UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Amendment No. 1)
For the quarterly period ended
OR
For the transition period from _________ to _________
Acquisition Corp.
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) | (Commission File Number) | (IRS Employer Identification No.) |
| (Address Of Principal Executive Offices) | (Zip Code) |
Registrant’s telephone number, including area code
Not Applicable
(Former name or former address, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Units, each consisting of one Class A ordinary share and one-fifth of one warrant | MSDAU | The Nasdaq Stock Market LLC | ||
| The | ||||
| Warrants, each whole warrant exercisable for one Class A ordinary share at an exercise price of $11.50 per share | MSDAW | The Nasdaq Stock Market LLC |
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.
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
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.
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of December 21, 2021,
MSD ACQUISITION CORP.
Form 10-Q/A
For the period from February 5, 2021 (inception) through September 30, 2021
Table of Contents
i
EXPLANATORY NOTE
This Amendment No. 1 (“Amendment No. 1”) to the Quarterly Report on Form 10-Q/A amends the Quarterly Report on Form 10-Q of MSD Acquisition Corp. (the “Company”) as of and for the period ended September 30, 2021, as filed with the Securities and Exchange Commission (“SEC”) on November 5, 2021 (the “Original Filing”).
On November 5, 2021, the Company filed its Form 10-Q for the quarterly period ending September 30, 2021 (the “Q3 Form 10-Q”), which included a section within Note 2, Revision of Previously Issued Financial Statements, (“Note 2”) that describes a revision to the Company’s classification of its Class A ordinary shares subject to redemption issued as part of the units sold in the Company’s initial public offering (“IPO”) on March 29, 2021. As described in Note 2, upon its IPO, the Company classified a portion of the Class A ordinary shares as permanent equity to maintain net tangible assets greater than $5,000,000 on the basis that the Company will consummate its initial business combination only if the Company has net tangible assets of at least $5,000,001. Previously, the Company did not consider redeemable shares classified as temporary equity as part of net tangible assets. Effective with these condensed financial statements, the Company revised this interpretation to include temporary equity in net tangible assets. As a result, management corrected the error by restating all Class A ordinary shares subject to redemption as temporary equity. This resulted in an adjustment to the initial carrying value of the Class A ordinary shares subject to possible redemption with the offset recorded to additional paid-in capital (to the extent available), accumulated deficit and Class A ordinary shares.
In connection with the change in presentation for the Class A ordinary shares subject to possible redemption, the Company revised its earnings per share calculation to allocate income and losses shared pro rata between the two classes of shares. This presentation differs from the previously presented method of earnings per share, which was similar to the two-class method.
The Company determined the changes were not qualitatively material to the Company’s previously issued financial statements and did not restate its financial statements. Instead, the Company revised its previously financial statements in Note 2 to its Q3 Form 10-Q. Although the qualitative factors that management assessed tended to support a conclusion that the misstatements were not material, these factors were not strong enough to overcome the significant quantitative errors in the financial statements. The qualitative and quantitative factors support a conclusion that the misstatements are material on a quantitative basis. Management concluded that the misstatement was of such magnitude that it is probable that the judgment of a reasonable person relying upon the financial statements would have been influenced by the inclusion or correction of the foregoing items. As such, upon further consideration of the change, the Company determined the change in classification of the Class A ordinary shares and change to its presentation of earnings per share is material quantitatively and it should restate its previously issued financial statements.
Therefore, on December 16, 2021, the Company’s management and the audit committee of the Company’s board of directors (the “Audit Committee”) concluded that the Company’s previously issued revision to the (i) unaudited interim financial statements included in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2021 filed with the SEC on May 25, 2021; (ii) unaudited interim financial statements included in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2021, filed with the SEC on August 11, 2021; and (iii) Note 2 to the unaudited interim financial statements and Item 4 of Part 1 included in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2021, filed with the SEC on November 5, 2021 (collectively, the “Affected Periods”), should be restated to report all Public Shares as temporary equity and should no longer be relied upon. As such, the Company will restate its financial statements for the Affected Periods in this Quarterly Report on Form 10-Q/A.
The restatement does not have an impact on its cash position and cash held in the trust account established in connection with the IPO (the “Trust Account”).
