HH&L Acquisition (HHLA) - 2022 Q4 - Annual Report

Part I Item 1. Business HH&L Acquisition Co., a Cayman Islands blank check company, is pursuing a business combination with DiaCarta, Ltd., extending the merger deadline to May 9, 2023, following significant shareholder redemptions - The company is a blank check company, or SPAC, that completed its Initial Public Offering (IPO) on February 9, 2021, raising gross proceeds of $414 million[23][24] - On October 14, 2022, the company entered into a Business Combination Agreement with DiaCarta, Ltd. The deal values DiaCarta at a base purchase price of $460 million[33][34] - The deadline to complete a business combination was extended to May 9, 2023. This extension was approved by shareholders on February 7, 2023, which also triggered the redemption of 31,281,090 Class A Ordinary Shares[68][70][71] - Following the redemptions, approximately $103.6 million remained in the trust account, and 10,118,910 Class A Ordinary Shares remained outstanding[30][71] - The IPO underwriters, Goldman Sachs and Credit Suisse, have waived their deferred underwriting commissions totaling approximately $14.49 million in connection with the DiaCarta Business Combination[80][81] The DiaCarta Business Combination and the Merger Agreement The company entered a merger agreement with DiaCarta, Ltd. on October 14, 2022, involving domestication and a $460 million purchase price, subject to shareholder and regulatory approvals - The transaction structure involves the domestication of both HH&L and DiaCarta from the Cayman Islands to Delaware, followed by a merger making DiaCarta a wholly-owned subsidiary of the public company[33] - The aggregate merger consideration is based on a base purchase price of $460,000,000, payable in shares of the combined company valued at $10.00 per share[34] - Closing of the merger is subject to several conditions, including shareholder approvals from both companies, regulatory approvals, no legal prohibitions, and HH&L having at least $5,000,001 in net tangible assets[46] - Related agreements include Holder Support Agreements from both HH&L and DiaCarta shareholders, a new Registration Rights Agreement, a Lock-Up Agreement for certain shareholders, and a Sponsor Shares Forfeiture Agreement[59][61][64][66] Extension of Business Combination Deadline Shareholders approved extending the business combination deadline to May 9, 2023, triggering $318.1 million in redemptions and requiring additional funding from the Sponsor and DiaCarta - Shareholders approved extending the combination deadline up to May 9, 2023, through a series of one-month extensions[68][70] - In connection with the extension, 31,281,090 Class A shares were redeemed, resulting in a cash outflow of approximately $318.1 million from the trust account[71] - The Sponsor and DiaCarta are jointly funding the extension by loaning the company $380,000 for each one-month extension period, to be deposited into the trust account[72][73] - A new convertible promissory note for up to $600,000 was issued to the Sponsor on March 6, 2023, to fund the extension deposits and provide working capital[75] Effecting Our Initial Business Combination The company plans to finance its business combination using trust account funds and new capital, with shareholders retaining redemption rights before a May 9, 2023 liquidation deadline - The company may use a combination of trust account cash, new equity, or debt to finance the business combination[82][83] - Public shareholders have the right to redeem their shares for cash upon completion of the business combination. The company cannot redeem shares if it would cause net tangible assets to fall below $5,000,001[104][105] - If no business combination is completed by May 9, 2023, the company will cease operations, redeem all public shares with funds from the trust account, and liquidate[122] - The Sponsor has agreed to indemnify the company against claims from vendors or target businesses that could reduce the trust account funds, though the Sponsor's ability to satisfy this obligation is not guaranteed[130] Item 1A. Risk Factors The company faces significant risks as a blank check entity, including a "going concern" warning, potential delisting, and the risk of liquidation if the DiaCarta merger is not completed by May 9, 2023, exacerbated by high redemptions and foreign operational risks - The company's independent auditor has expressed substantial doubt about its ability to continue as a "going concern" due to its working capital deficit and the impending liquidation deadline if a business combination is not completed[145][146] - There is a significant risk that the company may not complete its initial business combination by the May 9, 2023 deadline, which would force it to cease operations and liquidate the trust account[169][170] - The ability of public shareholders to redeem their shares may make the company's financial condition unattractive to targets and could prevent the