HH&L Acquisition (HHLA) - 2023 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Condensed Consolidated Financial Statements This section presents HH&L Acquisition Co.'s unaudited condensed consolidated financial statements for June 30, 2023, and December 31, 2022, including balance sheets, operations, shareholder deficit, cash flows, and detailed notes Condensed Consolidated Balance Sheets Condensed Consolidated Balance Sheets (Selected Items) | Item | June 30, 2023 (Unaudited) ($) | December 31, 2022 ($) | | :--------------------------------------- | :------------------------ | :---------------- | | Cash | $126,996 | $21,259 | | Cash and Investments held in Trust Account | $65,541,913 | $420,092,302 | | Total Assets | $65,761,265 | $420,157,231 | | Total current liabilities | $8,298,442 | $5,140,565 | | Total liabilities | $14,714,042 | $12,485,565 | | Total Shareholders' Deficit | $(14,394,690) | $(12,320,636) | Unaudited Condensed Consolidated Statements of Operations Unaudited Condensed Consolidated Statements of Operations (Selected Items) | Item | Three Months Ended June 30, 2023 ($) | Three Months Ended June 30, 2022 ($) | Six Months Ended June 30, 2023 ($) | Six Months Ended June 30, 2022 ($) | | :---------------------------------------------- | :------------------------------- | :------------------------------- | :----------------------------- | :----------------------------- | | General and administrative expenses | $450,455 | $734,122 | $1,448,454 | $1,103,931 | | Administrative expenses - related party | $45,000 | $45,000 | $90,000 | $90,000 | | Loss from operations | $(495,455) | $(779,122) | $(1,538,454) | $(1,193,931) | | Change in fair value of derivative warrant liabilities | $1,239,200 | $2,478,400 | $929,400 | $12,082,200 | | Income from cash and investments held in Trust Account | $775,957 | $588,028 | $3,004,534 | $621,817 | | Net income | $1,519,702 | $2,287,306 | $2,395,480 | $11,510,086 | | Basic and diluted net income per ordinary share, Class A | $0.08 | $0.04 | $0.09 | $0.22 | | Basic and diluted net income per ordinary share, Class B | $0.08 | $0.04 | $0.09 | $0.22 | Unaudited Condensed Consolidated Statements of Changes in Shareholders' Deficit Changes in Shareholders' Deficit (Selected Items) | Item | For the Six Months Ended June 30, 2023 ($) | For the Six Months Ended June 30, 2022 ($) | | :---------------------------------------------------------------- | :------------------------------------- | :------------------------------------- | | Balance - December 31, 2022 | $(12,320,636) | N/A | | Remeasurement of Class A ordinary shares subject to possible redemption | $(4,469,534) | N/A | | Net income | $2,395,480 | $11,510,086 | | Balance - June 30, 2023 | $(14,394,690) | $(21,454,201) | Unaudited Condensed Consolidated Statements of Cash Flows Unaudited Condensed Consolidated Statements of Cash Flows (Selected Items) | Item | For The Six Months Ended June 30, 2023 ($) | For The Six Months Ended June 30, 2022 ($) | | :---------------------------------------- | :------------------------------------- | :------------------------------------- | | Net cash used in operating activities | $(184,263) | $(388,626) | | Net cash provided by investing activities | $357,554,923 | $0 | | Net cash used in financing activities | $(357,264,923) | $0 | | Net change in cash | $105,737 | $(388,626) | | Cash - end of the period | $126,996 | $11,309 | Notes to Unaudited Condensed Consolidated Financial Statements Note 1 — Description of Organization and Business Operations - HH&L Acquisition Co. is a Cayman Islands exempted blank check company (SPAC) formed on September 4, 2020, for a business combination, generating non-operating income from its Trust Account[23][24] - The Company's IPO on February 9, 2021, generated $414.0 million gross proceeds from 41,400,000 units at $10.00 per unit, with approximately $414.0 million placed in a Trust Account[25][27] - The Business Combination Agreement with DiaCarta, signed October 14, 2022, was terminated on June 26, 2023, due to alleged breaches, and the Company is now seeking a new target[46][53][54] - Shareholders approved multiple extensions, moving the business combination deadline to February 9, 2024, with contributions to the Trust Account from the Sponsor and DiaCarta, including $380,000 for initial extensions and subsequent contributions of $487,500 and $162,500 per phase[32][35][37][39][40][42] Class A Ordinary Share Redemptions | Event | Date | Shares Redeemed | Redemption Price per Share ($) | Aggregate Redemption Amount ($) | Remaining in Trust Account | | :---------------------------------- | :------------- | :-------------- | :------------------------- | :-------------------------- | :------------------------- | | First Extraordinary General Meeting | Feb 7, 2023 | 31,281,090 | ~$10.18 | ~$318.6 million | ~$103.1 million | | Second Extraordinary General Meeting | May 9, 2023 | 3,887,893 | ~$10.33 | ~$40.4 million | ~$64.9 million | | Third Extraordinary General Meeting | Aug 9, 2023 | 2,025,832 | ~$10.55 (expected) | N/A | 4,205,185 shares outstanding | Note 2 — Summary of Significant Accounting Policies - Financial statements adhere to U.S. GAAP for interim information and Article 8 of Regulation S-X, to be read with the Annual Report on Form 10-K for December 31, 2022[55][56] - As an 'emerging growth company' under the JOBS Act, the Company delays adopting new accounting standards, potentially impacting comparability with other public