UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For
the quarterly period ended
For the transition period from to
Commission File No.
| (Exact name of registrant as specified in its charter) |
| (State
or other jurisdiction of incorporation or organization) |
(I.R.S.
Employer Identification No.) |
| |
| (Address of Principal Executive Offices, including zip code) |
| (Registrant’s telephone number, including area code) |
| N/A |
| (Former name, former address and former fiscal year, if changed since last report) |
Securities registered pursuant to Section 12(b) of the Act:
| The Stock Market LLC | ||||
| The Stock Market LLC | ||||
| The Stock Market LLC |
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐ No ☒
Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act.
Yes ☐ No ☒
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the Registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act
Indicate by check mark whether the Registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
Indicate
by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
As of May 15, 2023, there were shares of the Registrant’s Class A Common Stock, par value $0.0001 per share (“Class A Common Stock”) and shares of the Registrant’s Class B Common Stock, par value $0.0001 per share (“Class B Common Stock”) issued and outstanding.
LF CAPITAL ACQUISITION CORP. II
Quarterly Report on Form 10-Q
TABLE OF CONTENTS
i
Item 1. Interim Financial Statements (Unaudited)
| LF CAPITAL ACQUISITION CORP. II |
| CONDENSED BALANCE SHEETS |
| March 31, 2023 (Unaudited) |
December 31, 2022 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses and other assets | ||||||||
| Income tax receivable | ||||||||
| Total current assets | ||||||||
| Investments held in Trust Account | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES, REDEEMABLE COMMON STOCK AND STOCKHOLDERS’ DEFICIT | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Franchise tax payable | ||||||||
| Income tax payable | ||||||||
| Promissory note related to extension- related party | ||||||||
| Convertible promissory note – related party, at fair value | ||||||||
| Excise tax liability | ||||||||
| Total current liabilities | ||||||||
| Deferred tax liability | ||||||||
| Deferred underwriting fee payable | ||||||||
| Total liabilities | $ | $ | ||||||
| COMMITMENTS AND CONTINGENCIES (Note 5) | ||||||||
| Class A Common Stock subject to possible redemption, $ par value, and shares issued and outstanding at redemption value of approximately $ and $ as of March 31, 2023 and December 31, 2022, respectively | ||||||||
| STOCKHOLDERS’ DEFICIT | ||||||||
| Preferred stock, $ par value; shares authorized; issued or outstanding | ||||||||
| Class A Common Stock; $ par value; shares authorized; and issued and outstanding as of March 31, 2023 and December 31, 2022, respectively (excluding 11,300,419 shares subject to possible redemption) | ||||||||
| Class B Common Stock; $ par value; shares authorized; and shares issued and outstanding as of March 31, 2023 and December 31, 2022, respectively | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( |
) | ( |
) | ||||
| Total stockholders’ deficit | ( |
) | ( |
) | ||||
| TOTAL LIABILITIES, REDEEMABLE COMMON STOCK AND STOCKHOLDERS’ DEFICIT | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed financial statements
1
| LF CAPITAL ACQUISITION CORP. II |
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED) |
| For the three months ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| OPERATING EXPENSES | ||||||||
| General and administrative | $ | $ | ||||||
| Franchise tax | ||||||||
| Total expenses | ||||||||
| OTHER INCOME | ||||||||
| Change in fair value of convertible promissory note | ( |
) | ||||||
| Dividend income | ||||||||
| Interest earned on investments held in Trust Account | ||||||||
| Total other income | ||||||||
| NET INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES | ( |
) | ||||||
| Income tax expense | ||||||||
| NET INCOME (LOSS) | $ | $ | ( |
) | ||||
| Weighted average shares outstanding of Class A common stock, subject to possible redemption | ||||||||
| Basic and diluted net income (loss) per share, Class A, subject to possible redemption | $ | $ | ( |
) | ||||
| Weighted average shares outstanding of Class A and B non-redeemable common stock | ||||||||
| Basic and diluted net income (loss) per share, Class A and B non-redeemable common stock | $ | $ | ( |
) | ||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
2
| LF CAPITAL ACQUISITION CORP. II |
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT (UNAUDITED) |
| FOR THE THREE MONTHS ENDED MARCH 31, 2023 |
| Common stock | Additional | Total | ||||||||||||||||||||||||||
| Class A | Class B | paid-in | Accumulated | stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | capital | Deficit | deficit | ||||||||||||||||||||||
| Balance – December, 31, 2022 | $ | $ | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||||||
| Proceeds received in excess of initial fair value of convertible promissory note – related party | — | — | ||||||||||||||||||||||||||
| Remeasurement of Class A ordinary shares to redemption value | — | — | ( |
) | ( |
) | ||||||||||||||||||||||
| Conversion of Class B Common Stock to Class A Common Sock | ( |
) | ( |
) | ||||||||||||||||||||||||
| Excise tax imposed on common stock redemption | — | — | ( |
) | ( |
) | ( |
) | ||||||||||||||||||||
| Net income | — | — | ||||||||||||||||||||||||||
| Balance – March 31, 2023 | $ | $ | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||||||
| FOR THE THREE MONTHS ENDED MARCH 31, 2022 |
| Common stock | Additional | Total | ||||||||||||||||||||||||||
| Class A | Class B | paid-in | Accumulated | stockholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | capital | Deficit | deficit | ||||||||||||||||||||||
| Balance – December 31, 2021 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Net loss | ( | ) | ( | ) | ||||||||||||||||||||||||
| Balance – March 31. 2022 | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
3
| LF CAPITAL ACQUISITION CORP. II |
| CONDENSED STATEMENTS OF CASH FLOWS (UNAUDITED) |
| For the three months ended March 31, 2023 | For the three months ended March 31, 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net income (loss) | $ | $ | ( |
) | ||||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
| Change in deferred tax liability | ( |
) | ||||||
| Interest earned on investments held in Trust Account | ( |
) | ( |
) | ||||
| Dividend income | ( |
) | ||||||
| Change in fair value of convertible promissory note | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other assets | ||||||||
| Accounts payable and accrued expenses | ||||||||
| Income tax receivable | ||||||||
| Income tax payable | ||||||||
| Franchise tax payable | ( |
) | ( |
) | ||||
| Net cash flows used in operating activities | ( |
) | ( |
) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Extension payments deposited into Trust Account | ( |
) | ||||||
| Income earned withdrawn from Trust Account for tax obligations | ||||||||
| Cash withdrawn from Trust Account in connection with redemptions | ||||||||
| Net cash flows provided by investing activities | ||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Convertible promissory note – related party | ||||||||
| Proceeds from note payable – related party | ||||||||
| Payment from trust account in connection with redemption | ( |
) | ||||||
| Net cash flows used in financing activities | ( |
) | ||||||
| NET CHANGE IN CASH | ( |
) | ||||||
| CASH, BEGINNING OF PERIOD | ||||||||
| CASH, END OF PERIOD | $ | $ | ||||||
| Supplemental cash flow information: | ||||||||
| Cash paid for income taxes | $ | $ | ||||||
| Supplemental disclosure of noncash activities: | ||||||||
| Excise tax liability accrued for common stock with redemptions | $ | $ | ||||||
| Proceeds received from convertible promissory note in excess of initial fair value | $ | $ | ||||||
| Remeasurement of Class A ordinary shares to redemption value | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
4
LF CAPITAL ACQUISITION CORP. I
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2023
(UNAUDITED)
Note 1 – Description of Organization and Business Operations
LF Capital Acquisition Corp. II (the “Company”) was incorporated in Delaware on February 19, 2021. The Company is a blank check company formed for the purpose of entering into a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization or other similar business combination with one or more businesses or entities (the “Business Combination”). The Company has selected December 31 as its fiscal year end.
The Company is not limited to a particular industry or geographic region for purposes of consummating a Business Combination. The Company is an early stage and emerging growth company and, as such, the Company is subject to all of the risks associated with early stage and emerging growth companies.
