ProSomnus 8K/A Other Events | SEC 5 Dec 22

Exhibit 99.2

UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

The unaudited pro forma condensed combined financial statements are based on Lakeshore’s historical financial statements for the nine months ended September 30, 2022 and for the period from January 6, 2021 (inception) through December 31, 2021 and ProSomnus’s historical consolidated financial statements for the nine months ended September 30, 2022 and for the year ended December 31, 2021, adjusted to give effect to the Business Combination, equity investments in the form of non-redeeming public shares and PIPE investments, and the convertible notes facilities.

The unaudited pro forma condensed combined balance sheet as of September 30, 2022 combines the unaudited condensed historical balance sheet of Lakeshore as of September 30, 2022 with the unaudited historical condensed consolidated balance sheet of ProSomnus as of September 30, 2022, giving effect to the Business Combination, equity investments in the form of non-redeeming public shares and PIPE investments, and the convertible notes facilities, as if they had been consummated as of that date.

The unaudited pro forma condensed combined statements of operations for the nine months ended September 30, 2022 and for the year ended December 31, 2021 combines the unaudited historical condensed statement of operations of Lakeshore for the nine months ended September 30, 2022 and the audited historical statement of operations of Lakeshore for the period from January 6, 2021 (inception) through December 31, 2021 with the unaudited historical condensed consolidated statement of operations of ProSomnus for the nine months ended September 30, 2022 and the audited historical consolidated statement of operations of ProSomnus for the year ended December 31, 2021, giving effect to the Business Combination, equity investments in the form of non-redeeming public shares and PIPE investments, and the convertible notes facilities, as if they had occurred as of January 1, 2021.

Notwithstanding the legal form of the Business Combination, the Business Combination will be accounted for as a reverse recapitalization in accordance with US GAAP. Under this method of accounting, Lakeshore will be treated as the acquired company and ProSomnus will be treated as the acquirer for financial statement reporting purposes.

The historical financial information has been adjusted to give pro forma effect to events that relate to material financing transactions consummated after September 30, 2022 through the date hereof. The pro forma adjustments that are directly attributable to the Business Combination, equity investments in the form of non-redeeming public shares and PIPE investments, and convertible notes facilities are factually supportable and, with respect to the unaudited pro forma condensed combined statement of operations, are expected to have a continuing impact on the results of the combined company.

The adjustments presented on the unaudited pro forma condensed combined financial statements have been identified and presented to provide relevant information necessary for an accurate understanding of the combined company upon consummation of the Business Combination, equity investments in the form of non-redeeming public shares and PIPE investments, and the convertible notes facilities.

The unaudited pro forma condensed combined financial information is for illustrative purposes only.

The financial results may have been different had the companies always been combined. You should not rely on the unaudited pro forma condensed combined financial information as being indicative of the historical results that would have been achieved had the companies always been combined or the future results that the combined company will experience. Lakeshore and ProSomnus have not had any historical relationship prior to the Business Combination. Accordingly, no pro forma adjustments were required to eliminate activities between the companies.

The unaudited pro forma condensed combined financial information has been prepared solely assuming the most likely scenario (Up-to-Date scenario) based on the latest information on the agreements among parties regarding non-redeeming public shares and PIPE investment, etc.:

Non-redeeming shareholders will retain an aggregate of 480,637 shares, and receive an aggregate of 340,085 bonus shares;

New PIPE investors will receive 1,020,000 shares at $10.00 per share, and receive an aggregate of 803,133 bonus shares;

574,035 founder shares will be transferred to non-redeeming shareholders and new PIPE investors, as a source of bonus shares.

Underwriters, advisors and convertible notes placement agents will totally forfeit $1,640,010 of compensation in exchange of new issuance of 164,010 shares as a source of bonus shares, to be issued to non-redeeming shareholders and new PIPE investors.

Source of bonus shares also include new issuance of shares up to 410,025 shares. According to latest information, an aggregate of 405,173 shares will be issued (and remaining 4,852 shares are not determined by the date hereof).

Based on the above, the pro forma outstanding shares of PubCo ordinary shares immediately after the Business Combination is as follows:

	Pro Forma Combined
	Up-to-date
	Scenario
	Number of Shares		%
Non-redeeming public shareholders		820,722		5.1	%
New PIPE investors		1,823,133		11.3	%
New shares issued for 300 round lot investors		57,740		0.4	%
Sponsor shares and private placement shareholders		1,054,390		6.6	%
Former ProSomnus shareholders		11,300,000		70.3	%
Shares issued to underwriters and debt placement agents		719,235		4.5	%
Cohanzick Management, LLC (for senior notes backstopping)		50,000		0.3	%
Bonus shares for Junior Notes buyers		250,000		1.5	%
Total shares outstanding		16,075,220		100.0	%

The historical financial information of Lakeshore was derived from the unaudited condensed financial statements of Lakeshore as of and for the nine months ended September 30, 2022 and the audited condensed financial statements of Lakeshore as of December 31, 2021 and for the period from January 6, 2021 (inception) through December 31, 2021. The historical financial information of ProSomnus was derived from the unaudited condensed consolidated financial statements of ProSomnus for the nine months ended September 30, 2022 and the audited consolidated financial statements of ProSomnus for the year ended December 31, 2021.

