Table of Contents
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934 |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification Number) | |
(Address of principal executive offices) |
(Zip Code) | |
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
one-third of one redeemable warrant |
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| Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-accelerated filer |
☒ | Smaller reporting company | ||||
| Emerging growth company | ||||||
Table of Contents
Levere Holdings Corp.
Quarterly Report on Form
10-Q
Table of Contents
Table of Contents
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes, and oral statements made from time to time by representatives of the Company may include, 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”). We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” or the negative of such terms or other similar expressions. Such statements include, but are not limited to, possible business combinations and the financing thereof, and related matters, as well as all other statements other than statements of historical fact included in this Quarterly Report on Form 10-Q. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those described in our other Securities and Exchange Commission (“SEC”) filings. Forward-looking statements in this Quarterly Report may include, for example, statements about:
| • | our ability to select an appropriate target business or businesses; |
| • | our ability to complete our initial business combination; |
| • | our expectations around the performance of the prospective target business or businesses; |
| • | our success in retaining or recruiting, or changes required in, our officers, key employees or directors following our initial business combination; |
| • | our officers and directors allocating their time to other businesses and potentially having conflicts of interest with our business or in approving our initial business combination; |
| • | our potential ability to obtain additional financing to complete our initial business combination; |
| • | our pool of prospective target businesses; |
| • | our ability to consummate an initial business combination due to the uncertainty resulting from the recent COVID-19 pandemic; |
| • | the ability of our officers and directors to generate a number of potential business combination opportunities; |
| • | our public securities’ potential liquidity and trading; |
| • | the lack of a market for our securities; |
| • | the use of proceeds not held in the Trust Account (as defined below) or available to us from interest income on the Trust Account balance; |
| • | the Trust Account not being subject to claims of third parties; |
| • | our financial performance; and |
| • | the other risks and uncertainties discussed in the “Risk Factors” sections of our Annual Report on Form 10-K for the year ended December 31, 2021 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2022, June 30, 2022, and September 30, 2022 |
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Table of Contents
The forward-looking statements contained in this Quarterly Report on Form 10-Q are based on our current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements. We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
4
Table of Contents
September 30, 2022 |
December 31, 2021 |
|||||||
(Unaudited) |
||||||||
Assets |
||||||||
Cash |
$ | $ | ||||||
Due from related party |
||||||||
Prepaid Expenses |
||||||||
Total current assets |
||||||||
Other assets |
||||||||
Marketable securities held in Trust Account |
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Total Assets |
$ | $ | ||||||
Liabilities and Shareholders’ Deficit |
||||||||
Accrued offering costs and expenses |
$ | $ | ||||||
Convertible Promissory Note – Related Party |
||||||||
Due to related party |
||||||||
Total current liabilities |
$ | |||||||
Deferred legal fees |
— | |||||||
Deferred underwriting fee |
||||||||
Warrant liabilities |
||||||||
Total Liabilities |
$ | $ | ||||||
Commitments and Contingencies |
||||||||
Class A Ordinary shares subject to possible redemption, |
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Shareholders’ Deficit: |
||||||||
Preferred shares, $ |
||||||||
Class A ordinary shares, $ |
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Class B ordinary shares, $ (1) |
||||||||
Additional paid-in capital(2) |
||||||||
Accumulated deficit |
( |
) | ( |
) | ||||
Total Shareholders’ Deficit |
( |
) | ( |
) | ||||
Total Liabilities and Shareholders’ Deficit |
$ | $ | ||||||
(1) |
On January 19, 2021 an aggregate of |
(2) |
On January 31, 2022 the Sponsor executed a settlement agreement in the amount of $ |
Three Months Ended September 30, |
Nine Months Ended September 30, |
For the Period from January 15, 2021 (Inception) through September 30, |
||||||||||||||
2022 |
2021 |
2022 |
2021 |
|||||||||||||
Formation and operating costs |
$ | $ | $ | $ | ||||||||||||
Loss from operations |
( |
) |
( |
) |
( |
) |
( |
) | ||||||||
Other income (expense): |
||||||||||||||||
Interest earned on marketable securities held in Trust Account |
