Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2022
OR
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number: 001-40109
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation) |
(I.R.S. Employer Identification No.) | |
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(Address of Principal Executive Offices) |
(Zip Code) | |
(212 ) 228-3585
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
one-third of one redeemable warrant |
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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. Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation Yes ☒ No ☐
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 | ☐ | |||
Non-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 is a shell company (as defined in Rule ☒ No ☐
12b-2
of the Exchange Act). Yes As of August 28,750,000 shares of Class A common stock, par value $0.0001 per share, and 6,934,500 shares of Class B common stock, par value $0.0001 per share, were issued and outstanding, respectively.
15
, 2022, USHG ACQUISITION CORP.
Quarterly Report
on Form 10-Q
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1
PART I. FINANCIAL INFORMATION
Item 1. |
Financial Statements (Unaudited) |
USHG Acquisition Corp.
Condensed Balance Sheets
June 30, 2022 (Unaudited) |
December 31, 2021 |
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| ASSETS |
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| Current assets: |
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| Cash |
$ |
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| Prepaid expenses |
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| Total current assets |
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| Marketable securities held in Trust Account |
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| Other assets |
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| Total assets |
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$ |
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| LIABILITIES AND STOCKHOLDERS’ DEFICIT |
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| Current liabilities: |
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| Accounts payable |
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| Note payable – related parties |
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| Franchise tax payable |
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| Accrued expenses |
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| Total current liabilities |
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| Warrant liabilities |
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| Deferred underwriting compensation |
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| Deferred legal fees |
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| Total liabilities |
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| Commitments and Contingencies |
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| Common stock subject to possible redemption, $ |
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| Stockholders’ Deficit: |
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| Preferred stock, $ |
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| Class A common stock, $ respectively (1) |
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| Class B common stock, $ outstanding |
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| Additional paid-in capital (1) |
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| Accumulated deficit (1) |
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| Total stockholders’ deficit (1) |
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| Total Liabilities and Stockholders’ Deficit |
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| 1. | June 30, 2021 values were restated in Note 2 of the Company’s Quarterly Report on Form 10-Q for September 30, 2021 filed with the U.S. Securities and Exchange Commission (the “SEC”) on November 16, 2021. |
The accompanying notes are an integral part of these unaudited condensed financial statements.
2
USHG Acquisition Corp.
Condensed Statements of Operations
(Unaudited)
For The Three Months Ended June 30, 2022 |
For The Three Months Ended June 30, 2021 |
For The Six Months Ended June 30, 2022 |
For The Six Months Ended June 30, 2021 |
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| Formation and operating costs |
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| Franchise tax expense |
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| Loss from operations |
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| Other Income (Expense): |
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| Change in fair value of warrant liabilities |
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| Offering costs allocated to warrant liabilities |
( |
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| Interest on marketable securities |
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| Income (loss) before income tax expense |
$ |
$ |
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$ |
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| Income tax expense |
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| Net Income (loss) |
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| Weighted average shares outstanding of Class A common stock, basic and diluted (1) |
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| Basic and diluted net income (loss) per share of Class A common stock (1) |
$ |
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| Weighted average shares outstanding of Class B common stock, basic and diluted (1) |
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| Basic and diluted net income (loss) per share of Class B common stock (1) |
$ |
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| 1. | June 30, 2021 values were restated in Note 2 of the Company’s Quarterly Report on Form 10-Q for September 30, 2021 filed with the SEC on November 16, 2021. |
The accompanying notes are an integral part of these unaudited condensed financial statements.
3
USHG Acquisition Corp.
Condensed Statements of Changes in Stockholders’ Deficit
For the Three and Six Months Ended June 30, 2022
(Unaudited)
Common Stock |
Additional |
Total |
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Class B |
Paid-In |
Accumulated |
Stockholders’ |
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Shares |
Amount |
Capital |
Deficit |
Deficit |
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| Balance as of January 1, 2022 |
$ |
$ |
$ |
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| Net income |
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| Balance as of March 31, 2022 (unaudited) |
$ |
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$ |
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| Net income |
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| Balance as of June 30, 2022 (unaudited) |
$ |
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$ |
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USHG Acquisition Corp.
Condensed Statements of Changes in Stockholders’ Deficit
For the Three and Six Months Ended June 30, 2021
(Unaudited)
Common Stock |
Additional |
Total |
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Class B |
Paid-In |
Accumulated |
Stockholders’ |
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Shares |
Amount |
Capital (1) |
Deficit (1) |
Deficit (1) |
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| Balance as of January 1, 2021 |
$ |
$ |
$ |
( |
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$ |
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| Excess cash received over fair value of Private Placement Warrants |
— | — | — | |||||||||||||||||
| Accretion of Class A Common Stock to redemption value (1) |
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| Net income |
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| Balance as of March 31, 2021 (unaudited) |
$ |
$ |
$ |
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| Offering costs related to Initial Public Offering |
— | — | — | ( |
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| Net Loss |
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| Balance as of June 30, 2021 (unaudited) |
$ |
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$ |
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| 1. | June 30, 2021 values were restated in Note 2 of the Company’s Quarterly Report on Form 10-Q for September 30, 2021 filed with the SEC on November 16, 2021. |
The accompanying notes are an integral part of these unaudited condensed financial statements.
4
USHG Acquisition Corp.
Condensed Statements of Cash Flows
(Unaudited)
For the Six Months Ended June 30, 2022 |
For the Six Months Ended June 30, 2021 |
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| Cash Flows from Operating Activities |
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| Net income |
$ | $ | ||||||
| Adjustments to reconcile net income to net cash used in operating activities |
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| Interest earned on marketable securities |
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| Offering costs allocated to derivative warrant liabilities |
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| Formation and operating expenses funded by Sponsor |
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| Change in fair value of warrant liabilities |
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| Changes in operating assets and liabilities |
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| Prepaid expenses |
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| Other assets |
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| Accounts payable |
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| Accrued offering and formation costs |
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| Deferred legal fees |
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| Net cash used in operating activities |
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| Cash Flows from Investing Activities |
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| Cash deposited in Trust Account |
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| Trust Account withdrawal for Franchise Tax payments |
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| Net cash provided by (used in) investing activities |
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| Cash Flows from Financing Activities |
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| Proceeds from issuance of Class A common stock and warrants |
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| Proceeds from note payable and advances from related party |
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| Repayment of note payable and advances from related party |
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| Payment of offering costs |
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| Net cash provided by financing activities |
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| Net increase (decrease) in cash |
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| Cash—end of period |
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| Supplemental disclosure of noncash investing and financing activities: |
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| Deferred offering costs included in accrued offering costs |
$ | $ | ||||||
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| Deferred offering costs paid through promissory note – related party |
$ | $ | ||||||
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| Deferred underwriting compensation |
$ | $ | ||||||
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The accompanying notes are an integral part of these unaudited condensed financial statements.
5
USHG ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2022
Note 1—Description of Organization and Business Operations
USHG Acquisition Corp. (the “Company”) is a blank check company formed as a Delaware corporation on December 4, 2020 . The Company was incorporated 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 entities (“Business Combination”).
As of June 30, 2022, the Company had not yet commenced operations. All activities from December 4, 2020 (inception) through June 30, 2022 relate to the Company’s formation, Initial Public Offering (the “Initial Public Offering”), which is described below, and due diligence activities on potential targets.
On March 1, 2021, the Company consummated the Initial Public Offering of 28,750,000 units (the “Units” and with respect to the Class A common stock included in the Units being offered, the “Public Shares”), including 3,750,000 Units sold pursuant to the full exercise of the underwriters’ option to purchase additional Units to cover over-allotments. The Units were sold at a price of $10.00 per Unit, generating gross proceeds to the Company of $287,500,000 , which is described in Note 3.
Simultaneously with the closing of the Initial Public Offering, the Company completed the private sale of 1,333,333 warrants (the “Private Placement Warrants”) at a purchase price of $1.50 per Private Placement Warrant (the “Private Placement”), to USHG Investments, LLC (the “Sponsor”), generating gross proceeds to the Company of $2,000,000 , which is described in Note 3.
Offering costs consist of legal, accounting, and other costs incurred through the balance sheet date that are directly related to the Initial Public Offering and were charged to temporary equity upon completion of the Initial Public Offering.