entities[58][59] - As of June 30, 2023, the Company's $6.7 million working capital deficit raises substantial doubt about its going concern ability, with management planning a business combination or Sponsor financing[62][66] - Before February 8, 2023, Trust Account funds were in U.S. government securities or money market funds; subsequently, they are in interest-bearing demand deposit accounts[67] - Derivative warrant liabilities are recognized at fair value, with Public Warrants valued at market price and Private Placement Warrants estimated via Monte Carlo simulations[74] - Class A ordinary shares subject to redemption are classified as temporary equity at redemption value, with immediate recognition of value changes[77][78] Note 3 — Initial Public Offering - The IPO on February 9, 2021, generated $414.0 million gross proceeds from 41,400,000 units at $10.00 each, with total offering costs of approximately $23.7 million[88] - Goldman Sachs waived its $8.7 million deferred underwriting fee on October 7, 2022, and Credit Suisse waived its $5.8 million deferred fee on October 13, 2022[88][111] Note 4 — Related Party Transactions - The Sponsor initially received 14,375,000 Class B ordinary shares for $25,000, with 10,350,000 shares outstanding as of June 30, 2023[89][127] - The Sponsor purchased 10,280,000 Private Placement Warrants at $1.00 each during the IPO, generating approximately $10.3 million[91] - The Company has related party loans including a non-convertible promissory note from the Sponsor for up to $600,000 and a convertible promissory note for up to $3,000,000, with $260,000 outstanding as of June 30, 2023[95][97][98][99] - Working Capital Loans from the Sponsor or affiliates may finance transaction costs, with $500,000 outstanding as of June 30, 2023, convertible into warrants[103][104] - The Company pays the Sponsor $15,000 per month for administrative services, incurring $45,000 and $90,000 for the three and six months ended June 30, 2023, respectively, with $435,000 in related party accounts payable[105] Note 5 — Due to Third Party - DiaCarta agreed to loan 50% of Trust Account extension contributions, which are non-interest bearing and repayable upon business combination or forgiven if no combination occurs[106] - As of June 30, 2023, the Company received $895,000 from DiaCarta for Trust Account extensions, reclassified as 'due to third party' after the business combination agreement termination[107] Note 6 — Commitments and Contingencies - Holders of Founder Shares, Private Placement Warrants, and Working Capital Loan warrants possess registration rights[109] - Underwriters were entitled to $8.3 million in discount and $14.5 million in deferred commissions, with Goldman Sachs waiving $8.4 million and Credit Suisse waiving $5.8 million of deferred fees[110][111] - The Company acknowledges risks from global events like the Russia-Ukraine conflict and sanctions, with an undetermined impact on its financial condition[112] Note 7 — Derivative Warrant Liabilities - As of June 30, 2023, the Company had 20,700,000 Public Warrants and 10,280,000 Private Placement Warrants outstanding[113] - Public Warrants are exercisable at $11.50 per share after 30 days post-business combination or 12 months from IPO, expiring five years after a business combination or earlier[115][116] - Private Placement Warrants share terms with Public Warrants but are non-redeemable, exercisable on a cashless basis by the Sponsor, and subject to transfer restrictions[118] - The Company may redeem Public Warrants at $0.01 per warrant if Class A ordinary share closing price reaches or exceeds $18.00 for 20 trading days within a 30-day period[119][121] Note 8 — Class A Ordinary Shares Subject to Possible Redemption Class A Ordinary Shares Subject to Possible Redemption | Date | Shares Outstanding | Redemption Value ($) | | :------------- | :----------------- | :--------------- | | Dec 31, 2022 | 41,400,000 | $419,992,302 | | June 30, 2023 | 6,231,017 | $65,441,913 | | Aug 9, 2023 | 4,205,185 | N/A | - Redemptions included 31,281,090 shares on Feb 7, 2023, for approximately $318.6 million, 3,887,893 shares on May 9, 2023, for approximately $40.4 million, and 2,025,832 shares on Aug 9, 2023, for an expected $10.55 per share[123] Note 9 — Shareholders' Deficit - The Company is authorized to issue 5,000,000 preference shares (none outstanding), 500,000,000 Class A ordinary shares (6,231,017 outstanding), and 50,000,000 Class B ordinary shares (10,350,000 outstanding)[126][127] - Class A and Class B ordinary shareholders vote as a single class, with Class B shares converting to Class A shares one-for-one upon business combination[127][129] Note 10 — Fair Value Measurements - The Company uses a three-tier fair value hierarchy; Public Warrants were reclassified to Level 2 as of June 30, 2023, while Private Placement Warrants remain Level 3 using Monte-Carlo simulations[70][71][132] Fair Value of Derivative Warrant Liabilities | Description | June 30, 2023 (Level 2) ($) | June 30, 2023 (Level 3) ($) | Dec 31, 2022 (Level 1) ($) | Dec 31, 2022 (Level 3) ($) | | :----------------------------------------- | :---------------------- | :---------------------- | :--------------------- | :--------------------- | | Derivative warrant liabilities - Public Warrant | $414,000 | — | $1,035,000 | — | | Derivative warrant liabilities - Private Placement Warrant | — | $205,600 | — | $514,000 | Gain from Change in Fair Value of Derivative Warrant Liabilities | Period | Gain (Decrease) ($) | | :------------------------------------ | :-------------- | | Three months ended June 30, 2023 | ~$1.2 million | | Three months ended June 30, 2022 | ~$2.5 million | | Six months ended June 30, 2023 | ~$0.9 million | | Six months ended June 30, 2022 | ~$12.1 million | Note 11 — Subsequent Events - On August 9, 2023, shareholders approved extending the business combination deadline to February 9, 2024, without additional Trust Account deposits[138] - On August 8, 2023, the Company entered a Subscription Agreement with the Sponsor and Polar Multi-Strategy Master Fund, with Polar providing up to $1,500,000 in capital contributions for working capital loans[139][140] - Upon business combination closing, the Company will issue one Class A ordinary share per dollar of Investor Capital Contribution, and Sponsor loans funded by Polar will be repaid or Polar will receive remaining cash upon liquidation[141][144][145] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the Company's financial condition and operational results, highlighting its SPAC status, business combination efforts, liquidity challenges, and financial performance - The Company is a blank check company (SPAC) focused on a business combination, with no operating revenues generated[149][182] - The proposed business combination with DiaCarta was terminated on June 26, 2023, due to alleged breaches, and the Company is actively seeking a new target[158][159] - Shareholders approved extensions to the business combination deadline until February 9, 2024, involving Trust Account contributions from the Sponsor and DiaCarta, and significant Class A ordinary share redemptions[160][162][163][164][165][166][167][169][171] - As of June 30, 2023, the Company's $6.7 million working capital deficit and mandatory liquidation risk raise substantial doubt about its going concern ability[177][180] Net Income Summary | Period | Net Income ($) | | :------------------------------------ | :--------- | | Three months ended June 30, 2023 | ~$1.5 million | | Three months ended June 30, 2022 | ~$2.3 million | | Six months ended June 30, 2023 | ~$2.4 million | | Six months ended June 30, 2022 | ~$11.5 million | - As an 'emerging growth company', the Company uses an extended transition period for new accounting standards, potentially impacting comparability[201] Item 3. Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, the Company reports no material market or interest rate risk as of June 30, 2023, except for derivative warrant liabilities, due to short-term Trust Account investments - As a smaller reporting company, the Company is exempt from certain market risk disclosures[203] - As of June 30, 2023, the Company had no market or interest rate risk, except for derivative warrant liabilities, due to short-term Trust Account investments[203] - The Company has not engaged in hedging activities since inception and does not anticipate doing so[204] Item 4. Controls and Procedures Management concluded the Company's disclosure controls and procedures were effective as of June 30, 2023, with no material changes to internal control over financial reporting during the quarter - The Company's disclosure controls and procedures were evaluated and deemed effective as of June 30, 2023[206] - No material changes in internal control over financial reporting occurred during the fiscal quarter ended June 30, 2023[208] PART II. OTHER INFORMATION Item 1. Legal Proceedings The Company reported no legal proceedings - There are no legal proceedings to report[210] Item 1A. Risk Factors This section updates risk factors from the Annual Report on Form 10-K, replacing COVID-19 risk with broader risks from future pandemics and debt/equity market status, potentially affecting business combination - The COVID-19 outbreak risk factor is updated to include broader risks from future pandemics and the status of debt and equity markets[211] - Future pandemics, conflicts, terrorism, and sanctions could adversely affect the Company's ability to complete a business combination by harming targets or impacting financing[212][213] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds from Registered Securities The Company reported no unregistered sales of equity securities or use of proceeds from registered securities - There are no unregistered sales of equity securities or use of proceeds from registered securities to report[213] Item 3. Defaults Upon Senior Securities The Company reported no defaults upon senior securities - There are no defaults upon senior securities to report[214] Item 4. Mine Safety Disclosures Mine safety disclosures are not applicable to the Company - Mine safety disclosures are not applicable[214] Item 5. Other Information The Company reported no other information - There is no other information to report[217] Item 6. Exhibits This section lists exhibits filed with the quarterly report, including certifications, XBRL documents, and the cover page interactive data file - The report includes CEO and CFO certifications (Exhibits 31.1, 31.2, 32.1, 32.2) and various XBRL taxonomy extension documents[216] - Certifications under Section 906 of the Sarbanes-Oxley Act are furnished and not deemed filed for Section 18 of the Securities Exchange Act[217] SIGNATURES The report is duly signed on behalf of HH&L Acquisition Co. by its Chief Executive Officer, Richard Qi Li - The report was signed by Richard Qi Li, Chief Executive Officer, on August 14, 2023[219]