After re-evaluation, the Company’s management has concluded that in light of the errors described above, a material weakness existed in the Company’s internal control over financial reporting during the Affected Periods and that the Company’s disclosure controls and procedures were not effective. The Company’s remediation plan with respect to such material weakness is described in more detail in Item 4 to Part 1 of this filing.
ii
PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
MSD ACQUISITION CORP.
UNAUDITED CONDENSED BALANCE SHEET
September 30, 2021
| Assets | ||||
| Current assets: | ||||
| Cash | $ | |||
| Prepaid expenses | ||||
| Total current assets | ||||
| Investments held in Trust Account | ||||
| Total Assets | $ | |||
| Liabilities, Class A Ordinary Shares Subject to Possible Redemption and Shareholders’ Deficit: | ||||
| Current liabilities: | ||||
| Accounts payable | $ | |||
| Accrued expenses | ||||
| Total current liabilities | ||||
| Deferred underwriting commissions | ||||
| Derivative liabilities | ||||
| Total liabilities | ||||
| Commitments and Contingencies | ||||
| Class A ordinary shares subject to possible redemption; $ | ||||
| Shareholders’ Deficit: | ||||
| Preference shares, $ | ||||
| Class A ordinary shares, $ | ||||
| Class B ordinary shares, $ | ||||
| Additional paid-in capital | ||||
| Accumulated deficit | ( | ) | ||
| Total shareholders’ deficit | ( | ) | ||
| Total Liabilities, Class A Ordinary Shares Subject to Possible Redemption and Shareholders’ Deficit | $ | |||
The accompanying notes are an integral part of these unaudited condensed financial statements.
1
MSD
ACQUISITION CORP.
UNAUDITED CONDENSED STATEMENTS OF OPERATIONS
| For
the Three Months Ended September 30, 2021 | For
the Period From February 5, 2021 (Inception) Through September 30, 2021 | |||||||
| General and administrative expenses | $ | $ | ||||||
| General and administrative expenses - related party | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other income (expenses): | ||||||||
| Change in fair value of derivative liabilities | ( | ) | ||||||
| Offering costs associated with derivative liabilities | ( | ) | ||||||
| Income from investments held in Trust Account | ||||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Weighted average number of shares outstanding of Class A ordinary shares, basic and diluted | ||||||||
| Basic and diluted net income (loss) per share, Class A ordinary shares | $ | $ | ( | ) | ||||
| Weighted average number of shares outstanding of Class B ordinary shares, basic and diluted | ||||||||
| Basic and diluted net income (loss) per share, Class B ordinary shares | $ | $ | ( | ) | ||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
2
MSD ACQUISITION CORP.
UNAUDITED CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIT
For the three months ended September 30, 2021 and the period from February 5, 2021 (inception) through September 30, 2021
| Ordinary Shares | Additional | Total | ||||||||||||||||||||||||||
| Class A | Class B | Paid-in | Accumulated | Shareholders’ | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
| Balance - February 5, 2021 (inception) (audited) | $ | $ | $ | $ | $ | |||||||||||||||||||||||
| Issuance of Class B ordinary shares to Sponsor | - | |||||||||||||||||||||||||||
| Excess cash received over the fair value of the private warrants | - | - | ||||||||||||||||||||||||||
| Accretion of Class A ordinary shares subject to possible redemption amount | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance - March 31, 2021 (as restated, see Note 2) | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance - June 30, 2021 (as restated, see Note 2) | - | - | ( | ) | ( | ) | ||||||||||||||||||||||
| Net income | - | - | ||||||||||||||||||||||||||
| Balance - September 30, 2021 | - | $ | - | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
3
MSD ACQUISITION CORP.
