References to the "Company," "Lerer Hippeau Acquisition Corp.," "Lerer Hippeau,"
"our," "us" or "we" refer to Lerer Hippeau Acquisition Corp. The following
discussion and analysis of the Company's financial condition and results of
operations should be read in conjunction with the unaudited interim condensed
financial statements and the notes thereto contained elsewhere in this report.
Certain information contained in the discussion and analysis set forth below
includes forward-looking statements that involve risks and uncertainties.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q includes forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). We have based these forward-looking statements on
our current expectations and projections about future events. These
forward-looking statements are subject to known and unknown risks, uncertainties
and assumptions about us that may cause our actual results, levels of activity,
performance or achievements to be materially different from any future results,
levels of activity, performance or achievements expressed or implied by such
forward-looking statements. In some cases, you can identify forward-looking
statements by terminology such as "may," "should," "could," "would," "expect,"
"plan," "anticipate," "believe," "estimate," "continue," or the negative of such
terms or other similar expressions. Factors that might cause or contribute to
such a discrepancy include, but are not limited to, those described in our other
U.S. Securities and Exchange Commission ("SEC") filings.
Overview
We are a blank check company incorporated in Delaware on January 12, 2021. We
were formed for the purpose of effecting a merger, share exchange, asset
acquisition, share purchase, reorganization or similar business combination with
one or more businesses (the "Business Combination"). 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 LHAC Sponsor LLC, a Delaware limited liability company (the
"Sponsor"). The registration statement for our initial public offering ("IPO")
was declared effective on March 4, 2021. On March 9, 2021, we consummated our
IPO of 22,266,185 shares of Class A common stock, including the issuance of
2,266,185 shares of Class A common stock as a result of the underwriters'
partial exercise of their over-allotment option, (each, a "Public Share" and
collectively, the "Public Shares") at $10.00 per share, generating gross
proceeds of approximately $222.7 million, and incurring offering costs of
approximately $12.9 million, inclusive of approximately $7.8 million in deferred
underwriting commissions.
Simultaneously with the closing of the IPO, we consummated the private placement
("Private Placement") of 685,324 shares of Class A common stock (each, a
"Private Placement Share" and collectively, the "Private Placement Shares"), at
a price of $10.00 per Private Placement Share to the Sponsor, generating
proceeds of approximately $6.9 million.
Upon the closing of the IPO and the Private Placement, approximately
$222.7 million ($10.00 per share) of the net proceeds of the sale of the Public
Shares in the IPO and of the Private Placement Shares in the Private Placement
were placed in a trust account ("Trust Account") located in the United States
with Continental Stock Transfer & Trust Company acting as trustee, and will be
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 185 days or less or in money
market funds meeting certain conditions under Rule 2a-7 promulgated under the
Investment Company Act which invest only in direct U.S. government treasury
obligations, as determined by us, until the earlier of: (i) the completion of a
Business Combination and (ii) the distribution of the Trust Account as described
below.
Our management has broad discretion with respect to the specific application of
the net proceeds of the IPO and the sale of Private Placement Shares, although
substantially all of the net proceeds are intended to be applied generally
toward consummating a Business Combination. There is no assurance that we will
be able to complete a Business Combination successfully. We must complete one or
more initial Business Combinations having an aggregate fair
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market value of at least 80% of the net assets held in the Trust Account (net of
amounts disbursed to management for working capital purposes, if permitted, and
excluding the amount of any deferred underwriting commissions) at the time of
the agreement to enter into the initial Business Combination. However, we will
only complete a Business Combination if the post-transaction company owns or
acquires 50% or more of the voting securities of the target or otherwise
acquires a controlling interest in the target sufficient for it not to be
required to register as an investment company under the Investment Company Act.
If we are unable to complete a Business Combination within 24 months from the
closing of the IPO, or March 9, 2023, or during any extended period of time that
we may have to consummate a Business Combination as a result of an amendment to
our amended and restated certificate of incorporation (the "Combination
Period"), 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 the remaining stockholders and the board of
directors, liquidate and dissolve, subject in each case to our obligations under
Delaware law to provide for claims of creditors and the requirements of other
applicable law.
Liquidity and Going Concern
As of September 30, 2022, we had approximately $111,000 in our operating bank
account, and a working capital deficit of approximately $296,000 (not taking
into account approximately $305,000 in income tax and franchise tax obligations
that may be paid using investment income earned on the Trust Account).
