UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
For the transition period from to
Commission File No.
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Securities registered pursuant to Section 12(b) of the Act:
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☐
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
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As of November 15, 2021, there were
CAPSTAR SPECIAL PURPOSE ACQUISITION CORP.
FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 2021
TABLE OF CONTENTS
Page | ||
PART 1 – FINANCIAL INFORMATION | ||
Item 1. | Condensed Consolidated Financial Statements | |
Condensed Consolidated Balance Sheets as of September 30, 2021(Unaudited) and December 31, 2020 | 1 | |
2 | ||
3 | ||
5 | ||
Notes to Condensed Consolidated Financial Statements (Unaudited) | 6 | |
Management’s Discussion and Analysis of Financial Condition and Results of Operations | 24 | |
28 | ||
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32 |
i
CAPSTAR SPECIAL PURPOSE ACQUISITION CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, |
| December 31, | |||
2021 | 2020 | |||||
(Unaudited) | (Restated) | |||||
ASSETS | ||||||
Current assets | ||||||
Cash | $ | | $ | | ||
Prepaid expenses |
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Total Current Assets | | | ||||
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Cash and marketable securities held in Trust Account | | | ||||
Total Assets | $ | | | |||
LIABILITIES AND STOCKHOLDERS’ DEFICIT |
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Current liabilities - Accounts payable and accrued expenses | $ | | | |||
Warrant liabilities | | | ||||
Deferred underwriting fee payable |
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Total Liabilities |
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Commitments |
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Class A common stock subject to possible redemption | | | ||||
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Stockholders’ Deficit |
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Preferred stock, $ |
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Class A common stock, $ |
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Class B common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
| ( | ( | |||
Total Stockholders’ Deficit |
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TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | | |
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
1
CAPSTAR SPECIAL PURPOSE ACQUISITION CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the | ||||||||||||
Period from | ||||||||||||
February 14, | ||||||||||||
2020 | ||||||||||||
Three Months | Nine Months | Three Months | (Inception) | |||||||||
Ended | Ended | Ended | Through | |||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||
| 2021 |
| 2021 |
| 2020 |
| 2020 | |||||
General and administrative expenses | $ | | $ | | $ | | $ | | ||||
Loss from operations | ( | ( | ( | ( | ||||||||
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Other income (expense): |
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Interest earned on marketable securities held in Trust Account | | | | | ||||||||
Unrealized gain (loss) on marketable securities held in Trust Account | ( | | | | ||||||||
Change in fair value of warrant liabilities | ( | ( | | | ||||||||
Transaction costs associated with the Initial Public Offering | | | ( | ( | ||||||||
Total other income (expense), net | ( | ( | | | ||||||||
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Loss before income taxes | ( | ( | ( | ( | ||||||||
Provision for income taxes | | | ( | ( | ||||||||
Net loss | $ | ( | $ | ( | $ | ( | $ | ( | ||||
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Basic and diluted weighted average shares outstanding, Class A common stock | | | | | ||||||||
Basic and diluted net loss per share, Class A common stock | $ | ( | $ | ( | $ | ( | $ | ( | ||||
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Basic and diluted weighted average shares outstanding, Class B common stock | | | $ | | | |||||||
Basic and diluted net loss per share, Class B common stock | $ | ( | $ | ( | $ | ( | $ | ( |
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
2
CAPSTAR SPECIAL PURPOSE ACQUISITION CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ (DEFICIT) EQUITY
(UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021
Class A | Class B | Additional | Total | ||||||||||||||||
Common Stock | Common Stock | Paid-in | Accumulated | Stockholders’ | |||||||||||||||
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Deficit |
| Deficit | ||||||
Balance - January 1, 2021, as restated | — | $ | — | | $ | | $ | | $ | ( | $ | ( | |||||||
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Accretion for Class A common stock to redemption amount |
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Net income |
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Balance - March 31, 2021 |
| — | $ | — | | $ | | $ | | $ | ( | $ | ( | ||||||
Accretion for Class A common stock to redemption amount | — | — | — | — | | | | ||||||||||||
Net loss |
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Balance - June 30, 2021 | — | $ | — | | $ | | $ | | $ | ( | $ | ( | |||||||
Accretion for Class A common stock to redemption amount | — | — | — | — | | | | ||||||||||||
Net loss | — | — | — | — | | ( | ( | ||||||||||||
Balance – September 30, 2021 |
| — | $ | — | | $ | | $ | | $ | ( | $ | ( |
3
CAPSTAR SPECIAL PURPOSE ACQUISITION CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
(UNAUDITED)
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2020
AND FOR THE PERIOD FROM FEBRUARY 14, 2020 (INCEPTION) THROUGH SEPTEMBER 30, 2020
Class A | Class B | Additional | Total | ||||||||||||||||
redemption | Common Stock | Paid-in | Accumulated | Stockholders’ | |||||||||||||||
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Deficit |
| Deficit | ||||||
Balance – February 14, 2020 (Inception) |
| | $ | |
| | $ | | $ | | $ | | $ | | |||||
Issuance of Class B common stock to Sponsor |
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Net loss |
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Balance – March 31, 2020 |
| — | $ | — |
| | $ | | $ | | $ | ( | $ | | |||||
Net income |
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Balance - June 30, 2020 | — | $ | — | | $ | | $ | | $ | ( | $ | | |||||||
Accretion for Class A common stock to redemption amount | — | — | — | — | ( | ( | ( | ||||||||||||
Excess cash received from sale of Private Placement Warrants | — | — | — | — | | — | | ||||||||||||
Net loss | — | — | — | — | — | ( | ( | ||||||||||||
Balance – September 30, 2020 |
| — | $ | — |
| | $ | | $ | — | $ | ( | $ | ( |
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
4
CAPSTAR SPECIAL PURPOSE ACQUISITION CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the period | ||||||
from February | ||||||
14, 2020 | ||||||
Nine months | (Inception) | |||||
ended September 30, | through September 30, | |||||
| 2021 |
| 2020 | |||
Cash Flows from Operating Activities: |
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Net loss | $ | ( | $ | ( | ||
Adjustments to reconcile net loss to net cash used in operating activities: |
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Interest earned on marketable securities held in Trust Account | ( | ( | ||||
Unrealized gain on marketable securities held in Trust Account | ( | ( | ||||
Transaction costs associated with the Initial Public Offering | | | ||||
Change in fair value of warrant liabilities | | ( | ||||
Deferred tax provision | | | ||||
Changes in operating assets and liabilities: |
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Prepaid expenses | | ( | ||||
Accounts payable and accrued expenses |
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Net cash used in operating activities |
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Cash Flows from Investing Activities: |
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Cash withdrawn from Trust Account to pay for franchise taxes | | | ||||
Investment of cash into Trust Account | | ( | ||||
Net cash provided by (used in) investing activities | | ( | ||||
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Cash Flows from Financing Activities: |
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Proceeds from issuance of Class B common stock to Sponsor |
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Proceeds from sale of Units, net of underwriting discounts paid | | | ||||
Proceeds from sale of Private Placement Warrants | | | ||||
Proceeds from promissory note - related party |
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Repayment of promissory note - related party |
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Payment of offering costs |
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Net cash provided by financing activities |
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Net Change in Cash |
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Cash - Beginning of period |
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Cash - End of period | $ | | $ | | ||
Non-Cash investing and financing activities: |
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Initial classification of Class A common stock subject to possible redemption | $ | | $ | | ||
Change in value of Class A common stock subject to possible redemption | $ | ( | $ | | ||
Deferred underwriting fee payable | $ | | $ | |
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
5
CAPSTAR SPECIAL PURPOSE ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(Unaudited)
NOTE 1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS
Capstar Special Purpose Acquisition Corp. (the “Company”) is a blank check company incorporated in Delaware on February 14, 2020. The Company was formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with
Although the Company is not limited to a particular industry or geographic region for purposes of consummating a Business Combination, the Company intends to focus on businesses in the consumer, healthcare and technology, media and telecommunications (“TMT”) industries. The Company is an early stage and emerging growth company and, as such, the Company is subject to all of the risks associated with early stage and emerging growth companies.