||||||||||||||||
Offering costs allocated to warrants |
( |
) | ||||||||||||||
Change in fair value of warrant liabilities |
||||||||||||||||
Total other income (expense), net |
||||||||||||||||
Net income |
$ |
$ |
$ |
$ |
||||||||||||
Weighted average shares outstanding of Class A ordinary shares |
||||||||||||||||
Basic and diluted net income per share, Class A ordinary shares |
$ | $ | $ | $ | ||||||||||||
Weighted average shares outstanding of Class B ordinary shares |
||||||||||||||||
Basic and diluted net income per share, Class B ordinary shares |
$ | $ | $ | $ | ||||||||||||
| Class A Ordinary shares |
Class B Ordinary shares |
Additional Paid-in Capital |
Accumulated Deficit |
Total Shareholders’ Deficit |
||||||||||||||||||||||||
Shares |
Amount |
Shares |
Amount |
|||||||||||||||||||||||||
| Balance as of December 31, 2021 |
$ | $ |
$ |
$ |
( |
) |
$ |
( |
) | |||||||||||||||||||
| Net income |
— | — | — | — | — | |||||||||||||||||||||||
| Expenses paid on behalf of the Company by the Sponsor (1) |
— | — | — | — | — | |||||||||||||||||||||||
| Accretion of Class A Ordinary shares subject to possible redemption |
— | — | — | — | ( |
) | ( |
) | ||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Balance as of March 31, 2022 |
$ | $ |
$ |
$ |
( |
) |
$ |
( |
) | |||||||||||||||||||
| Net income |
— | — | — | — | — | |||||||||||||||||||||||
| Accretion of Class A Ordinary shares subject to possible redemption |
— | — | — | — | ( |
) | ( |
) | ( |
) | ||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Balance as of June 30, 2022 |
$ | $ |
$ |
( |
) |
$ |
( |
) | ||||||||||||||||||||
| Net income |
— | — | — | — | — | |||||||||||||||||||||||
| Accretion of Class A Ordinary shares subject to possible redemption |
— | — | — | — | ( |
) | ( |
) | ||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Balance as of September 30, 2022 |
$ | $ |
$ |
$ |
( |
) |
$ |
( |
) | |||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
(1) |
On January 31, 2022 the Sponsor executed a settlement agreement in the amount of $ |
| Class A Ordinary shares |
Class B Ordinary shares |
Additional Paid-in Capital |
Accumulated Deficit |
Total Shareholders’ Deficit |
||||||||||||||||||||||||
Shares |
Amount |
Shares |
Amount |
|||||||||||||||||||||||||
| Balance as of as of January 15, 2021 (Inception) |
$ | $ |
$ |
$ |
$ |
|||||||||||||||||||||||
| Class B ordinary shares issued to Sponsor (1) |
— | — | — | |||||||||||||||||||||||||
| Excess Private Placement proceeds received over initial fair value of Private Placement Warrants |
— | — | — | — | — | |||||||||||||||||||||||
| Forfeiture of Class B ordinary shares by initial shareholders |
— | — | ( |
) | ( |
) | — | — | ||||||||||||||||||||
| Net loss |
— | — | — | — | — | ( |
) | ( |
) | |||||||||||||||||||
| Accretion of Class A Ordinary shares subject to possible redemption |
— | — | — | — | ( |
) | ( |
) | ( |
) | ||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Balance as of March 31, 2021 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||||||
| Net income |
— | — | — | — | — | |||||||||||||||||||||||
| Accretion of Class A Ordinary shares subject to possible redemption |
— | — | — | — | ( |
) | ( |
) | ||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Balance as of June 30, 2021 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||||||
| Net income |
— | — | — | — | — | |||||||||||||||||||||||
| Reissuance of forfeited Class B ordinary shares to initial shareholders |
— | — | — | ( |
) | — | ||||||||||||||||||||||
| Accretion of Class A Ordinary shares subject to possible redemption |
— | — | — | — | ( |
) | ( |
) | ||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Balance as of September 30, 2021 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||||||
| |
|
|
|
|
|
|
|
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|
|
|
|
|
|||||||||||||||
(1) |
On January 19, 2021 an aggregate of |
For the Nine Months Ended September 30, 2022 |
For the Period from January 15, 2021 (Inception) through September 30, 2021 |
|||||||
| Cash flows from operating activities: |
||||||||
| Net income |
$ | $ | ||||||
| Adjustments to reconcile net income to net cash used in operating activities: |
||||||||
| Interest earned on marketable securities held in trust account |
( |
) | ( |
) | ||||
| Offering costs allocated to warrants |
||||||||
| Change in fair value of warrant liability |
( |
) | ( |
) | ||||
| Expenses paid on behalf of the Company by the Sponsor |
— | |||||||
| Changes in operating assets and liabilities: |
||||||||
| Prepaid expenses |
( |
) | ||||||
| Other assets |
( |
) | ||||||
| Deferred legal fees |
||||||||
| Accrued expenses |
( |
) | ||||||
| Due to related party |
||||||||
| |
|
|
|
|||||
| Net cash used in operating activities |
( |
) |
( |
) | ||||
| |
|
|
|
|||||
| Cash Flows from Investing Activities: |
||||||||
| Investment of cash in Trust Account |
( |
) | ||||||
| |
|
|
|
|||||
| Net cash used in investing activities |
( |
) | ||||||
| |
|
|
|
|||||
| Cash Flows from Financing Activities: |
||||||||