UNAUDITED CONDENSED STATEMENT OF CASH FLOWS
For the period from February 5, 2021 (inception) through September 30, 2021
| Cash Flows from Operating Activities: | ||||
| Net loss | $ | ( | ) | |
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||
| General and administrative expenses paid by related party in exchange for issuance of Class B ordinary shares | ||||
| General and administrative expenses paid by related party under promissory note | ||||
| Change in fair value of derivative liabilities | ||||
| Offering costs associated with derivative liabilities | ||||
| Income from investments held in Trust Account | ( | ) | ||
| Changes in operating assets and liabilities: | ||||
| Prepaid expenses | ( | ) | ||
| Accounts payable | ||||
| Accrued expenses | ||||
| Net cash used in operating activities | ( | ) | ||
| Cash Flows from Investing Activities: | ||||
| Cash deposited in Trust Account | ( | ) | ||
| Net cash used in investing activities | ( | ) | ||
| Cash Flows from Financing Activities: | ||||
| Proceeds received from initial public offering, gross | ||||
| Proceeds received from private placement | ||||
| Repayment of note payable to related party | ( | ) | ||
| Proceeds from advance to related party | ||||
| Offering costs paid | ( | ) | ||
| Net cash provided by financing activities | ||||
| Net change in cash | ||||
| Cash - beginning of the period | ||||
| Cash - end of the period | $ | |||
| Supplemental disclosure of noncash financing activities: | ||||
| Offering costs included in accrued expenses | $ | |||
| Offering costs paid by related party under promissory note | $ | |||
| Deferred underwriting commissions | $ | |||
The accompanying notes are an integral part of these unaudited condensed financial statements.
4
MSD ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 1 — Description of Organization and Business Operations
MSD Acquisition Corp. (the “Company”) is a blank check company incorporated as a Cayman Islands exempted company on February 5, 2021. The Company was incorporated for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses that the Company has not yet identified (“Business Combination”).
As of September 30, 2021, the Company had not yet commenced operations. All activity for the period from February 5, 2021 (inception) through September 30, 2021 relates to the Company’s formation and the initial public offering (the “Initial Public Offering”), which is described below, and, subsequent to the Initial Public Offering, identifying a target company for a Business Combination. The Company will not generate any operating revenues until after the completion of its initial Business Combination, at the earliest. The Company will generate non-operating income in the form of interest income from the proceeds derived from the Initial Public Offering. The Company has selected December 31 as its fiscal year end.
The Company’s sponsor is MSD Sponsor Holdings, LLC, a Delaware
limited liability company (the “Sponsor”). The registration statement for the Company’s Initial Public Offering was
declared effective on March 24, 2021. On March 29, 2021, the Company consummated its Initial Public Offering of
Simultaneously with the closing of the Initial
Public Offering, the Company consummated the private placement (“Private Placement”) of
Upon the closing of Initial Public Offering and
the Private Placement, $
The Company’s management has broad discretion
with respect to the specific application of the net proceeds of its 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. The Company’s
initial Business Combination must be with one or more operating businesses or assets with a fair market value equal to at least
The Company will provide its holders of the Public
Shares (the “Public Shareholders”) 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 general meeting called to approve the Business Combination or (ii) by means
of a tender offer. The decision as to whether the Company will seek shareholder approval of a Business Combination or conduct a tender
offer will be made by the Company. The Public Shareholders will be entitled to redeem their Public Shares for a pro rata portion of the
amount then in the Trust Account ($
5
MSD ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
The per-share amount to be distributed to Public Shareholders who redeem
their Public Shares will not be reduced by the deferred underwriting commissions the Company will pay to the underwriters (as discussed
in Note 7). These Public Shares were recorded at a redemption value and classified as temporary equity, in accordance with Financial Accounting
Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities
from Equity” (“ASC 480”). In such case, the Company will proceed with a Business Combination if the Company has net
tangible assets of at least $
Notwithstanding the foregoing, the Company’s
Amended and Restated Memorandum and Articles of Association will provide that a Public Shareholder, together with any affiliate of such
shareholder or any other person with whom such shareholder 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 Company’s Sponsor, officers, directors
and director nominees agreed not to propose an amendment to the Company’s Amended and Restated Memorandum and Articles of Association
(A) to modify the substance or timing of the Company’s obligation to allow the redemption of its Public Shares in connection with
a Business Combination or to redeem
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 ten business days thereafter, redeem the Public Shares, at a per-share price, payable in cash,
equal to the aggregate amount then on deposit in the Trust Account, including interest (which interest shall be net of taxes payable
and up to $
In connection with the redemption of
6
MSD ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
