References to "we", "us", "our" or the "Company" are to Lakeshore Acquisition I
Corp., except where the context requires otherwise. The following discussion
should be read in conjunction with our unaudited condensed consolidated
financial statements and related notes thereto included elsewhere in this
report.
Forward-Looking Statements
This quarterly report on Form 10-Q includes forward-looking statements. We have
based these forward-looking statements on our current expectations and
projections about future events. These forward-looking statements are subject to
known and unknown risks, uncertainties and assumptions about us that may cause
our actual results, levels of activity, performance or achievements to be
materially different from any future results, levels of activity, performance or
achievements expressed or implied by such forward-looking statements. In some
cases, you can identify forward-looking statements by terminology such as "may,"
"should," "could," "would," "expect," "plan," "anticipate," "believe,"
"estimate," "continue," or the negative of such terms or other similar
expressions. Factors that might cause or contribute to such a discrepancy
include, but are not limited to, those described in our other Securities and
Exchange Commission (the "SEC") filings.
Overview
We were formed on January 6, 2021 for the purpose of entering into a merger,
share exchange, asset acquisition, stock purchase, recapitalization,
reorganization or other similar business combination with one or more target
businesses. Our efforts to identify a prospective target business will not be
limited to any particular industry or geographic region. We intend to utilize
cash derived from the proceeds of our initial public offering (the "IPO") in
effecting our initial business combination.
We are an emerging growth company and, as such, we are subject to all of the
risks associated with emerging growth companies.
We presently have no revenue. All activities for the period from January 6, 2021
(inception) through September 30, 2022 relate to the formation and the IPO and
seeking of a target business. We will have no operations other than the active
solicitation of a target business with which to complete a business combination,
and we will not generate any operating revenue until after its initial business
combination, at the earliest. We will have non-operating income in the form of
interest income on cash and cash equivalents from the proceeds derived from the
IPO.
On June 15, 2021, we consummated the IPO of 5,000,000 Public Units, at a price
of $10.00 per Public Unit, generating gross proceeds of $50,000,000.
Simultaneously with the closing of the IPO, we consummated the sale of 250,000
Private Units, at a price of $10.00 per Private Unit, in a private placement to
the sponsor, hedge funds and the representatives of underwriters and certain of
their affiliates, generating gross proceeds of $2,500,000.
On June 28, 2021, the underwriters partially exercised the over-allotment option
to purchase an additional 467,000 Public Units at a purchase price of $10.00 per
Public Unit, generating gross proceeds of $4,670,000. Simultaneously with the
closing of the underwriters' partial exercise of the over-allotment option, we
sold additional 11,675 Private Units at a price of $10.00 per Private Unit to
the above-mentioned purchasers in a private placement, generating gross proceeds
to us of $116,750.
Upon the consummation of the IPO and the underwriters' partial exercise of the
over-allotment option, and associated private placements, $54,670,000 of cash
was placed in the Trust Account.
On September 7, 2022, the Company held an Extraordinary General Meeting (the
"General Meeting") of shareholders. In the General Meeting, shareholders
approved to amend Lakeshore's Amended and Restated Memorandum and Articles of
Association (the "Charter Amendment"), and to extend the time for Lakeshore to
complete a business combination for an additional three (3) months, from
September 15, 2022 to December 15, 2022, and the Charter Amendment was amended
on September 7, 2022. In the General Meeting, shareholders elected to redeem
2,606,117 public shares.
On September 15, 2022, a total redemption payment of $26,172,069 was distributed
for 2,606,117 public shares redeemed.
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As of September 30, 2022, there were 2,860,883 non-redeeming public shares
issued and outstanding. As of September 30, 2022, an aggregate of $29,144,536
was held in the Trust Account in money market funds that invest in cash, U.S.
Treasury bills, notes, and other obligations issued or guaranteed as to
principal and interest by the U.S. Treasury.