The Company has one wholly-owned subsidiary, CPSR Gelesis Merger Sub, Inc., which was incorporated in the State of Delaware on July 2, 2021 (“Merger Sub”).
As of September 30, 2021, the Company had not commenced any operations. All activity through September 30, 2021 relates to the Company’s formation, its initial public offering (“Initial Public Offering”), which is described below, the search for a target company for a Business Combination and activities in connection with the proposed business combination with Gelesis, Inc., a Delaware corporation (“Gelesis”) (see Note 7). The Company will not generate any operating revenues until after the completion of its initial Business Combination, at the earliest. The Company generates non-operating income in the form of interest income from the marketable securities held in the Trust Account.
The registration statement for the Company’s Initial Public Offering was declared effective on July 1, 2020. On July 7, 2020, the Company consummated the Initial Public Offering of
Simultaneously with the closing of the Initial Public Offering, the Company consummated the sale of
Transaction costs amounted to $
Following the closing of the Initial Public Offering on July 7, 2020, an amount of $
6
CAPSTAR SPECIAL PURPOSE ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(Unaudited)
The Company’s management has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering and the sale of the Private Placement Warrants, although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination. There is no assurance that the Company will be able to complete a Business Combination successfully. The Company’s initial Business Combination must be with
The Company will provide its holders of the outstanding Public Shares (the “public stockholders”) with the opportunity to redeem all or a portion of their Public Shares upon the completion of a Business Combination either (i) in connection with a stockholder meeting called to approve the Business Combination or (ii) by means of a tender offer. The decision as to whether the Company will seek stockholder approval of a Business Combination or conduct a tender offer will be made by the Company, solely in its discretion. The public stockholders will be entitled to redeem their Public Shares for a pro rata portion of the amount then in the Trust Account (initially $
The Company will proceed with a Business Combination if the Company has net tangible assets of at least $
Notwithstanding the above, if the Company seeks stockholder approval of a Business Combination and it does not conduct redemptions pursuant to the tender offer rules, the Amended and Restated Certificate of Incorporation provides that a public stockholder, together with any affiliate of such stockholder or any other person with whom such stockholder is acting in concert or as a “group” (as defined under Section 13 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), will be restricted from redeeming its shares with respect to more than an aggregate of
The Sponsor has agreed (i) to waive its redemption rights with respect to its Founder Shares and Public Shares held by it in connection with the completion of a Business Combination and (ii) not to propose an amendment to the Company’s Amended and Restated Certificate of Incorporation that would affect the substance or timing of the Company’s obligation to redeem
7
CAPSTAR SPECIAL PURPOSE ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(Unaudited)
The Company will have until July 7, 2022 to consummate a Business Combination (the “Combination Period”). If the Company is unable to complete a Business Combination within the Combination Period, the Company will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than
The Sponsor has agreed to waive its right to liquidating distributions from the Trust Account with respect to the Founder Shares if the Company fails to complete a Business Combination within the Combination Period. However, if the Sponsor acquires Public Shares in or after the Initial Public Offering, such Public Shares will be entitled to liquidating distributions from the Trust Account if the Company fails to complete a Business Combination within the Combination Period. The underwriters have agreed to waive their rights to their deferred underwriting commission (see Note 7) held in the Trust Account in the event the Company does not complete a Business Combination within the Combination Period and, in such event, such amounts will be included with the other funds held in the Trust Account that will be available to fund the redemption of the Public Shares. In the event of such distribution, it is possible that the per share value of the assets remaining available for distribution will be less than the Initial Public Offering price per Unit ($
In order to protect the amounts held in the Trust Account, the Sponsor has agreed to be liable to the Company if and to the extent any claims by a third party for services rendered or products sold to the Company, or a prospective target business with which the Company has entered into a written letter of intent, confidentiality or similar agreement, reduce the amount of funds in the Trust Account to below the lesser of (i) $
Risks and Uncertainties
Management continues to evaluate the impact of the COVID-19 pandemic and has concluded that while it is reasonably possible that the virus could have a negative effect on the Company’s financial position, results of its operations and/or search for a target company, the specific impact is not readily determinable as of the date of these condensed consolidated financial statements. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Liquidity and Management’s Plan
As of September 30, 2021, the Company had $
8
CAPSTAR SPECIAL PURPOSE ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(Unaudited)
On July 28, 2021, the Sponsor committed to provide the Company an aggregate of $
NOTE 2. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
In connection with the preparation of the Company’s condensed consolidated financial statements as of September 30, 2021, management identified errors made in its historical financial statements where, at the closing of the Company’s Initial Public Offering, the Company improperly valued its Class A common stock subject to possible redemption. The Company previously determined the Class A common stock subject to possible redemption to be equal to the redemption value, while also taking into consideration a redemption cannot result in net tangible assets being less than $
In connection with the change in presentation for the Class A common stock subject to possible redemption, the Company also restated its income (loss) per common share calculation to allocate net income (loss) evenly to Class A and Class B common stock. This presentation contemplates a Business Combination as the most likely outcome, in which case, both classes of common stock share pro rata in the income (loss) of the Company.
There has been no change in the Company’s total assets, liabilities or operating results.
9
CAPSTAR SPECIAL PURPOSE ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(Unaudited)
The impact of the restatement on the Company’s condensed consolidated financial statements is reflected in the following table.
