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United States securities and exchange commission logo
August 2, 2022
Bill Chen
Chief Executive Officer
LAAA Merger Corp.
667 Madison Avenue
New York, NY 10065
Re: LAAA Merger Corp.
Registration
Statement on Form S-4
Filed June 29, 2022
File No. 333-265885
Dear Mr. Chen:
We have reviewed your registration statement and have the
following comments. In
some of our comments, we may ask you to provide us with information so
we may better
understand your disclosure.
Please respond to this letter by amending your registration
statement and providing the
requested information. If you do not believe our comments apply to your
facts and
circumstances or do not believe an amendment is appropriate, please tell
us why in your
response.
After reviewing any amendment to your registration statement and
the information you
provide in response to these comments, we may have additional comments.
Registration Statement on Form S-4
Cover Page
1. Please provide more
prominent disclosure on the cover page that you are requiring public
shareholders who wish
to redeem their ordinary shares to either tender their certificates to
Lakeshore s transfer
agent or deliver their shares to the transfer agent electronically
two business days
before the Extraordinary General Meeting. Please also provide
prominent disclosure on
the cover page and in the Q&A section that shareholders should
allot at least two
weeks to obtain physical certificates from the transfer agent. We note
disclosure to this
effect on page 60.
Bill Chen
FirstName LastNameBill Chen
LAAA Merger Corp.
Comapany
August NameLAAA Merger Corp.
2, 2022
August
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2. Please revise the disclosure in the third paragraph concerning the
Minimum Cash Amount
to clarify that ProSomnus can waive the condition and therefore there
is no guarantee that
the combined company will have some or all of the $40 million
immediately following the
closing.
3. Please disclose here, or elsewhere as applicable, the Closing Net
Indebtedness as of a
recent date.
Questions and Answers About The Business Combination and the Extraordinary
General
Meeting
What happens if a substantial number of public shareholders vote in favor of
the business
combination proposal and exercise their redemption, page 10
4. Revise your disclosure to show the potential impact of redemptions on
the per share value
of the shares owned by non-redeeming shareholders by including a
sensitivity analysis
showing a range of redemption scenarios, including minimum, maximum
and multiple
interim redemption levels.
Will Lakeshore enter into any financing arrangements in connection with the
Business
Combination?, page 10
5. Please highlight material differences in the terms and price of
securities issued at the time
of the IPO as compared to private placements conducted in connection
with the
business combination. Disclose if the SPAC s sponsors, directors,
officers or their
affiliates will participate in the private placement.
6. We note that you plan to enter into agreements with certain investors
pursuant to which
such investors will purchase convertible notes of PubCo with an
aggregate principal
funding equal to thirty million dollars in a private placement or
placements to be
consummated immediately prior to the consummation of the Business
Combination. Revise the disclosure to discuss the key terms of any
convertible securities
and to disclose the potential impact of those securities on
non-redeeming shareholders.
Summary of the Proxy Statement/Prospectus
The Parties to the Business Combination
Lakeshore Acquisition I Corp., page 19
7. Please identify the underwriters upon first usage.
Post-Business Combination Ownership and Impact on the Public Float, page 21
8. Please disclose the sponsor and its affiliates total potential
ownership interest in the
combined company, assuming exercise and conversion of all securities.
Lock-up Agreement, page 23
9. Please identify the ProSomnus stockholders who are subject to the
lock-up.
Bill Chen
FirstName LastNameBill Chen
LAAA Merger Corp.
Comapany
August NameLAAA Merger Corp.
2, 2022
August
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Interests of Certain Persons in the Business Combination, page 26
10. Please confirm here and on page 90 that the conflicts of interest
discussion highlights all
material interests in the transaction held by the sponsor and the
company s officers and
directors. This could include fiduciary or contractual obligations to
other entities as well
as any interest in, or affiliation with, the target company. As
currently drafted,
you disclose only certain interests "among other things." In addition,
please revise your
disclosure to clarify how the board considered these conflicts in
negotiating and
recommending the business combination.
11. Please disclose the following risks here and on page 90:
that the sponsor will benefit from the completion of a business
combination and may
be incentivized to complete an acquisition of a less favorable
target company or on
terms less favorable to shareholders rather than liquidate;
the sponsor and its affiliates can earn a positive rate of return
on their investment,
even if other SPAC shareholders experience a negative rate of
return in the post-
business combination company;
that your Amended and Restated Certificate of Incorporation waived
the corporate
opportunities doctrine.
Additionally, please disclose whether this waiver of the corporate
opportunities doctrine
impacted your search for an acquisition target.
12. We note that your sponsor and certain members of your management are
involved with
other SPACs, specifically Lakeshore Acquisition II Corp. Please
disclose the existence of
any related interests or conflicting duties in this section and on
page 90.
