MSP Recovery, Inc. 10-K

ITEM 5. Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities (a) Market Information Our Public Units began trading on the Nasdaq under the symbol “LCAPU” on August 14, 2020. On October 9, 2020, we announced that holders of our units could elect to separately trade the Class A Common Stock and Public Warrants included in the units, or continue to trade the units without separating them. On October 8, 2020, the Class A Common Stock and Public Warrants began trading on Nasdaq under the symbols “LCAP” and “LCAPW,” respectively. Each whole warrant entitles the holder to purchase of one share of Class A Common Stock at an exercise price of $11.50 per share. Warrants may only be exercised for a whole number of shares of Class A Common Stock and will become exercisable on the later of 30 days after the completion of our Business Combination or 12 months from the IPO Closing Date. Our warrants expire five years after the completion of our Business Combination or earlier upon redemption or liquidation, as described in “Item 1. Business.” (b) Holders As of March 26, 2021, there were 10 holders of record of our units, two holders of record of our separately traded shares of Class A Common Stock and one holder of record of our separately traded Public Warrants. (c) Dividends We have not paid any cash dividends on our Class A Common Stock or Class B Common Stock to date and do not intend to pay cash dividends in the foreseeable future. The payment of cash dividends in the future will be dependent upon our revenues and earnings, if any, capital requirements and general financial condition subsequent to completion of our Business Combination. The payment of any cash dividends subsequent to our Business Combination will be within the discretion of our Board at such time. In addition, our Board is not currently contemplating and does not anticipate declaring any stock dividends in the foreseeable future. Further, if we incur any indebtedness in connection with our Business Combination, our ability to declare dividends may be limited by restrictive covenants we may agree to in connection therewith. (d) Securities Authorized for Issuance Under Equity Compensation Plans None. 60 (e) Recent Sales of Unregistered Securities; Use of Proceeds from Registered Offerings Unregistered Sales On January 10 2020, our Sponsor purchased 5,000,000 Founder Shares for an aggregate purchase price of $25,000, or approximately $0.005 per share. Subsequently, on February 6, 2020, we effected a stock dividend of 0.15 shares for each Founder Share outstanding, resulting in the Sponsor holding an aggregate of 5,750,000 Founder Shares. In July 2020, our Sponsor sold 82,500 Founder Shares to Nomura at their original purchase price. Our Public Offering was consummated on August 18, 2020. Prior to the IPO Closing Date, we completed our Private Placement of an aggregate of 650,000 Private Units to our Sponsor and Nomura at a price of $10.00 per Private Unit, generating total proceeds, before expenses, of $6,500,000. The Private Units have terms and provisions that are identical to those of our Public Units sold as part of the units in our Public Offering, except that our Private Units may be physical (cash) or net share (cashless) settled and are not redeemable so long as they are held by our Sponsor or its permitted transferees. If our Private Units are held by holders other than our Sponsor or its permitted transferees, the Private Units will be redeemable by us and exercisable by the holders on the same basis as the Public Units. The sales of the above securities by the Company were exempt from registration in reliance on Section 4(a)(2) of the Securities Act as transactions by an issuer not involving a public offering. Use of Proceeds On August 12, 2020, our registration statement on Form S-1 (File No. 333-240130) was declared effective by the SEC for the Public Offering pursuant to which we sold an aggregate of 20,000,000 Units at an offering price to the public of $10.00 per Unit, including 3,000,000 Units in the Over-Allotment, generating gross proceeds of $230,000,000. 61 After deducting the underwriting discounts and commissions (excluding the deferred underwriting commissions, which amount will be payable upon the consummation of our Business Combination, if consummated) and the offering expenses, the total net proceeds from our Public Offering and the sale of the Private Units were $231,451,513, of which $230,000,000 (or $10.00 per Public Unit sold in the Public Offering) was placed in the Trust Account in the United States maintained by the Trustee. Through December 31, 2020, we incurred approximately $478,937 for costs and expenses related to the Public Offering. At the closing of the Public Offering, we paid a total of $4,600,000 in underwriting discounts and commissions. In addition, the underwriter agreed to defer $8,050,000 in underwriting commissions, which amount will be payable upon the consummation of our Business Combination. There has been no material change in the planned use of proceeds from our Public Offering as described in our final prospectus dated August 14, 2020 which was filed with the SEC. Our Sponsor, executive officers and directors have agreed, and our amended and restated certificate of incorporation provides, that we will have only 18 months from the IPO Closing Date to complete our Business Combination. If we are unable to complete our