As indicated in the accompanying unaudited condensed consolidated financial
statements, as of September 30, 2022, we had $150,923 in cash held outside its
Trust Account available for the working capital purposes.
We cannot assure you that our plans to complete our Initial Business Combination
will be successful. If we are unable to complete its initial business
combination before December 15, 2022, we will (i) cease all operations except
for the purpose of winding up, (ii) as promptly as reasonably possible but not
more than five business days thereafter, redeem 100% of the outstanding public
shares and (iii) as promptly as reasonably possible following such redemption,
subject to the approval of the remaining holders of ordinary shares and our
board of directors, liquidate and dissolve. In the event of liquidation, the
holders of the founder shares and Private Units will not participate in any
redemption distribution with respect to their founder shares or Private Units,
until all of the claims of any redeeming shareholders and creditors are fully
satisfied (and then only from funds held outside the Trust Account).
Recent Developments
On May 9, 2022, The Company entered into a merger agreement (the "Merger
Agreement") aiming to acquire 100% of the equity securities of ProSomnus
Holdings Inc. (ProSomnus).
Pursuant to the Merger Agreement, the business combination will be effected in
two steps: (i) the Company will reincorporate to the State or Delaware by
merging with and into LAAA Merger Corp. ("PubCo"), which is a wholly-owned
subsidiary of the Company and a Delaware corporation, with PubCo surviving as
the publicly traded entity (the "Reincorporation Merger"); and (ii) immediately
after the Reincorporation Merger, LAAA Merger Sub Inc. ("Merger Sub"), which is
a wholly-owned subsidiary of PubCo and also a Delaware corporation, will merge
with and into ProSomnus, with ProSomnus surviving as a wholly-owned subsidiary
of PubCo (the "Acquisition Merger").
Upon closing of the Acquisition Merger, PubCo will acquire 100% of the equity
securities of ProSomnus. In exchange, the stockholders of ProSomnus will receive
an aggregate number of shares of PubCo Common Stock (the "Merger Consideration")
with an aggregate value equal to $113,000,000 minus the amount by which the
Closing Net Indebtedness (as defined in the Merger Agreement) exceeds
$12,000,000.
Additionally, the Company will make available to ProSomnus no less than
$40,000,000, prior to the payment of expenses incurred in connection with the
Business Combination and any outstanding debt of ProSomnus, in cash and cash
equivalents (the "Minimum Cash Amounts"). Pursuant to the Merger Agreement, an
aggregate of $10,000,000 will be from equity investors, by (i) waiving their
rights of redeeming public shares and (ii) purchasing the company's ordinary
shares at $10.00 per share, or the combination of (i) and (ii); An aggregate of
$30,000,000 will be from certain convertible notes investors by purchasing
convertible notes of PubCo.
Additionally, the ProSomnus Stockholders may be entitled to receive up to 3.0
million earn-out shares in three tranches:
the first tranche of 1.0 million earn-out shares will be issued when the
? volume-weighted average price per share of PubCo Common Stock is $12.50 or
greater for 20 trading days in any consecutive 30 trading day period commencing
6 months after the Closing and ending at the third anniversary of the Closing;
the second tranche of 1.0 million earn-out shares will be issued when the
volume-weighted average price per share of PubCo Common Stock is $15.00 or
? greater for 20 trading days in any consecutive 30 trading day period commencing
6 months after the Closing and ending at the third anniversary of the Closing;
and
the third tranche of 1.0 million earn-out shares will be issued when the
? volume-weighted average price per share of PubCo Common Stock is $17.50 or
greater for 20 trading days in any consecutive 30 trading day period commencing
6 months after the Closing and ending at the third anniversary of the Closing.
The foregoing description of the Merger Agreement does not purport to be
complete and is qualified in its entirety by the terms and conditions of the
actual agreement, which is filed as Exhibit 2.1 hereto and incorporated by
reference herein.