As of March 31, 2023, the Company
had not commenced any operations. All activity from February 19, 2021 (inception) through March 31, 2023, relates to the Company’s
formation and Initial Public Offering (“IPO”), which is described below and, since the IPO, the search for a prospective Business
Combination. The Company will not generate any operating revenues until after the completion of its initial Business Combination, at the
earliest. The Company will generate non-operating income in the form of interest income earned on investments from the proceeds derived
from the IPO. The registration statement for the Company’s IPO was declared effective on November 16, 2021. On November 19, 2021,
the Company consummated the IPO and sold units (“Units”) with each Unit consisting of one share of Class
A Common Stock and one-half of one redeemable warrant to purchase one share of Class A Common Stock at $ per share (each, a
“Public Warrant”) at $ per Unit, generating gross proceeds of $
Simultaneously with the closing
of the IPO, the Company consummated the sale of warrants at a price of $
Simultaneously with the closing
of the IPO, the Company consummated the closing of the sale of additional Units upon receiving notice of the underwriter’s
election to fully exercise its overallotment option (“Overallotment Units”), generating additional gross proceeds of $
Offering costs for the IPO and
the exercise of the underwriter’s over-allotment option amounted to $
Following the closing of the
IPO and the exercise of the underwriter’s over-allotment option, $
5
The Company’s management
has broad discretion with respect to the specific application of the net proceeds of the IPO and the sale of the Private Placement Warrants,
although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination. There
is no assurance that the Company will be able to complete a Business Combination successfully. The Company must complete one or more initial
Business Combinations having an aggregate fair market value of at least
The Company will provide the holders of the outstanding Public Shares (the “Public Stockholders”) with the opportunity to redeem all or a portion of their Public Shares upon the completion of a Business Combination either (i) in connection with a stockholder meeting called to approve the Business Combination or (ii) by means of a tender offer. The decision as to whether the Company will seek stockholder approval of a Business Combination or conduct a tender offer will be made by the Company. The Public Stockholders will be entitled to redeem their Public Shares for a pro rata portion of the amount then in the Trust Account (initially anticipated to be $10.20 per Public Share, plus any pro rata interest then in the Trust Account, net of taxes payable). The warrants will subject to redemption, as further described in Note 6.
All of the Public Shares contain
a redemption feature which allows for the redemption of such Public Shares in connection with the Company’s liquidation, if there
is a stockholder vote or tender offer in connection with the Company’s Business Combination and in connection with certain amendments
to the Company’s amended and restated certificate of incorporation (the “Certificate of Incorporation”). In accordance
with Financial Accounting Standards Board (“FASB”) Accounting Standards Codifications (“ASC”) 480, “Distinguishing
Liabilities from Equity” (“ASC 480”) Subtopic 10-S99, redemption provisions not solely within the control of a company
require common stock subject to redemption to be classified outside of permanent equity. Given that the Public Shares were issued with
other freestanding instruments (i.e., Public Warrants), the initial carrying value of Class A Common Stock classified as temporary equity
was the allocated proceeds determined in accordance with ASC 470-20 “Debt with Conversion and other Options”. The Class A
Common Stock is subject to ASC 480-10-S99. If it is probable that the equity instrument will become redeemable, the Company has the option
to either (i) accrete changes in the redemption value over the period from the date of issuance (or from the date that it becomes probable
that the instrument will become redeemable, if later) to the earliest redemption date of the instrument or (ii) recognize changes in the
redemption value immediately as they occur and adjust the carrying amount of the instrument to equal the redemption value at the end of
each reporting period. The Company has elected to recognize the changes immediately. Although redemptions cannot cause the Company’s
net tangible assets to fall below $
Redemptions of the Company’s Public Shares may be subject to the satisfaction of conditions, including minimum cash conditions, pursuant to an agreement relating to the Company’s Business Combination. If the Company seeks stockholder approval of the Business Combination, the Company will proceed with a Business Combination if a majority of the shares voted are voted in favor of the Business Combination, or such other vote as required by law or stock exchange rule. If a stockholder vote is not required by applicable law or stock exchange listing requirements and the Company does not decide to hold a stockholder vote for business or other reasons, the Company will, pursuant to the Certificate of Incorporation, conduct the redemptions pursuant to the tender offer rules of the SEC and file tender offer documents with the SEC prior to completing a Business Combination. If, however, stockholder approval of the transaction is required by applicable law or stock exchange listing requirements, or the Company decides to obtain stockholder approval for business or other reasons, the Company will offer to redeem shares in conjunction with a proxy solicitation pursuant to the proxy rules and not pursuant to the tender offer rules. If the Company seeks stockholder approval in connection with a Business Combination, the Sponsor has agreed to vote its Founder Shares (as defined in Note 4) and any Public Shares purchased during or after the IPO in favor of approving a Business Combination. Additionally, each Public Stockholder may elect to redeem their Public Shares without voting, and if they do vote, irrespective of whether they vote for or against the proposed transaction.
Notwithstanding the foregoing, the Certificate of Incorporation provides that a Public Stockholder, together with any affiliate of such stockholder or any other person with whom such stockholder is acting in concert or as a “group” (as defined under Section 13 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), will be restricted from redeeming its shares with respect to more than an aggregate of 15% or more of the Class A Common Stock sold in the Initial Public Offering, without the prior consent of the Company.
The Company’s Sponsor, officers and directors (collectively, the “Initial Stockholders”) have agreed not to propose an amendment to the Certificate of Incorporation that would affect the substance or timing of the Company’s obligation to redeem 100% of its Public Shares if the Company does not complete a Business Combination, unless the Company provides the Public Stockholders with the opportunity to redeem their shares of Class A Common Stock in conjunction with any such amendment.
If the Company is unable to complete
a Business Combination within 15 months from the closing of the IPO (unless extended in connection with an Extension Election as described
below or as a result of an amendment to our amended and restated certificate of incorporation, which would require the approval of the
holders of at least 65% of all of the Company’s then outstanding common stock) (“Combination Period”), the Company will
(i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business
days thereafter, redeem the Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the
Trust Account including interest earned on the funds held in the Trust Account and not previously released to the Company to pay the Company’s
franchise and income taxes (less up to $
6
On February 14, 2023, pursuant to the terms of the Amended and Restated Certificate of Incorporation of the Company, our Sponsor, the holder of an aggregate of 6,388,750 shares of the Company’s Class B Common Stock, par value $0.0001 per share (“Class B Common Stock”), elected to convert 6,268,750 shares of the Class B Common Stock held by it on a one-for-one basis into Class A Common Stock, par value $0.0001 per share (“Class A Common Stock”) of the Company, with immediate effect. Following such conversion, as of February 14, 2023, the Company had an aggregate of 32,143,750 shares of Class A Common Stock issued and outstanding and 200,000 shares of Class B Common Stock issued and outstanding.
On February 15, 2023, the Company signed a letter of intent with the Target Company for a potential business combination which, if completed, would qualify as its initial business combination. The letter of intent is non-binding with respect to all its material terms, except with respect to provisions regarding a limited period of exclusivity. The Target Company is a US-based manufacturer in the packaging industry with industry-leading profitability serving diversified end markets and with an established and highly attractive, blue-chip customer base that are subject to multi-year contracts.
On February 15, 2023, the Company held a special meeting of its stockholders (the “Special Meeting”) to vote on a proposal to amend the Company’s Amended and Restated Certificate of Incorporation (the “Charter”) to increase the monthly extension payment per one-month extension of the deadline to complete the initial business combination to $0.04 per share of the Company’s Class A Common Stock (the “Charter Amendment Proposal”). The Company convened and adjourned the Special Meeting, without conducting any business and the Company adjourned the meeting until February 17, 2023. On February 17, 2023, the Company reconvened the Special Meeting at which its stockholders approved the Charter Amendment Proposal. In connection with the vote to approve the Charter Amendment Proposal, holders of 14,574,581 shares of Class A Common Stock properly exercised their right to redeem their shares of Class A Common Stock at a redemption price of approximately $10.35 per share, for an aggregate redemption amount of approximately $150,738,777. As such, approximately 56% of the Class A Common Stock outstanding with redemption rights was redeemed and approximately 11,300,419 shares of the Class A Common Stock remain outstanding.
On February 21, 2023, the Company issued a promissory note (the “2023 Note”) in the aggregate principal amount of up to $2,712,101 (the “Extension Funds”) to our Sponsor, pursuant to which a portion of the Extension Funds may be deposited into the Trust Account for each share of Class A Common Stock sold in the Company’s initial public offering that was not redeemed in connection with increase of the redemption price set forth in the Charter Amendment Proposal. On February 21, 2023 and April 19, 2023, the Company drew down $452,016.76 under the 2023 Note to fund the extension payments. As of March 31, 2023, the amount borrowed against the 2023 Note was $904,034 and $1,808,067 is available for withdrawal.
On March 13, 2023, Scott Reed resigned from the board of directors of the Company and from his positions as President and Chief Executive Officer. Mr. Reed did not resign as a result of any dispute or disagreement with the Company or board of directors on any matters relating to the Company’s operations, policies or practices. Mr. Reed will continue to serve as an advisor to the Company. On March 13, 2023, Elias Farhat, who is also a member of the board of directors, was appointed as the new Chief Executive Officer.
On March 13, 2023, the Company announced that Djemi Traboulsi, Senior Vice President and Managing Director of the Company, was appointed to the board of directors, to serve until the 2024 annual meeting of stockholders of the Company and until his successor is elected and qualified.
On March 21, 2023, Djemi Traboulsi resigned from his position as Senior Vice President and Managing Director. Mr. Traboulsi did not resign as a result of any dispute or disagreement with the Company or board of directors on any matters relating to the Company’s operations, policies or practices. Mr. Traboulsi will continue to serve as a member of the board of directors of the Company.