completion of a deal if redemption levels are too high or a minimum cash condition is not met[160][161] - If the company's post-combination auditor cannot be fully inspected by the PCAOB, as has been an issue for firms in China, its securities could be delisted from U.S. exchanges under the Holding Foreign Companies Accountable Act (HFCAA)[373][374][377] - The company is at risk of being deemed an investment company under the Investment Company Act, which would impose burdensome requirements and could force liquidation if not resolved[216][217][219] - The Sponsor and its affiliates have potential conflicts of interest, as they will lose their entire investment if a business combination is not completed, which may influence their decision-making regarding a target[290][291] Item 2. Properties The company utilizes executive office space in Central, Hong Kong, under a services agreement with its Sponsor, paying a monthly fee of $15,000 - The company pays its Sponsor $15,000 per month for office space, utilities, and administrative services at its Hong Kong executive offices[390] Item 3. Legal Proceedings As of December 31, 2022, no material litigation, arbitration, or governmental proceedings were pending against the company or its management - To the knowledge of management, there was no material litigation, arbitration, or governmental proceeding pending against the company as of December 31, 2022[391] Item 4. Mine Safety Disclosures This item is not applicable to the company's business - Not applicable[392] Part II Item 5. Market for Registrant's Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities The company's units, Class A Ordinary Shares, and public warrants are listed on the NYSE, with $414 million from IPO proceeds deposited into the Trust Account - The company's securities trade on the NYSE: Units (HHLA.U), Class A Ordinary Shares (HHLA), and Public Warrants (HHLA WS)[394] - Gross proceeds of $414 million from the IPO and private placement were deposited into the Trust Account, with underwriting discounts of $8.28 million paid and other offering costs of approximately $1 million[396][397] Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations As a pre-combination SPAC, the company reported $17.7 million net income in 2022, but faces a "going concern" warning due to a working capital deficit and the May 9, 2023 liquidation deadline Results of Operations (2022 vs 2021) | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Net Income | $17.7 million | $1.3 million | | Change in fair value of derivative warrant liabilities | $15.8 million (gain) | $3.9 million (gain) | | Income from investments held in Trust Account | $6.1 million | $24,000 | | General and administrative expenses | ($4.3 million) | ($1.6 million) | - Management has determined that there is substantial doubt about the company's ability to continue as a going concern due to its working capital deficit and the mandatory liquidation date of May 9, 2023, if a business combination is not completed[423][425] - As of December 31, 2022, the company had a working capital deficit of approximately $4.6 million and had borrowed $500,000 from its Sponsor for working capital[421][422] - The underwriters for the IPO have waived their deferred fees. Goldman Sachs waived its ~$8.7 million portion, and Credit Suisse waived its portion with respect to the proposed DiaCarta combination[401][411] Item 7A. Quantitative and Qualitative Disclosures About Market Risk This section is not required as the company qualifies as a smaller reporting company - The company is not required to provide this information as it is a smaller reporting company[448] Item 8. Financial Statements and Supplementary Data This section presents the company's audited financial statements for 2021 and 2022, with the auditor's report highlighting a "Going Concern" risk due to the impending May 9, 2023 liquidation deadline - The report from the independent auditor, WithumSmith+Brown, PC, contains an explanatory paragraph expressing substantial doubt about the Company's ability to continue as a going concern[544] Consolidated Balance Sheet Highlights (as of Dec 31, 2022) | Account | Amount | | :--- | :--- | | Assets | | | Cash | $21,259 | | Investments held in Trust Account | $420,092,302 | | Total Assets | $420,157,231 | | Liabilities & Equity | | | Total current liabilities | $5,140,565 | | Derivative warrant liabilities | $1,549,000 | | Deferred underwriting commissions | $5,796,000 | | Class A ordinary shares subject to possible redemption | $419,992,302 | | Total shareholders' deficit | ($12,320,636) | Consolidated Statement of Operations (Year Ended Dec 31, 2022) | Account | Amount | | :--- | :--- | | Loss from operations | ($4,471,966) | | Change in fair value of derivative warrant liabilities | $15,799,800 | | Income from investments held in Trust Account | $6,068,411 | | Net Income | $17,691,841 | Item 9A. Controls and Procedures Management concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2022, with