Following the closing of the Initial Public Offering on March 1, 2021, an amount of $287,500,000 ($10 per Unit) of the proceeds from the Initial Public Offering, including $15,812,500 of the underwriters’ deferred discount was placed in a trust account located in the United States at J.P. Morgan Chase Bank, N.A. maintained by American Stock Transfer & Trust Company, LLC, acting as trustee (the “Trust Account”). Except with respect to interest earned on the funds in the Trust Account that may be released to the Company to pay its franchise and income taxes and expenses relating to the administration of the Trust Account, the proceeds from the Initial Public Offering held in the Trust Account will not be released until the earliest of (a) the completion of the Company’s initial Business Combination, (b) the redemption of any Public Shares of the Company properly tendered in connection with a stockholder vote to amend the Company’s Second Amended and Restated Certificate of Incorporation, which was adopted upon the consummation of the Initial Public Offering (the “Amended and Restated Certificate of Incorporation”) (i) to modify the substance or timing of its obligation to redeem 100 % of the Public Shares if the Company does not complete its initial Business Combination within 24 months from the closing of the Initial Public Offering or (ii) with respect to any other provisions relating to stockholders’ rights or
pre-initial
Business Combination activity, and (c) the redemption of all of the Public Shares if it is unable to complete its Business Combination within 24 months from the closing of the Initial Public Offering, subject to applicable law. On November 8, 2021, the Company entered into an Investment Agreement and Plan of Merger (the “Investment Agreement”) with Panera Brands, Inc., a Delaware corporation (“Panera”), and Rye Merger Sub Inc., a Delaware corporation and wholly owned subsidiary of Panera (“Merger Sub”), pursuant to which the parties agreed that Merger Sub would merge with and into the Company, with the Company surviving the merger as a wholly owned subsidiary of Panera (the “Merger”).
The Investment Agreement provided that either the Company or Panera could terminate the agreement if the Merger was not completed on or prior to June 30, 2022, subject to certain limitations. On July 1, 2022, Panera delivered a written notice of termination to the Company terminating the Investment Agreement as a result of the Merger not having been completed on or prior to June 30, 2022. For more information regarding the termination of the Investment Agreement, please refer to the Company’s Current Report on Form
8-K
filed with the SEC on July 1, 2022. The Company’s management has broad discretion with respect to the specific application of the net proceeds of its Initial Public Offering and the sale of 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’s initial Business Combination must be with one or more operating businesses or assets that together have an aggregate fair market value equal to at least 80 % of the net assets held in the Trust Account (excluding the deferred underwriting commissions and taxes payable on the interest earned on the Trust Account) at the time the Company signs a definitive agreement in connection with the initial Business Combination. However, the Company will only complete a Business Combination if
6
the post-transaction company owns or acquires 50% or more of the issued and outstanding voting securities of the target or otherwise is not required to register as an investment company under the Investment Company Act 1940, as amended (the “Investment Company Act”). Upon the closing of the Initial Public Offering, management has agreed that an amount equal to at least $10.00 per Unit sold in the Initial Public Offering are held in the Trust Account with American Stock Transfer & Trust Company, LLC acting as trustee and invested 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, as determined by the Company, until the earlier of: (i) the completion of a Business Combination and (ii) the distribution of the Trust Account as described below. The Company will provide its holders of the 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, solely in its discretion. 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 $10.00 per share, plus any pro rata interest earned on the funds held in the Trust Account and not previously released to the Company to pay its tax obligations). The 5,000,001 upon such consummation of a Business Combination and a majority of the shares voted are voted in favor of the Business Combination. If a stockholder vote is not required by law and the Company does not decide to hold a stockholder vote for business or other legal reasons, the Company will, pursuant to the Amended and Restated 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, a stockholder approval of the transactions is required by law, or the Company decides to obtain stockholder approval for business or legal reasons, the Company will offer to redeem Public Shares in conjunction with a proxy solicitation pursuant to the proxy rules and not pursuant to the tender offer rules. Additionally, each Public Stockholder may elect to redeem their Public Shares irrespective of whether they vote for or against the transaction. If the Company seeks stockholder approval in connection with a Business Combination, the holders of the Founder Shares (as defined in Note 6) prior to the Initial Public Offering (the “Initial Stockholders”) have agreed to vote their Founder Shares and any Public Shares purchased during or after the Initial Public Offering in favor of a Business Combination. In addition, the Initial Stockholders have agreed to waive their redemption rights with respect to their Founder Shares and Public Shares in connection with the completion of a Business Combination.
per-share
amount to be distributed to Public Stockholders who redeem their Public Shares will not be reduced by the deferred underwriting commissions the Company will pay to the underwriters (as discussed in Note 5). These Public Shares were recorded at a redemption value and classified as temporary equity upon the completion of the Initial Public Offering, in accordance with Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” In such case, the Company will proceed with a Business Combination if the Company has net tangible assets of at least $Notwithstanding the foregoing, the Amended and Restated 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 Sponsor, executive officers and directors will have agreed not to propose an amendment to the Amended and Restated Certificate of Incorporation that would affect the substance or timing of the Company’s obligation to provide for the redemption of its Public Shares in connection with a Business Combination or to redeem 100 % of its Public Shares if the Company does not complete a Business Combination within 24 months from the closing of the Initial Public Offering (the “Combination Period”), unless the Company provides the Public Stockholders with the opportunity to redeem their Class A common stock in conjunction with any such amendment.
If the Company is unable to complete a Business Combination within the 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 100,000 of interest to pay dissolution expenses) divided by the number of the then-outstanding Public Shares, which redemption will completely extinguish Public Stockholders’ rights as stockholders (including the right to receive further liquidation distributions, if any); and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the remaining stockholders and the board of directors, liquidate and dissolve, subject in each case to the Company’s obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law. There will be no redemption rights or liquidating distributions with respect to the Company’s warrants, which will expire worthless if the Company fails to complete a Business Combination within the Combination Period.
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 its taxes, if any (less up to $7
In connection with the redemption of 100% of the Company’s outstanding Public Shares for a portion of the funds held in the Trust Account, each holder will receive a full pro rata portion of the amount then in the Trust Account, plus any pro rata interest earned on the funds held in the Trust Account and not previously released to the Company to pay the Company’s taxes (less up to $100,000 of interest to pay dissolution expenses).
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 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 underwriters have agreed to waive their rights to their deferred underwriting commission (see Note 5) held in the Trust Account in the event the Company does not complete a Business Combination within in the Combination Period, and, in such event, such amounts will be included with the 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 $10.00 per share initially held in the Trust Account. In order to protect the amounts held in the Trust Account, the Sponsor has agreed that it will be liable to the Company if and to the extent any claims by a third party for services rendered or products sold to the Company, or a prospective target business with which the Company has entered into a written letter of intent, confidentiality or other similar agreement or business combination agreement, reduce the amount of funds in the Trust Account to below the lesser of (i) $10.00 per Public Share and (ii) the actual amount per Public Share held in the Trust Account as of the date of the liquidation of the Trust Account, if less than $10.00 per share due to reductions in the value of the trust assets, less taxes payable, provided that such liability will not apply to any claims by a third party or prospective target business who executed a waiver of any and all rights to the monies held in the Trust Account (whether or not such waiver is enforceable) nor will it apply to any claims under the Company’s indemnity of the underwriters of the Initial Public Offering against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the “Securities Act”). 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 vendors, service providers (other than the Company’s independent registered public accounting firm), prospective target businesses or other entities with which the Company does business, execute agreements with the Company waiving any right, title, interest or claim of any kind in or to monies held in the Trust Account.
Liquidity and Going Concern Considerations
The Company has $341,334 in cash and a working capital of $61,358 as of June 30, 2022. The Company has incurred and expects to incur additional significant costs in pursuit of its financing and acquisition plans.
In connection with the Company’s assessment of going concern considerations in accordance with the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Update (“ASU”)
2014-15,
“Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” management has determined that the mandatory liquidation and subsequent dissolution raises substantial doubt about the Company’s ability to continue as a going concern. No adjustments have been made to the carrying amounts of assets or liabilities should the Company be required to liquidate after March 1, 2023. The financial statements do not include any adjustment that might be necessary if the Company is unable to continue as a going concern. Risks and Uncertainties
Management continues to evaluate the impact of the
COVID-19
pandemic and has concluded that while it is reasonably possible that the virus could have a negative effect on the Company’s financial position, results of its operations and/or search for a target company, 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. Note 2—Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed financial statements of the Company have been prepared in accordance with United States generally accepted accounting principles (“GAAP”) for interim financial information and Article 8 of Regulation
S-X.