The Initial Shareholders agreed to waive their liquidation rights with respect to the Founder Shares if the Company fails to complete a Business Combination within the Combination Period. However, if the Initial Shareholders should acquire Public Shares in or after the Initial Public Offering, they will be entitled to liquidating distributions from the Trust Account with respect to such Public Shares if the Company fails to complete a Business Combination within the Combination Period. The underwriters 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 funds held in the Trust Account that will be available to fund the redemption of the Company’s Public Shares. In the event of such distribution, it is possible that the per share value of the residual assets remaining available for distribution in the Trust Account will be less than the $10.00 per share initially held in the Trust Account. In order to protect the amounts held in the Trust Account, the Sponsor agreed that it will 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 other similar agreement or business combination agreement, reduce the amount of funds in the Trust Account to below the lesser of (i) $10.00 per Public Share and (ii) the actual amount per Public Share held in the Trust Account as of the date of the liquidation of the Trust Account, if less than $10.00 per share due to reductions in the value of the trust assets, less taxes payable, provided that such liability will not apply to any claims by a third party or prospective target business who executed a waiver of any and all rights to the monies held in the Trust Account (whether or not such waiver is enforceable) nor will it apply to any claims under the Company’s indemnity of the underwriters of the Initial Public Offering against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the “Securities Act”). In the event that an executed waiver is deemed to be unenforceable against a third party, the Sponsor will not be responsible to the extent of any liability for such third-party claims. The Company will seek to reduce the possibility that the Sponsor will have to indemnify the Trust Account due to claims of creditors by endeavoring to have vendors, service providers (except the Company’s independent registered public accounting firm), prospective target businesses or other entities with which the Company does business, execute agreements with the Company waiving any right, title, interest or claim of any kind in or to monies held in the Trust Account. There can be no guarantee that the Company will be successful in obtaining such waivers from its targeted vendors and service providers.
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, 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 shareholder 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 an emerging growth 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 an 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 unaudited condensed financial statements with another public company that is neither an emerging growth company nor an emerging growth company that has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
7
MSD ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Liquidity and Capital Resources
As of September 30, 2021, the Company had $
The Company’s liquidity needs through September 30, 2021 were
satisfied through $
Based on the foregoing, management believes that the Company will have sufficient working capital and borrowing capacity from the Sponsor or an affiliate of the Sponsor, or certain of the Company’s officers and directors to meet its needs through the earlier of the consummation of a Business Combination or one year from this filing. Over this time period, the Company will be using these funds for paying existing accounts payable, identifying and evaluating prospective initial Business Combination candidates, performing due diligence on prospective target businesses, paying for travel expenditures, selecting the target business to merge with or acquire, and structuring, negotiating and consummating the Business Combination.
Note 2 — Restatement of Previously Reported Financial Statements
In the Company’s unaudited condensed financial
statements for the quarterly period ended September 30, 2021, as filed with the SEC on November 5, 2021, the Company concluded it should
restate its previously issued financial statements to classify all Class A ordinary shares subject to redemption in temporary equity.
In accordance with ASC 480-10-S99, redemption provisions not solely within the control of the Company require shares subject to redemption
to be classified outside of permanent equity. The Company had previously classified a portion of its Class A ordinary shares in permanent
equity. Although the Company did not specify a maximum redemption threshold, its charter currently provides that the Company will not
redeem its Public Shares in an amount that would cause its net tangible assets to be less than $
8
MSD ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
In accordance with SEC Staff Accounting Bulletin No. 99, “Materiality,” and SEC Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements,” the Company evaluated the corrections and has determined that the related impact was material to the previously filed financial statements that contained the error, reported in the Company’s Form 10-Qs for the quarterly periods ended March 31, 2021, and June 30, 2021 (the “Affected Quarterly Periods”). Therefore, the Company, in consultation with its Audit Committee, concluded that the Affected Quarterly Periods should be restated to present all Class A ordinary shares subject to possible redemption as temporary equity and to recognize accretion from the initial book value to redemption value at the time of its Initial Public Offering. As such, the Company is reporting these restatements to the Affected Quarterly Period in this quarterly report. The previously presented Affected Quarterly Period should no longer be relied upon.
