Table of Contents
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| (State or other jurisdiction of incorporation) |
(I.R.S. Employer Identification No.) | |
| |
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(Address of Principal Executive Offices) |
(Zip Code) | |
| Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
one-third of one redeemable warrant |
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| Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-accelerated filer |
☒ | Smaller reporting company | ||||
| Emerging growth company | ||||||
Table of Contents
USHG ACQUISITION CORP.
Quarterly Report on Form 10-Q
Table of Contents
| Page No. | ||||||
| 2 | ||||||
| Item 1. |
Condensed Financial Statements | 2 | ||||
| Condensed Balance Sheets as of September 30, 2022 (Unaudited) and December 31, 2021 | 2 | |||||
| 3 | ||||||
| 4 | ||||||
| Unaudited Condensed Statements of Cash Flows for the Nine Months Ended September 30, 2022 and September 30, 2021 | 5 | |||||
| Notes to Unaudited Condensed Financial Statements | 6 | |||||
| Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 18 | ||||
| Item 3. |
Quantitative and Qualitative Disclosures About Market Risk | 23 | ||||
| Item 4. |
Controls and Procedures | 24 | ||||
| 25 | ||||||
| Item 1. |
Legal Proceedings | 25 | ||||
| Item 1A. |
Risk Factors | 25 | ||||
| Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds | 26 | ||||
| Item 3. |
Defaults Upon Senior Securities | 26 | ||||
| Item 4. |
Mine Safety Disclosures | 26 | ||||
| Item 5. |
Other Information | 26 | ||||
| Item 6. |
Exhibits | 27 | ||||
| 28 | ||||||
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Table of Contents
Item 1. |
Condensed Financial Statements |
September 30, 2022 |
December 31, 2021 |
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(Unaudited) |
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ASSETS |
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Current assets: |
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Cash |
$ | $ | ||||||
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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LIABILITIES AND STOCKHOLDERS’ DEFICIT |
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Current liabilities: |
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Accounts payable |
$ | $ | ||||||
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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Deferred underwriting compensation |
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Derivative warrant liabilities |
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Deferred legal fees |
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Total liabilities |
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Commitments and Contingencies |
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Class A common stock subject to possible redemption, $ and $ 1 , respectively |
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Stockholders’ deficit |
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Preferred stock, $ |
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Class A common stock, $ (excluding |
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Class B common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
( |
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Total stockholders’ deficit |
( |
) | ( |
) | ||||
Total Liabilities and Stockholders’ Deficit |
$ |
$ |
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For The Three Months Ended September 30, 2022 |
For The Three Months Ended September 30, 2021 |
For The Nine Months Ended September 30, 2022 |
For The Nine Months Ended September 30, 2021 |
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| Formation and operating costs |
$ | $ | $ | $ | ||||||||||||
| Franchise tax expenses |
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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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| Legal fees paid by Counterparty |
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| Interest on marketable securities in Trust Account |
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| Offering costs allocated to derivative warrant liabilities |
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| Income before income tax expense |
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| Income tax expense |
( |
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| Net income |
$ | $ | $ | $ | ||||||||||||
| Weighted average shares outstanding of Class A common stock, basic and diluted |
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| Basic and diluted net income per share of Class A common stock |
$ |
$ |
$ |
$ |
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| Weighted average shares outstanding of Class B common stock, basic and diluted |
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| Basic and diluted net income per share of Class B common stock |
$ |
$ |
$ |
$ |
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Common Stock |
Additional Paid-in Capital |
Accumulated Deficit |
Total Stockholders’ Deficit |
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Class B |
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Shares |
Amount |
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| Balance as of January 1, 2022 |
$ |
$ |
$ |
( |
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$ |
( |
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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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| Accretion of Class A common stock to redemption value |
— | — | — | ( |
) | ( |
) | |||||||||||||
| Net income |
— | — | — | |||||||||||||||||
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| Balance as of September 30, 2022 (unaudited) |
$ |
$ |
$ |
( |
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$ |
( |
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Common Stock |
Additional Paid-in Capital |
Accumulated Deficit |
Total Stockholders’ Equity (Deficit) |
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Class B |
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Shares |
Amount |
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| Balance as of January 1, 2021 |
$ | $ | $ | ( |
) | $ | ||||||||||||||
| Excess cash received over fair value of Private Placement Warrants |
— | — | ||||||||||||||||||
| Accretion of Class A common stock to redemption value |
— | — | ( |
) | ( |
) | ( |
) | ||||||||||||
| Net income |
— | — | — | |||||||||||||||||
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| Balance as of March 31, 2021 (unaudited) |
$ |
$ |
$ |
( |
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$ |
( |
) | ||||||||||||
| Accretion of Class A c ommon s tock to redemption value for additional offering costs incurred in the period |
— | — | — | ( |
) | ( |
) | |||||||||||||
| Net loss |
— | — | — | ( |
) | ( |
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| Balance as of June 30, 2021 (unaudited) |
$ |
$ |
$ |
( |
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$ |
( |
) | ||||||||||||
| Net income |
— | — | — | |||||||||||||||||
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| Balance as of September 30, 2021 (unaudited) |
$ |
$ |
$ |
( |
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$ |
( |
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For The Nine Months Ended September 30, 2022 |
For The Nine Months Ended September 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 in Trust Account |
( |
) | ( |
) | ||||
Offering costs allocated to derivative warrant liabilities |
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Change in fair value of warrant liabilities |
( |
) | ( |
) | ||||
Legal fees paid by Counterparty |
( |
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Changes in operating assets and liabilities: |
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Prepaid expenses |
( |
) | ||||||
Other assets |
( |
) | ||||||
Accounts payable |
( |
) | ||||||
Deferred legal fees |