Lakeshore is providing the following unaudited pro forma condensed combined financial information to aid you in your analysis of the financial aspects of the Business Combination and the related transactions. The unaudited pro forma condensed combined financial information is for illustrative purposes only. The financial results may have been different had the companies always been combined. You should not rely on the unaudited pro forma condensed combined financial information as being indicative of the historical results that would have been achieved had the companies always been combined or the future results that the combined company will experience.

The Business Combination has not been consummated as of the date of the preparation of these unaudited pro forma condensed combined financial statements and there can be no assurances that the merger will be consummated.

Unaudited Pro Forma Condensed Combined Balance Sheet

As of September 30, 2022

							Up-to-date
							Scenario
							Transaction
							Accounting
	ProSomnus			Lakeshore			Adjustments				Pro Forma
	(Historical)			(Historical)			(Note 2)				Combined
ASSETS
Cash and cash equivalents	$	2,160,803		$	150,923		$	29,144,536		A	$	25,375,806
								(24,368,959	)	C
								30,000,000		D
								(8,024,979	)	E
								(200,000	)	F
								(310,000	)	G
								(1,759,377	)	H
								(4,471,165	)	I
								(147,249	)	J
								(110,959	)	K
								(1,977,592	)	L
								(5,487,576	)	M
								10,200,000		T
								577,400		Y
Accounts receivable		2,341,057			-			-				2,341,057
Inventory		405,705			-			-				405,705
Prepaid expenses and other current assets		421,105			135,000			-				556,105
Marketable securities held in Trust Account		-			29,144,536			(29,144,536	)	A		-
Total current assets		5,328,670			29,430,459			(6,080,456	)			28,678,673
Property and equipment, net		1,035,053			-			-				1,035,053
Right-of-use assets, net		3,820,770			-			-				3,820,770
Deferred financing costs		1,807,626			-			-				1,807,626
Other assets		262,914			-			-				262,914
Total assets	$	12,255,033		$	29,430,459		$	(6,080,456	)		$	35,605,036
LIABILITIES AND STOCKHOLDERS' DEFICIT
Accounts payable	$	3,150,787		$	-		$	-			$	3,150,787
Note payable to related party		-			200,000			(200,000	)	F		-
Note payable to third party		-			310,000			(310,000	)	G		-
Accrued compensation		2,269,586			-			-				2,269,586
Other accrued expenses		1,398,434			32,538			-				1,430,972
Revolving line of credit		1,759,377			-			(1,759,377	)	H		-
Current portion of subordinated loan and security agreement		1,454,914			-			(1,454,914	)	I		-
Current portion of equipment financing obligation		60,008			-			-				60,008
Current portion of finance lease liabilities		1,160,737			-			-				1,160,737
Current portion of operating lease liabilities		224,904			-			-				224,904
Commission settlement		147,249			-			(147,249	)	J		-
Liability for subscription agreement		1,225,000			-			(1,225,000	)	P		-
Total current liabilities		12,850,996			542,538			(5,096,540	)			8,296,994
Senior-Junior Convertible notes		-			-			30,000,000		D		21,005,336
								(1,800,000	)	W
								(2,500,000	)	Z
								(500,000	)	A-A
								(4,194,664	)	A-B
Subordinated loan and security agreement, net of current portion		3,016,251			-			(3,016,251	)	I		-
Equipment financing obligation, net of current portion		199,008			-			-				199,008
Finance lease liabilities, net of current portion		1,588,652			-			-				1,588,652
Operating lease liabilities, net of current portion		84,611			-			-				84,611
Subordinated notes		7,644,892			-			(7,644,892	)	R		-
Unsecured subordinated promissory notes (Bridge loan)		2,757,107			-			(2,757,107	)	K, Q		-
Secured subordinated loans (Bridge loan)		1,977,592			-			(1,977,592	)	L		-
Accrued interest		5,487,576			-			(5,487,576	)	M		-
Warrant liability		583,000			-			(583,000	)	N		-
Total liabilities		36,189,685			542,538			(5,557,622	)			31,174,601
Commitments and contingencies
Preferred stock		38,634,547			-			(38,634,547	)	O		-
Common stock subject to possible redemption		-			29,144,536			(29,144,536	)	B		-
Stockholders' deficit
Ordinary shares, $0.0001 par value		-			163			-				163
New issuance of ordinary shares, 0.0001 par value		-			-			286		B		1,444
								(238	)	C
								6		N
								607		O
								12		P
								26		Q
								76		R
								402		S
								102		T
								16		U
								38		V
								18		W
								16		X
								6		Y
								25		Z
								5		A-A
								41		A-C
ProSomnus common stock, $ 0.0001 par value		2,477			-			(2,477	)	P		-
Additional paid-in capital		150,430,939			132,444			29,144,250		B		222,131,291
								(24,368,721	)	C
								(4,965,231	)	E
								582,994		N
								38,633,940		O
								1,224,988		P
								2,646,122		Q
								7,644,816		R
								2,075		S
								10,199,898		T
								1,640,084		U
								3,752,212		V
								(3,752,250	)	V
								1,799,982		W
								1,640,084		X
								(1,640,100	)	X
								577,394		Y
								2,499,975		Z
								499,995		A-A
								4,194,664		A-B
								4,051,689		A-C
								(4,051,730	)	A-C
								544,240		A-D
								(544,240	)	A-D
								(389,222	)	A-E
Accumulated deficit		(213,002,615	)		(389,222	)		389,222		A-E		(217,702,463	)
								(3,059,748	)	E
								(1,640,100	)	U
Total stockholders’ deficit		(62,569,199	)		(256,615	)		67,256,249				4,430,435
Total liabilities and stockholders' deficit	$	12,255,033		$	29,430,459		$	(6,080,456	)		$	35,605,036

