References in this report (the "Quarterly Report") to "we," "us" or the
"Company" refer to Lionheart Acquisition Corporation II. References to our
"management" or our "management team" refer to our officers and directors,
references to the "Sponsor" refer to Lionheart Equities, LLC. The following
discussion and analysis of the Company's financial condition and results of
operations should be read in conjunction with the 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
This Quarterly Report 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") that are not historical facts and involve risks and
uncertainties that could cause actual results to differ materially from those
expected and projected. All statements, other than statements of historical fact
included in this Form 10-Q including, without limitation, statements in this
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" regarding the Company's financial position, business strategy and
the plans and objectives of management for future operations, are
forward-looking statements. Words such as "expect," "believe," "anticipate,"
"intend," "estimate," "seek" and variations and similar words and expressions
are intended to identify such forward-looking statements. Such forward-looking
statements relate to future events or future performance, but reflect
management's current beliefs, based on information currently available. A number
of factors could cause actual events, performance or results to differ
materially from the events, performance and results discussed in the
forward-looking statements. For information identifying important factors that
could cause actual results to differ materially from those anticipated in the
forward-looking statements, please refer to the Risk Factors section of the
Company's Annual Report on Form 10-K filed with the U.S. Securities and Exchange
Commission (the "SEC"). The Company's securities filings can be accessed on the
EDGAR section of the SEC's website at www.sec.gov. Except as expressly required
by applicable securities law, the Company disclaims any intention or obligation
to update or revise any forward-looking statements whether as a result of new
information, future events or otherwise.
This Management's Discussion and Analysis of Financial Condition and Results of
Operations has been amended and restated to give effect to the restatement of
our financial statements as of September 30, 2020, December 31, 2020, March 31,
2021, and June 30, 2021. Management identified errors made in its historical
financial statements where, at the closing of our Initial Public Offering, we
improperly valued our Class A common stock subject to possible redemption. We
previously determined the Class A common stock subject to possible redemption to
be equal to the redemption value of $10.00 per share of Class A common stock
while also taking into consideration a redemption cannot result in net tangible
assets being less than $5,000,001. Management determined that the Class A common
stock issued during the Initial Public Offering can be redeemed or become
redeemable subject to the occurrence of future events considered outside of the
Company's control. Therefore, management concluded that the redemption value
should include all Class A common stock subject to possible redemption,
resulting in the Class A common stock subject to possible redemption being equal
to their redemption value. As a result, management has noted a reclassification
error related to temporary equity and permanent equity. This resulted in a
restatement to the initial carrying value of the Class A common stock subject to
possible redemption with the offset recorded to additional paid-in capital (to
the extent available), accumulated deficit and Class A common stock.
Overview
We are a blank check company formed under the laws of the State of Delaware on
December 23, 2019 for the purpose of effecting a merger, capital stock exchange,
asset acquisition, stock purchase, reorganization or other similar Business
Combination with one or more businesses. We intend to effectuate our Business
Combination using cash from the proceeds of the Initial Public Offering and the
sale of the Private Placement Units, the proceeds of the sale of our shares in
connection with a Business Combination (pursuant to the forward purchase
agreement with Nomura and pursuant to forward purchase agreements or backstop
agreements, shares issued to the owners of the target, debt issued to bank or
other lenders or the owners of the target, or a combination of the foregoing.
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Recent Developments
On July 11, 2021, we entered into a Membership Interest Purchase Agreement (the
"MIPA") with Lionheart II Holdings, LLC, our newly formed wholly owned
subsidiary ("Purchaser"), each limited liability company set forth on Schedule
2.1(a) thereto (the "MSP Purchased Companies"), the members of the MSP Purchased
Companies listed on Schedule 2.1(b) thereto (the "Members"), and John H. Ruiz,
as the representative of the Members. See Note 9 to Item 1 above for a
description of the MIPA and the transactions contemplated thereby.
On January 27, 2022, the Company held a special meeting of the Company's
stockholders (the "Extension Meeting"). At the Extension Meeting, the Company's
stockholders approved to extend the date by which the Company must consummate
its initial business combination from February 18, 2022 to August 18, 2022. As
part of the meeting, Stockholders holding 10,946,369 shares of the Company's
Class A common stock exercised their right to redeem such shares for a pro rata
portion of the funds in the Company's trust account, amounting to approximately
$109,469,789 removed from the Company's trust account to pay such stockholders.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date.