Our liquidity needs to date have been satisfied through a cash contribution of
$25,000 from the Sponsor to purchase the Founder Shares (as defined in Note 4 to
the accompanying condensed financial statements), the loan of approximately
$65,000 from the Sponsor pursuant to an initial Note (as defined in Note 4 to
the accompanying condensed financial statements), the proceeds from the
consummation of the Private Placement not held in the Trust Account, and the
proceeds from a post-IPO convertible promissory note from our Sponsor (the
"convertible promissory note - related party") which is considered to be a
Working Capital Loan (as defined in Note 4 to the accompanying condensed
financial statements). We fully repaid the initial Note on March 11, 2021. In
order to finance additional transaction costs in connection with a Business
Combination, the Sponsor or an affiliate of the Sponsor, or certain of our
officers and directors may, but are not obligated to, provide us with additional
Working Capital Loans.
On June 27, 2022, we issued the convertible promissory note - related party in
the amount of up to $650,000 to our Sponsor. The proceeds of the convertible
promissory note - related party, may be drawn down from time to time until the
Maturity Date (as defined in Note 4 to the accompanying condensed financial
statements), and will be used for costs and expenses related to a Business
Combination transaction and for general working capital purposes. The
convertible promissory note - related party bears interest at the lowest
short-term Applicable Federal Rate (within the meaning of Internal Revenue Code
Section 1274) in effect as of the date the convertible promissory note - related
party was issued and is payable in full upon the Maturity Date. As of
September 30, 2022, $350,000 was drawn under the convertible promissory note -
related party. No other Working Capital Loans were outstanding as of
September 30, 2022. There were no Working Capital Loans outstanding at
December 31, 2021.
We believe we may need to raise additional funds in order to meet the
expenditures required for operating the business. If our estimate of the costs
of identifying a target business, undertaking in-depth due diligence and
negotiating an initial Business Combination is less than the actual amount
necessary to do so, we may have insufficient funds currently available to
operate the business prior to the initial Business Combination. We may need to
raise additional capital through additional loans or investments from our
Sponsor, our officers or directors or their affiliates. Our Sponsor, officers
and directors, or their affiliates, may, but are not obligated to, loan us
additional funds, from time to time or at any time, in whatever amount they deem
reasonable in their sole discretion, to meet our working capital needs.
Accordingly, we may not be able to obtain additional financing. If we are unable
to raise additional capital, we may be required to take additional measures to
conserve liquidity, which could include, but not necessarily be limited to,
curtailing operations, suspending the pursuit of a potential transaction,
reducing overhead expenses, and extending the terms and due dates of certain
accrued expenses and other liabilities. We cannot provide any assurance that new
financing will be available to us on commercially acceptable terms, if at all.
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In connection with our assessment of going concern considerations in accordance
with 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 liquidity
condition and mandatory liquidation and subsequent dissolution raise 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 9, 2023. The condensed financial statements do not include
any adjustment that might be necessary if we are unable to continue as a going
concern.
On November 4, 2022, we filed a Preliminary Proxy Statement on Schedule 14A (the
"Proxy Statement") relating to a special meeting of stockholders that is
anticipated to be held in December 2022 to approve an amendment to our amended
and restated certificate of incorporation (the "Charter Amendment") which would,
if implemented, allow us to unwind and redeem all of our outstanding public
shares on such date (not later than December 30, 2022) as shall be determined by
our Board of Directors and publicly announced by us (the "Amended Termination
Date"), in advance of the mandatory liquidation date of March 9, 2023. If
implemented, the Charter Amendment would also allow us to remove the Redemption
Limitation (as defined in the amended and restated certificate of incorporation)
to allow us to redeem public shares notwithstanding the fact that such
redemption would result in us having net tangible assets of less than
$5,000,001, and to remove up to $100,000 of interest earned on the amount on
deposit in the Trust Account prior to redeeming the public shares in connection
with the special meeting in order to pay dissolution expenses. We will also seek
stockholder approval to amend the Investment Management Trust Agreement, dated
March 4, 2021, by and between us and Continental Stock Transfer & Trust Company
to change the date on which the trustee must commence liquidation of the Trust
Account to the Amended Termination Date.
Various social and political circumstances in the United States and around the
world (including wars and other forms of conflict, including rising trade
tensions between the United States and China, and other uncertainties regarding
actual and potential shifts in the United States and foreign, trade, economic
and other policies with other countries, terrorist acts, security operations and
catastrophic events such as fires, floods, earthquakes, tornadoes, hurricanes
and global health epidemics), may also contribute to increased market volatility
and economic uncertainties or deterioration in the United States and worldwide.
Specifically, the rising conflict between Russia and Ukraine, and resulting
market volatility could adversely affect our ability to complete a Business
Combination. In response to the conflict between Russia and Ukraine, the United
States and other countries have imposed sanctions or other restrictive actions
against Russia. Any of the above factors, including sanctions, export controls,
tariffs, trade wars and other governmental actions, could have a material
adverse effect on our ability to complete a Business Combination and the value
of our securities.