See accompanying notes to the unaudited pro forma condensed financial information.

Unaudited Pro Forma Condensed Combined Statement of Operations

For the Nine Months Ended September 30, 2022

							Up-to-date
							Scenario
							Transaction
							Accounting
	ProSomnus			Lakeshore			Adjustments				Pro Forma
	(Historical)			(Historical			(Note 2)				Combined
Revenue
Revenue, net	$	13,601,031		$	-		$	-			$	13,601,031
Cost of Revenue		6,440,475			-			-				6,440,475
Gross Profit		7,160,556			-			-				7,160,556
Operating Expenses
Research and development		1,915,521			-			-				1,915,521
Sales and marketing		6,450,173			-			-				6,450,173
General and administrative		4,213,458			376,626			-				4,590,084
Total operating expenses		12,579,152			376,626			-				12,955,778
Operating loss		(5,418,596	)		(376,626	)		-				(5,795,222	)
Other income (expense)
Interest expense/income		(3,714,777	)		287,029			3,415,020		AA		(5,074,239	)
								(287,029	)	CC
								(1,124,989	)	DD
								(1,671,491	)	EE
								(1,978,002	)	FF
Change in fair value of warrant liability		(20,756	)		-			20,756		BB		-
Loss on extinguishment of debt		(192,731	)		-			-				(192,731	)
Total other income (expense)		(3,928,264	)		287,029			(1,625,735	)			(5,266,970	)
Loss before income taxes		(9,346,860	)		(89,597	)		(1,625,735	)			(11,062,192	)
Provision for income taxes		(6,480	)		-			-				(6,480	)
Net loss	$	(9,353,340	)	$	(89,597	)	$	(1,625,735	)		$	(11,068,672	)
Net loss per share, basic and diluted	$	(0.38	)								$	(0.68	)
Weighted average shares outstanding, basic and diluted		24,611,666						14,446,795		GG		16,381,661
								306,441		FF
Net income per share, redeemable ordinary shares-basic and diluted				$	0.02
Weighted average shares outstanding, redeemable ordinary shares-basic and diluted					5,314,261
Net loss per share, non-redeemable ordinary shares-basic and diluted				$	(0.11	)
Weighted average shares outstanding, non-redeemable ordinary shares-basic and diluted					1,628,425

See accompanying notes to the unaudited pro forma condensed financial information.

