Business context and reporting period
This is Leo Holdings III Corp.’s unaudited Form 10-Q for the quarter ended June 30, 2021, not an operating-company report for Local Bounti. Leo Holdings III was a blank-check company (SPAC) formed to pursue a business combination; it had not commenced operating activities and had no operating revenue. On June 17, 2021, it agreed to combine with Local Bounti Corporation through a series of mergers. The filing does not provide Local Bounti’s standalone financial results.
Financial results and position
- Revenue and margins: No operating revenue; margins are not meaningful for this pre-combination SPAC.
- Net loss: $5.30 million for the three months ended June 30, 2021. Net loss from inception on January 8 through June 30 was $4.31 million; the cumulative figure is lower because the first quarter recorded $0.998 million of net income.
- Quarterly expense drivers: $461,000 general and administrative expense, $28,000 related-party administrative fees, and a $4.82 million loss from the change in fair value of warrant liabilities, partly offset by $6,781 of trust-account investment gains.
- Cash flow: From inception through June 30, operating activities used $1.47 million; investing activities used $275.0 million, primarily for the trust account; financing activities provided $276.93 million. Ending cash was $460,232.
- Liquidity and assets: Cash was $460,232, working capital approximately $1.2 million, and trust-account investments $275.01 million. Total assets were $276.39 million.
- Liabilities and equity: Total liabilities were $22.33 million, including $12.57 million of warrant liabilities and $9.63 million of deferred underwriting commissions. Shareholders’ equity was $5.00 million; 24.91 million Class A shares were classified as subject to possible redemption at $10 per share. No working-capital loans were outstanding.
- Debt: The filing reports no outstanding working-capital loans at quarter-end. A roughly $112,000 sponsor note had been repaid in March.
Changes, outlook and risks
- The filing presents no prior-year comparable period; Leo Holdings III was incorporated in January 2021. The second-quarter loss chiefly reflects warrant fair-value changes, which are non-operating and subject to remeasurement.
- The IPO raised $275 million in gross proceeds, and a concurrent private placement raised $8 million. The company had to complete a business combination by March 2, 2023 or redeem public shares and liquidate, subject to the filing’s terms.
- Management said existing working capital and potential sponsor or insider borrowing capacity were expected to fund needs through the earlier of a business combination or one year from filing. Such loans were not committed.
- No operating guidance or Local Bounti forecasts are provided in this 10-Q. The filing refers investors to the merger proxy/prospectus filed on Form S-4 for transaction details.
- Management said COVID-19 could adversely affect the company’s financial position, operations, or target search, but the impact was not determinable.
- Controls: Disclosure controls were deemed ineffective because of a previously reported material weakness involving classification of public and private warrants and units associated with a forward purchase agreement. Remediation was ongoing and not complete as of June 30; the filing also notes a prior restatement.
- Management reported no material changes to previously disclosed risk factors and no legal proceedings. The filing reports no off-balance-sheet arrangements.
Important facts for investors to verify
- Review the Form S-4 and merger documents for transaction terms, financing, redemption assumptions, dilution, and Local Bounti’s standalone financials.
- Verify the status and closing conditions of the proposed business combination; this 10-Q does not report a completed transaction.
- Assess the effect of public-share redemptions, warrants, and the deferred underwriting commission on cash available at closing and post-merger ownership.
- Monitor warrant-liability valuation changes and completion of the disclosed internal-control remediation.
- Confirm whether sponsor or insider funding becomes available if transaction costs exceed the SPAC’s outside-trust liquidity.