As Previously | |||||||||
| Reported |
| Adjustment |
| As Restated | ||||
Balance Sheet as of July 7, 2020 | |||||||||
Class A common stock subject to possible redemption | $ | | $ | | $ | | |||
Class A common stock | $ | | $ | ( | $ | — | |||
Additional paid-in capital | $ | | $ | ( | $ | — | |||
Accumulated deficit | $ | ( | $ | ( | $ | ( | |||
Total stockholders’ equity (deficit) | $ | | $ | ( | $ | ( | |||
Number of shares subject to redemption | | | | ||||||
Balance Sheet as of September 30, 2020 | |||||||||
Class A common stock subject to possible redemption | $ | | $ | | $ | | |||
Class A common stock | $ | | $ | ( | $ | — | |||
Additional paid-in capital | $ | | $ | ( | $ | — | |||
Accumulated deficit | $ | ( | $ | ( | $ | ( | |||
Total stockholders’ equity (deficit) | $ | | $ | ( | $ | ( | |||
Number of shares subject to redemption | | | | ||||||
Balance Sheet as of December 31, 2020 | |||||||||
Class A common stock subject to possible redemption | $ | | $ | | $ | | |||
Class A common stock | $ | | $ | ( | $ | — | |||
Additional paid-in capital | $ | | $ | ( | $ | — | |||
Accumulated deficit | $ | ( | $ | ( | $ | ( | |||
Total stockholders’ equity (deficit) | $ | | $ | ( | $ | ( | |||
Number of shares subject to redemption | | | | ||||||
Balance Sheet as of March 31, 2021 | |||||||||
Class A common stock subject to possible redemption | $ | | $ | | $ | | |||
Class A common stock | $ | | $ | ( | $ | — | |||
Additional paid-in capital | $ | | $ | ( | $ | — | |||
Accumulated deficit | $ | ( | $ | ( | $ | ( | |||
Total stockholders’ equity (deficit) | $ | | $ | ( | $ | ( | |||
Number of shares subject to redemption | | | | ||||||
Balance Sheet as of June 30, 2021 | |||||||||
Class A common stock subject to possible redemption | $ | | $ | | $ | | |||
Class A common stock | $ | | $ | ( | $ | — | |||
Additional paid-in capital | $ | | $ | ( | $ | — | |||
Accumulated deficit | $ | ( | $ | ( | $ | ( | |||
Total stockholders’ equity (deficit) | $ | | $ | ( | $ | ( | |||
Number of shares subject to redemption | | | | ||||||
Statement of Operations for the Period from February 14, 2020 (Inception) Through September 30, 2020 | |||||||||
Basic and diluted weighted average shares outstanding, Class A common stock subject to possible redemption | | ( | — | ||||||
Basic and diluted weighted average shares outstanding, Non-redeemable common stock | | ( | — | ||||||
Basic and diluted net loss per share, Non-redeemable common stock | $ | ( | $ | | $ | — | |||
Weighted average shares outstanding of Class A common stock | — | | | ||||||
Basic and diluted net loss per share, Class A common stock | $ | — | $ | ( | $ | ( | |||
Weighted average shares outstanding of Class B common stock | — | | | ||||||
Basic and diluted net loss per share, Class B common stock | $ | — | $ | ( | $ | ( | |||
Statement of Operations for the Period from February 14, 2020 (Inception) Through December 31, 2020 | |||||||||
Basic and diluted weighted average shares outstanding, Class A common stock subject to possible redemption | | ( | — | ||||||
Basic and diluted weighted average shares outstanding, Non-redeemable common stock | | ( | — | ||||||
Basic and diluted net loss per share, Non-redeemable common stock | $ | ( | $ | | $ | — | |||
Weighted average shares outstanding of Class A common stock | — | | | ||||||
Basic and diluted net loss per share, Class A common stock | $ | — | $ | ( | $ | — | |||
Weighted average shares outstanding of Class B common stock | — | | | ||||||
Basic and diluted net loss per share, Class B common stock | $ | — | $ | ( | $ | ( | |||
Statement of Operations for the Three Months Ended March 31, 2021 | |||||||||
Basic and diluted weighted average shares outstanding, Class A common stock subject to possible redemption | | ( | — | ||||||
Basic and diluted weighted average shares outstanding, Non-redeemable common stock | | ( | — | ||||||
Basic and diluted net income per share, Non-redeemable common stock | $ | | $ | ( | $ | — | |||
Weighted average shares outstanding of Class A common stock | — | | | ||||||
Basic and diluted net income per share, Class A common stock | $ | — | $ | | $ | | |||
Weighted average shares outstanding of Class B common stock | — | | | ||||||
Basic and diluted net income per share, Class B common stock | $ | — | $ | | $ | |
10
CAPSTAR SPECIAL PURPOSE ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(Unaudited)
As Previously | |||||||||
| Reported |
| Adjustment |
| As Restated | ||||
Statement of Operations for the Three Months Ended June 30, 2021 | |||||||||
Basic and diluted weighted average shares outstanding, Class A common stock subject to possible redemption | | ( | — | ||||||
Basic and diluted weighted average shares outstanding, Non-redeemable common stock | | ( | — | ||||||
Basic and diluted net loss per share, Non-redeemable common stock | $ | ( | $ | | $ | — | |||
Weighted average shares outstanding of Class A common stock | — | | | ||||||
Basic and diluted net loss per share, Class A common stock | $ | — | $ | — | $ | — | |||
Weighted average shares outstanding of Class B common stock | — | | | ||||||
Basic and diluted net loss per share, Class B common stock | $ | — | $ | ( | $ | ( | |||
Statement of Operations for the Six Months Ended June 30, 2021 | |||||||||
Basic and diluted weighted average shares outstanding, Class A common stock subject to possible redemption | | ( | — | ||||||
Basic and diluted weighted average shares outstanding, Non-redeemable common stock | | ( | — | ||||||
Basic and diluted net income per share, Non-redeemable common stock | $ | | $ | ( | $ | — | |||
Weighted average shares outstanding of Class A common stock | — | | | ||||||
Basic and diluted net income per share, Class A common stock | $ | — | $ | | $ | | |||
Weighted average shares outstanding of Class B common stock | — | | | ||||||
Basic and diluted net income per share, Class B common stock | $ | — | $ | | $ | | |||
Statement of Changes in Shareholders’ Equity (Deficit) for the Period from February 14, 2020 (Inception) Through September 30, 2020 | |||||||||
Sale of | $ | | $ | ( | $ | — | |||
Class A common stock subject to possible redemption | $ | ( | $ | | $ | — | |||
Accretion for Class A ordinary share subject to redemption amount | $ | — | $ | ( | $ | ( | |||
Total shareholders’ equity (deficit) | $ | | $ | ( | $ | ( | |||
Statement of Changes in Shareholders’ Equity (Deficit) for the Period from February 14, 2020 (Inception) Through December 31, 2020 | |||||||||
Sale of | $ | | $ | ( | $ | — | |||
Class A common stock subject to possible redemption | $ | ( | $ | | $ | — | |||
Accretion for Class A ordinary share subject to redemption amount | $ | — | $ | ( | $ | ( | |||
Total shareholders’ equity (deficit) | $ | | $ | ( | $ | ( | |||
Statement of Changes in Shareholders’ Equity (Deficit) for the Three Months Ended March 31, 2021 | |||||||||
Class A common stock subject to possible redemption | $ | ( | $ | | $ | — | |||
Accretion for Class A ordinary share subject to redemption amount | $ | — | $ | ( | $ | ( | |||
Total shareholders’ equity (deficit) | $ | | $ | ( | $ | ( | |||
Statement of Changes in Shareholders’ Equity (Deficit) for the Three Months Ended June 30, 2021 | |||||||||
Class A common stock subject to possible redemption | $ | ( | $ | | $ | — | |||
Accretion for Class A ordinary share subject to redemption amount | $ | — | $ | | $ | | |||
Total shareholders’ equity (deficit) | $ | | $ | ( | $ | ( | |||
Statement of Cash Flows for the Period of February 14, 2020 through September 30, 2020 (unaudited) |
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Initial classification of Class A common stock subject to possible redemption | $ | | $ | | $ | | |||
Change in value of Class A common stock subject to possible redemption | $ | | $ | ( | $ | | |||
Statement of Cash Flows for the Period of February 14, 2020 through December 31, 2020 (unaudited) | |||||||||
Initial classification of Class A common stock subject to possible redemption | $ | | $ | | $ | | |||
Change in value of Class A common stock subject to possible redemption | $ | ( | $ | | $ | | |||
Statement of Cash Flows for the Three Months Ended March 31, 2021 | |||||||||
Change in value of Class A common stock subject to possible redemption | $ | | $ | ( | $ | | |||
Statement of Cash Flows for the Six Months Ended June 30, 2021 | |||||||||
Change in value of Class A common stock subject to possible redemption | $ | | $ | ( | $ | |
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X promulgated under the Securities Act. Certain information or footnote disclosures normally included in condensed consolidated financial statements prepared in accordance with GAAP have been condensed
11
CAPSTAR SPECIAL PURPOSE ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(Unaudited)
or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a complete presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented.