We are subject to inspection and market surveillance by the FDA to determine
compliance with
regulatory requirements . ., page 52
13. With reference to the bracketed language on page 52, please revise to
describe any FDA
warning letters, censures, or FDA audits.
Risks Related to the Business Combination, page 61
14. Disclose the material risks to unaffiliated investors presented by
taking the company
public through a merger rather than an underwritten offering. These
risks could include
the absence of due diligence conducted by an underwriter that would be
subject to liability
for any material misstatements or omissions in a registration
statement.
Lakeshore shareholders will experience immediate dilution as a consequence of
the issuance of
PubCo Common Stock. . ., page 62
15. Please revise to disclose all possible sources and extent of dilution
that shareholders who
elect not to redeem their shares may experience in connection with the
business
combination. Provide disclosure of the impact of each significant
source of dilution,
including the amount of equity held by founders, convertible
securities, including warrants
Bill Chen
LAAA Merger Corp.
August 2, 2022
Page 4
retained by redeeming shareholders, at each of the redemption levels
detailed in your
sensitivity analysis, including any needed assumptions, and ensure
that this disclosure also
addresses the potential dilutive effects of the three tranches of
earn-out shares.
Risks Related to Ownership of PubCo's Securities, page 63
16. Please highlight the material risks to public warrant holders,
including those arising from
differences between private and public warrants. Clarify whether
recent common stock
trading prices exceed the threshold that would allow the company to
redeem public
warrants. Clearly explain the steps, if any, the company will take to
notify all
shareholders, including beneficial owners, regarding when the warrants
become eligible
for redemption.
17. Quantify the value of warrants, based on recent trading prices, that
may be retained by
redeeming stockholders assuming maximum redemptions and identify any
material
resulting risks.
PubCo's amended and restated certificate of incorporation will provide, subject
to limited
exceptions, that the Court of Chancery. . ., page 66
18. Please revise this risk factor to disclose that there is a risk that
your exclusive forum
provision may result in increased costs for investors to bring a
claim.
Proposal No. 1 The Reincorporation Merger Proposal, page 74
19. With reference to Rule 14a-4(a)(3), please identify clearly and
impartially each separate
matter intended to be acted upon. For instance, and without
limitation, we note the
supermajority voting provisions voting requirements discussed on page
79. For additional
guidance, please refer to the interpretations available at:
https://www.sec.gov/divisions/corpfin/guidance/exchange-act-rule-14a-4a3.htm.
Proposal No. 3 The Acquisition Merger Proposal
Background of the Business Combination, page 92
20. Please revise the disclosure on page 94 to explain the discussions and
negotiations held
before and after the August 25 conference call. In this regard, it
should be clear where
each party stood with respect to valuation of ProSomnus when the parties
ceased the
transaction discussions for the first time. Discuss briefly some of the
other alternatives
that ProSomnus pursued following August 25.
FirstName LastNameBill Chen
21. Please disclose why Lakeshore and Prosomnus "decided to halt all
conversations" on
Comapany NameLAAA
November 18, 2021Merger Corp.
and why they decided to resume the negotiations
on February 25,
2022.
August 2, 2022 Page 4
FirstName LastName
Bill Chen
FirstName LastNameBill Chen
LAAA Merger Corp.
Comapany
August NameLAAA Merger Corp.
2, 2022
August
Page 5 2, 2022 Page 5
FirstName LastName
22. Please revise to describe the discussions and negotiations regarding
the Minimum Cash
Condition, including the basis for establishing the condition at the
$40 million level. In
this regard, we note that March 3 letter of intent established the
condition at the $30
million level.
23. Please revise the March 23 entry to explain the circumstances that
necessitated the follow-
up. For instance, explain the reference to FDA Audit and explain
the terms MDR and
SOP to provide context to the discussions.
Lakeshore's Board of Director's Reasons for Approving the Business Combination,
page 97
24. Please clarify which "independent director reviewed and considered"
potential conflict of
interests during the business combination process. We note your
disclosure on page 193
that you have three independent directors.
25. Please identify which "scientific studies indicat[ing] ProSomnus
precision intraoral
devices as the most effective treatment for mild and moderate OSA"
were reviewed by
Lakeshore's Board.
26. We note your disclosure on page 95 that ProSomnus's financial advisor
provided
Lakeshore with projected annual financials through 2025; however, the
projections
beginning on page 98 only extend through 2023. Accordingly, please
revise to provide
the projections for 2024 and 2025. Also provide the 2018 and 2019
historical numbers.
27. Please revise to include any other financial projections provided to
Lakeshore or its
advisors on or after August 4, 2021. In this regard, we note that the
February 25 entry
indicates that ProSomnus s financial advisor presented an updated
financial model to
Lakeshore.