Unaudited Pro Forma Condensed Combined Statement of Operations

For the Year Ended December 31, 2021

							Up-to-date
							Scenario
							Transaction
							Accounting
	ProSomnus			Lakeshore			Adjustments				Pro Forma
	(Historical)			(Historical)			(Note 2)				Combined
Revenue
Revenue, net	$	14,074,649		$	-		$	-			$	14,074,649
Cost of Revenue		6,764,319			-			-				6,764,319
Gross Profit		7,310,330			-			-				7,310,330
Operating Expenses
Research and development		1,889,208			-			-				1,889,208
Sales and marketing		5,776,084			-			-				5,776,084
General and administrative		4,459,924			301,591			4,699,848		HH		9,461,363
Total operating expenses		12,125,216			301,591			4,699,848				17,126,655
Operating loss		(4,814,886	)		(301,591	)		(4,699,848	)			(9,816,325	)
Other income (expense)
Interest expense/income		(3,245,220	)		1,966			2,910,303		AA		(8,019,562	)
								(1,966	)	CC
								(1,499,985	)	DD
								(2,228,655	)	EE
								(3,956,005	)	FF
Forgiveness of PPP loans		2,281,262			-			-				2,281,262
Change in fair value of warrant liability		(190,911	)		-			190,911		BB		-
Total other income (expense)		(1,154,869	)		1,966			(4,585,397	)			(5,738,300	)
Loss before income taxes		(5,969,755	)		(299,625	)		(9,285,245	)			(15,554,625	)
Provision for income taxes		(7,652	)		-			-				(7,652	)
Net loss	$	(5,977,407	)	$	(299,625	)	$	(9,285,245	)		$	(15,562,277	)
Net loss per share, basic and diluted	$	(0.24	)								$	(0.97	)
Weighted average shares outstanding, basic and diluted		24,404,871						14,446,795		GG		16,006,882
								111,433		FF
Net income per share, redeemable ordinary shares-basic and diluted				$	0.38
Weighted average shares outstanding, redeemable ordinary shares-basic and diluted					3,020,358
Net loss per share, non-redeemable ordinary shares-basic and diluted				$	(1.01	)
Weighted average shares outstanding, non-redeemable ordinary shares-basic and diluted					1,448,654

See accompanying notes to the unaudited pro forma condensed financial information.

NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

1. Basis of Presentation

The Business Combination will be accounted for as a reverse recapitalization under U.S. GAAP. Under this method of accounting, Lakeshore will be treated as the “acquired” company for financial reporting purposes. This determination is primarily based on ProSomnus’s stockholders being expected to comprise 70.3% of the voting power of PubCo under the most likely (up-to-date) scenario, directors appointed by ProSomnus constituting seven of the seven members of the PubCo’s board of directors, ProSomnus’s operations prior to the acquisition comprising the only ongoing operations of PubCo, and ProSomnus’s senior management comprising all of the senior management of PubCo.

Accordingly, for accounting purposes, the financial statements of PubCo will represent a continuation of the financial statements of ProSomnus with the Business Combination treated as the equivalent of ProSomnus issuing stock for the net assets of Lakeshore, accompanied by a recapitalization. The net assets of Lakeshore will be stated at historical cost, with no goodwill or other intangible assets recorded. Operations prior to the Business Combination will be presented as those of ProSomnus in future reports of PubCo.

The unaudited pro forma condensed combined balance sheet as of September 30, 2022 gives pro forma effect to the Business Combination and the other events contemplated by the Merger Agreement as if they had been consummated on September 30, 2022. The unaudited pro forma condensed combined statements of operations for the year ended December 31, 2021 and for the nine months ended September 30, 2022 give pro forma effect to the Business Combination and the other transactions contemplated by the Merger Agreement as if they had been consummated on January 1, 2021.

As the unaudited pro forma condensed combined financial information has been prepared based on these preliminary estimates, the final amounts recorded may differ materially from the information presented as additional information becomes available. Management considers this basis of presentation to be reasonable under the circumstances.

One-time direct and incremental transaction costs anticipated to be incurred prior to, or concurrent with, the closing of the Business Combination are reflected in the unaudited pro forma condensed combined balance sheet as a direct reduction to PubCo’s additional paid-in capital or accumulated deficit, and are assumed to be either cash settled or in the form of receiving new equities of PubCo.

2. Adjustments to Unaudited Pro Forma Condensed Combined Financial Information

Adjustments to Unaudited Pro Forma Condensed Combined Balance Sheet as of September 30, 2022

The adjustments included in the unaudited pro forma condensed combined balance sheet as of September 30, 2022 are as follows:

(A)

Reflects the liquidation and reclassification of $29,144,536 of cash and marketable securities held in the Trust Account to cash and cash equivalents that becomes available for general use by PubCo following the Closing.

(B)

Reflects the reclassification of Lakeshore ordinary shares subject to possible redemption to permanent equity immediately prior to the Closing.

(C)

Reflects the redemption of an aggregate of 2,380,246 ordinary shares at $10.238 per share as of December 2, 2022. As a result, funds held in trust account decreased by $24,368,959; both the final redeemed shares and funds held in trust are subject to changes at the closing date.

(D)

Reflects the net cash proceeds from Senior and Junior convertible notes facilities totaling $30,000,000.