The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K/A, as filed with the SEC on July 8, 2021. The interim results for the three and nine months ended September 30, 2021 are not necessarily indicative of the results to be expected for the period ending December 31, 2021 or for any future periods.
Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All significant intercompany balances and transactions have been eliminated in consolidation.
Emerging Growth Company
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (“Sarbanes-Oxley Act”), reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s condensed consolidated financial statement with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods.
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the condensed consolidated financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. One of the more significant accounting estimates included in these condensed consolidated financial statements is the determination of the fair
12
CAPSTAR SPECIAL PURPOSE ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(Unaudited)
value of the warrant liabilities. Such estimates may be subject to change as more current information becomes available and, accordingly, the actual results could differ significantly from those estimates.
Cash and Cash Equivalents
The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. The Company did
Marketable Securities Held in Trust Account
At September 30, 2021 and December 31, 2020, substantially all of the assets held in the Trust Account were held in U.S. Treasury Bills. All of the Company’s investments held in the Trust Account are classified as trading securities. Trading securities are presented on the condensed consolidated balance sheet at fair value at the end of each reporting period. Gains and losses resulting from the change in fair value of investments held in Trust Account are included in interest earned on marketable securities held in Trust Account in the accompanying condensed consolidated statements of operations. The estimated fair values of investments held in Trust Account are determined using available market information.
Warrant Liabilities
The Company accounts for the Public Warrants (as defined in Note 3) and Private Placement Warrants (together with the Public Warrants, the “Warrants”) in accordance with the guidance contained in ASC 815-40, under which the Warrants do not meet the criteria for equity treatment and must be recorded as liabilities. Accordingly, the Company classifies the Warrants as liabilities at their fair value and adjusts the Warrants to fair value in respect of each reporting period. This liability is subject to re-measurement at each balance sheet date until the Warrants are exercised, and any change in fair value is recognized in the statements of operations. The Private Placement Warrants and the Public Warrants for periods where no observable traded price was available are valued using a Monte Carlo simulation. For periods subsequent to the detachment of the Public Warrants from the Units, the Public Warrant quoted market price was used as the fair value as of each relevant date.
Class A Common Stock Subject to Possible Redemption
The Company accounts for its shares of Class A common stock subject to possible redemption 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 is measured at fair value. Conditionally redeemable common stock (including common stock that features redemption rights that is either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) is classified as temporary equity. At all other times, common stock is classified as stockholders’ equity. The Company’s Class A common stock features certain redemption rights that are considered to be outside of the Company’s control and subject to occurrence of uncertain future events. Accordingly, Class A common stock subject to possible redemption is presented at redemption value as temporary equity, outside of the stockholders’ equity section of the Company’s condensed consolidated balance sheets.
The Company recognizes changes in redemption value immediately as they occur and adjusts the carrying value of redeemable common stock to equal the redemption value at the end of each reporting period. Increases or decreases in the carrying amount of redeemable common stock are affected by charges against additional paid-in capital and accumulated deficit.
13
CAPSTAR SPECIAL PURPOSE ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(Unaudited)
At September 30, 2021 and December 31, 2020, the ordinary shares reflected in the condensed consolidated balance sheets are reconciled in the following table:
Gross proceeds |
| $ | |
Less: |
|
| |
Proceeds allocated to Public Warrants |
| ( | |
Ordinary shares issuance costs |
| ( | |
Plus: |
|
| |
Accretion of carrying value to redemption value |
| | |
Ordinary shares subject to possible redemption, 12/31/20 |
| | |
Accretion of carrying value to redemption value |
| ( | |
Ordinary shares subject to possible redemption, 9/30/21 | $ | |
Income Taxes
The Company follows the asset and liability method of accounting for income taxes under ASC 740, “Income Taxes.” Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the condensed consolidated financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The effective tax rates differ from the statutory tax rate for the periods presented primarily due to the change in warrant valuation and the valuation allowance recorded on the Company’s net operating losses.
ASC 740 prescribes a recognition threshold and a measurement attribute for the condensed consolidated financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were
Net Income (Loss) per Common Share
The Company complies with accounting and disclosure requirements of FASB ASC Topic 260, “Earnings Per Share”. Net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common shares outstanding for the period. The Company applies the two-class method in calculating income (loss) per common share. Accretion associated with the redeemable shares of Class A common stock is excluded from income (loss) per common share as the redemption value approximates fair value.
The Company has not considered the effect of the warrants sold in the Initial Public Offering and private placement to purchase an aggregate of
14
CAPSTAR SPECIAL PURPOSE ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(Unaudited)
The following table reflects the calculation of basic and diluted net income (loss) per common share (in dollars, except per share amounts):
For the Period from | ||||||||||||||||||||||||
Three Months Ended | Nine Months Ended | Three Months Ended | February 14, | |||||||||||||||||||||
September 30, | September 30, | September 30, | 2020 (Inception) Through | |||||||||||||||||||||
| 2021 |
| 2021 |
| 2020 |
| September 30, 2020 | |||||||||||||||||
| Class A |
| Class B |
| Class A |
| Class B |
| Class A |
| Class B | Class A | Class B | |||||||||||
Basic and diluted net income (loss) per common share |
|
|
|
| ||||||||||||||||||||
Numerator: | ||||||||||||||||||||||||
Allocation of net income (loss), as adjusted | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||
Denominator: |
|
|
|
|
|
|
|
| ||||||||||||||||
Basic and diluted weighted average stock outstanding |
| | |
| | |
| | |
| | | ||||||||||||
Basic and diluted net income (loss) per common share | ( | ( | ( | ( | ( | ( | ( | ( |
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of a cash account in a financial institution, which, at times, may exceed the Federal Depository Insurance Coverage of $
Fair value of Financial Instruments
The fair value of the Company’s assets and liabilities, which qualify as financial instruments under ASC 820, “Fair Value Measurement,” approximates the carrying amounts represented in the accompanying condensed consolidated balance sheets, primarily due to their short-term nature.