Summary of ProSomnus Financial Analysis, page 98
28. We have difficulty in fully understanding the basis for your revenue
projections, which
you expect to grow at a 67% CAGR during 2021 through 2023. Please
provide the
following information and revise your presentation accordingly.
Provide a revenue breakdown by product for each year in the period
2020 through
2023 that distinguishes between legacy products and next
generation products such as
EVO and RPM
Quantify the sales price per unit and unit volumes underlying your
revenue
projections for 2022 and 2023, consistent with related
information for 2021 and
2020 presented on page 156.
Describe and quantify key factors underlying changes in sales
price per unit and unit
volumes for each year over the period 2020 through 2023.
Quantify the impact of each revenue growth driver on your revenue
projections for
2022 and 2023, as well as the impact of next generation devices,
EVO and RPM
Explain your consideration of the sensitivity of these revenue
projections to ongoing
economic disruption in the US and EU markets.
Bill Chen
FirstName LastNameBill Chen
LAAA Merger Corp.
Comapany
August NameLAAA Merger Corp.
2, 2022
August
Page 6 2, 2022 Page 6
FirstName LastName
Separately quantify the impact of each factor listed on page
100 on your gross margin
of 59% for 2022 and 65% for 2023.
Provide information that would assist us in determining the
sensitivity beyond 2023
of reasonably likely changes in your financial metric, Revenue
CAGR, which you
state was 67% for period 2021 through 2023.
29. We have difficulty in fully understanding your $168 million enterprise
value for
ProSomnus. Please provide the following information and revise your
presentation
accordingly.
Describe and quantify the components of enterprise value and
reconcile the
associated equity valuation to merger consideration of $113
million to be issued in
common stock to the former shareholders of ProSomnus.
You state that "Lakeshore's board of directors looked at valuation
based on the
forecast provided by ProSomnus management for FY2022-2023."
Explain the nature
of this valuation and how it was prepared, including the level of
assistance provided
to Lakeshore's Board of Directors by its investment banking firm,
Craig -Hallum
Capital Group.
Explain and quantify how this valuation at $168 million "resulted
in a favorable
comparison of ProSomnus."
Describe and quantify the methods and assumptions underlying this
valuation and
explain whether earlier versions of this valuation based on
different assumptions were
considered by Lakeshore's Board of Directors.
30. Please disclose when ProSomnus's management prepared its internal
projections.
U.S. Holders, page 116
31. Please have counsel provide a tax opinion addressing the material tax
consequences that
the Reincorporation and Acquisition Mergers will have on U.S. Holders
who (i) hold
shares in the combined company or (ii) redeem their Lakeshore shares.
The tax opinion
should address and express a conclusion for each material federal tax
consequence. With
reference to your disclosure on page 170 concerning Lakeshore s
likely status as a PFIC,
please note that counsel s opinion should consider this PFIC status
and also address
whether the Reincorporation qualifies or does not qualify as a
reorganization within the
meaning of Section 368 of the Code. For additional guidance concerning
assumptions and
opinions subject to uncertainty, refer to Staff Legal Bulletin No. 19.
Business of Prosomnus, page 123
32. Please identify which studies has shown that patients "strongly favor
ProSomnus intraoral
devices over CPAP and other legacy oral appliance therapy devices."
Similarly, please
identify which "sponsored studies reported mean nightly use of 7.2 and
7.4 hours using
ProSomnus devices" and which "independent studies found that patients
treated with
ProSomnus devices did not demonstrate the types of dental side effects
commonly
associated with CPAP and legacy oral appliances." Ensure that you
provide information
Bill Chen
FirstName LastNameBill Chen
LAAA Merger Corp.
Comapany
August NameLAAA Merger Corp.
2, 2022
August
Page 7 2, 2022 Page 7
FirstName LastName
about these studies in the business section, including the number of
patients they have
enrolled and their findings.
Clinical Results and Studies, page 133
33. We note your disclosure that a "significant and growing body of
published clinical
evidence, including 653 patients evaluated across several independent
and sponsored
clinical investigations, supports the efficacy, compliance, safety,
patient preference and
symptom alleviation of ProSomnus therapy for patients with OSA." We
also note that the
clinical trials listed in this section do not include 653 total
patients. Please disclose all
clinical trials and their results or explain why you do not believe
this information is
material.
Intellectual Property, page 137
34. For each material patent or patent family, please revise your
disclosure to include the
specific products or technologies to which the patents relate, the
type of patent protection
obtained (composition of matter, use or process), the jurisdiction of
the patents, and the
expiration year.
35. We note your disclosure on page 137 that you rely on invention
assignment agreements to
protect your intellectual property rights. Please file these
agreements as exhibits to the
registration statement or, alternatively, provide an analysis
supporting your belief that
such filing is not required. See Item 601 of Regulation S-K.