The Initial Stockholders have agreed to waive their liquidation rights with respect to the Founder Shares if the Company fails to complete a Business Combination within the Combination Period. However, if the Initial Stockholders should acquire Public Shares in or after the Initial Public Offering, they will be entitled to liquidating distributions from the Trust Account with respect to such Public Shares if the Company fails to complete a Business Combination within the Combination Period. The underwriter has agreed to waive its rights to its deferred underwriting fees (see Note 5) held in the Trust Account in the event the Company does not complete a Business Combination within the Combination Period, and, in such event, such amounts will be included with the other funds held in the Trust Account that will be available to fund the redemption of the Public Shares. In the event of such distribution, it is possible that the per share value of the residual assets remaining available for distribution (including Trust Account assets) will be only $10.20 per share held in the Trust Account. In order to protect the amounts held in the Trust Account, the Sponsor has agreed to be liable to the Company if and to the extent any claims by a vendor for services rendered or products sold to the Company, or a prospective target business with which the Company has discussed entering into a transaction agreement, reduce the amount of funds in the Trust Account. This liability will not apply with respect to any claims by a third party who executed a waiver of any right, title, interest or claim of any kind in or to any monies held in the Trust Account or to any claims under the Company’s indemnity of the underwriter against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the “Securities Act”). Moreover, in the event that an executed waiver is deemed to be unenforceable against a third party, the Sponsor will not be responsible to the extent of any liability for such third-party claims. The Company will seek to reduce the possibility that the Sponsor will have to indemnify the Trust Account due to claims of creditors by endeavoring to have all vendors, service providers (except the Company’s independent registered public accounting firm), prospective target businesses or other entities with which the Company does business, execute agreements waiving any right, title, interest or claim of any kind in or to monies held in the Trust Account.
7
Risks and Uncertainties
In March 2020, the World Health Organization declared the outbreak of a novel coronavirus (“COVID-19”) as a pandemic which continues to spread throughout the United States and the world. As of the date the financial statements were issued, there is considerable uncertainty around the expected duration of this pandemic. Management continues to evaluate the impact of the COVID-19 pandemic, and the Company has concluded that, while it is reasonably possible that COVID-19 could have a negative effect on the Company’s ability to identify a target company for a Business Combination, the specific impact is not readily determinable as of the date of the unaudited condensed financial statements. The unaudited condensed financial statements do not include any adjustments that might result from the outcome of this uncertainty.
In February 2022, the Russian Federation and Belarus commenced a military action with the country of Ukraine. As a result of this action, various nations, including the United States, have instituted economic sanctions against the Russian Federation and Belarus. Further, the impact of this action and related sanctions on the world economy are not determinable as of the date of these financial statements and the specific impact on the Company’s financial condition, results of operations, and cash flows is also not determinable as of the date of these financial statements.
Inflation Reduction Act of 2022
On August 16, 2022, the Inflation Reduction Act of 2022 (the “IR Act”) was signed into federal law. The IR Act provides for, among other things, a new U.S. federal 1% excise tax on certain repurchases of stock by publicly traded U.S. domestic corporations and certain U.S. domestic subsidiaries of publicly traded foreign corporations occurring on or after January 1, 2023. The excise tax is imposed on the repurchasing corporation itself, not its shareholders from which shares are repurchased. The amount of the excise tax is generally 1% of the fair market value of the shares repurchased at the time of the repurchase. However, for purposes of calculating the excise tax, repurchasing corporations are permitted to net the fair market value of certain new stock issuances against the fair market value of stock repurchases during the same taxable year. In addition, certain exceptions apply to the excise tax. The U.S. Department of the Treasury (the “Treasury”) has been given authority to provide regulations and other guidance to carry out and prevent the abuse or avoidance of the excise tax.
Any redemption or other repurchase that occurs after December 31, 2022, in connection with a Business Combination, extension vote or otherwise, may be subject to the excise tax. Whether and to what extent the Company would be subject to the excise tax in connection with a Business Combination, extension vote or otherwise would depend on a number of factors, including (i) the fair market value of the redemptions and repurchases in connection with the Business Combination, extension or otherwise, (ii) the structure of a Business Combination, (iii) the nature and amount of any “PIPE” or other equity issuances in connection with a Business Combination (or otherwise issued not in connection with a Business Combination but issued within the same taxable year of a Business Combination) and (iv) the content of regulations and other guidance from the Treasury. In addition, because the excise tax would be payable by the Company and not by the redeeming holder, the mechanics of any required payment of the excise tax have not been determined. The foregoing could cause a reduction in the cash available on hand to complete a Business Combination and in the Company’s ability to complete a Business Combination.
Liquidity and Going Concern
As of March 31, 2023, the Company
had $
In connection with the
Company’s assessment of going concern considerations in accordance with the authoritative guidance in FASB Accounting Standards
Update (“ASU”) Subtopic 205-40, “Presentation of Financial Statements-Going Concern,” management has determined
that should the Company be unable to complete a Business Combination, the mandatory liquidation and subsequent dissolution described
in Note 1 of the financial statements that would follow, raises substantial doubt about the Company’s ability to continue
as a going concern. The Company originally had until February 19, 2023 to consummate a Business Combination. On February 15, 2023,
the Company held a special meeting of its stockholders (the “Special Meeting”) to vote on a proposal to amend the
Company’s Amended and Restated Certificate of Incorporation (the “Charter”) to increase the monthly extension
payment per one-month extension of the deadline to complete the initial business combination to $
per share of the Company’s Class A Common Stock (the “Charter Amendment Proposal”). The Company convened and
adjourned the Special Meeting, without conducting any business and the Company adjourned the meeting until February 17, 2023.
On February 17, 2023, the Company reconvened the Special Meeting at which its stockholders approved the Charter Amendment Proposal
which included extending the Business Combination Period to August 19, 2023. In connection with the vote to approve the Charter
Amendment Proposal, holders of shares of Class A Common Stock properly
exercised their right to redeem their shares of Class A Common Stock at a redemption price of approximately $
per share, for an aggregate redemption amount of approximately $
8
On February 21, 2023, the Company
issued a promissory note (the “2023 Note”) in the aggregate principal amount of up to $
Also, in connection with the Company’s assessment of going concern considerations in accordance with the ASU Subtopic 205-40 management has determined that if the Company is unable to raise additional funds to alleviate liquidity needs as well as complete a Business Combination by August 19, 2023 (or such earlier date if the Company does not exercise its option(s) to extend the deadline) then the Company will cease all operations except for the purpose of liquidating. The liquidity condition as well as the date for mandatory liquidation and subsequent dissolution raise substantial doubt about the Company’s ability to continue as a going concern..
These 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.
Note 2 — Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed financial statements are presented in U.S. dollars in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for financial information and pursuant to the rules and regulations of the SEC. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP. In the opinion of management, the unaudited condensed financial statements reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the balances and results for the periods presented. Operating results for the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected through December 31, 2023.
The accompanying unaudited condensed financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Annual Report on Form 10-K filed by the Company with the SEC on March 23, 2023.
Emerging Growth Company
The Company is an emerging growth company as defined in Section 102(b)(1) of the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), which exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that an emerging growth company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such an election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period, which means that when a standard is issued or revised, and it has different application dates for public or private companies, the Company, as an emerging growth company, will adopt the new or revised standard at the time private companies adopt the new or revised standard.
This may make comparison of the Company’s unaudited condensed financial statement with those of another public company that is neither an emerging growth company nor an emerging growth company that has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Making estimates requires management to exercise significant judgment. Such estimates may be subject to change as more current information becomes available and accordingly the actual results could differ significantly from those estimates. It is at least reasonably possible that the estimate of the effects of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Actual results could differ from those estimates.
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Cash and Cash Equivalents
The Company considers all short-term
investments with an original maturity of three months or less when purchased to be cash equivalents. The Company did
Investments Held in Trust Account
At March 31, 2023 and December 31, 2022, substantially all of the assets held in the Trust Account were held in U.S. Treasury securities. The Company’s investments held in the Trust Account are classified as trading securities. Trading securities are presented on the balance sheet at fair value at the end of each reporting period. Gains and losses resulting from the change in fair value of investments held in Trust Account are included in unrealized gains on marketable securities held in Trust Account in the accompanying unaudited condensed statements of operations. The estimated fair values of investments held in Trust Account are determined using available market information.