Management continues to evaluate the impact of these types of risks (including
the impact of the ongoing global COVID-19 pandemic on the industry) and has
concluded that while it is reasonably possible that these risks and
uncertainties could have a negative effect on our financial position, results of
operations and/or search for a target company, the specific impact is not
readily determinable as of the date of these unaudited condensed financial
statements. The unaudited condensed financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
On August 16, 2022, the Inflation Reduction Act of 2022 (the "IR Act") was
signed into federal law. The IR Act provides for, among other things, a new U.S.
federal 1% excise tax on certain repurchases of stock by publicly traded U.S.
domestic corporations and certain U.S. domestic subsidiaries of publicly traded
foreign corporations occurring on or after January 1, 2023. The excise tax is
imposed on the repurchasing corporation itself, not its shareholders from which
shares are repurchased. The amount of the excise tax is generally 1% of the fair
market value of the shares repurchased at the time of the repurchase. However,
for purposes of calculating the excise tax, repurchasing corporations are
permitted to net the fair market value of certain new stock issuances against
the fair market value of stock repurchases during the same taxable year. In
addition, certain exceptions apply to the excise tax. The U.S. Department of the
Treasury (the "Treasury") has been given authority to provide regulations and
other guidance to carry out and prevent the abuse or avoidance of the excise
tax. Any share redemption or other share repurchase that occurs after
December 31, 2022, in connection with a Business Combination, extension vote or
otherwise, may be subject to the excise tax. Whether and to what extent we would
be subject to the excise tax in connection with a Business Combination,
extension vote or otherwise will depend on a number of factors, including
(i) the fair market
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value of the redemptions and repurchases in connection with the Business
Combination, extension or otherwise, (ii) the structure of a Business
Combination, (iii) the nature and amount of any "PIPE" or other equity issuances
in connection with a Business Combination (or otherwise issued not in connection
with a Business Combination but issued within the same taxable year of a
Business Combination) and (iv) the content of regulations and other guidance
from the Treasury. In addition, because the excise tax would be payable by us
and not by the redeeming holder, the mechanics of any required payment of the
excise tax have not been determined. The foregoing could cause a reduction in
the cash available on hand to complete a Business Combination and in our ability
to complete a Business Combination.
Results of Operations
Our entire activity from inception up to September 30, 2022, was for our
formation and the IPO and, subsequent to the IPO, the search for a target for
our initial Business Combination. We will not be generating any operating
revenues until the closing and completion of our initial Business Combination.
For the three months ended September 30, 2022, we had a net income of
approximately $484,000, which consisted of approximately $1.0 million in gain on
investments held in the Trust Account, partially offset by approximately
$239,000 in general and administrative expenses, $30,000 in administrative
expenses-related party, approximately $1,000 in interest expense, approximately
$52,000 in franchise tax expenses, and approximately $200,000 in income tax
expense.
For the three months ended September 30, 2021, we had a net loss of
approximately $375,000, which consisted of approximately $297,000 in general and
administrative expenses, approximately $30,000 in administrative
expenses-related party, and approximately $50,000 in franchise tax expenses,
partially offset by approximately $3,000 in gain on investments held in the
Trust Account.
For the nine months ended September 30, 2022, we had a net loss of approximately
$16,000, which consisted of approximately $893,000 in general and administrative
expenses, $90,000 in administrative expenses-related party, approximately
$150,000 in franchise tax expenses, and approximately $211,000 in income tax
expense, partly offset by approximately $1.3 million in gain on investments held
in the Trust Account.
For the period from January 12, 2021 (inception) through September 30, 2021, we
had a net loss of approximately $761,000, which consisted of approximately
$563,000 in general and administrative expenses, approximately $68,000 in
administrative expenses-related party, and approximately $144,000 in franchise
tax expenses, partially offset by approximately $14,000 in gain on investments
held in Trust Account.
Contractual Obligations
Administrative Services Agreement
Commencing on the date that our securities were first listed on Nasdaq and
continuing until the earlier of our consummation of a Business Combination or
our liquidation, we agreed to pay the Sponsor a total of $10,000 per month for
office space, secretarial and administrative services provided to members of our
management team.
Our Sponsor, executive officers and directors, or any of their respective
affiliates will be reimbursed for any out-of-pocket expenses incurred in
connection with activities on our behalf such as identifying potential target
businesses and performing due diligence on suitable business combinations. Our
audit committee reviews on a quarterly basis all payments that are made to our
Sponsor, executive officers or directors, or our or their affiliates.