(E)

Represents the total preliminary estimated direct and incremental transaction costs that will be paid in cash of $8,024,979 prior to, or concurrent with, the Closing. The estimated transaction costs that will be paid in cash include $2,557,650 investment banking fee of ProSomnus, $1,395,000 completion bonus of ProSomnus, $433,854 Directors and Officers Insurance for Lakeshore, and the remaining for legal counsel, auditor, SEC registration, Trust account, proxy services, and printing fees, etc. An aggregate of $3,059,748, which include $1,664,748 transaction costs that directly related to Lakeshore and $1,395,000 completion bonus of ProSomnus are recorded as a reduction of accumulated deficit. An aggregate of $4,965,231 are recorded as a reduction of additional paid-in capital.

(F)

Reflects the repayment and settlement of the principal amount outstanding for Lakeshore’s promissory note payable to its sponsor, RedOne Investment Limited.

(G)

Reflects the repayment and settlement of the principal amount outstanding for Lakeshore’s promissory note payable to a third party.

(H)

Reflects the repayment and settlement of the principal amount outstanding for ProSomnus’s debt under “Revolving Line of Credit” prior to the Closing, assuming the settlement amount is the same as the outstanding amount as of September 30, 2022.

(I)

Reflects the repayment and settlement of the principal amount outstanding for ProSomnus’s debt under “Subordinated Loan and Security Agreement” prior to the Closing, assuming the settlement amount is the same as the outstanding amount as of September 30, 2022.

(J)

Reflects the repayment and settlement of the principal amount outstanding for ProSomnus’s debt under “Commission Settlement” prior to the Closing, assuming the settlement amount is the same as the outstanding amount as of September 30, 2022.

(K)

Reflects the cash repayment of part of “Unsecured Subordinated Promissory Notes” (bridge loan), including accrued interest and kicker fee, which amounts to $110,959. The remaining balance of this loan will be converted to ordinary shares of PubCo at $10.00 per share. Please also refer to Note 2 (Q).

(L)

Reflects the cash repayment of part of Secured Subordinated Loan” (bridge loan) prior to the Closing, assuming the settlement amount is the same as the outstanding amount as of September 30, 2022.

(M)

Reflects the repayment and settlement of ProSomnus’s accrued interest prior to the Closing, assuming the repayment amount is the same as the outstanding amount as of September 30, 2022.

(N)

Reflects the settlement of ProSomnus’s warrant liability by converting the outstanding amount of $583,000 as of September 30, 2022 to 58,300 shares of PubCo’s new-issued ordinary shares at $10.00 per share.

(O)

Reflects the issuance of 6,070,171 shares of PubCo’s ordinary shares at $10.00 per share in exchange of ProSomnus’s preferred stocks pursuant to the conversion rate effective immediately prior to the Closing.

(P)

Reflects the issuance of 122,500 shares of PubCo’s ordinary shares as settlement of the debt under “Liability for Subscription Agreement” (bridge loan) at $10.00 per ordinary share of PubCo.

(Q)

Reflects the issuance of 264,615 shares of PubCo’s ordinary shares as settlement of the majority of “Unsecured Subordinated Promissory Notes” (bridge loan) at $10.00 per ordinary share of PubCo. The outstanding amount will initially be converted to ProSomnus’s series A preferred shares at $1,000 per share, and then the Series A Preferred Shares of ProSomnus will then be converted to ordinary shares of PubCo. Please also refer to Note 2 (K).

(R)

Reflects the issuance of 764,489 shares of PubCo’s ordinary shares at $10.00 per share, as settlement of ProSomnus’s debt under “Subordinated Notes”. Based on agreed terms with the lender, a kicker fee ranging from 10% – 13% of outstanding amount as penalty of pre-repayment will be paid, and this amount is not adjusted for in the unaudited pro forma condensed combined statements.

(S)

Reflects the issuance of 4,019,925 shares of PubCo’s ordinary shares at $10.00 per share in exchange for ProSomnus’s common stock at the Closing. The amount is allocated to ordinary shares at $0.0001 per share and the rest to additional paid-in capital. The total issuance of PubCo’s new shares for the settlement of ProSomnus’s warrant liability, bridge loan conversion, subordinated notes conversion, preferred stock conversion and common stock conversion will be 11,300,000 shares at $10.00 per share.

(T)

Reflects the issuance of 1,020,000 shares of PubCo’s ordinary shares at $10.00 per share to the new PIPE investors in exchange of an aggregate amount of $10,200,000.