| Proceeds from issuance of Class B ordinary shares to Sponsor |
||||||||
| Proceeds from sale of Units, net of underwriting discount |
||||||||
| Proceeds from sale of Private Placement Warrants |
||||||||
| Proceeds from promissory note related party |
||||||||
| Payments of promissory note related party |
( |
) | ||||||
| Proceeds from convertible promissory note related party |
||||||||
| Payment of offering costs |
( |
) | ||||||
| |
|
|
|
|||||
| Net cash provided by financing activities |
||||||||
| |
|
|
|
|||||
| Net change in cash |
||||||||
| Cash, beginning of period |
||||||||
| |
|
|
|
|||||
| Cash, end of the period |
$ |
$ |
||||||
| |
|
|
|
|||||
| Supplemental disclosure of cash flow information: |
||||||||
| Initial classification of ordinary shares subject to possible redemption |
$ | $ | ||||||
| |
|
|
|
|||||
| Expenses paid on behalf of the Company by the Sponsor |
$ | $ | ||||||
| |
|
|
|
|||||
| Change in ordinary shares subject to possible redemption |
$ | $ | ||||||
| |
|
|
|
|||||
| Deferred underwriting commissions payable charged to additional paid in capital |
$ | $ | ||||||
| |
|
|
|
|||||
As Previously Reported |
Adjustment |
As Revised |
||||||||||
Basic and diluted net income per ordinary share: |
||||||||||||
Allocation of Net Income for the three months ended September 30, 2021 |
||||||||||||
Class A |
$ | $ | ( |
) | $ | |||||||
Class B |
$ | $ | $ | |||||||||
Allocation of Net Income for the nine months ended September 30, 2021 |
||||||||||||
Class A |
$ | $ | ( |
) | $ | |||||||
Class B |
$ | $ | $ | |||||||||
Gross proceeds from public issuance |
$ | |
||
Less: |
||||
Proceeds allocated to public warrants |
( |
) | ||
Class A ordinary shares issuance cost |
( |
) | ||
Add: |
||||
Accretion of carrying value to redemption value |
||||
Class A ordinary shares subject to redemption at December 31, 2021 |
$ |
|||
Add: |
||||
Accretion of carrying value to redemption value |
||||
Class A ordinary shares subject to redemption at September 30, 2022 |
$ |
|||
Three Months Ended September 30, 2022 |
Three Months Ended September 30, 2021 |
Nine Months Ended September 30, 2022 |
For the Period from January 25, 2021 (Inception) Through September 30, 2021 |
|||||||||||||||||||||||||||||
Class A |
Class B |
Class A |
Class B |
Class A |
Class B |
Class A |
Class B |
|||||||||||||||||||||||||
Basic and diluted net income per ordinary share |
||||||||||||||||||||||||||||||||
Numerator: |
||||||||||||||||||||||||||||||||
Allocation of net income |
$ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||
Denominator: |
||||||||||||||||||||||||||||||||
Basic and diluted weighted average shares outstanding |
||||||||||||||||||||||||||||||||
Basic and diluted net income per ordinary share |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
$ |
||||||||||||||||||||||||
| • | in whole and not in part; |
| • | at a price of $ |
| • | upon a minimum of |
| • | if, and only if, the closing price of the Class A ordinary shares equals or exceeds $ |
| • | in whole and not in part; |
| • | at $ |
| • | if, and only if, the closing price of the Company’s Class A ordinary shares equals or exceeds $ |
| • | if the closing price of the Class A ordinary shares for any |
September 30, 2022 |
May 13, 2022 Borrowing (Initial Measurement) |
|||||||
Underlying warrant value |
$ | $ | ||||||
Exercise price |
$ | $ | ||||||
Holding period |
||||||||
Risk-free rate % |
% | % | ||||||
Volatility % |
% | % | ||||||
Dividend yield % |
% | % | ||||||
| Level 1 | — | Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Valuation adjustments and block discounts are not being applied. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these securities does not entail a significant degree of judgment. | ||
| Level 2 | — | Valuations based on (i) quoted prices in active markets for similar assets and liabilities, (ii) quoted prices in markets that are not active for identical or similar assets, (iii) inputs other than quoted prices for the assets or liabilities, or (iv) inputs that are derived principally from or corroborated by market through correlation or other means. | ||
| Level 3 | — | Valuations based on inputs that are unobservable and significant to the overall fair value measurement. | ||
September 30, 2022 |
Quoted Prices In Active Markets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Other Unobservable Inputs (Level 3) |
|||||||||||||
Assets: |
||||||||||||||||
U.S. Money Market held in Trust Account |
$ | $ | $ | — | $ | — | ||||||||||
| $ | $ | $ |
— |
$ |
— |
|||||||||||
Liabilities: |
||||||||||||||||
Public Warrants Liability |
$ | $ | $ | — | $ | — | ||||||||||
Private Placement Warrants Liability |
— | — | ||||||||||||||
| $ | $ | $ |
— |
$ | ||||||||||||
December 31, 2021 |
Quoted Prices In Active Markets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Other Unobservable Inputs (Level 3) |
|||||||||||||
Assets: |
||||||||||||||||
U.S. Money Market held in Trust Account |
$ | $ | $ | — | $ | — | ||||||||||
| $ | $ | $ |
— |
$ |
— |
|||||||||||
Liabilities: |
||||||||||||||||
Public Warrants Liability |
$ | $ | $ | — | $ | — | ||||||||||
Private Placement Warrants Liability |