Accordingly, they do not include all of the information and footnotes required by GAAP. In the opinion of management, all adjustments (consisting of normal accruals) considered for a fair presentation have been included. Operating results for the three and six months ended June 30, 2022 are not necessarily indicative of the results that may be expected for the year ending December 31, 2022 and for future periods. 8
The accompanying unaudited condensed financial statements should be read
in
conjunction with the Company’s Annual Report on Form 10-K
for the year ended December 31, 2021 as filed with the SEC on March 14, 2022 (the “Annual Report”).
Emerging Growth Company
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act 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 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, can 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 financial statements with 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 GAAP requires 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 and the reported amounts of expenses during the reporting period.
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect 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. One of the more significant accounting estimates included in these financial statements is the determination of the fair value of the warrant liability. Such estimates may be subject to change as more current information becomes available and accordingly the actual results could differ significantly from those estimates.
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. As of June 30, 2022 and December 31, 2021, the Company had $341,334 and $386,462 in cash and no
Derivative Warrant Liabilities
The Company accounts for the Warrants in accordance with the guidance contained in
ASC 815-40
under which the Warrants do not meet the criteria for equity treatment and must be recorded as liabilities. Accordingly, the Company classifies the Warrants as liabilities at their fair value and adjusts the warrants to fair value at each reporting period. This liability is subject to re-measurement
at each balance sheet date until exercised, and any change in fair value is recognized in the Company’s statement of operations. See Note 6 for further discussion of the pertinent terms of the Warrants and Note 8 for further discussion of the methodology used to determine the value of the Warrants. Marketable Securities Held in Trust Account
At June 30, 2022 and December 31, 2021, the assets held in the Trust Account were invested in money-market funds that is primarily invested in U.S. Treasury securities.
9
Common Stock Subject to Possible Redemption
The Company accounts for its common stock subject to possible redemption in accordance with the guidance in ASC Topic 480 “Distinguishing Liabilities from Equity.” Shares of common stock subject to mandatory redemption, if any, is classified as a liability instrument and is measured at fair value. Conditionally redeemable common stock (including common stock that features redemption rights that is 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, common stock is classified as stockholders’ equity. The Company’s common stock features certain redemption rights that are considered to be outside of the Company’s control and subject to occurrence of uncertain future events. Accordingly, as of June 30, 2022 and December 31, 2021, common stock subject to possible redemption is presented at redemption value as temporary equity, outside of the stockholders’ deficit section of the Company’s condensed balance sheets.
The Class A common stock subject to possible redemption reflected on the condensed balance sheets as of June 30, 2022 and December 31, 2021 are reconciled in the following table:
| Gross proceeds |
$ | |
||
| Less: |
||||
| Proceeds allocated to public warrants |
( |
) | ||
| Class A common stock offering costs at closing |
( |
) | ||
| Additional offering costs incurred during the three months ended June 30, 202 1 |
( |
) | ||
| Plus |
||||
| Total accretion of carrying value to redemption value |
||||
| |
|
|||
| Class A common stock subject to possible redemption at December 31, 2021 |
$ |
|||
| |
|
|||
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentration of credit risk consist of a cash account in a financial institution which, at times may exceed the Federal Deposit Insurance Corporation coverage of $250,000 . At June 30, 2022 and June 30, 2021, the Company had not experienced losses on this account and management believes the Company is not exposed to significant risks on such account.
Fair Value Measurements
ASC 820, Fair Value Measurement, defines fair value and requires disclosures about fair value measurements. Fair value is defined as the price that would be received for sale of an asset or paid for transfer of a liability, in an orderly transaction between market participants at the measurement date. GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value.
The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:
| • | Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets; |
| • | Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and |
| • | Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. |
In some circumstances, the inputs used to measure fair value might be categorized within different levels of the fair value hierarchy. In those instances, the fair value measurement is categorized in its entirety in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement.
10
As of June 30, 2022 and December 31, 2021 the carrying values of cash, accounts payable, franchise tax payable, and accrued expenses approximate their fair values due to the short-term nature of the instruments. The Company’s portfolio of marketable securities held in the Trust Account is comprised of investments in a money market fund that is primarily invested in U.S. Treasury securities. The fair value for trading securities is determined using quoted market prices in active markets.
Offering Costs
Offering costs consist of legal, accounting, underwriting and other costs incurred through the closing of the Company’s Initial Public Offering. Upon the completion of the Initial Public Offering in March 2021, the offering costs were allocated using the relative fair values of the Company common stock and its public and private warrants. The costs allocated to warrants were recognized in other expenses and those related to the Company’s common stock were charged against temporary equity.
Net Income (loss) Per Common Stock
The Company complies with accounting and disclosure requirements of FASB ASC Topic 260, “Earnings Per Share.” Net income (loss) per share of common stock is computed by dividing net income by the weighted average number of shares outstanding for the period. The Company has not considered the effect of the warrants sold in the Initial Public Offering in the calculation of diluted income per share, because the exercise of the warrants is contingent upon the occurrence of future events. Accretion associated with the redeemable Class A common stock is excluded from income (loss) per share as the redemption value approximates fair value.
The shares of Class B common stock will automatically convert into shares of Class A common stock at the time of the Business Combination subject to adjustment.
The Company has two classes of shares, which are referred to as Class A common stock and Class B common stock. Income and losses are shared pro rata between the two classes of shares. Net income (loss) per share, basic and diluted for Class A common stock is calculated by dividing the pro rata allocation of net income (loss) to shares of Class A common stock for the three and six months ended June 30, 2022 and June 30, 2021, respectively, by the weighted average number of Class A common stock outstanding for the period. Net income (loss) per share basic and diluted for Class B common stock is calculated by dividing the pro rata allocation of net income (loss) to shares of Class B common stock for the three and six months ended June 30, 2022 and June 30, 2021, respectively, by the weighted average number of Class B common stock outstanding for the period.
For The Three Months Ended June 30, 2022 |
For The Three Months Ended June 30, 2021 |
For the Six Months Ended June 30, 2022 |
For The Six Months Ended June 30, 2021 |
|||||||||||||
| Redeemable Class A Common Stock |
||||||||||||||||
| Numerator: Net income (loss) allocable to Redeemable Class A Common Stock |
$ | $ | ( |
) | $ | $ | ||||||||||
| Denominator: Weighted Average Share Outstanding, Redeemable Class A Common Stock |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Basic and diluted income (loss) per share, Redeemable Class A |
$ |
$ |
( |
) |
$ |
$ |
||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Non-Redeemable Class B Common Stock |
||||||||||||||||
| Numerator: Net income (loss) allocable to non- redeemable Class B Common Stock |
$ | $ | ( |
) | $ | $ | ||||||||||
| Denominator: Weighted Average Non-Redeemable Class B Common Stock |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Basic and diluted net income (loss) per share, Non-Redeemable Class B |
$ |
$ |
( |
) |
$ |
$ |
||||||||||
Income Taxes
The Company complies with the accounting and reporting requirements of ASC Topic 740, “Income Taxes,” which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
11
ASC Topic 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be no no
more-likely-than-not
to be sustained upon examination by taxing authorities. The Company’s management determined that the United States is the Company’s only major tax jurisdiction. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were The Company’s taxable income primarily consists of interest income on the Trust Account, less any franchise taxes. The Company’s formation costs are generally considered start-up costs and are not currently deductible. The Company recorded an income tax provision of $70,908 0 0.5 0.0 0 % effective income tax rate differs from the federal statutory rate of 21 % as a result of non-deductible transaction costs, and the movement of the valuation allowance against our U.S. state and federal net deferred tax assets. As of June 30, 2022 and December 31, 2021, the Company had $187,320 265,962
In assessing the realization of the deferred tax assets, the Company considers whether it is more likely than not that some portion of all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which temporary differences representing net future deductible amounts become deductible. The Company also considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. After consideration of all of the information available, management believes that significant uncertainty exists with respect to future realization of deferred tax assets and therefore established a full valuation allowance. For the three and six months ended June 30, 2022, and June 30, 2021, the valuation allowance was $70,908 0
The Company files income tax returns in the U.S. federal jurisdiction and is subject to examination by the various taxing authorities. There were no No
Recent Accounting Pronouncements
In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2020-06,
Debt — Debt with Conversion and Other Options (Subtopic 470-20)
and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40)
(“ASU 2020-06”)
to simplify accounting for certain financial instruments. ASU 2020-06
eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity. ASU 2020-06
amends the diluted earnings per share guidance, including the requirement to use the if-converted
method for all convertible instruments. ASU 2020-06
is effective January 1, 2024 and should be applied on a full or modified retrospective basis, with early adoption permitted beginning on January 1, 2021. Management is currently evaluating the new guidance but does not expect the adoption of this guidance to have a material impact on the Company’s financial statements. Management does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s unaudited condensed financial statements.