The Company follows the guidance in ASC 820 for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually.
The fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value
15
CAPSTAR SPECIAL PURPOSE ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(Unaudited)
hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:
Level 1: | Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. |
Level 2: | Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active. |
Level 3: | Unobservable inputs based on our assessment of the assumptions that market participants would use in pricing the asset or liability. |
Recent Accounting Standards
In August 2020, the FASB issued ASU No. 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”), which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. ASU 2020-06 is effective January 1, 2022 and should be applied on a full or modified retrospective basis, with early adoption permitted beginning on January 1, 2021. The Company adopted ASU 2020-06 on January 1,2021. The adoption of ASU 2020-06 did not have an impact on the Company’s condensed consolidated financial statements.
Management does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s unaudited condensed consolidated financial statements.
NOTE 4. PUBLIC OFFERING
Pursuant to the Initial Public Offering, the Company sold
16
CAPSTAR SPECIAL PURPOSE ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(Unaudited)
NOTE 5. PRIVATE PLACEMENT
Simultaneously with the closing of the Initial Public Offering, on July 7, 2020, the Sponsor purchased an aggregate of
NOTE 6. RELATED PARTY TRANSACTIONS
Founder Shares
On February 26, 2020, the Sponsor purchased
The Sponsor has agreed, subject to limited exceptions, not to transfer, assign or sell any of its Founder Shares until the earlier to occur of: (A)
Administrative Support Agreement
The Company entered into an agreement, commencing on July 1, 2020 through the earlier of the Company’s consummation of a Business Combination and its liquidation, to pay an affiliate of the Sponsor a total of $
Promissory Note — Related Party
On February 14, 2020, the Sponsor agreed to loan the Company an aggregate of up to $
17
CAPSTAR SPECIAL PURPOSE ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(Unaudited)
Related Party Loans
In order to finance transaction costs in connection with a Business Combination, the Sponsor, an affiliate of the Sponsor, or the Company’s officers and directors may, but are not obligated to, loan the Company funds as may be required (“Working Capital Loans”). If the Company completes a Business Combination, the Company would repay the Working Capital Loans out of the proceeds of the Trust Account released to the Company. In the event that a Business Combination does not close, the Company may use a portion of proceeds held outside the Trust Account to repay the Working Capital Loans but no proceeds held in the Trust Account would be used to repay the Working Capital Loans. Except for the foregoing, the terms of such Working Capital Loans, if any, have not been determined and no written agreements exist with respect to such loans. The Working Capital Loans would either be repaid upon consummation of a Business Combination, without interest, or, at the lender’s discretion, up to $
Sponsor Loan
On July 28, 2021, the Sponsor committed to provide the Company an aggregate of $
NOTE 7. COMMITMENTS
Registration Rights
Pursuant to a registration rights agreement entered into on July 1, 2020, the holders of the Founder Shares, Private Placement Warrants and warrants that may be issued upon conversion of Working Capital Loans (and any shares of Class A common stock issuable upon the exercise of the Private Placement Warrants or warrants that may be issued upon conversion of Working Capital Loans and upon conversion of the Founder Shares) are entitled to registration rights requiring the Company to register such securities for resale (in the case of the Founder Shares, only after conversion to Class A common stock). The holders of the majority of these securities will be entitled to make up to
Underwriting Agreement
The underwriters are entitled to a deferred fee of $
Business Combination Agreement
On July 19, 2021, the Company entered into a Business Combination Agreement (as it may be amended, supplemented or otherwise modified from time to time, the “Business Combination Agreement”), by and among the Company, Merger Sub and Gelesis.
The Business Combination Agreement and the transactions contemplated thereby were approved by the board of directors of each of the Company and Gelesis.
18
CAPSTAR SPECIAL PURPOSE ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(Unaudited)
The Business Combination Agreement provides for, among other things, that Merger Sub will merge with and into Gelesis, with Gelesis as the surviving company in the merger and, after giving effect to such merger, Gelesis shall be a wholly-owned subsidiary of the Company (the “Merger”). In addition, the Company will be renamed Gelesis Holdings, Inc. The Merger and the other transactions contemplated by the Business Combination Agreement are hereinafter referred to as the “Business Combination”.
In accordance with the terms and subject to the conditions of the Business Combination Agreement, at the Effective Time, (i) each share of Gelesis outstanding as of immediately prior to the Effective Time will be exchanged for shares of the Company’s common stock, par value $
On November 8, 2021, CPSR, Merger Sub and Gelesis entered into an Amendment to the Original Business Combination Agreement (the “Business Combination Agreement Amendment,” and together with the Original Business Combination Agreement, the “Business Combination Agreement”), which, among other things (i) adjusts the equity valuation of Gelesis from $
In connection, and concurrently, with the execution of the Business Combination Agreement Amendment, Capstar, Capstar Sponsor Group LLC, a Delaware limited liability company (the “Sponsor”), certain affiliates of the Sponsor and Gelesis entered into an amendment (the “Sponsor Letter Agreement Amendment”) to that certain Sponsor Letter Agreement, dated July 19, 2021. Pursuant to the Sponsor Letter Agreement Amendment, the parties thereto further agreed, among other things, that (i) the vesting provisions relating to Capstar Class B Shares (as defined in the Sponsor Letter Agreement) be deleted and (ii) as of immediately prior to the Effective Time (as defined in the Sponsor Letter Agreement),
The Business Combination is expected to close in the fourth quarter of 2021, following the receipt of the required approval by the Company’s stockholders and the fulfillment of other customary closing conditions.
NOTE 8. STOCKHOLDERS’ DEFICIT
Preferred Stock—The Company is authorized to issue
Class A Common Stock—On February 26, 2020, the Company amended its Certificate of Incorporation such that the Company is authorized to issue
19
CAPSTAR SPECIAL PURPOSE ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(Unaudited)
stock are entitled to
Class B Common Stock—On February 26, 2020, the Company amended its Certificate of Incorporation such that the Company is authorized to issue
Holders of Class B common stock will have the right to elect all of the Company’s directors prior to a Business Combination. Holders of Class A common stock and Class B common stock will vote together as a single class on all other matters submitted to a vote of stockholders except as required by law.