Convertible Promissory Note
The Company accounts for its convertible promissory note under ASC 815, “Derivatives and Hedging” (“ASC 815”). Under 815-15-25, the election can be at the inception of a financial instrument to account for the instrument under the fair value option under ASC 825, “Financial Instruments” (“ASC 825”). The Company has made such election for its convertible promissory note. Using the fair value option, the convertible promissory note is required to be recorded at its initial fair value on the date of issuance and each balance sheet date thereafter. Differences between the face value of the note and fair value at issuance are recognized as either an expense in the statements of operations (if issued at a premium) or as a capital contribution (if issued at a discount). Changes in the estimated fair value of the notes are recognized as non-cash gains or losses in the condensed statements of operations.
Offering Costs Associated with the Initial Public Offering
Offering costs amounted
to $
Concentration of Credit Risk
Financial instruments
that potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institution, which, at times,
may exceed the Federal Depository Insurance Corporation limit of $
Fair Value of Financial Instruments
The fair value of the Company’s assets and liabilities, which qualify as financial instruments under FASB ASC 820, “Fair Value Measurements and Disclosures,” equals or approximates the carrying amounts represented in the accompanying unaudited condensed balance sheets, primarily due to their short-term nature.
Income Taxes
The Company accounts for income taxes under ASC 740, “Income Taxes.” ASC 740, Income Taxes, requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the unaudited condensed financial statements and tax basis of assets and liabilities and for the expected future tax benefit to be derived from tax loss and tax credit carry forwards. ASC 740 additionally requires a valuation allowance to be established when it is more likely than not that all or a portion of deferred tax assets will not be realized. As of March 31, 2023 and December 31, 2022, the Company’s deferred tax asset had a full valuation allowance recorded against it.
The Company’s effective tax rate was
ASC 740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim period, disclosure and transition.
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The Company has identified the United States as its only “major” tax jurisdiction. The Company is subject to income taxation by major taxing authorities since inception. The company has not recorded any unrecognized tax benefits since inception. The Company’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.
Class A Common Stock Subject to Possible Redemption
The Company follows the two-class method to calculate earnings per ordinary share. The Company accounts for its Class A Common Stock subject to possible redemption in accordance with the guidance in ASC 480. Conditionally redeemable Class A Common Stock (including Class A 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 the Company’s control) is classified as temporary equity. At all other times, Class A Common Stock is classified as stockholders’ equity. The Company’s Class A Common Stock sold in the IPO and in connection with the exercise of the underwriter’s over-allotment option feature certain redemption rights that are considered to be outside of the Company’s control and subject to occurrence of uncertain future events. Accordingly, on March 31, 2023 and December 31, 2022, 11,300,419 shares of Class A Common Stock subject to possible redemption is presented as temporary equity.
In connection with the vote to approve the Charter Amendment Proposal, holders of 14,574,581 shares of Class A Common Stock properly exercised their right to redeem their shares of Class A Common Stock at a redemption price of approximately $10.35 per share, for an aggregate redemption amount of approximately $150,738,777. As such, approximately 56% of the Class A Common Stock outstanding with redemption rights was redeemed and approximately 11,300,419 shares of the redeemable Class A Common Stock remain outstanding.
On February 21, 2023, the Company
issued a promissory note (the “2023 Note”) in the aggregate principal amount of up to $
Immediately upon the closing of the IPO and the exercise of the underwriter’s over-allotment option, the Company recognized the accretion from the initial book value to redemption amount value. The change in the carrying value of redeemable shares of Class A Common Stock resulted in charges against additional paid-in capital and accumulated deficit.
As of March 31, 2023 and December 31, 2022 the shares of Class A Common Stock reflected on the unaudited condensed balance sheet are reconciled on the following table:
| Gross proceeds | $ | |||
| Less | ||||
| Fair value of Public Warrants at issuance | ( | ) | ||
| Class A shares issuance costs | ( | ) | ||
| Plus: | ||||
| Remeasurement of carrying value to redemption value | ||||
| Class A Common Stock subject to possible redemption at December 31, 2021 | ||||
| Remeasurement of carrying value to redemption value | ||||
| Class A Common Stock subject to possible redemption at December 31, 2022 | ||||
| Less: Redemptions | ( | ) | ||
| Plus: Remeasurement of Class A ordinary shares to redemption value | ||||
| Class A Common Stock subject to possible redemption at March 31, 2023 | $ |
The Company has two classes of shares, which are referred to as Class A Common Stock and Class B Common Stock (the “Founder Shares”). Earnings and losses are shared pro rata between the two classes of shares. A total of Public Warrants (see Note 3) and Private Placement Warrants (see Note 4) to purchase an aggregate of shares of Class A Common Stock at $ per share were issued on November 19, 2021. At March 31, 2023, no Public Warrants or Private Placement Warrants have been exercised. The shares of Class A Common Stock for which the outstanding Public Warrants and Private Placement Warrants are exercisable were excluded from diluted earnings per share for the period ended March 31, 2023 and 2022 because they are contingently exercisable, and the contingencies have not yet been met. The calculation does not include the warrants that could be issued as a result of the conversion option in the convertible promissory note. As a result, diluted net loss per share of common stock is the same as basic net income loss per share of common stock for the period. The table below presents a reconciliation of the numerator and denominator used to compute basic and diluted net loss per share for each class of stock.
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| For the three months ended March 31, | ||||||||||||||||
| 2023 | 2022 | |||||||||||||||
| Class A | ||||||||||||||||
| Class A-redeemable common stock | and Class B non- redeemable Common stock | Class-A redeemable common stock | Class-B non-redeemable common stock |
|||||||||||||
| Basic and diluted net income (loss) per share: | ||||||||||||||||
| Numerator: | ||||||||||||||||
| Allocation of net income (loss) | $ | $ | $ | ( |
) | ( |
) | |||||||||
| Remeasurement for Class A Common Stock to redemption value | ||||||||||||||||
| Net income (loss) | $ | $ | $ | ( |
) | ( |
) | |||||||||
| Denominator: | ||||||||||||||||
| Weighted average shares outstanding | ||||||||||||||||
| Basic and dilution net income (loss) per share | $ | $ | $ | ( |
) | ( |
) | |||||||||
Warrant Instruments
The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the instruments’ specific terms and applicable authoritative guidance in ASC 480 and ASC 815. The assessment considers whether the instruments are free standing financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the instruments meet all of the requirements for equity classification under ASC 815, including whether the instruments are indexed to the Company’s own common shares and whether the instrument holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment, which requires the use of professional judgment, was conducted at the time of warrant issuance and as of each subsequent period end date while the instruments are outstanding. Management has concluded that the Public Warrants and Private Placement Warrants issued pursuant to the warrant agreement qualify for equity accounting treatment.
Stock Compensation Expense
In connection with the Company’s IPO, founder’s shares were sold to certain independent directors by the Sponsor at the price of $ per share.
The Company accounts for stock-based compensation expense in accordance with ASC 718, “Compensation – Stock Compensation” (“ASC 718”) under which stock-based compensation associated with equity-classified awards is measured at fair value upon the grant date and recognized over the requisite service period. To the extent a stock-based award is subject to a performance condition, the amount of expense recorded in a given period, if any, reflects an assessment of the probability of achieving such performance condition, with compensation recognized once the event is deemed probable to occur. Forfeitures are recognized as incurred.
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The Company used a Monte Carlo Model Simulation to arrive at the fair value of the stock compensation. The key assumptions in the option pricing model utilized are assumptions related to expected separation date of Units, anticipated business combination date, purchase price, share-price volatility, expected term, exercise date, risk-free interest rate and present value. The expected volatility as of the IPO Closing Date was derived based upon similar SPAC warrants and technology exchange traded funds which aligns with Company’s stated industry target and present value factor was based on risk-free rate and terms until the exercise date. The Company’s Founder Shares sold to independent directors (see Note 4) were deemed within the scope of ASC 718 and are subject to a performance condition, namely the occurrence of a Business Combination. Compensation expense related to the Founder Shares transferred is recognized only when the performance condition is probable of occurrence, or more specifically when a Business Combination is consummated. Therefore, no stock-based compensation expense has been recognized during the period from February 19, 2021 (inception) through March 31, 2023.
Recent Accounting Pronouncements
The Company has reviewed recent accounting pronouncements and concluded that they are either not applicable to the Company, or no material effect is expected on the financial statement as a result of future adoption.
Note 3 — Initial Public Offering
Pursuant to the IPO, and including
the underwriter’s exercise of its over-allotment option, the Company sold Units at a price of $ per
Unit resulting in gross proceeds of $
Note 4 — Related Party Transactions
Founder Shares
On March 5, 2021, the Sponsor
acquired shares of the Company’s common stock. On March 15, 2021, the Company effectuated a recapitalization of the
Company, which included a 64,687.
The Founder Shares will automatically convert into shares of Class A Common Stock at the time of the Company’s initial Business Combination and are subject to certain transfer restrictions. Holders of Founder Shares may also elect to convert their shares of Class B Common Stock into an equal number of shares of Class A Common Stock, subject to adjustment, at any time.