— | — | ||||||||||||||
| $ | $ | $ | — | $ | ||||||||||||
Fair Value at December 31, 2021 |
$ | |||
Change in fair value of private warrants |
( |
) | ||
Fair Value at March 31, 2022 |
$ |
|||
Change in fair value of private warrants |
( |
) | ||
Fair Value at June 30, 2022 |
$ |
|||
Change in fair value of private warrants |
( |
) | ||
Fair Value at September 30, 2022 |
$ |
|||
Fair Value at January 15, 2021 (inception) |
$ | |||
Initial fair value of public and private warrants |
||||
Initial fair value of public and private warrants issued with over-allotment |
||||
Change in fair value of public and private warrants |
( |
) | ||
Transfer of public warrants to Level 1 |
( |
) | ||
Fair Value at December 31, 2021 |
$ | |||
Inputs |
September 30, 2022 |
December 31, 2021 |
||||||
Risk-free interest rate |
% | % | ||||||
Expected term remaining (years) |
||||||||
Expected volatility |
% | % | ||||||
Share price |
$ | $ | ||||||
Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
References to the “Company,” “our,” “us” or “we” refer to Levere Holdings Corp. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited condensed financial statements and the notes thereto contained elsewhere in this report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Overview
We are a blank check company incorporated as a Cayman Islands exempted company on January 15, 2021, for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses, or a Business Combination. Our sponsor is Goggo Network Gmbh, a German company limited by shares, or our Sponsor.
The registration statement for our initial public offering, or IPO, was declared effective on March 18, 2021. On March 23, 2021, we consummated the IPO of 25,000,000 Units (as defined below), at $10.00 per Unit, generating gross proceeds of $250.0 million. The Company granted the Underwriters in the IPO, or the Underwriters, a 45-day option to purchase up to 3,750,000 additional Units to cover over-allotments, if any. On March 31, 2021, the Underwriters partially exercised the over-allotment option and purchased an additional 2,128,532 Units, generating an aggregate of gross proceeds of approximately $21.3 million. Each Unit consists of one Class A ordinary share, and one-third of one redeemable warrant to purchase one Class A ordinary share, or a Public Warrant, at a price of $11.50 per whole share, or the “Units” and, with respect to the Class A ordinary shares included in the Units sold, or the Public Shares. We incurred transaction costs for the IPO and over-allotment of approximately $15.6 million, inclusive of approximately $9.5 million in deferred underwriting commissions.
Simultaneously with the closing of the IPO, we consummated the private placement of 4,666,667 warrants at a price of $1.50 per warrant, or the Private Placement Warrants, and together with the Public Warrants, the Warrants, to the Sponsor, generating gross proceeds of $7.0 million, or the IPO Private Placement. Simultaneously with the closing of the exercise of the overallotment option, we completed the sale of an aggregate of an additional 283,804 Private Placement Warrants to the Sponsor, at a purchase price of $1.50 per Private Placement Warrant, generating gross proceeds of approximately $0.4 million, or the Over-Allotment Private Placement and together with the IPO Private Placement, the Private Placements.
Upon the closing of the IPO and exercise of the over-allotment option, and the simultaneous Private Placements, approximately $271.3 million ($10.00 per Unit) of the net proceeds were placed in a trust account, or Trust Account, located in the United States with Continental Stock Transfer & Trust Company acting as trustee, and invested only in U.S. “government securities,” within the meaning of Section 2(a)(16) of the Investment Company Act of 1940, as amended, or 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, as determined by us, until the earlier of: (i) the completion of a Business Combination and (ii) the distribution of the Trust Account as described below.
If we have not completed a Business Combination within 24 months from the closing of the IPO, we 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 us to pay its taxes (less up to $100,000 of interest to pay dissolution expenses), divided by the number of then outstanding Public Shares, which redemption will completely extinguish shareholders’ rights as shareholders (including the right to receive further liquidating distributions, if any), and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the remaining shareholders and our board of directors, liquidate and dissolve, subject in each case to our obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law.
24
Table of Contents
Results of Operations
For the three months ended September 30, 2022, we had a net income of approximately $1.5 million, which is primarily comprised of a gain from the change in fair value of warrant liabilities of approximately $0.6 million and interest earned on marketable securities of $1.2 million, partially offset by a loss from operations of approximately $0.2 million.