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Franchise tax payable |
( |
) | ||||||
Accrued expenses |
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Net cash used in operating activities |
( |
) | ( |
) | ||||
Cash Flows from Investing Activities |
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Cash deposited in Trust Account |
( |
) | ||||||
Trust Account withdrawal for Franchise Tax payments |
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Net cash provided by (used in) in investing activities |
( |
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Cash Flows from Financing Activities |
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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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Proceeds from issuance of Class A common stock and warrants |
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Payment of offering costs |
( |
) | ||||||
Net cash provided by financing activities |
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Net change in cash |
( |
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Cash - beginning of period |
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Cash - end of period |
$ | $ | ||||||
Supplemental disclosure of noncash investing and financing activities: |
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Deferred offering costs included in accrued expenses |
$ | $ | ||||||
Deferred legal fees |
$ | $ | ||||||
Deferred underwriting compensation |
$ | $ | ||||||
Gross proceeds |
$ | |||
Less: |
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Class A common stock issuance costs |
( |
) | ||
Fair value of Public Warrants at issuance |
( |
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Plus: |
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Accretion of carrying value to redemption value |
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Class A common stock subject to possible redemption at December 31, 2021 |
$ |
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Remeasurement of carrying value to redemption value |
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Class A common stock subject to possible redemption at March 31, 2022 |
$ |
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Remeasurement of carrying value to redemption value |
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Class A common stock subject to possible redemption at June 30, 2022 |
$ |
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Remeasurement of carrying value to redemption value |
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Class A common stock subject to possible redemption at September 30, 2022 |
$ |
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| • | 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. |
For The Three Months Ended September 30, 2022 |
For The Three Months Ended September 30, 2021 |
For The Nine Months Ended September 30, 2022 |
For The Nine Months Ended September 30, 2021 |
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Redeemable Class A Common Stock |
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Numerator: Net income allocable to Redeemable Class A Common Stock |
$ | $ | $ | $ | ||||||||||||
Denominator: Weighted Average Share Outstanding, Redeemable Class A Common Stock |
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Basic and diluted net income per share of Class A common stock |
$ |
$ |
$ |
$ |
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Non-Redeemable Class B Common Stock |
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Numerator: Net income allocable to non-redeemable Class B Common Stock |
$ | $ | $ | $ | ||||||||||||
Denominator: Weighted Average Non-Redeemable Class B Common Stock |
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Basic and diluted net income per share of Class B common stock |
$ |
$ |
$ |
$ |
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| • | 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 $ |
| • | in whole and not in part; |
| • | at $ |
| • | if, and only if, the last reported sale price of Class A common stock equals or exceeds $ |
| Level | Fair Value | |||||||
| U.S. Treasury Marketable securities held in Trust Account—U.S. Treasury Securities Money Market Fund |
1 | $ | ||||||
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| Level | Fair Value | |||||||
| U.S. Treasury Marketable securities held in Trust Account—U.S. Treasury Securities Money Market Fund |
1 | $ | ||||||
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Level 1 |
Level 2 |
Level 3 |
Total |
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| Warrant liabilities: |
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| Public Warrants |
$ | $ | $ | $ | ||||||||||||
| Private Placement Warrants |
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| Total warrant liabilities |
$ | $ | $ | $ | ||||||||||||
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Level 1 |
Level 2 |
Level 3 |
Total |
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| Warrant liabilities: |
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| Public Warrants |
$ | $ | $ | $ | ||||||||||||
| Private Placement Warrants |
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| Total warrant liabilities |
$ | $ | $ | $ | ||||||||||||
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| As of September 30, 2022 |
As of December 31, 2021 |
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| Exercise price |
$ | $ | ||||||
| Initial Public Offering price |
$ | $ | ||||||
| Underlying asset price (per share) |
$ | $ | ||||||
| Volatility |
% | % | ||||||
| Time to Maturity (Years) |
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| Risk-free rate |
% | % | ||||||
| Dividend yield |
% | % | ||||||
| Public Warrant Liability |
Private Warrant Liability |
Total | ||||||||||
| Fair value, January 1, 2022 |
$ | $ | $ | |||||||||
| Recognized gain on change in fair value |
( |
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) | ( |
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| Fair value, September 30, 2022 |
$ | $ | $ | |||||||||
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| Public Warrant Liability |
Private Warrant Liability |
Total | ||||||||||
| Fair value, January 1, 2021 |
$ | $ | $ | |||||||||
| Initial value on March 1, 2021 (Initial Public Offering date) |
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| Recognized gain on change in fair value |
( |
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) | ( |
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| Fair value, September 30, 2021 |
$ | $ | $ | |||||||||
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Table of Contents
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, liquidity condition 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 on Form 10-K for the year ended December 31, 2021 as filed with the SEC on March 14, 2022, our subsequent Quarterly Reports on Form 10-Q and our other SEC
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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 with 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 $199,140 in cash and a working capital deficit of $522,607 as of September 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
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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 liquidity condition, 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 September 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 September 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 nine months ended September 30, 2022, we had a net income of $19,710,088 which consisted of a $18,829,816 gain from the change in fair value of derivative warrant liabilities, $1,666,985 in interest income from funds held in the Trust Account and $1,200,000 in legal fees related to the Merger paid by the Counterparty on our behalf, offset by $1,462,092 in formation and operating costs, $133,936 in franchise tax expenses and $390,685 in income tax expenses.