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Results of Operations
Our entire activity from January 6, 2021 (inception) up to the consummation of
the IPO was in preparation for the IPO. Since the IPO, our activity has been
limited to the evaluation of business combination candidates, and we will not be
generating any operating revenues until the closing and completion of our
initial business combination. We expect to generate small amounts of
non-operating income in the form of interest income on cash and marketable
securities held in Trust Account. We will incur expenses as a result of being a
public company (for legal, financial reporting, accounting and auditing
compliance), as well as for expenses to complete the proposed business
combination with ProSomnus.
For the nine months ended September 30, 2022, we had a net loss of $89,597. We
earned $287,029 of interest income from investments in our Trust Account and
incurred $376,626 of general and administrative expenses. For the three months
ended September 30, 2022, we had a net income of $60,305. We earned $207,698 of
interest income from investments in our Trust Account and incurred $147,393 of
general and administrative expenses.
For the period from January 6, 2021 (inception) to September 30, 2021, we had a
net loss of $157,152, which consisted of $157,963 in formation, general and
administrative expenses. For the three months ended September 30, 2021, we had a
net loss of $100,594. We earned $705 of interest income from investments in our
Trust Account and incurred $101,299 of general and administrative expenses.
Liquidity and Capital Resources
As of September 30, 2022, we had $150,923 in cash held outside its Trust Account
available for our working capital purposes.
Prior to the consummation of the IPO, our liquidity needs had been satisfied
through a payment from the sponsor of $25,000 for the founder shares, the loan
under an unsecured promissory note from the sponsor of $450,000. The promissory
note from the sponsor was repaid in full on June 14, 2021.
Upon the consummation of the IPO on June 15, 2021 and the closing of the
underwriters' partial exercise of the over-allotment option on June 28, 2021,
and associated private placements, $54,670,000 of cash was placed in the Trust
Account.
On September 12, 2022, the Company issued an unsecured promissory note in the
aggregate principal amount of $200,000 to RedOne Investment Limited, the
Sponsor. The principal shall be payable promptly on the date on which the
Company consummates its initial business combination with no interest accrued,
and the amount of $200,000 does not have the conversion feature of converting
into additional Private Units, based on the description of the promissory note.
On September 15, 2022, the Company, ProSomnus Holdings Inc., ("ProSomnus"), the
Sponsor, and the investor (the "Investor") entered into a Note Purchase
Agreement (the "Note Purchase Agreement"). Pursuant to the Note Purchase
Agreement, the Investor deposited $300,000 into the Company's account.
On September 15, 2022, the Company deposited $357,610 to the trust account at
$0.125 per share for each public share that has not been redeemed in accordance
with the terms of the amended and restated memorandum and articles of
association to extend the time to complete the Business Combination by three
months until December 15, 2022. $300,000 was from the Investor received from the
Note Purchase Agreement and $57,610 was paid out of the Company's operating
account.
On September 15, 2022, a total redemption payment of $26,172,069 was distributed
for 2,606,117 public shares redeemed.
As of September 30, 2022, there were 2,860,883 non-redeeming public shares
issued and outstanding. As of September 30, 2022, an aggregate of $29,144,536
was held in the Trust Account in money market funds that invest in cash, U.S.
Treasury bills, notes, and other obligations issued or guaranteed as to
principal and interest by the U.S. Treasury.
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In order to meet our working capital needs following the consummation of the
IPO, our initial shareholders, officers and directors or their affiliates may,
but are not obligated to, loan us funds, from time to time or at any time, in
amount they deem reasonable in their sole discretion. Each working capital loan
would be evidenced by a promissory note and would either be paid upon
consummation of our initial business combination, without interest, or, at the
lender's discretion, up to $500,000 of the working capital loan may be converted
upon consummation of our business combination into additional Private Units at a
price of $10.00 per unit. If we do not complete a business combination, the
working capital loan will only be repaid with funds not held in the Trust
Account and only to the extent available.