For the nine months ended September 30, 2022, we had a net income of approximately $10.3 million, which is primarily comprised of a gain from the change in fair value of warrant liabilities of approximately $9.6 million and interest earned on marketable securities of $1.6 million, partially offset by a loss from operations of approximately $0.9 million.
For the three months ended September 30, 2021, we had a net income of approximately $2.9 million, which included a loss from operations of $0.3 million and a gain from the change in fair value of warrant liabilities of $3.2 million.
For the period from January 15, 2021 to September 30, 2021, we had a net income of approximately $3.5 million, which included a loss from operations of $0.5 million, offering cost expense allocated to warrants of $0.6 million, and a gain from the change in fair value of warrant liabilities of $4.6 million.
Our business activities from inception to September 30, 2022 consisted primarily of our formation and completing our IPO and, since the completion of our IPO, our activity has been limited to identifying and evaluating prospective acquisition targets for a Business Combination.
Liquidity, Capital Resources and Going Concern
As of September 30, 2022, we had approximately $0.5 million in our operating bank account, and a working capital deficit of approximately $0.3 million, or working capital of approximately $0.6 million excluding the convertible promissory note payable.
Our liquidity needs up to March 23, 2021 had been satisfied through (i) a capital contribution from our Sponsor of $25,000 for the 7,187,500 Class B ordinary shares, par value $0.0001 per share, or the Founder Shares, and (ii) proceeds from the loan under an unsecured promissory note from our Sponsor of up to $300,000. Subsequent to the consummation of our IPO, our liquidity needs have been satisfied through the net proceeds from the Private Placements not held in the Trust Account. In addition, in order to finance transaction costs in connection with a Business Combination, our Sponsor or an affiliate of our Sponsor, or certain of our officers and directors may, but are not obligated to, provide us working capital loans. On May 13, 2022, we entered into a convertible promissory note with the Sponsor pursuant to which the Sponsor agreed to loan us up to an aggregate principal amount of $960,000. Concurrently with entering into the debt agreement, we borrowed $960,000 against the convertible promissory note. The proceeds from the note will be used to for working capital purposes and to finance transaction costs in connection with a Business Combination. See Note 6 to our unaudited financial statements for further discussion of the convertible promissory note. As of September 30, 2022, the outstanding principal balance under the convertible promissory note amounted to an aggregate of $960,000.
In connection with the Company’s assessment of going concern considerations in accordance with FASB’s Accounting Standards Update (“ASU”) 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” the Company has until March 23, 2023 to consummate a Business Combination. It is uncertain that the Company will be able to consummate a Business Combination by this time. If a Business Combination is not consummated by this date and an extension has not been requested by the Sponsor and approved by the Company’s shareholders, there will be a mandatory liquidation and subsequent dissolution of the Company. Management has determined that if the Company is unable to raise additional funds to alleviate liquidity needs then the Company will cease all operations except for the purpose of liquidating. The liquidity condition and date for mandatory liquidation and subsequent dissolution raise substantial doubt about the Company’s ability to continue as a going concern one year from the date that these financial statements are issued. No adjustments have been made to the carrying amounts of assets or liabilities should the Company be unable to continue as a going concern. The Company intends to complete the Business Combination before the mandatory liquidation date of March 23, 2023. The Company is within 12 months of its mandatory liquidation as of the time of filing this Quarterly Report on Form 10-Q
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Contractual Obligations
As of September 30, 2022, we did not have any long-term debt obligations, capital lease obligations, operating lease obligations, purchase obligations or other long-term liabilities, other than an agreement to pay the sponsor a monthly fee of $10,000 for office space, utilities, secretarial support and administrative services. We began incurring these fees on March 23, 2021 and will continue to incur these fees monthly until the earlier of the completion of an initial business combination and our liquidation.
The underwriters of the IPO are entitled to a deferred underwriting commission of 3.5% of the gross proceeds of the IPO and over-allotment, or $9,494,986 in the aggregate. The deferred fee will become payable to the Underwriters from the amounts held in the Trust Account solely in the event that the Company completes a Business Combination, subject to the terms of the underwriting agreement.
Critical Accounting Estimates
This management’s discussion and analysis of our financial condition and results of operations is based on our unaudited condensed financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these unaudited condensed financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in our unaudited condensed financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to fair value of financial instruments and accrued expenses. We base our estimates on historical experience, known trends and events and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Warrants Liability
We evaluated the Warrants in accordance with ASC 815-40 and concluded that a provision in the Warrant Agreement, dated March 23, 2021, by and between us and Continental Stock Transfer & Trust Company related to certain tender or exchange offers as well as provisions that provided for potential changes to the settlement amounts dependent upon the characteristics of the holder of the warrant, precludes the Warrants from being accounted for as components of equity. As the Warrants meet the definition of a derivative as contemplated in ASC 815-40 and are not eligible for an exception from derivative accounting, the Warrants are recorded as derivative liabilities on our Balance Sheets and measured at fair value at inception (on the date of the IPO) and at each reporting date in accordance with ASC 820, “Fair Value Measurement”, with changes in fair value recognized in our Statement of Operations in the period of change.