no material changes reported - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2022[451] - Management assessed internal control over financial reporting using the COSO framework and determined it was effective as of December 31, 2022[458] - There were no changes in internal control over financial reporting during the fourth quarter of 2022 that materially affected, or are reasonably likely to materially affect, internal controls[458] Part III Item 10. Directors, Executive Officers and Corporate Governance The company's board comprises seven members, including four independent directors, with established Audit, Compensation, and Nominating committees, and a Code of Business Conduct and Ethics - The board of directors consists of seven members: Kenneth W. Hitchner (Chairman), Richard Qi Li (CEO), Huanan Yang (COO), Derek Nelsen Sulger, Dr. Jingwu Zhang Zang, Qingjun Jin, and Professor Frederick Si Hang Ma[460][471] - The board has determined that Messrs. Jin, Sulger, Zang, and Ma are independent directors, satisfying the NYSE requirement for a majority-independent board[473] - The board has three standing committees: Audit, Compensation, and Nominating and Corporate Governance, each with a formal charter[474] - The company has adopted a Code of Business Conduct and Ethics applicable to all directors, officers, and employees[486] Item 11. Executive Compensation Officers and directors have received no cash compensation, with the Sponsor receiving $15,000 monthly for administrative support, and future compensation remains undetermined - No officers or directors have received cash compensation for services rendered[487] - The company pays its Sponsor $15,000 per month for office space, utilities, and administrative support services[487] - Post-business combination compensation for directors or management will be determined by the new board and is currently unknown[488] Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Shareholder Matters This section details beneficial ownership as of March 31, 2023, with the Sponsor holding 99.1% of Class B founder shares and institutional investors owning significant Class A Ordinary Shares Beneficial Ownership as of March 31, 2023 | Holder | Class A Shares | % of Class A | Class B Shares | % of Class B | | :--- | :--- | :--- | :--- | :--- | | HH&L Investment Co. (Sponsor) | — | — | 10,262,000 | 99.1% | | Aristeia Capital, L.L.C. | 3,351,942 | 33.13% | — | — | | D.E. Shaw & Co., L.L.C. | 1,302,059 | 12.87% | — | — | | Radcliffe Capital Management, L.P. | 650,778 | 6.43% | — | — | | Marshall Wace LLP | 593,713 | 5.87% | — | — | | All officers and directors as a group | — | — | 88,000 | <1% | Item 13. Certain Relationships and Related Transactions, and Director Independence This section details related party transactions, including the Sponsor's purchase of Founder Shares for $25,000 and Private Placement Warrants for $10.28 million, administrative fees of $15,000 monthly, and working capital loans totaling $1,480,000 - The Sponsor purchased 10,350,000 Founder Shares for an aggregate price of $25,000[498] - The Sponsor purchased 10,280,000 Private Placement Warrants at $1.00 each, for a total of $10.28 million, simultaneously with the IPO[500] - The company has entered into multiple promissory notes with the Sponsor for working capital, including a $500,000 note in September 2022 and a $600,000 note in March 2023. As of the report date, the total outstanding borrowings from the Sponsor and DiaCarta were $1,480,000[505][507][293] - An administrative support agreement is in place where the company pays the Sponsor $15,000 per month for office space and services[510] Item 14. Principal Accountant Fees and Services This section details fees paid to WithumSmith+Brown, PC, with audit fees of $91,840 in 2022 and $142,903 in 2021, and no other service fees, all pre-approved by the audit committee Accountant Fees Paid to WithumSmith+Brown, PC | Fee Type | 2022 | 2021 | | :--- | :--- | :--- | | Audit Fees | $91,840 | $142,903 | | Audit-Related Fees | $0 | $0 | | Tax Fees | $0 | $0 | | All Other Fees | $0 | $0 | - The audit committee has a policy to pre-approve all auditing services and permitted non-audit services to be performed by the independent auditors[515] Part IV Item 15. Exhibits, Financial Statement Schedules This section lists all documents filed as exhibits to the Form 10-K, including consolidated financial statements, the Business Combination Agreement, and various related party agreements - This section incorporates by reference the company's consolidated financial statements[517] - An extensive list of exhibits is filed with the report, including the Business Combination Agreement (Exhibit 2.1), the Warrant Agreement (Exhibit 4.4), and various related party loans and agreements (Exhibits 10.1 through 10.12)[519][521][535] Item 16. Form 10-K Summary This item is noted as 'None', indicating no summary is provided under this item in the report - None[537]