Based on the foregoing, management believes that we will have sufficient working
capital and borrowing capacity to meet our needs through the earlier of the
consummation of a business combination or one year from this filing. Over this
time period, we will be using these funds for general expenses and for
consummating the proposed business combination.
If our estimates of the costs are less than the actual amount necessary to do
so, we may have insufficient funds available to operate our business prior to
our initial business combination. Moreover, we may need to obtain additional
financing either to consummate our initial business combination or because we
become obligated to convert a significant number of our public shares upon
consummation of our initial business combination, in which case we may issue
additional securities or incur debt in connection with such business
combination. Subject to compliance with applicable securities laws, we would
only consummate such financing simultaneously with the consummation of our
initial business combination. Following our initial business combination, if
cash on hand is insufficient, we may need to obtain additional financing in
order to meet our obligations.
The Company performed an assessment on its ability to continue as a going
concern in accordance with Financial Accounting Standard Board's Accounting
Standards Update ("ASU") 2014-15, "Disclosures of Uncertainties about an
Entity's Ability to Continue as a Going Concern". There is no assurance that the
Company will be able to consummate the initial business combination before
December 15, 2022. In the event that the Company fails to consummate business
combination within the required period, the Company will face mandatory
liquidation and dissolution subject to certain obligations under applicable laws
or regulations. This uncertainty raises substantial doubt about the Company's
ability as a going concern one year from the date the financial statement is
issued. No adjustments have been made to the carrying amounts of assets or
liabilities regarding the possibility of the Company not continuing as a going
concern, as a result of failing to consummate business combination before
December 15, 2022. Management plans to continue its efforts to consummate a
business combination within the required period.
Critical Accounting Policies
The preparation of these unaudited condensed consolidated 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 unaudited condensed
consolidated financial statements. Actual results could differ from those
estimates.
Offering Costs Associated with the IPO
Offering costs consist of underwriting, legal, accounting and other expenses
incurred through the balance sheet date that were directly related to the IPO.
As of September 30, 2022, offering costs associated with the IPO totaled
$1,862,538. The amount was consisted of $1,366,750 in underwriters' fees, plus
$495,788 of other expenses. The Company complies with the requirements of the
ASC 340-10-S99-1 and SEC Staff Accounting Bulletin ("SAB") Topic 5A - "Expenses
of Offering". The Company allocates offering costs between public shares and
public warrants based on the estimated fair values of public shares and public
warrants at the date of issuance. Accordingly, $1,780,148 was allocated to
public shares and was charged to temporary equity, and $ 82,390 was allocated to
public warrants and was charged to shareholders' equity.
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Ordinary Shares Subject to Possible Redemption
The Company accounts for its ordinary shares subject to possible redemption in
accordance with the guidance in ASC Topic 480 "Distinguishing Liabilities from
Equity." Ordinary shares subject to mandatory redemption (if any) are classified
as a liability instrument and are measured at fair value. Conditionally
redeemable ordinary shares (including ordinary shares 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 the Company's control)
are classified as temporary equity. At all other times, ordinary shares are
classified as shareholders' equity. The Company's ordinary shares feature
certain redemption rights that are considered to be outside of the Company's
control and subject to occurrence of uncertain future events.
The Company recognizes changes in redemption value immediately as they occur and
adjusts the carrying value of redeemable ordinary shares to equal the redemption
value at the end of each reporting period. Increases or decreases in the
carrying amount of redeemable ordinary shares are affected by charges against
additional paid in capital or accumulated deficit if additional paid in capital
equals to zero. The interest earned by the marketable security held in trust,
and the fund deposited into the trust account for extending the date of
consummation of business combination were also recognized in redemption value
against additional paid-in capital and accumulated deficit immediately as these
funds will be used to fund the possible redemption of the public shares (less
amount necessary to pay the Company's taxes and less up to $50,000 for
dissolution in the event of a liquidation). Accordingly, as of September 30,
2022 and December 31, 2021, ordinary shares subject to possible redemption are
presented at redemption value of $10.18 per share and $10.00 per share
respectively as temporary equity, outside of the shareholders' equity section of
the Company's balance sheet.