Note 3—Initial Public Offering and Private Placement
Pursuant to the Initial Public Offering, the Company sold 28,750,000 Units at a purchase price of $10.00 per Unit, including 3,750,000 Units sold pursuant to the full exercise of the underwriters’ option to purchase additional Units to cover over-allotments. Each Unit consists of one share of Class A common stock Each whole Public Warrant entitles the holder to purchase one share of Class A common stock at an exercise price of $11.50 per share, subject to adjustment (see Note 6).
and one-third of
one redeemable warrant (“Public Warrant”).Simultaneously with the closing of the Initial Public Offering, the Company completed a sale of 1,333,333 Private Placement Warrants at a purchase price of $1.50 per Private Placement Warrant (the “Private Placements”), to the Sponsor, generating gross proceeds to the Company of $2,000,000 . The Private Placement Warrants are identical to the warrants sold as part of the Units in the Initial Public Offering, except that the Sponsor has agreed not to transfer, assign, or sell any of the Private Placement Warrants (except to certain permitted transferees) until 30 days after the completion of the Company’s initial Business Combination. So long as the Private Placement Warrants are held by the Sponsor, the Private Placement Warrants will not be redeemable for cash by the Company and will be exercisable on a cashless basis.
12
Note 4—Related Party Transactions
Founder Shares
On December 29, 2020, the Sponsor paid an aggregate of $24,120 in exchange for the issuance of 6,934,500 shares of Class B common stock (the “Founder Shares”). In January 2021, the Sponsor made a charitable contribution of 115,000 of the Founder Shares to Share Our Strength, a 501(c)(3) nonprofit organization. On March 1, 2021, the underwriters exercised the over-allotment option in full to purchase 904,500 Founder Shares.
The Initial Stockholders have agreed not to transfer, assign or sell any of the Founder Shares until the earlier to occur of (1) one year after the completion of the initial Business Combination and (2) subsequent to the Business Combination, (x) if the closing price of the Class A common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends and similar transactions) for any 20 trading days within 150 days after the Business Combination (provided that
any 30 -trading day
period commencing at least the 30-trading day
period must be completed prior to any such transfer, assignment or sale), 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 Public Stockholders having the right to exchange their shares of Class A common stock for cash, securities or other property.Related Party Loans
In order to finance transaction costs in connection with a Business Combination, the Sponsor, members of the Company’s founding team or any of their affiliates 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. The Working Capital Loans would either be repaid upon consummation of a Business Combination, without interest, or, at the lender’s discretion, up to $2.0 million of such Working Capital Loans may be convertible into warrants of the post Business Combination entity at a price of $1.50 per warrant. The warrants would be identical to the Private Placement Warrants. As of June 30, 2022 and December 31, 2021, the Company had $500,000
and no borrowings outstanding under the Working Capital Loans, respectively.
On March 29, 2022, the Company entered into a note agreement with related parties for a principal amount of $500,000 , payable upon consummation of its initial Business Combination. No interest shall accrue on the outstanding principal. If the initial Business Combination is not consummated, the note will not be repaid, and all outstanding balance will be forgiven. Upon consummation of a Business Combination, each payee shall have the option, but not the obligation, to convert the principal balance of the note, in whole or in part, into warrants at a price of $1.50 per warrant, with the warrants being identical to the Private Placement Warrants. As of June 30, 2022, there was $500,000 outstanding under the note.
Administrative Services Agreement
The Company has entered into an Administrative Services Agreement pursuant to which the Company will pay an affiliate of the Sponsor a total of $10,000 per month, until the earlier of the completion of the initial Business Combination and the liquidation of the trust assets, for office space, secretarial and administrative services. Upon completion of the initial Business Combination or liquidation, the Company will cease paying these monthly fees. For the three and six months ended June 30, 2022, the Company paid $30,000 and
for the services provided through the Administrative Services Agreement, respectively. For the three and six months ended June 30, 2021, the Company
paid $Note 5—Commitments and Contingencies
Registration and Stockholder Rights
The holders of the Founder Shares, Private Placement Warrants, and warrants that may be issued upon conversion of Working Capital Loans (and any Class A common stock issuable upon the exercise of the Private Placement Warrants and warrants that may be issued upon conversion of Working Capital Loans) are entitled to registration rights pursuant to a registration rights agreement entered into prior to the closing of the Initial Public Offering. The holders of these securities may at any time, and from time to time, request in writing that the Company register the resale of any or all of these securities on
Form S-3 or
any similar short form registration statement that may be available at such time; provided, however, that the Company shall not be obligated to fulfill such request through an underwritten offering. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to the completion of the initial Business Combination. The Company will bear the expenses incurred in connection with the filing of any such registration statements. Underwriting Agreement
The Company granted the underwriters an option to cover over-allotments and for market stabilization purposes. The over-allotment option entitled the underwriters to purchase on a pro rata basis up to 3,750,000 additional units at the Initial Public Offering price, less the underwriting discounts and commissions. The underwriters exercised the over-allotment option in full and purchased an additional 3,750,000 units at closing of the
13
Initial
Public Offering. As of June 30, 2022 and December 31, 2021, the Company incurred $
in deferred underwriting costs, all of which was recorded as a reduction to temporary stockholders’ equity, which were allocated between the common stock and Public Warrants sold in connection with the Initial Public Offering.
Deferred legal fees
The Company obtained legal advisory services in connection with the Initial Public Offering and agreed to pay their fees upon the consummation of the initial Business Combination. As of June 30, 2022, the Company recorded $1,966,431 in connection with such agreements in the accompanying unaudited condensed balance sheet631,271 of these fees relate to deferred fees incurred after the Company’s Initial Public Offering, and the $1,335,160 of fees relate to the Merger. 1,200,000 o
s
, all of which will be paid upon the consummation of the Business Combination. $Panera
has agreed to reimburse the Company for
up to $f its
legal fees related to the Merger.Independent Financial Advisory Services
Piper Sandler & Co. is acting as the Company’s independent financial advisor as defined under Financial Industry Regulatory Authority Rule 5110(j)(9), to provide independent financial consulting services, consisting of a review of deal structure and terms and related structuring advice in connection with the proposed Merger with Panera. The Company agreed to pay Piper Sandler & Co. a financial advisory fee of $3,000,000 if the Company consummated the Merger with Panera by May 5, 2022 or one year following the termination of the agreement with Piper Sandler & Co. The Company is no longer liable to pay Piper Sandler & Co. the $3,000,000 financial advisory fee as the Merger was not completed by May 5, 2022 and the Investment Agreement was terminated on July 1, 2022.
Note 6— Derivative Warrant Liabilities
The Company accounted for the 10,916,667 Warrants issued in connection with the Initial Public Offering (the 9,583,333 of Public Warrants and the 1,333,333
of Private Placement Warrants) in accordance with the guidance contained in ASC 815- 40 Derivatives and Hedging — Contracts in Entity’s Own Equity. Such guidance provides that, because the Warrants do not meet the criteria for equity treatment thereunder, each Warrant must be recorded as a liability. Accordingly, the Company classifies each warrant as a liability at its fair value. This liability is subject to re-measurement at each balance sheet date. On each remeasurement date, the derivative warrant liability will be adjusted to fair value, with the change in fair value recognized in the Company’s condensed statements of operations.
