Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
References to "we," "us," "Company" or "our Company" refer to LF Capital
Acquisition Corp. II. 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
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, and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). When used in this Form 10-Q, words such as "anticipate," "believe,"
"estimate," "expect," "intend" and similar expressions, as they relate to us or
the Company's management, identify forward-looking statements. Such
forward-looking statements are based on the beliefs of management, as well as
assumptions made by, and information currently available to, the Company's
management. Actual results could differ materially from those contemplated by
the forward-looking statements as a result of certain factors detailed in our
other filings with the SEC. Our actual results may differ materially from those
anticipated in these forward-looking statements as a result of many factors,
including those set forth under "Part II-Other Information. Item 1a. Risk
Factors" and elsewhere in this Quarterly Report on Form 10-Q.
Overview
We are an early-stage blank check company incorporated in February 2021 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. We completed our IPO on
November 19, 2021. We intend to effectuate our initial business combination
using cash from the proceeds of the IPO and the sale of the private placement
warrants, our capital stock, debt or a combination of cash, stock and debt.
Since completing our IPO, we have reviewed, and continue to review, a number of
opportunities to enter into an initial business combination with an operating
business, but we are not able to determine at this time whether we will complete
an initial business combination with any of the target businesses that we have
reviewed or with any other target business. We presently have no revenue, have
had losses since inception from incurring formation costs and have had no
operations other than the active solicitation of a target business with which to
complete an initial business combination. We expect to continue to incur
significant costs in the pursuit of our acquisition plans. We cannot assure you
that our plans to raise capital or to complete our initial business combination
will be successful.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date.
Our only activities through June 30, 2022 were organizational activities, those
necessary to prepare for the IPO, described below, and, after our IPO,
identifying a target company for an initial business combination. We do not
expect to generate any operating revenues until after the completion of our
initial business combination. We generate non-operating income in the form of
interest income on marketable securities held in the trust account. 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 and six months ended June 30, 2022, we had a net loss of $154,809
and $472,363, respectively, which consisted of operating costs of $370,565 and
$807,672 offset by an unrealized gain on marketable securities held in the trust
account of $214,745 and $356,205, respectively, and in each period, a change in
fair value of Convertible Note of $544 and dividend income of $92.
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Liquidity and Going Concern
As of June 30, 2022, the Company had $311,669 in its operating bank account,
$264,099,062 in securities held in the Trust Account to be used for a Business
Combination or to repurchase or redeem its common stock in connection therewith
and working capital of $231,581.
In connection with the Company's assessment of going concern considerations in
accordance with the authoritative guidance in FASB Accounting Standards Update
("ASU") Subtopic 205-40, "Presentation of Financial Statements-Going Concern,"
management has determined that should the Company be unable to complete a
Business Combination, the mandatory liquidation and subsequent dissolution
described in Note 1 of the financial statements that would follow, raises
substantial doubt about the Company's ability to continue as a going concern.
The Company has 15 months from the closing of the IPO (i.e., January 13, 2023)
to consummate a Business Combination. It is uncertain that the Company will be
able to consummate a Business Combination by the specified period. If a Business
Combination is not consummated by January 13, 2023, there will be a mandatory
liquidation and subsequent dissolution. These 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.
Also, in connection with the Company's assessment of going concern
considerations in accordance with the ASU 2014-15 management has determined that
if the Company is unable to raise additional funds to alleviate liquidity needs
as well as complete a Business Combination by February 13, 2023 then the Company
will cease all operations except for the purpose of liquidating. The liquidity
condition as well as the date for mandatory liquidation and subsequent
dissolution raise substantial doubt about the Company's ability to continue as a
going concern.
These 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.