Business Combination within such 18-month period, we will: (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the public shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in our Trust Account, including interest (which interest shall be net of taxes payable, and less up to $100,000 of interest to pay dissolution expenses) divided by the number of then outstanding public shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidation distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of our remaining stockholders and our Board, dissolve and liquidate, subject in each case to our obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law. As of December 31, 2020, after giving effect to our Public Offering and our operations subsequent thereto, approximately $230,011,254 was held in the Trust Account, and we had approximately $1,017,137 of unrestricted cash available to us for our activities in connection with identifying and conducting due diligence of a suitable Business Combination, and for general corporate matters. ITEM 6. Selected Financial Data Not applicable. ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with our audited financial statements and the notes related thereto which are included in “Item 8. Financial Statements and Supplementary Data” of this Annual Report on Form 10-K. Certain information contained in the discussion and analysis set forth below includes forward-looking statements. 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 “Special Note Regarding Forward-Looking Statements,” “Item 1A. Risk Factors” and elsewhere in this Annual Report on Form 10-K. 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. 62 Results of Operations We have neither engaged in any operations nor generated any revenues to date. Our only activities from December 23, 2019 (inception) through December 31, 2020 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. 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 year ended December 31, 2020, we had a net loss of $1,460,914, which consists of operating costs of $1,472,168, offset by interest income on marketable securities held in the Trust Account of $11,254. For the period from December 23, 2019 (inception) through December 31, 2019, we had net loss of $1,000, which consisted of operating costs. 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 year ended December 31, 2020, cash used in operating activities was $434,376, which consisted of our net loss of $1,460,914, interest earned on marketable securities held in the Trust Account of $11,254 and changes in operating assets and liabilities, which provided $1,037,792 of cash from operating activities. As of December 31, 2020, we had cash and marketable securities held in the Trust Account of $230,011,254. 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. During the period year ended December 31, 2020, we did not withdraw any interest earned on the Trust Account. 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 December 31, 2020, we had cash of $1,017,137 outside of the Trust Account. We intend to use the funds held outside the Trust Account primarily to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, and structure, negotiate and complete a Business Combination. 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 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. 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. 63 We do not believe we will need to raise additional funds in order to meet the expenditures required for operating our business. However, if our estimate of the costs of identifying a target business, undertaking in-depth due diligence and negotiating a Business Combination are less than the actual amount necessary to do so, 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. In order to fund working capital deficiencies or finance transaction costs in connection with a business combination, on February 21, 2021, the Sponsor committed up to $750,000 in loans to the Company for continuing operations to consummate a business combination. 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. Off-Balance Sheet Arrangements We did not have any off-balance sheet arrangements as of December 31, 2020. 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. Critical Accounting Policies The preparation of 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: Class A Common Stock Subject to Possible Redemption We account for our Class A common stock subject to possible conversion in accordance with the guidance in Accounting Standards Codification (“ ASC ”) Topic 480 “Distinguishing Liabilities from Equity.” Shares of Class A 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’ equity section of our balance sheets. 64 Net Income Per Common Share We apply the two-class method in calculating earnings per share. Shares of common stock subject to possible redemption, which are not currently redeemable and are not redeemable at fair value, have been excluded from the calculation of basic net loss per common share since such shares, if redeemed, only participate in their pro rata share of the Trust Account earnings. Our net income is adjusted for the portion of income that is attributable to common stock subject to possible redemption, as these shares only participate in the earnings of the Trust Account and not our income or losses. 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 financial statements.