Public Warrants may only be exercised for a whole number of shares. No fractional Public Warrants will be issued upon separation of the Units and only whole Public Warrants will trade. The Public Warrants will become exercisable on the later of (a) 30 days after the completion of a Business Combination or (b) 12 months from the closing of the Initial Public Offering; provided in each case that the Company has an effective registration statement under the Securities Act covering the shares of Class A common stock issuable upon exercise of the Public Warrants and a current prospectus relating to them is available and such shares are registered, qualified or exempt from registration under the securities, or blue sky, laws of the state of residence of the holder (or the Company permit holders to exercise their warrants on a cashless basis under certain circumstances). The Company has agreed that as soon as practicable, but in no event later than 20 business days after the closing of the initial Business Combination, the Company will use commercially reasonable efforts to file with the SEC and have an effective registration statement covering the shares of Class A common stock issuable upon exercise of the warrants and to maintain a current prospectus relating to those shares of Class A common stock until the warrants expire or are redeemed, as specified in the warrant agreement. If a registration statement covering the shares of Class A common stock issuable upon exercise of the warrants is not effective by the 60
th
day after the closing of the initial Business Combination, warrant holders may, until such time as there is an effective registration statement and during any period when the Company will have failed to maintain an effective registration statement, exercise warrants on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act or another exemption. Notwithstanding the above, if the shares of Class A common stock are at the time of any exercise of a warrant not listed on a national securities exchange such that they satisfy the definition of a “covered security” under Section 18(b)(1) of the Securities Act, the Company may, at its option, require holders of Public Warrants who exercise their warrants to do so on a “cashless basis” and, in the event the Company so elects, the Company will not be required to file or maintain in effect a registration statement, and in the event the Company does not so elect, it will use commercially reasonable efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available. The warrants have an exercise price of $11.50 per share, subject to adjustments, and will expire five years after the completion of a Business Combination or earlier upon redemption or liquidation. In addition, if (x) the Company issues additional shares of Class A common stock or equity-linked securities for capital raising purposes in connection with the closing of the initial 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 board of directors and, in the case of any such issuance to the Sponsor or its affiliates, without taking into account any Founder Shares held by the Sponsor or such affiliates, as applicable, prior to such issuance) (the “Newly Issued Price”), (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 the initial Business Combination on the date of the consummation of the initial Business Combination (net of redemptions), and (z) the volume weighted average trading price of the shares of Class A
14
common stock during the
trading day period starting on the trading day prior to the day on which the Company consummates its initial Business Combination (such price, the “Market Value”) is below $
per share, the exercise price of the warrants will be adjusted (to the nearest cent) to be equal to
% of the higher of the Market Value and the Newly Issued Price, and the $
per share redemption trigger price described under “Redemption of warrants when the price per share of Class A common stock equals or exceeds $
” will be adjusted (to the nearest cent) to be equal to
% of the higher of the Market Value and the Newly Issued Price, and the $
per share redemption trigger price described under the caption “Redemption of warrants when the price per share of Class A common stock equals or exceeds $
” will be adjusted (to the nearest cent) to be equal to the higher of the Market Value and the Newly Issued Price.
There were 3,750,000
The
Private Placement Warrants are identical to the Public Warrants underlying the Units sold in the Initial Public Offering, except that the Private Placement Warrants and the shares of Class A common stock issuable upon exercise of the Private Placement Warrants will not be transferable, assignable, or salable until
days after the completion of a Business Combination, subject to certain limited exceptions. Additionally, the Private Placement Warrants will be
non-redeemable
so long as they are held by the initial purchaser or such purchaser’s permitted transferees. If the Private Placement Warrants are held by someone other than the Initial Stockholders or their permitted transferees, the Private Placement Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.
There were 1,333,333
Redemption
of warrants when the price per share of Class
A common stock equals or exceeds $
18.00
: | • | in whole and not in part; |
| • | at a price of $ |
| • | upon a minimum of |
| • | if, and only if, the last reported sale price (the “closing price”) of shares of Class A common stock equals or exceeds $ |
The Company will not redeem the warrants as described above unless a registration statement under the Securities Act covering the shares of Class A common stock issuable upon exercise of the warrants is then effective and a current prospectus relating to those shares of Class A common stock is available throughout the
30-day
redemption period. Redemption
of warrants when the price per share of Class
A common stock equals or exceeds $
10.00
:| • | in whole and not in part; |
| • | at $ |
| • | if, and only if, the last reported sale price of Class A common stock equals or exceeds $ |
The “fair market value” shall mean the volume-weighted average price of the Class A common stock for the 10 trading days ending on the third trading day prior to the date on which the notice of redemption is sent to the holders of warrants.
In no event will the Company be required to net cash settle any warrant. 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.
Note 7—Stockholders’ Deficit
Preferred
Stock
Class
A Common Stock
Class
B Common Stoc
15
Common
As of June 30, 2022 and December 31, 2021, 6,934,500
The shares of Class B common stock will automatically convert into shares of Class A common stock at a ratio such that the number of shares of Class A common stock issuable upon conversion of all Founder Shares, including the Discretionary Allocation Shares, will equal, in the aggregate, on 20 % of the sum of (i) the total number of all shares of common stock that were issued and outstanding upon completion of the Initial Public Offering, plus (ii) the Discretionary Allocation Shares and plus (iii) the total number of shares of Class A common stock issued or deemed issued or issuable upon conversion or exercise of any equity-linked securities or rights issued or deemed issued, by the Company in connection with or in relation to the consummation of the Business Combination, excluding any shares of Class A common stock or equity-linked securities issued, deemed issued, or to be issued, to any seller in the initial Business Combination and any Private Placement Warrants issued to the Sponsor, its affiliates or any member of the Company’s management team upon conversion of Working Capital Loans.
an as-converted basis,
Note 8—Fair Value Measurements
The following tables present information about the Company’s assets that are measured at fair value on a recurring basis as of June 30, 2022 and December 31, 2021, indicate the fair value hierarchy of the valuation techniques that the Company utilized to determine such fair value. In general, fair values determined by Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets or liabilities. Fair values determined by Level 2 inputs utilize data points that are observable, such as quoted prices, interest rates and yield curves. Fair values determined by Level 3 inputs are unobservable data points for the asset or liability, and include situations where there is little, if any, market activity for the asset or liability.
The Company’s investments held in the Trust Account is investments in money market funds that invest in U.S. government securities. Gains and losses resulting from the change in fair value of these securities is included in net gain from investments held in Trust Account in the accompanying unaudited condensed statement of operations. The estimated fair values of investments held in the Trust Account are determined using available market information.
The following table presents the estimated fair values of investments held in the Trust Account as of June 30, 2022:
Held-To-Maturity |
Level |
Fair Value |
||||
| U.S. Treasury Marketable securities held in Trust Account—U.S. Treasury Securities Money Market Fund |
1 | $ | |
|||
| |
|
|||||
The following table presents the estimated fair values of investments held in the Trust Account as of December 31, 2021:
Held-To-Maturity |
Level |
Fair Value |
||||
| U.S. Treasury Marketable securities held in Trust Account—U.S. Treasury Securities Money Market Fund |
1 | $ | |
|||
| |
|
|||||
The Warrants are accounted for as liabilities pursuant to ASC
815-40
and are measured at fair value as of each reporting period. Changes in the fair value of the Warrants are recorded in the statement of operations each period. The following table presents the fair value hierarchy for liabilities measured at fair value on a recurring basis as of June 30, 2022:
Level 1 |
Level 2 |
Level 3 |
Total |
|||||||||||||
| Warrant liabilities: |
||||||||||||||||
| Public Warrants |
$ | $ | |
$ | $ | |
||||||||||
| Private Placement Warrants |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total warrant liabilities |
$ | $ | $ | $ | |
|||||||||||
| |
|
|
|
|
|
|
|
|||||||||
16
The following table presents the fair value hierarchy for liabilities measured at fair value on a recurring basis as of December 31, 2021:
Level 1 |
Level 2 |
Level 3 |
Total |
|||||||||||||
| Warrant liabilities: |
||||||||||||||||
| Public Warrants |
$ |
$ | |
$ |
$ |
|||||||||||
| Private Placement Warrants |
||||||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
| Total warrant liabilities |
$ | $ |
$ |
$ | ||||||||||||
| |
|
|
|
|
|
|
|
|||||||||
The Private Placement Warrants were valued using a Monte Carlo simulation model, which is considered to be a Level 3 fair value measurement. The primary unobservable input utilized in determining the fair value of the Private Placement Warrants is the volatility rate. The volatility applied was 3.80 % based on implied volatilities from selected publicly traded warrants.