The Company's liquidity needs prior to the consummation of the IPO were
satisfied through the payment of $25,000 from the Sponsor to cover certain
offering costs on the Company's behalf in exchange for issuance of Founder
Shares (Note 4) and a promissory note, as amended, from the Sponsor (see Note
4). Subsequent to the IPO, the Company's liquidity needs have been satisfied
through a portion of the net proceeds from the Private Placement. Until the
consummation of a Business Combination, the Company will be using the funds not
held in the Trust Account for identifying and evaluating prospective acquisition
candidates, performing due diligence on prospective target businesses, paying
for travel expenditures, selecting the target business to acquire, and
structuring, negotiating and consummating the Business Combination. In order to
finance transaction costs in connection with a Business Combination, the Company
will need to raise additional capital through loans or additional investments
from its Sponsor, shareholders, officers, directors, or third parties. The
Company's officers, directors and Sponsor may, but are not obligated to, loan
the Company funds, from time to time or at any time, in whatever amount they
deem reasonable in their sole discretion, to meet the Company's working capital
needs At June 30, 2022, there was $450,000 of cumulative cash advanced under the
convertible promissory note. The convertible promissory note was valued using
the fair value method. The advances of $450,000 for the six months ended
June 30, 2022 were initially valued at $412,363 whereas the difference of
$37,637 was recorded as a credit to stockholders' deficit. The change in the
fair value of the note recorded in the statements of operations for the three
and six months ended June 30, 2022 were $544, respectively, resulting in a fair
value of the convertible note of $411,819.
Off-Balance Sheet Arrangements
As of June 30, 2022, we had no obligations, assets or liabilities, which would
be considered off-balance sheet arrangements.
Contractual Obligations
As of June 30, 2022, we do not have any long-term debt, capital lease
obligations, operating lease obligations or long-term liabilities, other than an
agreement to pay affiliate of our Sponsor a monthly fee of $15,000 for office
space, utilities and secretarial and administrative and support. We began
incurring these fees on consummation of the IPO and will continue to incur these
fees monthly until the earlier of the completion of our initial business
combination and our liquidation.
The underwriter is entitled to a deferred fee of $0.35 per unit sold in the IPO,
or $9,056,250 in the aggregate. This deferred fee will be waived by the
underwriter in the event that the Company does not complete an initial business
combination, subject to the terms of the underwriting agreement with respect to
the Company's IPO.
Critical Accounting Policies and Estimates
The preparation of the unaudited condensed financial statements in conformity
with US GAAP 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:
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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 ASC 480. Common stock subject to mandatory
redemption is classified as a liability instrument and is 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 Class A Common Stock features certain
redemption rights that are considered to be outside of our control and subject
to occurrence of uncertain future events. Accordingly, our Class A Common Stock
subject to possible redemption is presented as temporary equity, outside of the
stockholders' equity section of our balance sheets. The Company recognizes
changes in redemption value immediately as they occur and adjusts the carrying
value of redeemable Class A Common Stock to equal the redemption value at the
end of each reporting period. Increases or decreases in the carrying amount of
redeemable Class A Common Stock are affected by charges against additional paid
in capital and accumulated deficit.
Net Loss Per Ordinary Share
The Company follows the two-class method to calculate earnings per ordinary
share. Net loss per share is computed by dividing net loss by the weighted
average number of shares of common stock outstanding during the period,
excluding shares of common stock subject to forfeiture by the Sponsor. The
calculation of diluted loss per share does not consider the effect of the
warrants issued in connection with the IPO and warrants issued in the Private
Placement since the exercise of these warrants are contingent upon the
occurrence of future events. The calculation also does not include the warrants
that could be issued as a result of the conversion option in the convertible
promissory note. For the three and six months ended June 30, 2022, the Company
did not have any dilutive securities and/or other contracts that could,
potentially, be exercised or converted into shares of common stock 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.
Recent Accounting Standards
The Company has reviewed recent accounting pronouncements and concluded that
they are either not applicable to the Company or no material effect is expected
on the unaudited condensed financial statements as a result of future adoption.
Recent Developments
On April 13, 2022, the Sponsor issued a Convertible Note, pursuant to which the
Company may borrow up to an aggregate principal amount of $1,500,000. The
Convertible Note is non-interest bearing and payable on the Maturity Date.
At the option of the Sponsor, at any time on or prior to the Maturity Date, any
amounts outstanding under the Convertible Note (or any portion thereof) up to
$1,500,000 in the aggregate, may be converted into warrants to purchase Class A
Common Stock of the Company at the Conversion Price. As of June 30, 2022, there
is an amount outstanding of $450,000 under the Convertible Note.
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