The shares of Class B common stock will automatically convert into shares of Class A common stock at the time of a Business Combination on a one-for-one basis, subject to adjustment. In the case that additional shares of Class A common stock, or equity-linked securities, are issued or deemed issued in excess of the amounts offered in the Initial Public Offering and related to the closing of a Business Combination, the ratio at which shares of Class B common stock shall convert into shares of Class A common stock will be adjusted (unless the holders of a majority of the outstanding shares of Class B common stock agree to waive such adjustment with respect to any such issuance or deemed issuance) so that the number of shares of Class A common stock issuable upon conversion of all shares of Class B common stock will equal, in the aggregate, on an as-converted basis,
NOTE 9. WARRANTS
As of September 30, 2021 and December 31, 2020, there were
The Company will not be obligated to deliver any shares of Class A common stock pursuant to the exercise of a warrant and will have no obligation to settle such warrant exercise unless a registration statement under the Securities Act covering the issuance of the shares of Class A common issuable upon exercise of the warrants is then effective and a current prospectus relating to those shares of Class A common stock is available, subject to the Company satisfying its obligations with respect to registration. No warrant will be exercisable and we will not be obligated to issue shares of Class A common stock upon exercise of a warrant unless Class A common stock issuable upon such warrant exercise has been registered, qualified or deemed to be exempt under the securities laws of the state of residence of the registered holder of the warrants.
The Company has agreed that as soon as practicable, but in no event later than business days after the closing of a Business Combination, the Company will use its best efforts to file with the SEC a registration statement covering the issuance of the shares of Class A common stock issuable upon exercise of the warrants to cause such registration statement to become effective and to maintain a current prospectus relating to those shares of Class A common stock until the warrants expire or are redeemed, as specified in the warrant agreement. If a registration statement covering the shares of Class A common stock issuable upon exercise of the warrants is not effective by the th business day after the closing of a Business Combination, warrant holders may, until such time as there is an effective registration statement and during any period when the Company will have failed to maintain an effective registration statement, exercise warrants on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act or another exemption. If that exemption, or another exemption, is not available, holders will not be able to exercise their warrants on a cashless basis.
20
CAPSTAR SPECIAL PURPOSE ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(Unaudited)
Once the warrants become exercisable, the Company may redeem the Public Warrants:
● | in whole and not in part; |
● | at a price of $ |
● | upon not less than |
● | if, and only if, the reported last sale price of the Company’s Class A common stock equals or exceeds $ |
If and when the warrants become redeemable by the Company, the Company may not exercise its redemption right if the issuance of shares of common stock upon exercise of the warrants is not exempt from registration or qualification under applicable state blue sky laws or the Company is unable to effect such registration or qualification.
If the Company calls the Public Warrants for redemption, management will have the option to require all holders that wish to exercise the Public Warrants to do so on a “cashless basis,” as described in the warrant agreement. The exercise price and number of shares of Class A common stock issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, or recapitalization, reorganization, merger or consolidation. However, except as described below, the warrants will not be adjusted for issuance of Class A common stock at a price below its exercise price. Additionally, in no event will the Company be required to net cash settle the warrants. If the Company is unable to complete a Business Combination within the Combination Period and the Company liquidates the funds held in the Trust Account, holders of warrants will not receive any of such funds with respect to their warrants, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with the respect to such warrants. Accordingly, the warrants may expire worthless.
In addition, if (x) the Company issues additional shares of common stock or equity-linked securities for capital raising purposes in connection with the closing of a Business Combination at an issue price or effective issue price of less than $
As of September 30, 2021 and December 31, 2020, there were
21
CAPSTAR SPECIAL PURPOSE ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(Unaudited)
NOTE 10. FAIR VALUE MEASUREMENTS
The following table presents information about the Company’s assets that are measured at fair value on a recurring basis at September 30, 2021 and December 31, 2020, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:
Description |
| Level |
| September 30, 2021 |
| December 31, 2020 | ||
Assets: |
|
|
|
|
| |||
Cash and marketable securities held in Trust Account |
| 1 | $ | | $ | | ||
Liabilities: |
|
|
|
|
|
| ||
Warrant Liability – Public Warrants |
| 1 | $ | | $ | | ||
Warrant Liability – Private Placement Warrants |
| 3 | $ | | $ | |
The Warrants are accounted for as liabilities in accordance with ASC 815-40 and are presented within warrant liabilities in the accompanying condensed consolidated balance sheets. The warrant liabilities are measured at fair value at inception and on a recurring basis, with changes in fair value presented within change in fair value of warrant liabilities in the condensed consolidated statements of operations.
Level 3 financial liabilities consist of the Private Placement Warrant liability for which there is no current market for these securities such that the determination of fair value requires significant judgment or estimation. Changes in fair value measurements categorized within Level 3 of the fair value hierarchy are analyzed each period based on changes in estimates or assumptions and recorded as appropriate.
The fair value of the Private Placement Warrants was estimated at September 30, 2021 and December 31, 2020 to be $
| September 30, |
| December 31, |
| |||
2021 | 2020 | ||||||
Risk-free interest rate |
| | % | | % | ||
Expected Term |
| |
| | |||
Dividend yield |
| | % | | % | ||
Expected volatility |
| | % | | % | ||
Exercise price | $ | | $ | | |||
Unit Price | $ | | $ | |
The following table presents the changes in the fair value of Level 3 warrant liabilities:
| Private Placement | ||
Fair value as of December 31, 2020 | $ | | |
Change in fair value |
| ( | |
Fair value as of March 31, 2021 |
| | |
Change in fair value |
| | |
Fair value as of June 30, 2021 |
| | |
Change in fair value | | ||
Fair value as of September 30, 2021 | |
There were
22
CAPSTAR SPECIAL PURPOSE ACQUISITION CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(Unaudited)
NOTE 11. SUBSEQUENT EVENTS
The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the condensed consolidated financial statements were issued. Based upon this review, other than the below, the Company did not identify any subsequent events that would have required adjustment or disclosure in the condensed consolidated financial statements.
As described in Note 7, the Company entered into a Business Combination Agreement on July 19, 2021 and entered into a Business Combination Agreement Amendment on November 8, 2021. In connection, and concurrently, with the execution of the Business Combination Agreement Amendment, Capstar, Capstar Sponsor Group LLC (the “Sponsor”), certain affiliates of the Sponsor and Gelesis entered into an amendment to that certain Sponsor Letter Agreement, dated July 19, 2021.
23
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
References in this report (the “Quarterly Report”) to “we,” “us” or the “Company” refer to Capstar Special Purpose Acquisition Corp. References to our “management” or our “management team” refer to our officers and directors, references to the “Sponsor” refer to Capstar Sponsor Group, LLC. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements and the notes thereto contained elsewhere in this Quarterly Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Special Note Regarding Forward-Looking Statements
This Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) that are not historical facts, and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Form 10-Q including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of the Company’s Annual Report on Form 10-KA filed with the U.S. Securities and Exchange Commission (the “SEC”). The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.
Overview
We are a blank check company formed under the laws of the State of Delaware on February 14, 2020 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 Warrants, our capital stock, debt or a combination of cash, stock and debt.
We expect to continue to incur significant costs in the pursuit of our acquisition plans. We cannot assure you that our plans to complete a Business Combination will be successful.
Recent Developments
On July 19, 2021, we entered into the Business Combination Agreement with Merger Sub and Gelesis., which was amended on November 8, 2021.
The Business Combination Agreement and the transactions contemplated thereby were approved by the board of directors of each of CPSR and Gelesis.