Beginning on April 19, 2021, the Public Warrants began trading under the ticker HUGSW. After this date, Public Warrant values per share were based on the observed trading prices of the Public Warrants. Accordingly, the observable input qualifies the liability for treatment as a Level 1 liability. As of June 30, 2022, the Company valued the Public Warrants at their public trading price and classified the Public Warrants as Level 1. There were no transfers between levels during the three and six month periods ended June 30, 2022.
The following table provides quantitative information regarding Level 3 fair value measurements inputs at their measurement dates:
| As of June 30, 2022 |
As of December 31, 2021 |
|||||||
| Exercise price |
$ | $ | ||||||
| IPO price |
$ | $ | ||||||
| Underlying asset price (per share) |
$ | $ | ||||||
| Volatility |
% | % | ||||||
| Time to Maturity (Years) |
||||||||
| Risk-free rate |
% | % | ||||||
| Dividend yield |
% | % | ||||||
The following tables present a summary of the changes in the fair value of the Warrants:
Public Warrant Liability |
Private Warrant Liability |
Total |
||||||||||
| Fair value, January 1, 2022 |
$ | $ | $ | |||||||||
| Recognized gain on change in fair value |
( |
) | ( |
) | ( |
) | ||||||
| |
|
|
|
|
|
|||||||
| Fair value, June 30, 2022 |
$ | $ | $ | |||||||||
| |
|
|
|
|
|
|||||||
Public Warrant Liability |
Private Warrant Liability |
Total |
||||||||||
| Fair value, January 1, 2021 |
$ | $ | $ | |||||||||
| Initial value on March 1, 2021 (IPO date) |
||||||||||||
| Recognized gain on change in fair value |
( |
) | ( |
) | ( |
) | ||||||
| |
|
|
|
|
|
|||||||
| Fair value, June 30, 2021 |
$ | $ | $ | |||||||||
| |
|
|
|
|
|
|||||||
Note 9—Subsequent Events
In accordance with ASC Topic 855, “Subsequent Events,” which establishes general standards of accounting for and disclosure of events that occur after the condensed balance sheet date but before the date the unaudited condensed financial statements are issued. The Company evaluated subsequent events that occurred after the condensed balance sheet date up to the date the unaudited condensed financial statements were issued and the Company has concluded that except for the termination of the Investment Agreement as stated in Note 1, there are no other events that would require adjustment or disclosure in the Company’s unaudited condensed financial statements.
17
ITEM 2. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
References in this Quarterly Report on Form
10-Q
(the “Quarterly Report” or this “report”) to “we,” “us,” “our” or the “Company” refer to USHG Acquisition Corp. References to our “management” or our “management team” refer to our officers and directors, references to the “Sponsor” refer to USHG Investments, LLC. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited condensed financial statements and the notes thereto contained elsewhere in this Quarterly Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties. Special Note Regarding Forward-Looking Statements
Some of the statements contained in this Quarterly Report may constitute “forward-looking statements” for purposes of the federal securities laws. Our forward-looking statements include, but are not limited to, statements regarding our or our management team’s expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “expect,” “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intends,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “seek,” “should,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking. 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 a 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 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 following the Initial Public Offering; |
| • | changes in laws or regulations, or a failure to comply with any laws or regulations; |
| • | the proximity to our liquidation date and our ability to continue as a “going concern”; or |
| • | our ability to find an attractive target business with which to consummate an initial Business Combination due to adverse changes in global or regional economic conditions. |
The forward-looking statements contained in this Quarterly Report 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. These risks and uncertainties include, but are not limited to, those factors described in the section entitled “Risk Factors” of our final prospectus filed with the SEC on February 25, 2021, our Annual Report, this Quarterly Report and our other SEC
18
filings. 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.
Overview
We are a blank check company incorporated on December 4, 2020 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 or entities (“Business Combination”). We intend to effectuate our Business Combination using cash from the proceeds of the Initial Public Offering and the sale of the Private Placement Warrants (as defined below), our shares, debt, or a combination of cash, equity, and debt. We are an emerging growth company and, as such, we are subject to all of the risks associated with emerging growth companies.
Our Sponsor is USHG Investments, LLC, a Delaware limited liability company. The registration statement for the Initial Public Offering was declared effective on February 24, 2021. On March 1, 2021, we consummated the Initial Public Offering of 28,750,000 units (“Units” and, with respect to the Class A common stock included in the units being offered, the “public shares”), including 3,750,000 over-allotment Units, at $10.00 per Unit, generating gross proceeds of $287.5 million, and incurring offering costs of approximately $784,282, inclusive of approximately $15.8 million in deferred underwriting commissions.
Simultaneously with the closing of the Initial Public Offering, we consummated the private placement (the “Private Placement”) of 1,333,333 warrants (each, a “Private Placement Warrant” and collectively, the “Private Placement Warrants”) at a price of $1.50 per Private Placement Warrant to the Sponsor, generating proceeds of $2.0 million.
Upon the closing of the Initial Public Offering and the Private Placement, $287.5 million ($10.00 per Unit) of the net proceeds of the Initial Public Offering was held in a trust account (“Trust Account”) located in the United States with American Stock Transfer & Trust Company, LLC acting as trustee, and invested only in United States “government securities” within the meaning of Section 2(a)(16) of the Investment Company Act of 1940, as amended (the “Investment Company Act”) having a maturity of 180 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. If we are unable to complete a Business Combination within 24 months from the closing of the Initial Public Offering, or March 1, 2023, 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 our 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 public stockholders’ rights as stockholders (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 our remaining stockholders and our board of directors, dissolve and liquidate, subject in each case to our obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law. Recent Developments
On November 8, 2021, we entered into the Investment Agreement Panera and Merger Sub.
The Investment Agreement provided that either we or Panera could terminate the agreement if the Merger was not completed on or prior to June 30, 2022, subject to certain limitations. On July 1, 2022, Panera delivered a written notice of termination to us terminating the Investment Agreement as a result of the Merger not having been completed on or prior to June 30, 2022. For more information regarding the termination of the Investment Agreement, please refer to our Current Report on Form
8-K
filed with the SEC on July 1, 2022. Liquidity and Going Concern Considerations
We had $341,334 in cash and a working capital of $61,358 as of June 30, 2022. We have incurred and expect to incur additional significant costs in pursuit of our financing and acquisition plans. Additionally, we have until March 1, 2023 to
19
consummate a Business Combination. In connection with our assessment of going concern considerations in accordance with ASU
2014-15,
“Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” we have determined that mandatory liquidation and subsequent dissolution raises substantial doubt about our ability to continue as a going concern. No adjustments have been made to the carrying amounts of assets or liabilities should we be required to liquidate after March 1, 2023. The financial statements do not include any adjustment that might be necessary if we are unable to continue as a going concern. Our liquidity needs prior to June 30, 2022 were satisfied through the proceeds of $24,120 from the sale of the Founders Shares, loan from affiliates of our Sponsor of up to $300,000 under a promissory note (the “$300,000 Note”) and the net proceeds from the consummation of the Initial Public Offering and the Private Placement held outside of the Trust Account. We repaid the $300,000 Note in full on February 26, 2021. Subsequent to June 30, 2022, our liquidity needs have been satisfied through an additional loan from affiliates of our Sponsor of $500,000.
Results of Operations
We have neither engaged in any operations (other than searching for a Business Combination after the Initial Public Offering) nor generated any revenues to date. We do not expect to generate any operating revenues until after the completion of our Business Combination. We expect to generate
non-operating
income in the form of interest income on cash and cash equivalents. 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 six months ended June 30, 2022, we had a net income of $14,133,718, which consisted of a $15,061,644 gain from the change in fair value of derivative warrant liabilities and $395,127 in interest income from funds held in the Trust Account, offset by $1,168,209 in formation and operating costs, $83,936 in franchise tax expenses and $70,908 in income tax expenses.