Our only activities through March 31, 2022 were organizational activities, those
necessary to prepare for the Initial Public Offering, described below, and,
subsequent to the Initial Public Offering, identifying a target company for a
Business Combination, in particular activities in connection with the potential
acquisition of the MSP Purchased Companies. 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
marketable securities held after the Initial Public Offering. 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 three months ended March 31, 2022, we had a net loss of $1,107,168,
which consists of the change in fair value of warrant liabilities of $709,500
and interest earned on marketable securities held in the Trust Account of
$8,374, offset by operating and formation costs of $1,825,042.
For the three months ended March 31, 2021, we had a net income of $4,641,710,
which consists of the change in fair value of warrant liabilities of $4,848,250
and interest earned on marketable securities held in the Trust Account of
$3,398, offset by operating and formation costs of $209,938.
Liquidity and Capital Resources
Until the consummation of the Initial Public Offering, our only source of
liquidity was an initial purchase of common stock by the Sponsor and loans from
our Sponsor.
On August 18, 2020, we consummated the Initial Public Offering of 20,000,000
Units at a price of $10.00 per Unit, generating gross proceeds of $200,000,000.
Simultaneously with the closing of the Initial Public Offering, we consummated
the sale of 650,000 Private Placement Units at a price of $10.00 per Private
Placement Unit in a private placement to our stockholders, generating gross
proceeds of $6,500,000.
On August 24, 2020, in connection with the underwriters' election to fully
exercise of their option to purchase additional Units, we consummated the sale
of an additional 3,000,000 Units, generating total gross proceeds of
$30,000,000.
Following the Initial Public Offering, the full exercise of the over-allotment
option by the underwriters' and the sale of the Private Placement Units, a total
of $230,000,000 was placed in the Trust Account and we had $1,421,063 of cash
held outside of the Trust Account, after payment of costs related to the Initial
Public Offering, and available for working capital purposes. We incurred
$13,128,937 in transaction costs, including $4,600,000 of underwriting fees,
$8,050,000 of deferred underwriting fees and $478,937 of other offering costs.
For the three months ended March 31, 2022, cash used in operating activities was
$85,556, Net loss of $1,107,168 was affected by the change in fair value of
warrant liability of $709,500 and interest earned on marketable securities held
in the Trust Account of $8,374. Changes in operating assets and liabilities
provided $1,739,486 of cash from operating activities.
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For the three months ended March 31, 2021, cash used in operating activities was
$224,398, Net income of $4,641,710 was affected by the change in fair value of
warrant liability of $4,848,250 and interest earned on marketable securities
held in the Trust Account of $3,398. Changes in operating assets and liabilities
provided $14,460 of cash from operating activities.
As of March 31, 2022, we had cash and marketable securities held in the Trust
Account of $121,354,431. We intend to use substantially all of the funds held in
the Trust Account, including any amounts representing interest earned on the
Trust Account to complete our Business Combination. We may withdraw interest to
pay franchise and income taxes. Through March 31, 2022, we have withdrawn
$13,368 of interest earned on the Trust Account for the payment of franchise and
income taxes. To the extent that our capital stock or debt is used, in whole or
in part, as consideration to complete our Business Combination, the remaining
proceeds held in the Trust Account will be used as working capital to finance
the operations of the target business or businesses, make other acquisitions and
pursue our growth strategies.
As of March 31, 2022, we had cash of $39,058 outside of the Trust Account. We
intend to use the funds held outside the Trust Account primarily to complete our
disclosed Business Combination as agreed upon in our Membership Interest
Purchase Agreement.
In addition, the Sponsor, an affiliate of the Sponsor, or our officers and
directors may, but are not obligated to, loan us funds as may be required. If we
complete a Business Combination, we would repay such loaned amounts. In the
event that a Business combination does not close, we may use a portion of the
working capital held outside the trust account to repay such loaned amounts but
no proceeds from our Trust Account would be used for such repayment. Up to
$1,000,000 of such loans may be convertible into units, at a price of $10.00 per
unit at the option of the lender. The units would be identical to the Private
Placement Units. The terms of such loans by our officers and directors, if any,
have not been determined and no written agreements exist with respect to such
loans. The loans would be repaid upon consummation of a Business Combination,
without interest.