Convertible Promissory Note
We account for conversion options embedded in convertible notes in accordance with ASC 815. ASC 815 generally requires companies to bifurcate conversion options embedded in convertible notes from their host instruments and to account for them as free-standing derivative financial instruments.
We review the terms of convertible debt issued to determine whether there are embedded derivative instruments, including embedded conversion options, which are required to be bifurcated and accounted for separately as derivative financial instruments. In circumstances where the host instrument contains more than one embedded derivative instrument, including the conversion option, that is required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument.
Bifurcated embedded derivatives are initially recorded at fair value and are then revalued at each reporting date with changes in the fair value reported as non-operating income or expense. When the equity or convertible debt instruments contain embedded derivative instruments that are to be bifurcated and accounted for as liabilities, the total proceeds received are first allocated to the fair value of all the bifurcated derivative instruments. The remaining proceeds, if any, are then allocated to the host instruments themselves, usually resulting in those instruments being recorded at a discount from their face value. The discount from the face value of the convertible debt, together with the stated interest on the instrument, is amortized over the life of the instrument through periodic charges to interest expense.
We assessed the provisions of the Convertible Promissory Note under ASC 470-20. The derivative component of the obligation is initially valued and classified as a derivative liability. The conversion option was valued using a Monte Carlo simulation model, which is considered to be a Level 3 fair value measurement. The conversion option liability is not recorded as of September 30, 2022 as it was determined to have no fair value.
Offering Costs Associated with the Initial Public Offering
We comply with the requirements of the ASC 340-10-S99-1, “Other Assets and Deferred Costs.” Offering costs consisted of legal, accounting, underwriting fees and other costs incurred through the IPO that were directly related to the IPO. Offering costs are allocated to the separable financial instruments issued in the IPO based on a relative fair value basis, compared to total proceeds received. Offering costs associated with Warrant liabilities are expensed as incurred, presented as non-operating expenses in our Statement of Operations. Offering costs associated with the Class A ordinary shares were charged to shareholders’ deficit upon the completion of the IPO. Transaction costs of the IPO, including the partial exercise of the over-allotment, amounted to $15,622,172, of which $618,405 were allocated to expense associated with the Warrant liability.
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Ordinary Shares Subject to Possible Redemption
All of the Class A ordinary shares sold as part of the Units in the IPO contain a redemption feature which allows for the redemption of such public shares in connection with our liquidation, if there is a shareholder vote or tender offer in connection with the initial Business Combination and in connection with certain amendments to our charter. In accordance with SEC and its staff’s guidance on redeemable equity instruments, which has been codified in ASC 480-10-S99, redemption provisions not solely within our control require ordinary shares subject to redemption to be classified outside of permanent equity. Ordinary liquidation events, which involve the redemption and liquidation of all of the entity’s equity instruments, are excluded from the provisions of ASC 480. Accordingly, at September 30, 2022 and December 31, 2021, all Class A ordinary shares subject to possible redemption is presented as temporary equity, outside of the shareholders’ deficit section of our condensed balance sheets.
We recognize changes in redemption value immediately as they occur and adjusts the carrying value of redeemable ordinary share to equal the redemption value at the end of each reporting period. Increases or decreases in the carrying amount of redeemable ordinary share are affected by charges against additional paid in capital and accumulated deficit.
Net Income Per Share
We comply with accounting and disclosure requirements of FASB ASC Topic 260, Earnings Per Share. Net income per share is computed by dividing net income by the weighted average number of ordinary shares outstanding during the period. We have two classes of shares, Class A ordinary shares and Class B ordinary shares. Earnings and losses are shared pro rata between the two classes of shares. We have not considered the effect of warrants sold in the IPO and the Private Placements to purchase 13,993,314 ordinary shares in the calculation of diluted net income per share, since the exercise of the warrants is contingent upon the occurrence of future events. As a result, diluted net income per ordinary share is the same as basic net income per ordinary share for the period presented.
Our statement of operations applies the two-class method in calculating net income per share. Basic and diluted net income per ordinary share for Class A ordinary shares and Class B ordinary shares is calculated by dividing net income attributable to us by the weighted average number of Class A ordinary shares and Class B ordinary shares outstanding, allocated proportionally to each class of shares.