The Business Combination Agreement provides for, among other things, that Merger Sub will merge with and into Gelesis, with Gelesis as the surviving company in the merger and, after giving effect to such merger, Gelesis shall be our wholly-owned subsidiary (the “Merger”). In addition, we will be renamed Gelesis Holdings, Inc.
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In accordance with the terms and subject to the conditions of the Business Combination Agreement, at the Effective Time, (i) each share of Gelesis outstanding as of immediately prior to the Effective Time will be exchanged for CPSR Shares based on an implied Gelesis equity value of $675,000,000, (ii) all vested and unvested stock options of Gelesis will be assumed by us and thereafter be settled or exercisable for CPSR Shares, as applicable, determined based on the same implied Gelesis equity value described in clause (i); (iii) each warrant of Gelesis will be canceled in exchange for a warrant to purchase our shares of determined based on the same implied Gelesis equity value described in clause (i); and (iv) each share of CPSR Class A common stock and each share of CPSR Class B common stock that is issued and outstanding immediately prior to the Effective Time shall become one CPSR Share following the consummation of the Business Combination. In addition, each holder of shares of Gelesis common stock, options and warrants will receive its pro rata portion of 23,483,250 restricted earn out CPSR Shares, which will vest (in part) in equal thirds if the trading price of CPSR Shares is greater than or equal to $12.50, $15.00 and $17.50, respectively, for any 20 trading days within any 30-trading day period on or prior to the date that is five years following the Effective Time (the “Earn Out Period”) and will also vest in connection with any Change of Control Transaction with respect to us if the applicable thresholds are met in such Change of Control Transaction during the Earn Out Period.
The Business Combination is expected to close in the fourth quarter of 2021, following the receipt of the required approval by our stockholders and the fulfillment of other customary closing conditions.
Results of Operations
We have neither engaged in any operations (other than searching for a Business Combination after our Initial Public Offering) nor generated any revenues to date. Our only activities through September 30, 2021 were organizational activities, those necessary to prepare for the Initial Public Offering, described below, finding a target company for a Business Combination and activities in connection with the proposed acquisition of Gelesis. We do not expect to generate any operating revenues until after the completion of our Business Combination. We generate non-operating income in the form of interest income on marketable securities held in the Trust Account. 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 three months ended September 30, 2021, we had a net loss of $14,255,408, which consists of changes in fair value of warrant liabilities of $13,174,144, operating costs of $1,113,342, and an unrealized loss on marketable securities held in Trust Account of $106,039,offset by interest income on marketable securities held in the Trust Account of $138,117.
For the nine months ended September 30, 2021, we had a net loss of $3,657,398, which consists of changes in fair value of warrant liabilities of $2,284,340 and operating costs of $1,518,286, offset by an unrealized gain on marketable securities held in Trust Account of $2,231, and interest income on marketable securities held in the Trust Account of $142,997.
For the three months ended September 30, 2020, we had a net loss of $113,691, which consists of operating costs of $184,615, transaction costs associated with the Initial Public Offering of $671,901, and a provision for income taxes of $8,714, offset by the interest earned on marketable securities held in Trust Account of $96,143, unrealized gain on marketable securities held in Trust Account of $41,496, and changes in fair value of warrant liabilities of $613,900.
For the period from February 14, 2020 (inception) through September 30, 2020, we had a net loss of $114,691, which consists of formation and operational costs of $185,615, transaction costs associated with the Initial Public Offering of $671,901, and a provision for income taxes of $8,714, offset by the interest earned on marketable securities held in Trust Account of $96,143, unrealized gain on marketable securities held in Trust Account of $41,496, and changes in fair value of warrant liabilities of $613,900.
Liquidity and Capital Resources
On July 7, 2020, we consummated the Initial Public Offering of 27,600,000 Units at a price of $10.00 per Unit, which includes the full exercise by the underwriters of the over-allotment option to purchase an additional 3,600,000, generating gross proceeds of $276,000,000. Simultaneously with the closing of the Initial Public Offering, we consummated the sale of 7,520,000 Private Placement Warrants at a price of $1.00 per Private Placement Warrant in a private placement to our stockholders, generating gross proceeds of $7,520,000.
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Following the Initial Public Offering, the full exercise of the over-allotment option by the underwriters’ and the sale of the Private Placement Warrants, a total of $276,000,000 was placed in the Trust Account and we had $1,389,212 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 $15,851,828 in transaction costs, including $5,520,000 of underwriting fees, $9,660,000 of deferred underwriting fees and $671,828 of other offering costs.
For the nine months ended September 30, 2021, cash used in operating activities was $362,889. Net loss of $3,657,398 was affected by changes in fair value of warrant liabilities of $2,284,340, an unrealized gain on marketable securities held in Trust Account of $2,231, interest earned on marketable securities held in the Trust Account of $142,997 and changes in operating assets and liabilities, which provided $1,155,397 of cash from operating activities.
For the period from February 14, 2021 (inception) through September 30, 2020, cash used in operating activities was $212,209. Net loss of $680,079 was affected by changes in fair value of warrant liabilities of $48,512, an unrealized gain on marketable securities held in Trust Account of $41,496, interest earned on marketable securities held in the Trust Account of $96,143 and changes in operating assets and liabilities, which used $26,594 of cash from operating activities.
As of September 30, 2021, we had cash and marketable securities held in the Trust Account of $276,178,675. 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 ended September 30, 2021, we have withdrawn $176,006 of interest earned on the Trust Account for the payment of franchise taxes. 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 September 30, 2021, we had cash of $304,944, respectively 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, 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 $1,500,000 of such loans may be convertible into warrants, at a price of $1.50 per warrant at the option of the lender. The warrants would be identical to the Private Placement Warrants, including as to exercise price, exercisability and exercise period. 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.
On July 28, 2021, the Sponsor committed to provide the Company an aggregate of $4,000,000 in loans for working capital purposes. These loans will be non-interest bearing, unsecured and will be repaid upon the consummation of a business combination. If the Company does not consummate a business combination, all amounts loaned to the Company in connection with these loans will be forgiven except to the extent that the Company has funds available to it outside of its Trust Account. As a result, management has determined that sufficient capital exists to sustain operations through the earlier of the consummation of a Business Combination or July 7, 2022, the scheduled liquidation date of the Company if a Business Combination is not completed.
Off-Balance Sheet Arrangements
We have no obligations, assets or liabilities, which would be considered off-balance sheet arrangements as of September 30, 2021. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets.
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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 an affiliate of the Sponsor a monthly fee of $10,000 for office space, utilities and secretarial and administrative support to the Company. We began incurring these fees on July 1, 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 $9,660,000 in the aggregate. The deferred fee will be waived by the underwriters in the event that the Company does not complete a Business Combination, subject to the terms of the underwriting agreement.
Critical Accounting Policies
The preparation of condensed consolidated 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 condensed consolidated 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:
Warrant Liabilities
We account for the Warrants in accordance with the guidance contained in ASC 815-40-15-7D and 7F under which the Warrants do not meet the criteria for equity treatment and must be recorded as liabilities. Accordingly, we classify the Warrants as liabilities at their fair value and adjust the Warrants to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in our statements of operations. The Private Placement Warrants and the Public Warrants for periods where no observable traded price was available are valued using a Monte Carlo simulation. For periods subsequent to the detachment of the Public Warrants from the Units, the Public Warrant quoted market price was used as the fair value as of each relevant date.
