000
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.
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:
Class A Common Stock Subject to Possible Redemption
We account for our common stock subject to possible conversion in accordance
with the guidance in Accounting Standards Codification ("ASC") Topic 480
"Distinguishing Liabilities from Equity." Common stock subject to mandatory
redemption is classified as a liability instrument and measured at fair value.
Conditionally redeemable common stock (including common stock that features
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) is classified as temporary equity. At all other times, common stock is
classified as stockholders' equity. Our common stock features certain redemption
rights that are considered to be outside of our control and subject to
occurrence of uncertain future events. Accordingly, common stock subject to
possible redemption is presented at redemption value as temporary equity,
outside of the stockholders' deficit section of our condensed balance sheets.
Net Loss Per Common Share
We comply with accounting and disclosure requirements of FASB ASC Topic 260,
"Earnings Per Share". We have two classes of shares, which are referred to as
Class A common stock and Class B common stock. Income and losses are shared pro
rata between the two classes of shares. Net loss per common share is computed by
dividing net loss by the weighted average number of common stock outstanding for
the period. Accretion associated with the redeemable shares of Class A common
stock is excluded from earnings per share as the redemption value approximates
fair value.
Recent Accounting Standards
Management does not believe that there are any other recently issued, but not
yet effective, accounting standards, that if currently adopted, would have a
material effect on our condensed financial statements.
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