For the three months ended September 30, 2022 and 2021, we incurred expenses of
approximately $30,000 under this agreement. For the nine months ended
September 30, 2022 and for the period from January 12, 2021 (inception) through
September 30, 2021, we incurred expenses of $90,000 and approximately $68,000,
respectively, under this agreement. As of September 30, 2022 and December 31,
2021, the amount due to the Sponsor for these services was $180,000 and
approximately $90,000, respectively, which is included in accounts payable and
accrued expenses on the accompanying condensed balance sheets.
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Registration Rights
The holders of Founder Shares, Private Placement Shares and shares that may be
issued upon conversion of Working Capital Loans (including the Conversion Shares
(as defined below)), if any, are entitled to registration rights pursuant to a
registration rights agreement signed upon the consummation of the IPO. These
holders are entitled to certain demand and "piggyback" registration rights. We
will bear the expenses incurred in connection with the filing of any such
registration statements.
Underwriting Agreement
We granted the underwriters a 45-day option from the date of the final
prospectus relating to the IPO to purchase up to 3,000,000 additional Public
Shares to cover over-allotments, if any, at the IPO price, less underwriting
discounts and commissions. On March 9, 2021, the underwriters partially
exercised the over-allotment option to purchase 2,266,185 Public Shares and
forfeited the remainder of their option.
The underwriters were entitled to an underwriting discount of $0.20 per Public
Share, or approximately $4.5 million in the aggregate, paid upon the closing of
the IPO. In addition, $0.35 per Public Share, or approximately $7.8 million in
the aggregate, will be payable to the underwriters for deferred underwriting
commissions. The deferred fee will become payable to the underwriters from the
amounts held in the Trust Account solely in the event that we complete a
Business Combination, subject to the terms of the underwriting agreement.
Critical Accounting Estimates
This management's discussion and analysis of our financial condition and results
of operations is based on our condensed financial statements, which have been
prepared in accordance with U.S. GAAP. The preparation of these condensed
financial statements requires us to make estimates and judgments that affect the
reported amounts of assets, liabilities, revenues and expenses and the
disclosure of contingent assets and liabilities in our condensed financial
statements. On an ongoing basis, we evaluate our estimates and judgments,
including those related to fair value of financial instruments and accrued
expenses. We base our estimates on historical experience, known trends and
events and various other factors that we believe to be reasonable under the
circumstances, the results of which form the basis for making judgments about
the carrying values of assets and liabilities that are not readily apparent from
other sources. Actual results may differ from these estimates under different
assumptions or conditions. We have identified the following as our critical
accounting estimates:
Investments Held in the Trust Account
Our portfolio of investments 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 and generally have a readily determinable fair
value, or a combination thereof. When our investments held in the Trust Account
are comprised of U.S. government securities, the investments are classified as
trading securities. When our investments held in the Trust Account are comprised
of money market funds, the investments are recognized at fair value. Trading
securities and investments in money market funds are presented on the condensed
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 are included
in gain from investments held in the Trust Account in the accompanying
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
Class A common stock subject to mandatory redemption (if any) are classified as
liability instruments and are measured at fair value. Conditionally redeemable
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, Class A common
stock are classified as stockholders' equity. As part of the Private Placement,
we issued 685,324 Private Placement Shares to the Sponsor. These Private
Placement Shares will not be transferable, assignable or salable until 30 days
after the completion of our initial Business Combination. They are also
considered non-redeemable and are presented as permanent equity in our balance
sheets. Our Class A common stock sold in the IPO feature certain
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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, 22,266,185 shares of Class A common stock subject to
possible redemption at the redemption amount were presented at redemption value
as temporary equity, outside of the stockholders' equity section of our
condensed balance sheets.
We recognize changes in redemption value immediately as they occur and adjust
the carrying value of the Class A common stock subject to possible redemption to
equal the redemption value at the end of each reporting period. Effective with
the closing of the IPO, we recognized the accretion from initial book value to
redemption amount, which resulted in charges against additional paid-in capital
(to the extent available) and accumulated deficit.
Net income (loss) per common shares
We comply with accounting and disclosure requirements of FASB ASC Topic 260,
"Earnings Per Share." We have 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 per common share is
calculated by dividing the net income by the weighted average shares of common
stock outstanding for the respective period. Accretion associated with the
redeemable Class A common stock is excluded from earnings per share as the
redemption value approximates fair value.
Recent Accounting Pronouncements
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 condensed financial statements.
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 condensed 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 of the
Sarbanes-Oxley Act, (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 PCAOB 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 CEO's compensation to median employee compensation. These exemptions will
apply for a period of five years following the completion of our IPO or until we
are no longer an "emerging growth company," whichever is earlier.
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