In order to fund working capital deficiencies or finance transaction costs in
connection with a business combination, on February 21, 2021, the Sponsor,
Lionheart Equities, LLC, committed up to $750,000 in loans to the Company for
continuing operations to consummate a business combination. The Sponsor
committed up to an additional $250,000 in loans to the Company for continuing
operations to consummate a business combination on July 29, 2021, for an
aggregate commitment of $1,000,000. The loans are non-interest bearing,
unsecured, and to be repaid upon the consummation of a business combination. In
the event that a business combination does not occur, then all loaned amounts
under this commitment will be forgiven except to the extent that the Company has
funds available to it outside the trust account.
Going Concern
We will need to raise additional funds in order to meet the expenditures
required for operating our business. Based off our estimates of the costs of
identifying a target business, undertaking in-depth due diligence, and
negotiating a Business Combination, we may have insufficient funds available to
operate our business prior to our Business Combination. Moreover, we may need to
obtain additional financing either to complete our Business Combination or
because we become obligated to redeem a significant number of our public shares
upon consummation of our 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 complete such financing simultaneously with the completion of our Business
Combination. If we are unable to complete our Business Combination because we do
not have sufficient funds available to us, we will be forced to cease operations
and liquidate the Trust Account. In addition, following our Business
Combination, if cash on hand is insufficient, we may need to obtain additional
financing in order to meet our obligations. These conditions raise substantial
doubt about our ability to continue as a going concern through August 18, 2022,
the Company's liquidation date, and/or through twelve months from the issuance
of these consolidated financial statements. These consolidated financial
statements do not include any adjustments relating to the recovery of the
recorded assets or the classification of the liabilities that might be necessary
should the Company be unable to continue as a going concern.
Proposed Business Combination
On July 11, 2021, the Company entered into a Membership Interest Purchase
Agreement (the "MIPA") by and among the Company, Lionheart II Holdings, LLC, a
newly formed wholly owned subsidiary of the Company ("Purchaser"), each limited
liability company set forth on Schedule 2.1(a) thereto (the "MSP Purchased
Companies"), the members of the MSP Purchased Companies listed on Schedule
2.1(b) thereto (the "Members"), and John H. Ruiz, as the representative of the
Members.
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Subject to the terms and conditions set forth in the MIPA, including the
approval of the Company's stockholders, the parties thereto will enter into a
business combination transaction (the "Business Combination"), pursuant to
which, among other things, the Members will sell and assign all of their
membership interests in the MSP Purchased Companies to Purchaser in exchange for
non-economic voting shares of Class V common stock, par value $0.0001, of the
Company ("Class V Common Stock") and non-voting economic Class B Units of
Purchaser ("Class B Units," and each pair consisting of one share of Class V
Common Stock and one Class B Unit, an "Up-C Unit"), with Up-C Units being
exchangeable on a one-for-one basis for shares of the Company's Class A common
stock. Following the closing of the Business Combination (the "MIPA Closing"),
the Company will own all of the voting Class A Units of Purchaser and the
Members or their designees will own all of the non-voting economic Class B Units
of Purchaser. Subject to the terms and conditions set forth in the MIPA, the
aggregate consideration to be paid to the Members (or their designees) will
consist of a number of (i) Up-C Units equal to (a) $32.5 billion divided by (b)
$10.00 and (ii) rights to receive payments under the Tax Receivable Agreement
(as defined below). Of the Up-C Units to be issued to certain Members at the
MIPA Closing, 6,000,000 (the "Escrow Units") will be deposited into an escrow
account with Continental Stock Transfer and Trust, to satisfy potential
indemnification claims brought pursuant to the MIPA. Additionally, in connection
with the Business Combination, the Company intends, subject to compliance with
applicable law, to declare a dividend comprising approximately 1,029,000,000
newly issued warrants, each to purchase one share of Class A common stock for an
exercise price of $11.50 per share, conditioned upon the consummation of any
redemptions by the Company's stockholders and the MIPA, to the holders of record
of Class A common stock as of the close of business on the date of the MIPA
Closing, after giving effect to the waiver of the right to participate in such
dividend by the Members.
The MIPA contains customary representations, warranties and covenants by the
parties thereto and the closing is subject to certain conditions as further
described in the MIPA.