For the nine months ended September 30, 2021, we had a net income of $4,194,795, which consisted of a $5,642,686 gain from the increase in fair value of derivative warrant liabilities and $10,052 in interest income from funds held in the Trust Account, offset by $549,959 in formation and operating costs and $150,000 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.
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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 September 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 September 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.
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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
The Company 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 nine months ended September 30, 2022, the Company paid $30,000 and $90,000 for the services provided through the Administrative Services Agreement, respectively. For the three and nine months ended September 30, 2021, the Company paid $40,000 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 unaudited condensed statements 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 September 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 condensed balance sheets.
Net Income 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.
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Derivative Warrant Liabilities
We account for the warrants in accordance with the guidance contained in ASC 815-40-15-7D and 7F 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 unaudited condensed statements 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 September 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, our 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 September 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.
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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 September 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 September 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
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.
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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 on Form 10-K filed with the SEC on March 14, 2022, our subsequent Quarterly Reports on Form 10-Q 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.
We may be subject to a new 1% U.S. federal excise tax in connection with redemptions of our stock.
On August 16, 2022, the Inflation Reduction Act of 2022 (the “IR Act”) was signed into law. The IR Act provides for, among other measures, a new 1% U.S. federal excise tax on certain repurchases (including redemptions) of stock by publicly traded domestic (i.e., U.S.) corporations. The excise tax is imposed on the repurchasing corporation itself, not its stockholders from whom the shares are repurchased. The amount of the excise tax is generally 1% of the fair market value of the shares repurchased. For purposes of calculating the excise tax, however, repurchasing corporations are permitted to net the fair market value of certain new stock issuances against the fair market value of stock repurchases during the same taxable year. In addition, certain exceptions apply to the excise tax. The U.S. Department of the Treasury (the “Treasury Department”) has been given authority to provide regulations and other guidance to carry out, and prevent the abuse or avoidance of, the excise tax. The IR Act applies only to repurchases that occur after December 31, 2022.
Any redemption or other repurchase effected by us that occurs after December 31, 2022, in connection with a business combination or otherwise, may be subject to this excise tax. Whether and to what extent we would be subject to the excise tax in connection with a business combination will depend on a number of factors, including (i) the fair market value of the redemptions and repurchases in connection with the business combination, (ii) the nature and amount of any PIPE financing or other equity issuances in connection with the business combination (or any other equity issuances within the same taxable year of the business combination) and (iii) the content of any regulations and other guidance issued by the Treasury Department and/or the Internal Revenue Service. In addition, because the excise tax would be payable by us and not by the redeeming holder, it could cause a reduction in the value of our stock. Further, the application of the excise tax in the event of a liquidation is uncertain, and it is possible that the proceeds held in the Trust Account (in the event we are unable to complete a business combination in the required time and redeem 100% of our Class A common stock in accordance with our Amended and Restated Certificate of Incorporation) could be subject to the excise tax, in which case the amount that would otherwise be received by our stockholders in connection with our liquidation may be reduced.
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 liquidity condition and 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 liquidity condition, 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. |
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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: November 14, 2022 | By: | /s/ Adam D. Sokoloff | ||||
| Name: | Adam D. Sokoloff | |||||
| Title: | Chief Executive Officer and Director | |||||
| (Principal Executive Officer) | ||||||
| Date: November 14, 2022 | By: | /s/ Tiffany F. Daniele | ||||
| Name: | Tiffany F. Daniele | |||||
| Title: | Chief Financial Officer | |||||
| (Principal Accounting and Financial Officer) | ||||||
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