Relatedly, please ensure that
other material contracts related to ProSomnus s business, like
license, supply, or customer
agreements, are filed as exhibits to the registration statement.
Going Concern and Management's Plans, page 157
36. Please revise here to discuss in greater detail Management s plans.
In particular, revise to
explain ProSomnus current plans for the proceeds to be received in
connection with the
Business Combination, including the approximate amount intended to be
used for each
specific purpose. To the extent that the proceeds are not sufficient
to carry out the
strategies you outline on pages 127-128, then please disclose which
areas will require
additional funding in the future.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
Critical Accounting Policies and Significant Judgments and Estimates
Revenue Recognition, page 161
37. Please provide the following information related to your sale of
intraoral devices and
revise related information in your filing, accordingly.
Explain your sales and marketing process for targeting sleep
dentists, sleep
physicians, primary care providers and integrated healthcare
service providers that
possess the necessary OSA training under AASM practice
guidelines.
Explain the nature and degree of product personalization that you
are required to
Bill Chen
FirstName LastNameBill Chen
LAAA Merger Corp.
Comapany
August NameLAAA Merger Corp.
2, 2022
August
Page 8 2, 2022 Page 8
FirstName LastName
perform before and after the typical sale of an intraoral device.
Describe key terms for contracts with customers that purchase
an intraoral device,
including provisions governing product performance, product
defects
and returns/rebates.
Describe performance obligations associated with your sale of
intraoral devices,
including any requirements to train sleep dentists, sleep
physicians and other
providers, assist with their personalization of the device and
address post-prescription
device performance and patient satisfaction.
Explain your consideration of the list price in determining
transaction price. On
page 135, you state that "the list price for each product is
based upon an analysis of
competitive prices, capacity dynamics, marginal manufacturing
costs, incremental
value created to the customer and our business strategy." In this
regard, explain how
you develop selling prices for your intraoral devices, how often
these prices are
revised and the degree to which your pricing is effectively fixed
or varies on a
customer-by-customer basis.
Expand your discussion of revenue recognition on page 161 to
fully address the
requirements of ASC 606-10-50-1 through 50-3 and ASC
606-10-50-17.
Expand your footnote disclosure addressing revenue recognition
on pages F-12 and
F-44 to address all of the requirements of ASC 606-10-50,
particularly ASC 606-10-
50-12 and ASC 606-10-50-18 through 50-21.
Current Directors and Executive Officers of Lakeshore, page 191
38. It appears that Bill Chen and H. David Sherman are current directors
and officers
of Lakeshore Acquisition II Corp.; however, this business experience
is not disclosed. If
these parties are still serving in these roles, please revise this
section to disclose this
business experience. Refer to Item 401(e) of Regulation S-K.
Signatures, page II-6
39. Your current signature block states that Bill Chen is your President,
Sole Director,
Principal Executive Officer, Principal Financial Officer and Principal
Accounting
Officer. This conflicts with your disclosure on page 191 that Mr. Chen
is currently
serving as your Chief Executive Officer and Chairman and that you have
four
additional members of your board, including a different CFO. Please
reconcile. If
necessary, ensure that your registration statement is signed by your
principal executive
officer, principal financial officer, controller or principal
accounting officer, and by at
least a majority of the board of directors.
General
40. We note that Craig Hallum and Roth Capital were underwriters for
Lakeshore s initial
public offering and served as advisers in connection with the proposed
business
combination transaction. We also note that Gordon Point Capital and
Solomon Partners
provided advisory services to ProSomnus. We further note press reports
that certain
Bill Chen
LAAA Merger Corp.
August 2, 2022
Page 9
financial advisors are ending their involvement in SPAC business
combination
transactions. Please tell us, with a view to disclosure, whether you have
received notice
from any of these institutions about them ceasing involvement in your
transaction and
how that may impact your deal or any deferred compensation owed to such
company. In
addition, disclose whether any other financial advisor served the
parties, or advise.
We remind you that the company and its management are responsible for
the accuracy
and adequacy of their disclosures, notwithstanding any review, comments, action
or absence of
action by the staff.
Refer to Rules 460 and 461 regarding requests for acceleration. Please
allow adequate
time for us to review any amendment prior to the requested effective date of
the registration
statement.
You may contact Franklin Wyman at 202-551-3660 or Kevin Kuhar at
202-551-3662 if
you have questions regarding comments on the financial statements and related
matters. Please
contact Dillon Hagius at 202-551-7967 or Joe McCann at 202-551-6262 with any
other
questions.
Sincerely,
FirstName LastNameBill Chen
Division of
Corporation Finance
Comapany NameLAAA Merger Corp.
Office of Life
Sciences
August 2, 2022 Page 9
cc: Giovanni Caruso
FirstName LastName