On November 10, 2021, the Company filed with the U.S. Securities and Exchange
Commission ("SEC") in preliminary form a registration statement on Form S-4 (the
"Registration Statement") which contains a preliminary proxy
statement/prospectus, in connection with the proposed business combination
between the Company and MSP Recovery announced on July 12, 2021. While the
Registration Statement has not yet become effective and the information
contained therein is subject to change, it provides important information about
MSP Recovery, LCAP, and the proposed business combination.
Going Concern
We have until August 18, 2022 to consummate an initial business combination. It
is uncertain that we will have sufficient liquidity to fund the working capital
needs of the Company until the liquidation date and/or through twelve months
from the issuance of this report. Additionally, it is uncertain that we will be
able to consummate an initial business combination by this time. The Company may
not have sufficient liquidity to fund the working capital needs of the Company
until August 18, 2022, the liquidation date, and/or through twelve months from
the issuance of this report. If an initial business combination is not
consummated by the liquidation date, there will be a mandatory liquidation and
subsequent dissolution. Management has determined that the liquidity condition
and mandatory liquidation, should an initial business combination not occur, and
potential 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 August
18, 2022.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of March 31, 2022.
Contractual obligations
We do not have any long-term debt, capital lease obligations, operating lease
obligations or long-term liabilities, other than an agreement to pay the Sponsor
a monthly fee of $15,000 for office space, utilities and secretarial and
administrative support to the Company. We began incurring these fees on
August 14, 2020 and will continue to incur these fees monthly until the earlier
of the completion of the Business Combination and the Company's liquidation.
The underwriters are entitled to a deferred fee of $0.35 per Unit, or $8,050,000
in the aggregate. The deferred fee will become payable to the underwriters from
the amounts held in the Trust Account solely in the event that the Company
completes a Business Combination, subject to the terms of the underwriting
agreement.
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Critical Accounting Policies
The preparation of condensed consolidated 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 financial statements, and
income and expenses during the periods reported. Actual results could materially
differ from those estimates. We have identified the following critical
accounting policies:
Warrant Liabilities
We account for the warrants issued in connection with our Initial Public
Offering in accordance with the guidance contained in ASC 815 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 adjust 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 statements of
operations.
Common Stock Subject to Possible Redemption
We account for our common stock subject to possible conversion in accordance
with the guidance in Accounting Standards Codification ("ASC") Topic 480
"Distinguishing Liabilities from Equity." Common stock subject to mandatory
redemption is classified as a liability instrument and measured at fair value.
Conditionally redeemable common stock (including common stock that features
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) is classified as temporary equity. At all other times, common stock is
classified as stockholders' equity. Our common stock features certain redemption
rights that are considered to be outside of our control and subject to
occurrence of uncertain future events. Accordingly, common stock subject to
possible redemption is presented at redemption value as temporary equity,
outside of the stockholders' deficit section of our condensed consolidated
balance sheets.
Net Income (Loss) Per Common Share
We comply with accounting and disclosure requirements of FASB ASC Topic 260,
"Earnings Per Share". Net income (loss) per common stock is computed by dividing
net income (loss) by the weighted average number of common stocks outstanding
for the period. We apply the two-class method in calculating earnings per share.
Accretion associated with the redeemable shares of Class A common stocks is
excluded from earnings per share as the redemption value approximates fair
value.
The calculation of diluted income (loss) per share does not consider the effect
of the warrants issued in connection with the (i) Initial Public Offering, and
(ii) the private placement since the exercise of the warrants is contingent upon
the occurrence of future events. The warrants are exercisable to purchase
11,825,000 Class A common stocks in the aggregate. As of March 31, 2022 and
2021, we did not have any dilutive securities or other contracts that could,
potentially, be exercised or converted into common stocks and then share in the
earnings of the Company. As a result, diluted net loss per common stock is the
same as basic net loss per common stock for the periods presented.
Out of Period Adjustments
We have corrected and recorded approximately $96,800 of adjustments related to
the year ended December 31, 2021 within the three months ended March 31, 2022.
We have not restated or revised our previous balances for the year ended
December 31, 2021. We will continue to evaluate the impacts of the out of period
adjustments within the fiscal year 2022 reported balances.
Recent Accounting Standards
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 condensed consolidated financial statements.
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