Net Income (Loss) per Share
We comply with accounting and disclosure requirements of FASB ASC 260, Earnings
Per Share. In order to determine the net income (loss) attributable to both the
redeemable shares and non-redeemable shares, the Company first considered the
undistributed income (loss) allocable to both the redeemable shares and
non-redeemable shares and the undistributed income (loss) is calculated using
the total net loss less any dividends paid. We then allocated the undistributed
income (loss) ratably based on the weighted average number of shares outstanding
between the redeemable and non-redeemable shares. Any remeasurement of the
accretion to redemption value of the ordinary shares subject to possible
redemption was considered to be dividends paid to the public shareholders.
As of September 30, 2022 and September 30, 2021, the Company did not have any
dilutive securities and other contracts that could, potentially, be exercised or
converted into ordinary shares and then share in the earnings of the Company. As
a result, diluted loss per share is the same as basic loss per share for the
period presented. The calculation of diluted loss per share does not consider
the effect of the warrants issued in connection with the IPO and the private
placement since the exercise of warrants are contingent on the occurrence of
future events.
Warrants
The Company evaluates the public and private warrants as either
equity-classified or liability-classified instruments based on an assessment of
the warrants' specific terms and applicable authoritative guidance in Financial
Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC")
480, Distinguishing Liabilities from Equity ("ASC 480") and ASC 815, Derivatives
and Hedging ("ASC 815"). The assessment considers whether the warrants are
freestanding financial instruments pursuant to ASC 480, meet the definition of a
liability pursuant to ASC 480, and whether the warrants meet all of the
requirements for equity classification under ASC 815, including whether the
warrants are indexed to the Company's own ordinary shares, among other
conditions for equity classification. Pursuant to such evaluation, both public
and private warrants are classified in shareholders' equity.
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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 for smaller reporting companies and
should be applied on a full or modified retrospective basis, with early adoption
permitted beginning on January 1, 2021. The Company is currently evaluating the
impact that the pronouncement will have on the financial statements.
Except for the foregoing, Management does not believe that any recently issued,
but not yet effective, accounting standards if currently adopted would have a
material effect on the accompanying financial statements.
Off-Balance Sheet Arrangements
We have no obligations, assets or liabilities, which would be considered
off-balance sheet arrangements as of September 30, 2022. We do not participate
in transactions that create relationships with unconsolidated entities or
financial partnerships, often referred to as variable interest entities, which
would have been established for the purpose of facilitating off-balance sheet
arrangements. We have not entered into any off-balance sheet financing
arrangements, established any special purpose entities, guaranteed any debt or
commitments of other entities, or purchased any non-financial assets.
Contractual Obligations
Business Combination Marketing Agreement
We have entered into Business Combination Marketing Agreement with
representative of our underwriters, and agreed to pay a fee totaling $1,640,100,
which equals 3% of the gross offering proceeds, payable upon the completion of
the business combination. The fee will become payable from the amounts held in
the Trust Account solely in the event we complete our initial business
combination. In the event that we do not close a business combination, the
representative underwriter has agreed to waive its right to receive the fee.
Registration Rights
The initial shareholders will be entitled to registration rights with respect to
their initial shares, as well as the holders of the Private Units and holders of
any securities issued to our initial shareholders, officers, directors or their
affiliates in payment of working capital loans or extension loans made to us,
will be entitled to registration rights with respect to the Private Units (and
underlying securities), pursuant to an agreement signed on the effective date of
the IPO. The holders of such securities are entitled to demand that we register
these securities at any time after we consummate a business combination. In
addition, the holders have certain "piggy-back" registration rights on
registration statements filed after our consummation of a business combination.
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