For the six months ended June 30, 2021, we had a net income of $2,551,714, which consisted of a $3,715,534 gain from the increase in fair value of derivative warrant liabilities and $5,711 in interest income from funds held in the Trust Account, offset by $311,547 in formation and operating costs and $100,000 in franchise tax expenses, and $757,984 in offering costs allocated to derivative warrant liabilities.
Related Party Transactions
Founder Shares
On December 29, 2020, our Sponsor paid $24,120, or approximately $0.003 per share, to cover certain of our offering and formation costs in consideration of 6,934,500 shares of Class B common stock, par value $0.0001. In January 2021, our Sponsor made a charitable contribution of 115,000 of those shares to Share Our Strength. The number of Founder Shares issued was determined based on the expectation that such Founder Shares would represent 21.714% of the issued and outstanding shares upon completion of the Initial Public Offering. Following the consummation of the Initial Public Offering and prior to or in connection with our initial Business Combination, we may issue up to an additional 253,000 shares of Class B common stock to the service providers. The Founder Shares and the Discretionary Allocation Shares (including the shares of Class A common stock issuable upon exercise thereof) may not, subject to certain limited exceptions, be transferred, assigned or sold by the holder.
The initial stockholders agreed, subject to limited exceptions, not to transfer, assign or sell any of the Founder Shares until the earlier to occur of:
(A) one year after the completion of our initial Business Combination and (B) subsequent to our initial Business Combination, (x) if the closing price of our Class A common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock capitalizations, reorganizations, recapitalizations and the like) for any 20 trading days within any
30-trading
day period commencing at least 150 days after our initial Business Combination (provided that the 30-trading
day must be completed prior to any such transfer, assignment or sale), or (y) the date on which we complete a liquidation, merger, capital stock exchange or other similar transaction that results in all of our public stockholders having the right to exchange their shares of our Class A common stock for cash, securities or other property. 20
Private Placement Warrants
Simultaneously with the closing of the Initial Public Offering, we consummated the Private Placement of 1,333,333 Private Placement Warrants to the Sponsor, each exercisable to purchase one share of Class A common stock at $11.50 per share, at a price of $1.50 per Private Placement Warrant, generating gross proceeds to us of $2.0 million.
Each Private Placement Warrant is exercisable for one whole share of Class A common stock at a price of $11.50 per share. A portion of the proceeds from the sale of the Private Placement Warrants to the Sponsor was added to the proceeds from the Initial Public Offering held in the Trust Account. If we do not complete a Business Combination within 24 months from the closing of the Initial Public Offering, the Private Placement Warrants will expire worthless. Except as set forth below, the Private Placement Warrants will
be non-redeemable for
cash and exercisable on a cashless basis so long as they are held by the Sponsor or their permitted transferees. The purchasers of the Private Placement Warrants agreed, subject to limited exceptions, not to transfer, assign or sell any of their Private Placement Warrants (except to permitted transferees) until 30 days after the completion of the initial Business Combination.
Related Party Loans
Affiliates of our Sponsor agreed to loan us up to $300,000 that were used for a portion of the expenses of the Initial Public Offering. As of February 4, 2021, we borrowed all $300,000 available under the $300,000 Note with affiliates of our Sponsor. These loans
were non-interest bearing,
unsecured and were due at the earlier of December 31, 2021 and the closing of our Initial Public Offering. The $300,000 Note was repaid in full on February 26, 2021. In order to finance transaction costs in connection with a Business Combination, our Sponsor or an affiliate of the Sponsor, or certain of our officers and directors may, but are not obligated to, provide us with Working Capital Loans. If we complete a Business Combination, we would repay the Working Capital Loans out of the proceeds of the Trust Account released to us. 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, we 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. The Working Capital Loans would either be repaid upon consummation of a Business Combination, without interest, or, at the lender’s discretion, up to $2.0 million of such Working Capital Loans may be convertible into warrants of the post Business Combination entity at a price of $1.50 per warrant. The warrants would be identical to the Private Placement Warrants. As of June 30, 2022 and December 31, 2021, we had $500,000 and no borrowings outstanding under the Working Capital Loans, respectively.
On March 29, 2022, we entered into a note agreement with related parties for a principal amount of $500,000, payable upon consummation of our initial Business Combination. No interest shall accrue on the outstanding principal. If the initial Business Combination is not consummated, the note will not be repaid, and all outstanding balance will be forgiven. Upon consummation of a Business Combination, each payee shall have the option, but not the obligation, to convert the principal balance of the note, in whole or in part, into warrants at a price of $1.50 per warrant, with the warrants being identical to the Private Placement Warrants. As of June 30, 2022, there was $500,000 outstanding under the note.
Commitments and Contingencies
Registration Rights
The holders of the Founder Shares, Private Placement Warrants and warrants that may be issued upon conversion of Working Capital Loans (and any Class A common stock issuable upon the exercise of the Private Placement Warrants and warrants that may be issued upon conversion of Working Capital Loans) are entitled to registration rights pursuant to a registration rights agreement entered into prior to the closing of the Initial Public Offering. The holders of these securities may at any time, and from time to time, request in writing that we register the resale of any or all of these securities on
Form S-3 or
any similar short form registration statement that may be available at such time; provided, however, that we shall not be obligated to effect such request through an underwritten offering. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to the completion of the initial Business Combination. We will bear the expenses incurred in connection with the filing of any such registration statements. 21
Underwriting Agreement
The underwriters are entitled to a deferred fee of $0.55 per Unit, or $15,812,500 in the aggregate. The deferred fee will be waived by the underwriters in the event that we do not complete a Business Combination, subject to the terms of the underwriting agreement.
Administrative Services Agreement
We entered into an Administrative Services Agreement pursuant to which we will pay an affiliate of the Sponsor a total of $10,000 per month, until the earlier of the completion of the initial Business Combination and the liquidation of the trust assets, for office space, secretarial and administrative services. Upon completion of the initial Business Combination or liquidation, we will cease paying these monthly fees. For the three and six months ended June 30, 2022, we paid $30,000 and $60,000 for the services provided through the Administrative Services Agreement, respectively. For the three and six months ended June 30, 2021, we paid $20,000 for the services provided through the Administrative Services Agreement.
Independent Financial Advisory Services
Piper Sandler & Co. is acting as our independent financial advisor as defined under Financial Industry Regulatory Authority Rule 5110(j)(9), to provide independent financial consulting services, consisting of a review of deal structure and terms and related structuring advice in connection with our proposed Merger with Panera. We agreed to pay Piper Sandler & Co. a financial advisory fee of $3,000,000 if we consummated the proposed Merger with Panera by May 5, 2022 or one year following the termination of the agreement with Piper Sandler & Co. We are no longer liable to pay Piper Sandler & Co. the $3,000,000 financial advisory fee as the Merger was not completed by May 5, 2022 and the Investment Agreement was terminated on July 1, 2022.
Critical Accounting Estimates
The preparation of unaudited condensed financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the 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:
Investments Held in the Trust Account
Our portfolio of investments held in the Trust Account is comprised of U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act, with a maturity of 185 days or less, or investments in money market funds that invest in U.S. government securities, or a combination thereof. The investments held in the Trust Account are classified as trading securities. Trading securities are presented on the balance sheets at fair value at the end of each reporting period. Gains and losses resulting from the change in fair value of these securities is included in income from investments held in the Trust Account in the accompanying statement of operations. The estimated fair values of investments held in the Trust Account are determined using available market information.
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 Accounting Standards Codification Topic 480 “Distinguishing Liabilities from Equity.” Shares of Class A common stock subject to mandatory redemption (if any) are classified as liability instruments and are measured at fair value. Conditionally redeemable shares of Class A common stock (including shares of Class A common stock that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control) are classified as temporary equity. At all other times, shares of Class A common stock are classified as stockholders’ equity. Our shares of Class A common stock feature certain redemption rights that are considered to be outside of our control and subject to the occurrence of uncertain future events. Accordingly, as of June 30, 2022 and December 31, 2021, common stock subject to possible redemption is presented at redemption value as temporary equity, outside of the stockholders’ equity section of our unaudited condensed balance sheet.