(U)

Reflects the settlement of $1,640,100 underwriters’ commission to Craig-Hallum Capital Group and Roth Capital Partners under the Business Combination Marketing Agreement (BCMA), which accounts for 3% of total proceeds of Lakeshore’s initial public offering, by issuing 164,010 of PubCo’s new shares at $10.00 per share. The amount is allocated to ordinary shares at $0.0001 per share and the rest to additional paid-in capital. This amount is also deemed general expenses and causes a direct reduction of accumulated deficit. Please refer to Note 2 (V) and (HH).

(V)

Reflects the settlement of an aggregate of $3,752,250 underwriters’ and advisors’ commission regarding the Business Combination advisory between ProSomnus and Lakeshore other than the amount paid in cash, by issuing 375,225 shares of PubCo’s new shares at $10.00 per share. The amount is allocated to ordinary shares at $0.0001 per share and the rest to additional paid-in capital. This amount is deemed a transaction cost and causes a direct reduction of additional paid-in capital. This amount excludes $1,800,000 for debt placement, $1,640,010 for commission under BCMA, and a total forfeiture of $1,640,010 by underwriters and advisors in the form of 119,775 shares at $10.00 per share, and $442,350 in cash, in exchange of new issuance of 164,010 shares as a source of bonus shares, to be issued to non-redeeming shareholders and new PIPE investors. Please refer to Note 2 (U), (W) ~ (X).

Underwriters and Advisors’ Shares or Cash Commission	Total Amount			Shares			Cash
Commission under BCMA	$	1,640,100			164,010		$	-
M&A advisory		3,750,000			375,000			-
Debt placement		1,800,000			180,000			-
Craig-Hallum Capital Group and Roth Capital Partners-Subtotal		7,190,100			719,010			-
Gordon Pointe Capital		1,200,000			120,000			-
Solomon Partners		3,000,000			-			3,000,000
Total forfeiture		(1,640,100	)		(119,775	)		(442,350	)
Subtotal	$	9,750,000			719,235		$	2,557,650

(W)

Reflects the settlement of $1,800,000 commission to Craig-Hallum Capital Group and Roth Capital Partners for Senior and Junior convertible notes placement agent by issuing 180,000 of PubCo’s new shares at $10.00 per share, in the case that the full amount of Senior and Junior notes are placed by placement agent. Up to 90,000 shares would be issued to Cohanzick Management LLC based on the amount of Junior notes backstopped by it. The amount is allocated to ordinary shares at $0.0001 per share and the rest to additional paid-in capital. This amount is also deemed as a reduction of net debt under Senior and Junior convertible notes and will be amortized period by period before maturity.

(X)

Reflects the issuance of 164,010 shares of PubCo’s new shares in order to retain public shareholders not redeeming their shares or attract new PIPE investments. This amount represents the forfeiture of $1,640,010 by underwriters, advisors and debt placement agents. The issuing price is deemed as $10.00 per share and the amount is allocated to ordinary shares at $0.0001 per share and the rest to additional paid-in capital. This total amount of $1,640,010 is also deemed a transaction cost and causes a direct reduction of additional paid-in capital.

(Y)

Reflects the issuance of 57,740 shares at $10.00 per share, which are issued to a variety of shareholders prior the closing of Business Combination in order to meet the “300 round lot” requirement.

(Z)

Reflects the settlement of $2,500,000 commission to Junior convertible notes purchaser by issuing 250,000 of PubCo’s new shares at $10.00 per share. The amount is allocated to ordinary shares at $0.0001 per share and the rest to additional paid-in capital. This amount is also deemed as a reduction of net debt under Junior convertible notes and will be amortized period by period before maturity.

(A-A) Reflects the settlement of $500,000 commission to Cohanzick Management LLC together with the issuing of Senior convertible notes, by issuing 50,000 of PubCo’s new shares at $10.00 per share. The amount is allocated to ordinary shares at $0.0001 per share and the rest to additional paid-in capital. This amount is also deemed as a deduction of net debt under Senior convertible notes, and will be amortized period by period before maturity.

(A-B) Reflects the issuance of 1,881,015 warrants as a commission under Senior and Junior convertible notes. These warrants are valued at $4,194,664 in total, and are booked as permanent equity in additional paid-in capital. 166,665 warrants for Senior notes are based on 10% coverage to its face value; 1,714,350 warrants for Junior notes are based on 100% coverage to its face value. The warrants are valued at $2.23 per warrant, with $11.50 strike price, 5 years to maturity and assuming 25% annual volatility. $371,663 and $3,823,001 are deducted from net debt under Senior and Junior convertible notes, respectively, and will be amortized period by period before their maturities. Please refer to Note 2 (FF).