On February 14, 2023, pursuant to the terms of the Amended and Restated Certificate of Incorporation of the Company, our Sponsor, the holder of an aggregate of shares of the Company’s Class B Common Stock, par value $ per share (“Class B Common Stock”), elected to convert shares of the Class B Common Stock held by it on a one-for-one basis into Class A Common Stock, par value $ per share (“Class A Common Stock”) of the Company Following such conversion, as of February 14, 2023, the Company had an aggregate of shares of Class A Common Stock issued and outstanding and shares of Class B Common Stock issued and outstanding. All of the Class A Common Stock converted from Class B Common Stock, was still considered non-redeemable with the same restrictions as the Class B Common Stock prior to the conversion. This resulted in shares of Class A Common Stock being redeemable and Class A Common Stock being non-redeemable. Following the conversion, in connection with the extension, the Class A Common Stock was redeemed, resulting in redeemable Class A Common Stock and of non-redeemable Class A Common Stock remaining.
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The Initial Stockholders have agreed, subject to limited exceptions, not to transfer, assign or sell any of their Founder Shares until the earlier to occur of: (A) one year after the completion of the initial Business Combination or (B) subsequent to the initial Business Combination, (x) if the last sale price of the Class A Common Stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days after the initial Business Combination, or (y) the date on which the Company completes a liquidation, merger, capital stock exchange or other similar transaction that results in all of the Company’s stockholders having the right to exchange their shares of common stock for cash, securities or other property.
Private Placement
On November 19, 2021, simultaneously
with the consummation of the IPO and the underwriter’s exercise of its over-allotment option, the Company consummated the issuance
and sale of Private Placement Warrants in a Private Placement at a price of $ per Private Placement Warrant,
generating gross proceeds of $
Convertible Promissory Note – Related Party
On April 13, 2022, the Sponsor agreed to loan the Company an aggregate of up to $1,500,000 pursuant to a promissory note (the “Convertible Note”). The Convertible Note is non-interest bearing and payable in full on February 19, 2023, unless extended. At the Company’s discretion, the Convertible Note may be converted into warrants of the Company at a price of $1.00 per warrant. The warrants would be identical to the Private Placement Warrants.
On April 13, 2022, June 30, 2022
and August 31, 2022, the Company drew down $
On January 31, 2023, the Company
drew down $
Related Party Loans
On March 5, 2021, the Sponsor
agreed to loan the Company an aggregate of up to $
In addition, in order to finance
transaction costs in connection with a Business Combination, the Sponsor or an affiliate of the Sponsor, or certain of the Company’s
officers and directors may, but are not obligated to, loan the Company funds as may be required (“Working Capital Loans”).
If the Company completes a Business Combination, the Company would repay the Working Capital Loans out of the proceeds of the Trust Account
released to the Company. Otherwise, the Working Capital Loans would be repaid only out of funds held outside the Trust Account. In the
event that a Business Combination does not close, the Company may use a portion of proceeds held outside the Trust Account to repay the
Working Capital Loans, but no proceeds held in the Trust Account would be used to repay the Working Capital Loans. Except for the foregoing,
the terms of such Working Capital Loans, if any, have not been determined and no written agreements exist with respect to such loans.
The Working Capital Loans would either be repaid upon consummation of a Business Combination, without interest, or, at the lender’s
discretion, up to $
On February 21, 2023, the Company
issued a promissory note (the “2023 Note”) in the aggregate principal amount of up to $
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Support Services
Effective November 16, 2021,
the Company entered into an Administrative Support Agreement with an entity affiliated with the Sponsor for office space and administrative
support services at a monthly fee of $
Note 5 — Commitments and Contingencies
Registration Rights
The holders of Founder Shares, Private Placement Warrants and warrants that may be issued upon conversion of Working Capital Loans, if any, will be entitled to registration rights (in the case of the Founder Shares, only after conversion of such shares to shares of Class A Common Stock) pursuant to a registration rights agreement, dated November 16, 2021. These holders will be entitled to certain demand and “piggyback” registration rights. However, the registration rights agreement provides that the Company will not permit any registration statement filed under the Securities Act to become effective until the termination of the applicable lock-up period for the securities to be registered. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
Underwriting Agreement
The Company granted the underwriter
a
The underwriter was paid a cash
underwriting discount of $
Excise Tax
In connection with the vote to approve the Charter Amendment Proposal, holders of shares of Class A Common Stock
properly exercised their right to redeem their shares of Class A Common Stock for an aggregate redemption amount of approximately $
Note 6 — Stockholders’ Deficit
Common stock
Class A Common Stock—The
Company is authorized to issue shares of Class A Common Stock with a par value of $ per share. As of March 31, 2023
and December 31, 2022, there were and (excluding
Class B Common Stock—The Company is authorized to issue shares of Class B Common Stock with a par value of $ per share. As of March 31, 2023 and December 31, 2022, there were and shares of Class B Common Stock issued and outstanding, respectively.
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Preferred Stock—The Company is authorized to issue shares of preferred stock with a par value of $ per share with such designations, voting and other rights and preferences as may be determined from time to time by the Company’s board of directors. For the period presented, there were shares of preferred stock issued or outstanding.
Warrants—As
of March 31, 2023 and December 31, 2022, the Company had
The Public Warrants will become exercisable 30 days after the completion of a Business Combination. No warrants will be exercisable for cash unless the Company has an effective and current registration statement covering the shares of Class A Common Stock issuable upon exercise of the warrants and a current prospectus relating to such shares of Class A Common Stock. Notwithstanding the foregoing, if a registration statement covering the shares of Class A Common Stock issuable upon exercise of the Public Warrants is not effective within a specified period following the consummation of a Business Combination, warrant holders may, until such time as there is an effective registration statement and during any period when the Company shall have failed to maintain an effective registration statement, exercise warrants on a cashless basis pursuant to the exemption provided by Section 3(a)(9) of the Securities Act, provided that such exemption is available. If that exemption, or another exemption, is not available, holders will not be able to exercise their warrants on a cashless basis. The Public Warrants will expire five years after the completion of a Business Combination or earlier upon redemption or liquidation.
Redemption of warrants when the price per share of Class A Common Stock equals or exceeds $
Once the warrants become exercisable, the Company may redeem the outstanding warrants:
| ● | in whole and not in part; | |
| ● | at a price of $ | |
| ● | upon a minimum of 30 days’ prior written notice of redemption, which we refer to as the “30-day redemption period” and | |
| ● | if, and only if, the last reported sale price of our Class A Common Stock for any 20 trading days within a 30-day trading period ending on the third trading day prior to the date on which we send the notice of redemption to the warrant holders (the “Reference Value”) equals or exceeds $18.00 per share (as adjusted for stock splits, stock dividends, rights issuances, subdivisions, reorganizations, recapitalizations and the like and certain issuances of Class A Common Stock and equity-linked securities). |
The Company will not redeem the warrants as described above unless an effective registration statement under the Securities Act covering the Class A Common Stock issuable upon exercise of the warrants is effective and a current prospectus relating to those Class A Common Stock is available throughout the 30-day redemption period. If and when the warrants become redeemable by us, we may exercise our redemption right even if the Company is unable to register or qualify the underlying securities for sale under all applicable state securities laws.
Redemption of warrants when the price per Class A Common Stock equals or exceeds $
Once the warrants become exercisable, the Company may redeem the outstanding warrants:
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| ● | in whole and not in part | |
| ● | at $0.10 per warrant upon a minimum of 30 days’ prior written notice of redemption provided that holders will be able to exercise their warrants on a cashless basis prior to redemption and receive that number of shares determined by reference to the table set forth in the warrant agreement, subject to certain exceptions; and | |
| ● | if, and only if, the Reference Value of the Company’s Class A Common Stock equals or exceeds $10.00 per share (as adjusted for stock splits, stock dividends, rights issuances, subdivisions, reorganizations, recapitalizations and the like and certain issuances of Class A Common Stock and equity-linked securities). |
The “fair market value” of the Company’s Class A Common Stock for the above purpose means the volume weighted average price of our Class A Common Stock during the 10 trading days immediately following the date on which the notice of redemption is sent to the holders of warrants. The Company will provide its warrant holders with the final fair market value no later than one business day after the 10-trading day period described above ends. In no event will the warrants be exercisable in connection with this redemption feature for more than 0.361 Class A Common Stock per warrant (subject to adjustment). Any redemption of the warrants for Class A Common Stock will apply to both the Public Warrants and the Private Placement Warrants.
No fractional Class A Common Stock will be issued upon redemption. If, upon redemption, a holder would be entitled to receive a fractional interest in a share, the Company will round down to the nearest whole number of the number of Class A Common Stock to be issued to the holder. Please see the section entitled “Description of Securities—Warrants—Public Stockholders’ Warrants” for additional information.