Net Income/(Loss) Per Share of Common Stock
We comply with accounting and disclosure requirements of FASB ASC Topic 260, “Earnings Per Share.” Net income/loss per common share is computed by dividing net income by the weighted average number of shares of common stock outstanding during the period. We have not considered the effect of the warrants sold in the Initial Public Offering and Private Placement in the calculation of diluted income per share, because the exercise of the warrants are contingent upon the occurrence of future events and the inclusion of such warrants would be anti-dilutive. Accretion associated with the redeemable Class A common stock is excluded from earnings per share as the redemption value approximates fair value.
22
Derivative Warrant Liabilities
We account for the warrants in accordance with the guidance contained in
ASC 815-40
under which the warrants do not meet the criteria for equity treatment and must be recorded as liabilities. Accordingly, we classify the warrants as liabilities at their fair value and adjusts the warrants to fair value at each reporting period. This liability is subject to re-measurement
at each balance sheet date until exercised, and any change in fair value is recognized in our statement of operations. The Private Placement Warrants are valued using a Modified Black Scholes Option Pricing Model. Recent accounting standards
In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2020-06,
Debt — Debt with Conversion and Other Options (Subtopic 470-20)
and Derivatives and Hedging — Contracts in Entity’s Own Equity (Subtopic 815-40)
(“ASU 2020-06”)
to simplify accounting for certain financial instruments. ASU 2020-06
eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity. ASU 2020-06
amends the diluted earnings per share guidance, including the requirement to use the if-converted
method for all convertible instruments. ASU 2020-06
is effective January 1, 2024 and should be applied on a full or modified retrospective basis, with early adoption permitted beginning on January 1, 2021. Management is currently evaluating the new guidance but does not expect the adoption of this guidance to have a material impact on our financial statements. Management does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on our unaudited condensed financial statements.
Off-Balance
Sheet Arrangements We did not have any
off-balance
sheet arrangements as of June 30, 2022. JOBS Act
The Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) contains provisions that, among other things, relax certain reporting requirements for qualifying public companies. We qualify as an “emerging growth company” and under the JOBS Act are allowed to comply with new or revised accounting pronouncements based on the effective date for private (not publicly traded) companies. We are electing to delay the adoption of new or revised accounting standards, and as a result, we may not comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required
for non-emerging
growth companies. As a result, the financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates. Additionally, we are in the process of evaluating the benefits of relying on the other reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, if, as an “emerging growth company,” we choose to rely on such exemptions we may not be required to, among other things, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404, (ii) provide all of the compensation disclosure that may be required of
non-emerging growth
public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis) and (iv) disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the Chief Executive Officer’s compensation to median employee compensation. These exemptions will apply for a period of five years following the completion of our Initial Public Offering or until we are no longer an “emerging growth company,” whichever is earlier. Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
As of June 30, 2022, we were not subject to any market or interest rate risk. Following the consummation of the Initial Public Offering, the net proceeds of the Initial Public Offering, including amounts in the Trust Account, have been invested in U.S. government treasury bills, notes or bonds with a maturity of 180 days or less or in certain money market funds that invest solely in U.S. treasuries. Due to the short-term nature of these investments, we believe there will be no associated material exposure to interest rate risk.
23
Item 4. |
Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the fiscal quarter ended June 30, 2022, as such term is defined in Rules
13a-15(e)
and 15d-15(e)
under the Exchange Act. Based on this evaluation, our principal executive officer and principal financial officer have concluded that, as of the evaluation date, our disclosure controls and procedures were effective as of June 30, 2022. We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met.
Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
Changes in Internal Control over Financial Reporting
Other than the remediation discussed below, there were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Background and Remediation of Material Weakness - Technical Accounting Related to Complex Financial Instruments
Management previously identified a material weakness in our internal control over financial reporting related to the accounting associated with complex financial instruments issued by the Company, as disclosed in “Part II, Item 9A. Controls and Procedures” in our Annual Report and as described further below. A material weakness is defined as a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
The material weakness related specifically to accounting for Class A common stock and warrants issued by the Company that are considered complex financial instruments. Our controls, specifically the review of assumptions and understanding the nuance of these complex instruments, did not operate as designed, resulting in an adjustment in the third quarter 2021 to reclassify the proceeds from the issuance of Class A common stock from permanent equity to temporary equity and correctly accounted for warrants issued by the Company as a liability within the financial statements. Management has determined that the material weakness was remediated during the three months ended June 30, 2022, due to enhancements made to our business processes and related internal controls during the period. The Company also ensured that the staff responsible for preparing and reviewing complex financial instruments have completed additional trainings and consulted with external financial advisors, where necessary, to account for complex financial instruments as prescribed by current accounting standards.
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PART II—OTHER INFORMATION
Item 1. |
Legal Proceedings. |
None.
Item 1A. |
Risk Factors. |
Except as set forth below, as of the date of this Quarterly Report on Form
10-Q,
there have been no material changes to the risk factors disclosed in our final prospectus filed with the SEC on February 25, 2021, our Annual Report, our Quarterly Report on Form 10-Q for
the three months ended March 31, 2021 filed with the SEC on May 16, 2021 and our other SEC filings. We may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC. Changes in laws or regulations, or a failure to comply with any laws or regulations, may adversely affect our business, investments and results of operations.
We are subject to laws and regulations enacted by national, regional and local governments. In particular, we are 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 an initial Business Combination, and results of operations.
On March 30, 2022, the SEC issued proposed rules relating to, among other items, enhancing disclosures in business combination transactions involving special purpose acquisition companies and private operating companies; amending the financial statement requirements applicable to transactions involving shell companies; and increasing the potential liability of certain participants in proposed business combination transactions. These rules, if adopted, whether in the form proposed or in revised form, may materially adversely affect our ability to negotiate and complete our initial Business Combination and may increase the costs and time related thereto.
Our proximity to our liquidation date expresses substantial doubt about our ability to continue as a “going concern.”
In connection with the Company’s assessment of going concern considerations in accordance with the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Update (“ASU”)
2014-15,
“Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” management has determined that mandatory liquidation and subsequent dissolution raises substantial doubt about the Company’s ability to continue as a going concern. No adjustments have been made to the carrying amounts of assets or liabilities should the Company be required to liquidate after March 1, 2023. The financial statements do not include any adjustment that might be necessary if the Company is unable to continue as a going concern. Global or regional conditions may adversely affect our business and our ability to find an attractive target business with which to consummate our initial Business Combination.
Adverse changes in global or regional economic conditions periodically occur, including recession or slowing growth, changes, or uncertainty in fiscal, monetary or trade policy, higher interest rates, tighter credit, inflation, lower capital expenditures by businesses, increases in unemployment and lower consumer confidence and spending. Adverse changes in economic conditions can harm global business and adversely affect our ability to find an attractive target business with which to consummate our initial Business Combination. Such adverse changes could result from geopolitical and security issues, such as armed conflict and civil or military unrest, political instability, human rights concerns and terrorist activity, catastrophic events such as natural disasters and public health issues (including the
COVID-19
pandemic), supply chain interruptions, new or revised export, import or doing-business regulations, including trade sanctions and tariffs or other global or regional occurrences. In particular, in response to Russia’s recent invasion of Ukraine, the United States, the European Union, and several other countries are imposing far-reaching sanctions and export control restrictions on Russian entities and individuals. This rising conflict and the resulting market volatility could adversely affect global economic, political and market conditions. Additionally, tensions between the United States and China have led to increased tariffs and trade restrictions. The United States has imposed economic sanctions on certain Chinese individuals and entities and restrictions on the export of U.S.-regulated products and technology to certain Chinese technology companies. These and other global and regional conditions may adversely impact our business and our ability to find an attractive target businesses with which to consummate our initial Business Combination.
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Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds. |
None.
Item 3. |
Defaults Upon Senior Securities. |
None.
Item 4. |
Mine Safety Disclosures. |
Not Applicable.
Item 5. |
Other Information. |
None.
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Item 6. |
Exhibits |
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
| * | Filed herewith. |
| ** | Furnished. |
27
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
USHG ACQUISITION CORP. | ||||||
| Date: August 15, 2022 | By: | /s/ Adam D. Sokoloff | ||||
| Name: | Adam D. Sokoloff | |||||
| Title: | Chief Executive Officer and Director (Principal Executive Officer) | |||||
| Date: August 15, 2022 | By: | /s/ Tiffany F. Daniele | ||||
| Name: | Tiffany F. Daniele | |||||
| Title: | Chief Financial Officer (Principal Accounting and Financial Officer) | |||||