(A-C) Reflects the issuance of 405,173 PubCo’s new shares in order to retain public shareholders not redeeming their shares or attract new PIPE investments. The issuing price is deemed as $10.00 per share and the amount is allocated to ordinary shares at $0.0001 per share and the rest to additional paid-in capital. This total amount of $4,051,730 is also deemed a transaction cost and causes a direct reduction of additional paid-in capital. The total number of shares that can be issued is up to 410,025 shares, and 4,852 shares are not determined by the date hereof.

(A-D) Reflects the issuance of 300,685 PubCo’s warrants for compensating founder share transfers. These warrants are identical to Lakeshore’s public and private warrants, with $11.50 strike price, 5 years to maturity and redeemable at $18.00. They are valued at $1.81 each and $544,240 in total, and booked as permanent equity in additional paid-in capital. This total amount of $544,240 is also deemed a transaction cost and causes a direct reduction of additional paid-in capital.

(A-E) Reflects the elimination of Lakeshore’s historical retained earnings.

Adjustments to Unaudited Pro Forma Condensed Combined Statement of Operations for the Year Ended December 31, 2021

The adjustments included in the unaudited pro forma condensed combined statement of operations for the year ended December 31, 2021 are as follows:

(AA) Reflects the elimination of interest expense on ProSomnus’s debts that are repaid and settled as if the Business Combination closed, and the indebtedness was settled, on January 1, 2021, as described in adjustment Note 2 (H)~(M) and (P)~(R).

(BB) Reflects the elimination of the change in fair value of ProSomnus’s warrant liability that is converted to PubCo’s ordinary shares prior to the Closing as described in adjustment Note 2 (N).

(CC) Represents the elimination of investment income related to the investments held in the Lakeshore Trust Account.

(DD) Represents the increase in interest expense for Senior convertible notes as if the notes were executed on January 1, 2021. This amount is calculated as face value multiplied by Senior notes interest rate of 9% per annum, and will be paid monthly in cash.

(EE) Represents the increase in interest expense for Junior convertible notes as if the notes were executed on January 1, 2021. This amount is calculated as face value multiplied by Junior notes interest rate of Prime rate + 9% per annum, and the prevailing Prime rate applied is 4%. This amount will be settled in PubCo’s common stock period by period, and the weighted average shares outstanding will also increase accordingly.

(FF) Represents the increase in interest expense for the amortization of the difference between the face amount and net amount of Senior and Junior convertible notes, as if the notes were executed on January 1, 2021. The face amount of Senior notes is $16,666,500; the net amount of Senior notes before the deduction of transaction costs is $15,000,000; transaction costs for Senior convertible totaled $1,771,663; and the resulting difference of $3,438,163 will be amortized during 36 months of its maturity. The face amount of Junior notes is $17,143,500; the net amount of Junior notes before deduction of transaction costs is $15,000,000; transaction costs for Junior convertible notes totaled $7,223,001; and the resulting difference of $9,366,501 will be amortized over it’s maturity of 40 months. Please refer to Note 2 (D), (X), (Z) and (A-A). In addition, if the net cash after payment of outstanding fees & expenses is below $30,000,000, the discount calculated based on net proceed relative to face amount (OID adjustment) of Senior and Junior notes will increase by 0.1666667% per $1,000,000 of cash gap, but the increase shall not exceed 2.0% in the aggregate. Under such circumstances, the face value of Senior and Junior notes will increase, and the warrants that will be issued and interest of each period will increase as a result. This effect is not adjusted in the unaudited pro forma condensed consolidated financial statements.

(GG) Represents the increase in the weighted average shares in connection with the issuance for the following transactions, which are weighted as if they had been issued for the entire period:

	Up-to-Date
	Scenario
Increase of ordinary shares	No. of shares
Non-redeeming public shareholders and new equity investors		2,127,560
Former ProSomnus shareholders		11,300,000
Shares issued to underwriters and debt placement agents		719,235
Cohanzick Management, LLC (for senior notes backstopping)		50,000
Bonus shares for Junior Notes buyers		250,000
Total		14,446,795

(HH) Represents the increase in general expenses caused by (1) transaction costs to be paid in cash that directly related to Lakeshore, which amount to $1,664,748; (2) completion bonus of ProSomnus, which amount to $1,395,000 and (3) the settlement of $1,640,100 underwriters’ commission to Craig-Hallum Capital Group and Roth Capital Partners under the Business Combination Marketing Agreement. Please refer to Note 2 (E) and (U).

Adjustments to Unaudited Pro Forma Condensed Combined Statement of Operations for the Nine months Ended September 30, 2022

The adjustments included in the unaudited pro forma condensed combined statement of operations for the six months ended September 30, 2022 are as follows:

(BB) Reflects the elimination of Change in fair value of ProSomnus’s of warrant liability that are converted to PubCo’s ordinary shares prior to the Closing as described in adjustment Note 2 (N).