If the Company calls the Public Warrants for redemption, management will have the option to require all holders that wish to exercise the Public Warrants to do so on a “cashless basis,” as described in the warrant agreement.
The Private Placement Warrants will be identical to the Public Warrants underlying the Units being sold in the IPO, except that the Private Placement Warrants and the shares of Class A Common Stock issuable upon the exercise of the Private Placement Warrants will not be transferable, assignable or saleable until after the completion of a Business Combination, subject to certain limited exceptions.
The exercise price and number of shares of Class A Common Stock issuable on exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, extraordinary dividend or our recapitalization, reorganization, merger or consolidation. However, the warrants will not be adjusted for issuances of shares of Class A Common Stock at a price below their respective exercise prices. Additionally, in no event will the Company be required to net cash settle the warrants. If the Company is unable to complete a Business Combination within the Combination Period and the Company liquidates the funds held in the Trust Account, holders of warrants will not receive any of such funds with respect to their warrants, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with the respect to such warrants. Accordingly, the warrants may expire worthless.
In addition, if the Company issues additional shares of Class A Common Stock or equity-linked securities for capital raising purposes in connection with the closing of a Business Combination at an issue price or effective issue price of less than $9.20 per share of Class A Common Stock (with such issue price or effective issue price to be determined in good faith by the Company’s board of directors, and in the case of any such issuance to the initial stockholders or their affiliates, without taking into account any Founder Shares held by them prior to such issuance), (y) the aggregate gross proceeds from such issuances represent more than 60% of the total equity proceeds, and interest thereon, available for the funding of a Business Combination on the date of the consummation of a Business Combination (net of redemptions), and (z) the volume weighted average trading price of the Company’s Class A Common Stock during the 10 trading day period starting on the trading day prior to the day on which the Company consummates a Business Combination (such price, the “Market Value”) is below $9.20 per share, the exercise price of the warrants will be adjusted (to the nearest cent) to be equal to 115% of the greater of (i) the Market Value or (ii) the price at which the Company issues the additional shares of Class A Common Stock or equity-linked securities.
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Note 7 — Fair Value Measurements
The fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:
Level 1: Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
Level 2: Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active.
Level 3: Unobservable inputs based on the Company’s assessment of the assumptions that market participants would use in pricing the asset or liability.
At March 31, 2023 and December 31, 2022, the assets held in the Trust Account were held in U.S. treasury funds. All of the Company’s investments held in the Trust Account are classified as trading securities.
The following table presents information about the Company’s liabilities that are measured at fair value on a recurring basis at March 31, 2023 and December 31, 2022 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value.
| Quoted Prices in | Significant Other | Significant Other | ||||||||||||||
| March 31, 2023 | Active Markets | Observable Inputs | Unobservable Inputs | |||||||||||||
| Level | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
| Assets: | ||||||||||||||||
| U.S. Treasury Securities | 1 | $ | ||||||||||||||
| Liabilities: | ||||||||||||||||
| Convertible promissory note | 3 | $ | ||||||||||||||
| Quoted Prices in | Significant Other | Significant Other | ||||||||||||||
| December 31, 2022 | Active Markets | Observable Inputs | Unobservable Inputs | |||||||||||||
| Level | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
| Assets: | ||||||||||||||||
| U.S. Treasury Securities | 1 | $ | ||||||||||||||
| Liabilities: | ||||||||||||||||
| Convertible promissory note | 3 | $ | ||||||||||||||
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The following table presents the valuation inputs of the convertible promissory note as of March 31, 2023 and December 31, 2022:
| March 31, 2023 | December 31, 2022 | |||||||
| Risk-free interest rate | % | % | ||||||
| Time to Expiration (in years) | ||||||||
| Expected volatility | % | % | ||||||
| Exercise Price | $ | $ | ||||||
| Dividend yield | % | % | ||||||
| Stock Price | $ | $ | ||||||
| Probability of completing an initial Business Combination(1) | % | % | ||||||
| (1) | This probability was arrived at solely for the purpose of the Level 3 input to the convertible promissory note valuation. |
The following table presents the changes in the fair value of the Level 3 convertible promissory note as of March 31, 2023:
| Fair value as of December 31, 2022 | $ | |||
| Initial measurement of draw on convertible promissory note – related party on January 31, 2023 | ||||
| Change in fair value | ||||
| Fair value as of March 31, 2023 | $ |
Note 8 — Subsequent Events
The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the unaudited condensed financial statements were issued. Based upon this review the Company , other than the below, did not identify any subsequent events that would have required adjustment or disclosure in the condensed financial statements.
On April 17, 2023, the Company deposited $
On April 30, 2023, the Company drew down $
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
References to “we,” “us,” “Company” or “our Company” refer to LF Capital Acquisition Corp. II. 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 report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). When used in this Form 10-Q, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend” and similar expressions, as they relate to us or the Company’s management, identify forward-looking statements. Such forward-looking statements are based on the beliefs of management, as well as assumptions made by, and information currently available to, the Company’s management. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors detailed in our other filings with the SEC. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those set forth under “Part II—Other Information. Item 1a. Risk Factors” and elsewhere in this Quarterly Report on Form 10-Q.
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Overview
We are an early-stage blank check company incorporated in February 2021 as a Delaware corporation and formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. We completed our IPO on November 19, 2021. We intend to effectuate our initial business combination using cash from the proceeds of the IPO and the sale of the private placement warrants, our capital stock, debt or a combination of cash, stock and debt.
On February 15, 2023, the Company signed a letter of intent with the Target Company for a potential business combination which, if completed, would qualify as its initial business combination. The letter of intent is non-binding with respect to all its material terms, except with respect to provisions regarding a limited period of exclusivity. The Target Company is a US-based manufacturer in the packaging industry with industry-leading profitability serving diversified end markets and with an established and highly attractive, blue-chip customer base that are subject to multi-year contracts.
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 an initial business combination. We expect to continue to incur significant costs in the pursuit of our acquisition plans. We cannot assure you that our plans to raise capital or to complete our initial business combination will be successful.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date. Our only activities through March 31, 2023 were organizational activities, those necessary to prepare for the IPO, described below, and, after our IPO, identifying a target company for an initial 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 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 March 31, 2023, we had a net income of $856,098, which consisted of Interest earned on investments held in Trust Account of $1,331,526, dividend income of $776,986 and income tax expense of $432,331, offset by a change in fair value of Convertible Note of $36,623 and operating costs of $783,460.
For the three months ended March 31, 2022, we had a net loss of $317,554, which consisted of operating costs of $437,107, offset by Interest earned on investments held in Trust Account of $141,460 and income tax expense of $21,907.
Liquidity and Going Concern
As of March 31, 2023, the Company had $118,929 in its operating bank account, $118,600,787 in securities held in the Trust Account to be used for a Business Combination or to repurchase or redeem its common stock in connection therewith and working capital deficit of $2,561,887.
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In connection with the Company’s assessment of going concern considerations in accordance with the authoritative guidance in FASB Accounting Standards Update (“ASU”) Subtopic 205-40, “Presentation of Financial Statements-Going Concern,” management has determined that should the Company be unable to complete a Business Combination, the mandatory liquidation and subsequent dissolution described in Note 1 of the financial statements that would follow, raises substantial doubt about the Company’s ability to continue as a going concern. The Company originally had until February 19, 2023 to consummate a Business Combination. On February 15, 2023, the Company held a special meeting of its stockholders (the “Special Meeting”) to vote on a proposal to amend the Company’s Amended and Restated Certificate of Incorporation (the “Charter”) to increase the monthly extension payment per one-month extension of the deadline to complete the initial business combination to $0.04 per share of the Company’s Class A Common Stock (the “Charter Amendment Proposal”). The Company convened and adjourned the Special Meeting, without conducting any business and the Company adjourned the meeting until February 17, 2023. On February 17, 2023, the Company reconvened the Special Meeting at which its stockholders approved the Charter Amendment Proposal which included extending the Business Combination Period to August 19, 2023. In connection with the vote to approve the Charter Amendment Proposal, holders of 14,574,581 shares of Class A Common Stock properly exercised their right to redeem their shares of Class A Common Stock at a redemption price of approximately $10.35 per share, for an aggregate redemption amount of approximately $150,738,777. As such, approximately 56% of the Class A Common Stock outstanding with redemption rights was redeemed and approximately 11,300,419 shares of the redeemable Class A Common Stock remain outstanding. It is uncertain that the Company will be able to consummate a Business Combination by the specified period. If a Business Combination is not consummated by August 19, 2023, there will be a mandatory liquidation and subsequent dissolution.
Also, in connection with the Company’s assessment of going concern considerations in accordance with the ASU Subtopic 205-40 management has determined that if the Company is unable to raise additional funds to alleviate liquidity needs as well as complete a Business Combination by August 19, 2023 (or such earlier date if the Company does not exercise its option(s) to extend the deadline) then the Company will cease all operations except for the purpose of liquidating. The liquidity condition as well as the date for mandatory liquidation and subsequent dissolution raise substantial doubt about the Company’s ability to continue as a going concern.