Recent Accounting Pronouncements
In August 2020, the FASB issued ASU2 020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU also removes certain settlement conditions that are required for equity-linked contracts to qualify for scope exception, and it simplifies the diluted earnings per share calculation in certain areas. The Company adopted ASU 2020-06 on January 1, 2021. Adoption of the ASU did not impact the Company’s financial position, results of operations or cash flows.
Our management does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying unaudited condensed financial statements.
Emerging Growth Company and Smaller Reporting Company Status
As an emerging growth company, or EGC, under the Jumpstart Our Business Startups Act of 2012, or JOBS Act, we may delay the adoption of certain accounting standards until such time as those standards apply to private companies. Other exemptions and reduced reporting requirements under the JOBS Act for EGCs include presentation of only two years of audited financial statements in a registration statement for an IPO, an exemption from the requirement to provide an auditor’s report on internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002, an exemption from any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation, and less extensive disclosure about our executive compensation arrangements.
In addition, the JOBS Act provides that an EGC can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an EGC to delay the adoption of some accounting standards until those standards would otherwise apply to private companies. We have 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, we can adopt the new or revised standard at the time private companies adopt the new or revised standard and may do so until such time that we either (1) irrevocably elect to “opt out” of such extended transition period or (2) no longer qualify as an emerging growth company. As a result, our financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
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We are also a “smaller reporting company,” as defined in the Exchange Act of 1934, or the Exchange Act. We may continue to be a smaller reporting company even after we are no longer an emerging growth company, in which case we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Chief Executive Officer (our principal executive and principal financial officer), we conducted an evaluation of the effectiveness of our disclosure controls and procedures, as such term is defined in Rules 13a-15I and 15d-15(e) under the Exchange Act, as of the end of the quarter ended September 30, 2022. Based on this evaluation our principal executive and principal financial (“Certifying Officer”) has concluded that during the period covered by this report, our disclosure controls and procedures were not effective. Our internal control over financial reporting did not result in the proper accounting classification of complex financial instruments and the accounting for accruals for certain expenses. As a result, we performed additional analyses as deemed necessary to ensure that our financial statements were prepared in accordance with U.S. generally accepted accounting principles. Accordingly, management believes that the financial statements included in this Quarterly Report on Form 10-Q present fairly, in all material respects, our financial position, result of operations and cash flows of the periods presented.
Disclosure controls and procedures are controls and other procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our Certifying Officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
Other than the matter disclosed above, and the additional procedures described below, there was no change in our internal control over financial reporting that occurred during the quarter ended September 30, 2022 covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
As disclosed above, management has identified material weaknesses in internal controls related to the proper accounting classification of complex financial instruments and the accounting for accruals for certain expenses. In light of the material weaknesses identified, we plan to continue to enhance our processes to identify and appropriately apply applicable accounting requirements to better evaluate and understand the nuances of the complex accounting standards that apply to our financial statements. Our plans at this time include providing enhanced access to accounting literature, research materials and documents and increased communication among our personnel and third-party professionals with whom we consult regarding complex accounting applications. The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects.
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PARTII-OTHERINFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors.
Investing in our securities involves a high degree of risk. In addition to the other information set forth in this Quarterly Report on Form 10-Q, you should carefully consider the factors discussed in Part I, Item 1A Risk Factors in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on April 20, 2022 (the “2021 Form 10-K”) and Part II, Item 1A Risk Factors in our Quarterly Reports on Form 10-Q for the quarter ended March 31, 2022, filed with the SEC on May 26, 2022, and for the quarter ended June 30, 2022, filed with the SEC on August 16, 2022, which could materially affect our business, financial condition, or future results.
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 in connection with a redemption or liquidation.
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 (including redemptions) of stock or shares by publicly traded domestic corporations and certain domestic subsidiaries of publicly traded foreign corporations (the “Excise Tax”). 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 or share issuances against the fair market value of stock or share repurchases during the same taxable year. In addition, certain exceptions apply to the Excise Tax. Treasury has been given authority to provide regulations and other guidance to carry out, and prevent the abuse or avoidance of the excise tax. The IR Act applies only to repurchases that occur after December 31, 2022.