(CC) Represents the elimination of investment income related to the investments held in the Lakeshore Trust Account.

(EE) Represents the increase in interest expense for Junior convertible notes as if the notes were executed on January 1, 2021. This amount is calculated as face value multiplied by Junior notes interest rate of Prime rate +9% per annum, and the prevailing Prime rate applied is 4%. This amount will be settled in PubCo’s common stock period by period, and the weighted average shares outstanding will also increase accordingly.

(FF) Represents the increase in interest expense for amortization of difference between face amount and net amount of Senior and junior convertible notes as if the notes were executed on January 1, 2021. The face amount of Senior notes is $16,666,500; the net amount of Senior convertible notes before deduction of transaction costs is $15,000,000; transaction costs for Senior convertible totaled $1,771,663; and the resulting difference of $3,438,163 will be amortized during 36 months of its maturity. The face amount of Junior notes is $17,143,500; the net amount of Junior convertible notes before deduction of transaction costs is $15,000,000; transaction costs for Junior convertible totaled $7,223,001; and the resulting difference of $9,366,501 will be amortized during 40 months of its maturity. Please refer to Note 2 (D), (X), (Z) and (A-A). In addition, if the net cash to the balance sheet after pay down of debt, fees & expenses is below $30,000,000, the discount calculated based on net proceed relative to face amount (OID adjustment) of Senior notes will increase by 0.1666667% per $1,000,000 of cash gap, but the increase shall not exceed 2.0% in the aggregate. Under such circumstances, the face value of Senior and Junior notes will increase, and the warrants that will be issued and interest of each period will increase as a result. This effect is not adjusted in the Pro Forma statements.

(GG) Represents the increase in the weighted average shares in connection with the issuance for the following transactions, which are weighted as if they had been issued for the entire period:

	Up-to-Date
	Scenario
Increase of ordinary shares	No. of shares
Non-redeeming public shareholders and new equity investors		2,127,560
Former ProSomnus shareholders		11,300,000
Shares issued to underwriters and debt placement agents		719,235
Cohanzick Management, LLC (for senior notes backstopping)		50,000
Bonus shares for Junior Notes buyers		250,000
Total		14,446,795

3. Net Loss per Share

Net loss per share is calculated using the historical weighted average shares outstanding and the issuance of additional shares in connection with the Business Combination and other related events, assuming such additional shares were outstanding since January 1, 2021. As the Business Combination is being reflected as if it had occurred as of January 1, 2021, the calculation of weighted average shares outstanding for basic and diluted net loss per share assumes the shares issued in connection with the Business Combination have been outstanding for the entire periods presented.

Following the Closing, the Eligible ProSomnus Equity holders will have the right to receive up to 3,000,000 Earn-out Shares, issuable upon the occurrence of the Earn-out Triggering Event during the Earn-out Period. Because the Earn-out Shares are contingently issuable based upon PubCo reaching specified thresholds that have not been achieved, the Earn-out Shares have been excluded from basic and diluted pro forma net loss per share.

Non-redeeming shareholders will retain an aggregate of 480,637 shares, and receive an aggregate of 340,085 bonus shares;

New PIPE investors will receive 1,020,000 shares at $10.00 per share, and receive an aggregate of 803,133 bonus shares;

574,035 founder shares will be transferred to non-redeeming shareholders and new PIPE investors, as a source of bonus shares.

Source of bonus shares also include new issuance of shares up to 410,025 shares. Based on latest information, an aggregate of 405,173 shares will be issued (and remaining 4,852 shares are not determined by the date hereof).

	Up-to-Date
	Scenario
	Year Ended			Nine months Ended
	December 31, 2021			September 30, 2022
Pro forma net loss	$	(15,562,277	)	$	(11,068,672	)
Weighted average shares outstanding – basic and diluted		16,006,882			16,381,661
Net loss per share – basic and diluted	$	(0.97	)	$	(0.68	)
Weighted average shares outstanding – basic and diluted
Non-redeeming public shareholders		820,722			820,722
New PIPE investors		1,823,133			1,823,133
New shares issued for 300 round lot investors		57,740			57,740
Sponsor shares and private placement shareholders		874,619			1,054,390
Former ProSomnus shareholders		11,300,000			11,300,000
Shares issued to underwriters and debt placement agents		719,235			719,235
Cohanzick Management, LLC (for senior notes backstopping)		50,000			50,000
Bonus shares for Junior Notes buyers		250,000			250,000
New shares for Junior Notes' interests		111,433			306,441
Total		16,006,882			16,381,661

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