These 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.
The Company’s liquidity needs prior to the consummation of the IPO were satisfied through the payment of $25,000 from the Sponsor to cover certain offering costs on the Company’s behalf in exchange for issuance of Founder Shares (Note 4) and a promissory note, as amended, from the Sponsor (see Note 4). Subsequent to the IPO, the Company’s liquidity needs have been satisfied through a portion of the net proceeds from the Private Placement. Until the consummation of a Business Combination, the Company will be using the funds not held in the Trust Account for identifying and evaluating prospective acquisition candidates, performing due diligence on prospective target businesses, paying for travel expenditures, selecting the target business to acquire, and structuring, negotiating and consummating the Business Combination. In order to finance transaction costs in connection with a Business Combination, the Company will need to raise additional capital through loans or additional investments from its Sponsor, shareholders, officers, directors, or third parties. The Company’s officers, directors and Sponsor may, but are not obligated to, loan the Company funds, from time to time or at any time, in whatever amount they deem reasonable in their sole discretion, to meet the Company’s working capital needs.
On April 13, 2022, the Sponsor issued the 2022 Convertible Note, pursuant to which the Company may borrow up to an aggregate principal amount of $1,500,000. The 2022 Convertible Note is non-interest bearing and payable on the later of (a) February 19, 2023 (or such later date as the Company may extend the deadline to complete the business combination and (b) the effective date of the business combination. At the option of the Sponsor, at any time on or prior to the maturity date, any amounts outstanding under the 2022 Convertible Note (or any portion thereof) up to $1,500,000 in the aggregate, may be converted into warrants to purchase Class A Common Stock of the Company at a conversion price equal to $1.00 per whole warrant.
On April 13, 2022, June 30, 2022 and August 31, 2022, the Company drew down $250,000, $200,000 and $175,000, respectively, under the Convertible Note. The fair value of the $250,000 drawn on April 13, 2022 was estimated by the Company to be $229,333 at initial measurement. The $20,668 excess proceeds over fair value was recognized in additional paid-in capital. The fair value of the $200,000 drawn on June 30, 2022 was estimated to be $183,030 at initial measurement. The $16,970 excess proceeds over fair value was recognized in additional paid-in capital. The fair value of the $175,000 drawn on August 31, 2022 was estimated to be $88,784 at initial measurement. The $123,853 excess proceeds over fair value was recognized in additional paid-in capital.
On January 31, 2023, the Company drew down $225,000 under the Convertible Note. The fair value of the $225,000 drawn was estimated by the Company to be $38,999 at initial measurement. The $186,001 excess proceeds over fair value was recognized in additional paid-in capital. The aggregate fair value of the Convertible Note was estimated to be $151,473 and $75,851 at March 31, 2023 and December 31, 2022, respectively..
On February 21, 2023, the Company issued a promissory note (the “2023 Note”) in the aggregate principal amount of up to $2,712,101 (the “Extension Funds”) to our Sponsor, pursuant to which a portion of the Extension Funds may be deposited into the Trust Account for each share of Class A Common Stock sold in the Company’s initial public offering that was not redeemed in connection with increase of the redemption price set forth in the Charter Amendment Proposal. On February 21, 2023 and April 19, 2023, the Company drew down $452,016.76 under the 2023 Note to fund the extension payments. As of March 31, 2023, the amount borrowed against the 2023 Note was $904,034 and $1,808,067 is available for withdrawal.
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Off-Balance Sheet Arrangements
As of March 31, 2023, we had no obligations, assets or liabilities, which would be considered off-balance sheet arrangements.
Contractual Obligations
As of March 31, 2023, we do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities, other than an agreement to pay affiliate of our Sponsor a monthly fee of $15,000 for office space, utilities and secretarial and administrative and support. We began incurring these fees on consummation of the IPO and will continue to incur these fees monthly until the earlier of the completion of our initial business combination and our liquidation.
The underwriter is entitled to a deferred fee of $0.35 per unit sold in the IPO, or $9,056,250 in the aggregate. This deferred fee will be waived by the underwriter in the event that the Company does not complete an initial business combination, subject to the terms of the underwriting agreement with respect to the Company’s IPO.
Critical Accounting Policies and Estimates
The preparation of the unaudited condensed financial statements in conformity with US 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 unaudited condensed financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following as our critical accounting policies:
Class A Common Stock Subject to Possible Redemption
We account for our Class A Common Stock subject to possible redemption in accordance with the guidance in ASC 480. Common stock subject to mandatory redemption is classified as a liability instrument and is 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 Class A Common Stock features certain redemption rights that are considered to be outside of our control and subject to occurrence of uncertain future events. Accordingly, our Class A Common Stock subject to possible redemption is presented as temporary equity, outside of the stockholders’ equity section of our balance sheets. The Company recognizes changes in redemption value immediately as they occur and adjusts the carrying value of redeemable Class A Common Stock to equal the redemption value at the end of each reporting period. Increases or decreases in the carrying amount of redeemable Class A Common Stock are affected by charges against additional paid in capital and accumulated deficit.
Convertible Promissory Note
The Company accounts for the 2022 Convertible Note under ASC 815, “Derivatives and Hedging” (“ASC 815”). Under 815-15-25, the election can be at the inception of a financial instrument to account for the instrument under the fair value option under ASC 825, “Financial Instruments” (“ASC 825”). The Company has made such election for its convertible promissory note. Using the fair value option, the convertible promissory note is required to be recorded at its initial fair value on the date of issuance and each balance sheet date thereafter. Differences between the face value of the note and fair value at issuance are recognized as either an expense in the statements of operations (if issued at a premium) or as a capital contribution (if issued at a discount). Changes in the estimated fair value of the notes are recognized as non-cash gains or losses in the condensed statements of operations.
Net Income (Loss) Per Ordinary Share
The Company follows the two-class method to calculate earnings per ordinary share. Net loss per share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period, excluding shares of common stock subject to forfeiture by the Sponsor. The calculation of diluted income (loss) per share does not consider the effect of the warrants issued in connection with the IPO and warrants issued in the Private Placement since the exercise of these warrants are contingent upon the occurrence of future events. The calculation also does not include the warrants that could be issued as a result of the conversion option in the convertible promissory note. For the three months ended March 31, 2023 and 2022, the Company did not have any dilutive securities and/or 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 income (loss) per share is the same as basic income (loss) per share for the period presented.
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Recent Accounting Standards
The Company has reviewed recent accounting pronouncements and concluded that they are either not applicable to the Company or no material effect is expected on the unaudited condensed financial statements as a result of future adoption.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company as defined in Rule 12b-2 under the Exchange Act. As a result, pursuant to Item 305(e) of Regulation S-K, we are not required to provide the information required by this Item.
Item 4. Controls and Procedures
Disclosure controls are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act, such as this Quarterly Report on Form 10-Q, is recorded, processed, summarized, and reported within the time period specified in the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2023. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15 (e) and 15d-15 (e) under the Exchange Act) were effective.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the quarter of the fiscal year covered by this Quarterly Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 1a. Risk Factors.
Factors that could cause our actual results to differ materially from those in this Quarterly Report are any of the risks described in our Annual Report on Form 10-K filed with the SEC on March 23, 2023. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations.
The Excise Tax included in the Inflation Reduction Act of 2022 may decrease the value of our securities, hinder our ability to consummate an initial business combination, and decrease the amount of funds available for distribution to our stockholders in the event of a liquidation or in connection with redemptions of our common stock after December 31, 2022.
On August 16, 2022, the Inflation Reduction Act of 2022 (the “IR Act”) was signed into federal law. The IR Act provides for, among other things, a new U.S. federal 1% excise tax on certain repurchases of stock by publicly traded U.S. domestic corporations and certain U.S. domestic subsidiaries of publicly traded foreign corporations occurring on or after January 1, 2023. The excise tax is imposed on the repurchasing corporation itself, not its shareholders from which shares are repurchased. The amount of the excise tax is generally 1% of the fair market value of the shares repurchased at the time of the repurchase. However, for purposes of calculating the excise tax, repurchasing corporations are permitted to net the fair market value of certain new stock issuances against the fair market value of stock repurchases during the same taxable year. In addition, certain exceptions apply to the excise tax. The U.S. Department of the Treasury (the “Treasury”) has been given authority to provide regulations and other guidance to carry out and prevent the abuse or avoidance of the excise tax.