Any redemption or other repurchase that occurs after December 31, 2022, in connection with an initial business combination — particularly one that involves our combination with a U.S. entity and/or our re-domestication as a U.S. corporation —may be subject to the Excise Tax.1 Whether and to what extent we would be subject to the Excise Tax would depend on a number of factors, including (i) the fair market value of the redemptions and repurchases in connection with the initial business combination, (ii) the structure of the initial business combination, (iii) the nature and amount of any “PIPE” or other equity issuances in connection with the initial business combination (or otherwise issued not in connection with the initial business combination but issued within the same taxable year of the initial business combination) and (iv) the content of regulations and other guidance from the U.S. Department of the Treasury. In addition, because the Excise Tax would be payable by us, and not by the redeeming holder, the mechanics of any required payment of the Excise Tax have not been determined. Consequently, the value of your investment in our securities may decrease as a result of the Excise Tax. In addition, the Excise Tax may make a transaction with us less appealing to potential business combination targets, and thus, potentially hinder our ability to enter into and consummate an initial business combination.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds from Registered Securities
Use of Proceeds
On March 23, 2021, we consummated our IPO of 25,000,000 Units. Each Unit consists of one Class A ordinary share, and one-third of one redeemable warrant to purchase one Class A ordinary share at a price of $11.50 per whole share. Citigroup Global Markets Inc. and Deutsche Bank Securities Inc. acted as representatives of the Underwriters. The Units were sold at a price of $10.00 per Unit, generating gross proceeds of $250.0 million. We granted the Underwriters a 45-day option to purchase up to an additional 3,750,000 units at the IPO price to cover over-allotments, if any. On March 31, 2021, the Underwriters partially exercised the over-allotment option and purchased an additional 2,128,532 Units generating gross proceeds of $21.3 million. On March 31, 2021, our Sponsor surrendered 532,132 Class B ordinary shares for cancellation in connection with the partial exercise of the over- allotment option. The securities in the offering were registered under the Securities Act on a registration statement on Form S-1 (No. 333-253105). The Securities and Exchange Commission declared the registration statement effective on March 18, 2021.
Upon further evaluation, management determined that, due to a clerical error in the calculation of the number of Class B ordinary shares to be surrendered to us in connection with the partial exercise of the over-allotment option, the Sponsor inadvertently surrendered 126,765 Class B ordinary shares more than the 405,367 Class B ordinary shares that were required to have been forfeited by it in connection with the partial exercise of the over-allotment option (the “Clerical Error”). Accordingly, on September 16, 2021, we issued 126,765 Class B ordinary shares to the Sponsor, for no consideration, to correct the Clerical Error, such that the total number of Class B ordinary shares forfeited by the Sponsor, after giving effect to the correction of the Clerical Error, was 405,367 Class B ordinary shares.
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Substantially concurrently with the closing of the IPO, we completed the private sale of 4,666,667 Private Placement Warrants, at a purchase price of $1.50 per Private Placement Warrant, to our Sponsor, generating gross proceeds of $7.0 million. In connection with the Underwriters’ partial exercise of their over-allotment option, our Sponsor purchased an additional 283,804 Private Placement Warrants, generating gross proceeds of approximately $0.4 million.
In connection with the IPO and the over-allotment, we incurred offering costs of $15,622,172, inclusive of approximately $9.5 million in deferred underwriting commissions. Other incurred offering costs consisted principally of preparation fees related to the IPO. After deducting the underwriting discounts and commissions (excluding the deferred portion, which amount will be payable upon consummation of the initial Business Combination, if consummated) and the IPO expenses, approximately $271.3 million of the net proceeds from our IPO, the over-allotment and certain of the proceeds from the private placement of the Private Placement Warrants (or $10.00 per Unit sold in the IPO) were placed in the Trust Account. See Note 1 to the unaudited condensed financial statements for additional detail.
We have agreed to pay the Underwriters up to an additional $9.5 million on account of certain deferred underwriting fees in connection with the initial Business Combination; provided, however, that the Underwriters will not be paid such additional fees if we do not complete the initial Business Combination.
There has been no material change in the planned use of the proceeds from the IPO and Private Placement as is described in our final prospectus related to the IPO.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
On November 8, 2022, our board of directors appointed Martin Varsavsky, our chief executive officer, to serve as our interim Chief Financial Officer (principal financial officer).
For Mr. Varsavsky’s biographical information and disclosure related to certain transactions between us and Mr. Varsavsky, see the disclosure include under Item 10. Directors, Executive Officers and Corporate Governance on page 61 of the 2021 Form 10-K and Item 13. Certain Relationships and Related Transactions, and Director Independence on pages 66 through 68 of the 2021 Form 10-K, which disclosure is incorporated herein by reference.
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Item 6. Exhibits.
| Exhibit Number |
Description | |
| 3.1 | Amended and Restated Memorandum and Articles of Association.1 | |
| 31.1 | Certification of Principal Executive and Principal Financial Officer Pursuant to Rules 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.* | |
| 32.1 | Certification of Principal Executive and Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.* | |
| 101.INS | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 10l.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (embedded within the Inline XBRL document and incorporated as Exhibit 101). | |
| * | Filed herewith. |
| 1 | Previously filed as an exhibit to our Current Report on Form 8-K filed on March 23, 2021 and incorporated by reference herein. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on this 8th day of November 2022.
| LEVERE HOLDINGS CORP. | ||
| By: | /s/ Martin Varsavsky | |
| Name: | Martin Varsavsky | |
| Title: | Chief Executive Officer and Chief Financial Officer | |
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