Class A Common Stock Subject to Possible Redemption
We account for our shares of Class A common stock subject to possible redemption 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 is 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, the Class A common stock subject to possible redemption is presented as temporary equity, outside of the stockholders’ equity section of our unaudited condensed consolidated balance sheets.
Net Income (Loss) per Common Share
Net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common stock outstanding during the period. We apply the two-class method in calculating income (loss) per common share. Accretion associated with the redeemable shares of Class A common stock is excluded from income (loss) per common share as the redemption value approximates fair value.
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Recent accounting standards
In August 2020, the FASB issued ASU No. 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”), which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, with early adoption permitted. We adopted ASU 2020-06 on January 1, 2021. The adoption of ASU 2020-06 did not have an impact on our condensed consolidated financial statements.
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 unaudited condensed consolidated financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not required for smaller reporting companies.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Under the supervision and with the participation of our management, including our principal executive officer and principal financial and accounting officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the fiscal quarter ended September 30, 2021, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our principal executive officer and principal financial and accounting officer has concluded that our disclosure controls and procedures were not effective, due solely to the material weakness in our internal control over financial reporting related to the Company’s accounting for complex financial instruments. As a result, we performed additional analysis as deemed necessary to ensure that our financial statements were prepared in accordance with U.S. generally accepted accounting principles. Accordingly, management believes that the financial statements included in this Form 10-Q present fairly in all material respects our financial position, results of operations and cash flows for the period presented.
Management has implemented remediation steps to improve our internal control over financial reporting. Specifically, we expanded and improved our review process for complex financial instruments and related accounting standards. We plan to further improve this process by enhancing access to accounting literature, identification of third-party professionals with whom to consult regarding complex accounting applications and consideration of additional staff with the requisite experience and training to supplement existing accounting professionals.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 1A. Risk Factors.
We have identified a material weakness in our internal control over financial reporting. This material weakness could continue to adversely affect our ability to report our results of operations and financial condition accurately and in a timely manner.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP. Our management is likewise required, on a quarterly basis, to evaluate the effectiveness of our internal controls and to disclose any changes and material weaknesses identified through such evaluation of those internal controls. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
As described elsewhere in this Quarterly Report on Form 10-Q, we have identified a material weakness in our internal control over financial reporting related to the Company’s accounting for complex financial instruments. As a result of this material weakness, our management has concluded that our disclosure controls and procedures were not effective as of September 30, 2021. See “Note 2—Restatement of Previously Issued Financial Statements” to the accompanying financial statements, as well as Part I. Item 4. Controls and Procedures included in this Quarterly Report on Form 10-Q. We have taken a number of measures to remediate the material weaknesses described herein. However, if we are unable to remediate our material weaknesses in a timely manner or we identify additional material weaknesses, we may be unable to provide required financial information in a timely and reliable manner and we may incorrectly report financial information. Likewise, if our financial statements are not filed on a timely basis, we could be subject to sanctions or investigations by the stock exchange on which our shares of Class A common stock are listed, the SEC or other regulatory authorities. Failure to timely file will cause us to be ineligible to utilize short form registration statements on Form S-3 or Form S-4, which may impair our ability to obtain capital in a timely fashion to execute our business strategies of issue shares to effect an acquisition. In either case, there could result a material adverse effect on our business. The existence of material weaknesses or significant deficiencies in internal control over financial reporting could adversely affect our reputation or investor perceptions of us, which could have a negative effect on the trading price of our stock. In addition, we will incur additional costs to remediate material weaknesses in our internal control over financial reporting, as described in Part I. Item 4. Controls and Procedures. We can give no assurance that the measures we have taken and plan to take in the future will remediate the material weakness identified or that any additional material weaknesses or restatements of financial results will not arise in the future due to a failure to implement and maintain adequate internal control over financial reporting or circumvention of these controls. In addition, even if we are successful in strengthening our controls and procedures, in the future those controls and procedures may not be adequate to prevent or identify irregularities or errors or to facilitate the fair presentation of our financial statements.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Private Placement
On July 7, 2020, simultaneous with the consummation of the Initial Public Offering and the closing of the over-allotment option, we consummated the private placement of an aggregate of 7,520,000 warrants at a price of $1.00 per Private Placement Warrant, generating total proceed of $7,520,000. The issuance was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act.
The Private Placement Warrants are identical to the warrants underlying the Units sold in the Initial Public Offering, except that the Private Placement Warrants are not transferable, assignable or salable until 30 days after the completion of a Business Combination, subject to certain limited exceptions.
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Use of Proceeds from the Initial Public Offering
On July 7, 2020, we consummated the Initial Public Offering of 27,600,000 Units, which includes the full exercise by the underwriters of the over-allotment option to purchase an additional 3,600,000 Units. The Units sold in the Initial Public Offering were sold at an offering price of $10.00 per unit, generating total gross proceeds of $276,000,000. Citigroup Global Markets Inc., UBS Securities LLC and BTIG, LLC acted as joint book-running manager. The securities in the offering were registered under the Securities Act on a registration statement on Form S-1 (No. 333-239094 and 333-239630). The Securities and Exchange Commission declared the registration statement effective on July 1, 2020.
We paid a total of $5,520,000 in underwriting discounts and commissions and $671,828 for other offering costs related to the Initial Public Offering. In addition, the underwriters agreed to defer $9,660,000 in underwriting discounts and commissions.
Of the gross proceeds received from the Initial Public Offering, the closing of the over-allotment option and the Private Placement Warrants, $276,000,000 was placed in the Trust Account. The proceeds are held in the Trust Account located in the United States and shall be invested only in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act, with a maturity of 185 days or less or in any open-ended investment company that holds itself out as a money market fund selected by the Company meeting the conditions of Rule 2a-7 of the Investment Company Act, as determined by the Company, until the earlier of: (i) the completion of a Business Combination or (ii) the distribution of the funds in the Trust Account.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
None.
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Item 6. Exhibits
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
No. |
| Description of Exhibit |
2.1 | ||
31.1* |
| |
32.1** |
| |
101.INS* |
| XBRL Instance Document |
101.CAL* |
| XBRL Taxonomy Extension Calculation Linkbase Document |
101.SCH* |
| XBRL Taxonomy Extension Schema Document |
101.DEF* |
| XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB* |
| XBRL Taxonomy Extension Labels Linkbase Document |
101.PRE* |
| XBRL Taxonomy Extension Presentation Linkbase Document |
104* | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* | Filed herewith. |
** | Furnished. |
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| CAPSTAR SPECIAL PURPOSE ACQUISITION CORP. | |
|
|
|
Date: November 15, 2021 | By: | /s/ R. Steven Hicks |
| Name: | R. Steven Hicks |
| Title: | Chief Executive Officer and Chief Financial Officer |
|
| (Principal Executive Officer and |
|
|
|
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