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Any redemption or other repurchase that occurs after December 31, 2022, in connection with a Business Combination, extension vote or otherwise, may be subject to the excise tax. Whether and to what extent the Company would be subject to the excise tax in connection with a Business Combination, extension vote or otherwise would depend on a number of factors, including (i) the fair market value of the redemptions and repurchases in connection with the Business Combination, extension or otherwise, (ii) the structure of a Business Combination, (iii) the nature and amount of any “PIPE” or other equity issuances in connection with a Business Combination (or otherwise issued not in connection with a Business Combination but issued within the same taxable year of a Business Combination) and (iv) the content of regulations and other guidance from the Treasury. In addition, because the excise tax would be payable by the Company and not by the redeeming holder, the mechanics of any required payment of the excise tax have not been determined. The foregoing could cause a reduction in the cash available on hand to complete a Business Combination and in the Company’s ability to complete a Business Combination.
In connection with the vote to approve the Charter Amendment Proposal, holders of 14,574,581 shares of Class A Common Stock properly exercised their right to redeem their shares of Class A Common Stock for an aggregate redemption amount of approximately $150,738,777. As such the Company has recorded a 1% excise tax liability in the amount of $1,507,388 on the condensed balance sheets as of March 31, 2023. The liability does not impact the condensed statements of operations and is offset against additional paid-in capital or accumulated deficit if additional paid-in capital is not available. This excise tax liability can be offset by future share issuances within the same fiscal year which will be evaluated and adjusted in the period in which the issuances occur. Should the Company liquidate prior to December 31, 2023, the excise tax liability will not be due.
Changes in laws or regulations or how such laws or regulations are interpreted or applied, or a failure to comply with any laws or regulations, may adversely affect our business, including our ability to negotiate and complete our initial business combination, and results of operations.
We are subject to laws and regulations enacted by national, regional and local governments. We will be required to comply with certain SEC and other legal requirements. Compliance with, and monitoring of, applicable laws and regulations may be difficult, time consuming and costly. Those laws and regulations and their interpretation and application may also change from time to time and those changes could have a material adverse effect on our business, investments and results of operations. In addition, a failure to comply with applicable laws or regulations, as interpreted and applied, could have a material adverse effect on our business, including our ability to negotiate and complete our initial business combination and results of operations.
On March 30, 2022, the SEC issued proposed rules relating to, among other items, disclosures in business combination transactions involving SPACs (defined below) and private operating companies; the financial statement requirements applicable to transactions involving shell companies; the use of projections in SEC filings in connection with proposed business combination transactions; the potential liability of certain participants in proposed business combination transactions; and the extent to which special purpose acquisition companies (“SPACs”) could become subject to regulation under the Investment Company Act, including a proposed rule that would provide SPACs a safe harbor from treatment as an investment company if they satisfy certain conditions that limit a SPAC’s duration, asset composition, business purpose and activities. These rules, if adopted, whether in the form proposed or in a revised form, may increase the costs of and the time needed to negotiate and complete an initial business combination, and may constrain the circumstances under which we could complete an initial business combination.
If we are deemed to be an investment company under the Investment Company Act, we may be required to institute burdensome compliance requirements and our activities may be restricted, which may make it difficult for us to complete our Business Combination.
If we are deemed to be an investment company under the Investment Company Act, our activities may be restricted, including, without limitation, restrictions on the nature of our investments, restrictions on the issuance of securities, and restrictions on the enforceability of agreements entered into by us, each of which may make it difficult for us to complete our Business Combination. In addition, we may have imposed upon us burdensome requirements, including, without limitation, registration as an investment company with the SEC (which may be impractical and would require significant changes in, among other things, our capital structure); adoption of a specific form of corporate structure; and reporting, record keeping, voting, proxy and disclosure requirements and compliance with other rules and regulations that we are currently not subject to.
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In order not to be regulated as an investment company under the Investment Company Act, unless we can qualify for an exclusion, we must ensure that we are engaged primarily in a business other than investing, reinvesting or trading in securities and that our activities do not include investing, reinvesting, owning, holding or trading “investment securities” constituting more than 40% of our total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis. Our business is to identify and complete a Business Combination and thereafter to operate the post-transaction business or assets for the long term. We do not plan to buy businesses or assets with a view to resale or profit from their resale. We do not plan to buy unrelated businesses or assets or to be a passive investor.
The 2022 Proposed Rule under the Investment Company Act would provide a safe harbor for SPACs from the definition of “investment company” under Section 3(a)(1)(A) of the Investment Company Act, provided that they satisfy certain conditions that limit a SPAC’s duration, asset composition, business purpose and activities. The duration component of the proposed safe harbor rule would require a SPAC to file a Current Report on Form 8-K with the SEC announcing that it has entered into an agreement with the target company (or companies) to engage in an initial business combination no later than 18 months after the effective date of the SPAC’s registration statement for its initial public offering. The SPAC would then be required to complete its initial business combination no later than 24 months after the effective date of its registration statement for its initial public offering. Although the 2022 Proposed Rules, including the proposed safe harbor rule, have not yet been adopted, there is uncertainty in the SEC’s view of the applicability of the Investment Company Act to a SPAC that does not complete its initial business combination within the proposed time frame set forth in the proposed safe harbor rule or otherwise falls outside of the other provisions of the safe harbor.
The proceeds held in the trust account have been invested only in United States “government securities” within the meaning of Section 2(a)(16) of the Investment Company Act having a maturity of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 promulgated under the Investment Company Act which invest only in direct U.S. government treasury obligations. Pursuant to the trust agreement, the trustee is not permitted to invest in other securities or assets. By restricting the investment of the proceeds to these instruments, and by having a business plan targeted at acquiring and growing businesses for the long-term (rather than on buying and selling businesses in the manner of a merchant bank or private equity fund), we do not believe we are an “investment company” within the meaning of the Investment Company Act. The Initial Public Offering was not intended for persons seeking a return on investments in government securities or investment securities. The trust account is intended as a holding place for funds pending the earliest to occur of: (i) the completion of our primary business objective, which is a business combination; (ii) the redemption of any public shares properly submitted in connection with a stockholder vote to amend our amended and restated certificate of incorporation to modify the substance or timing of our obligation to provide for the redemption of our public shares in connection with an initial business combination or to redeem 100% of our public shares if we do not complete our initial business combination within the completion window; and (iii) absent a business combination, our return of the funds held in the trust account to our public stockholders as part of our redemption of the public shares. Because we have invested only in permitted instruments, we believe we are not an investment company.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Unregistered Sales of Equity Securities
On March 5, 2021, our Sponsor acquired 100 shares of the Company’s common stock in exchange for a capital contribution of $25,000, or approximately $250.00 per share, in a private placement. The acquisition of such shares was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act. On March 15, 2021, we effected a 64,687.5-for-one forward stock split of our issued and outstanding shares of common stock and reclassified those issued and outstanding shares into shares of Class B Common Stock. On June 21, 2021, we effected an approximately 1.11-for-one forward stock split of our issued and outstanding shares of Class B Common Stock. On October 26, 2021, we effected an approximately one-for-1.11 reverse stock split of our issued and outstanding shares of Class B Common Stock. At the time of our IPO, the Sponsor held 6,468,750 founder shares (reflecting an aggregate capital contribution of approximately $0.004 per share). The number of founder shares issued was determined based on the expectation that such founder shares would represent 20% of the issued and outstanding shares of our common stock upon completion of the IPO. On November 19, 2021, our Sponsor transferred 20,000 founder shares to each of our independent directors at their original purchase price in a private placement. This issuance was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act. In addition, at the closing of our initial business combination, our anchor investor will be entitled to purchase from our Sponsor an aggregate of 12.5% of the number of founder shares outstanding upon the final closing of the IPO, at a purchase price of approximately $0.004 per share.
Use of Proceeds
On November 19, 2021, the Company consummated its IPO of 25,875,000 units, including 3,375,000 units issued pursuant to the full exercise of the underwriter’s over-allotment option. Each unit consists of one share of Class A Common Stock and one-half of one redeemable warrant of the Company, with each whole warrant entitling the holder thereof to purchase one share of Class A Common Stock for $11.50 per share. The units were sold at a price of $10.00 per unit, generating gross proceeds to the Company of $258,750,000.
A total of $263,925,000 of the proceeds from the IPO (which amount includes $9,056,250 of the underwriter’s deferred fee) and the sale of the Private Placement Warrants, was placed in a U.S.-based trust account at J.P. Morgan Chase Bank, N.A., maintained by Continental Stock Transfer & Trust Company, acting as trustee. The proceeds held in the trust account may be invested by the trustee only in U.S. government securities with a maturity of 185 days or less or in money market funds investing solely in U.S. government treasury obligations and meeting certain conditions under Rule 2a-7 under the Investment Company Act of 1940, as amended.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits.
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report.
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SIGNATURES
Pursuant to the requirements of Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| LF Capital Acquisition Corp. II | ||
| Date: May 15, 2023 | /s/ Elias Farhat | |
| Name: | Elias Farhat | |
| Title: | Chief Executive Officer | |
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