The change in the carrying
value of the redeemable Class A ordinary shares at March 31, 2021 resulted in a reclassification of approximately
| As of March 31, 2021 (unaudited) | As Previously Reported | Adjustment | As Restated | |||||||||
| Total assets | $ | $ | $ | |||||||||
| Total liabilities | $ | $ | $ | |||||||||
| Class A common stock subject to possible redemption | ||||||||||||
| Preference Shares | ||||||||||||
| Class A ordinary shares | ( | ) | - | |||||||||
| Class B ordinary shares | - | |||||||||||
| Additional paid-in capital | ( | ) | ||||||||||
| Accumulated deficit | ( | ) | ( | ) | ( | ) | ||||||
| Total stockholders’ equity (deficit) | $ | $ | ( | ) | $ | ( | ) | |||||
Total Liabilities, Class A Ordinary Shares Subject to Possible Redemption and Stockholders’ Equity (Deficit) | $ | $ | $ | |||||||||
The change in the carrying
value of the redeemable Class A ordinary shares at June 30, 2021 resulted in a reclassification of approximately
| As of June 30, 2021 (unaudited) | As Previously Reported | Adjustment | As Restated | |||||||||
| Total assets | $ | $ | ( | ) | $ | |||||||
| Total liabilities | $ | $ | $ | |||||||||
| Class A common stock subject to possible redemption | ||||||||||||
| Preference Shares | ||||||||||||
| Class A ordinary shares | ( | ) | - | |||||||||
| Class B ordinary shares | - | |||||||||||
| Additional paid-in capital | ( | ) | ||||||||||
| Retained earnings (accumulated deficit) | ( | ) | ( | ) | ( | ) | ||||||
| Total stockholders’ equity (deficit) | $ | $ | ( | ) | $ | ( | ) | |||||
Total Liabilities, Class A Ordinary Shares Subject to Possible Redemption and Stockholders’ Equity (Deficit) | $ | $ | ( | ) | $ | |||||||
The Company’s statement of shareholders’ equity has been restated to reflect the changes to the impacted shareholders’ equity accounts described above.
9
MSD ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
The table below presents the effect of the financial statement adjustments related to the restatement discussed above of the Company’s previously reported statement of cash flows for the period from February 5, 2021 (inception) through March 31, 2021 and June 30, 2021.
| Form 10-Q (June 30,2021) - For the period from February 5,2021 (inception) through March 31, 2021 (Unaudited) | ||||||||||||
| As Reported | Adjustment | As Restated | ||||||||||
| Supplemental Disclosure of Noncash Financing Activities: | ||||||||||||
| Initial value of Class A ordinary shares subject to possible redemption | $ | $ | ( | ) | $ | |||||||
| Change in value of Class A ordinary shares subject to possible redemption | $ | ( | ) | $ | $ | |||||||
| Form 10-Q (June 30,2021) - For the period from February 5,2021 (inception) through June 30, 2021 (unaudited) | ||||||||||||
| As Reported | Adjustment | As Restated | ||||||||||
| Supplemental Disclosure of Noncash Financing Activities: | ||||||||||||
| Initial value of Class A ordinary shares subject to possible redemption | $ | $ | ( | ) | $ | |||||||
| Change in value of Class A ordinary shares subject to possible redemption | $ | ( | ) | $ | $ | |||||||
In connection with the change in presentation for the Class A ordinary shares subject to possible redemption, the Company has revised its earnings per share calculation to allocate income and losses shared pro rata between the two classes of shares. This presentation contemplates a Business Combination as the most likely outcome, in which case, both classes of shares participate pro rata in the income and losses of the Company. The impact to the reported amounts of weighted average shares outstanding and basic and diluted earnings per ordinary share is presented below for the Affected Quarterly Periods:
| Earnings (Loss) Per Share | ||||||||||||
| As Reported | Adjustment | As Adjusted | ||||||||||
| For the period from February 5, 2021 (inception) through March 31, 2021 (unaudited) | ||||||||||||
| Net loss | $ | ( | ) | $ | $ | ( | ) | |||||
| Weighted average shares outstanding - Class A ordinary shares | ( | ) | ||||||||||
| Basic and diluted loss per share - Class A ordinary shares | $ | $ | ( | ) | $ | ( | ) | |||||
| Weighted average shares outstanding - Class B ordinary shares | ( | ) | ||||||||||
| Basic and diluted loss per share - Class B ordinary shares | $ | ( | ) | $ | $ | ( | ) | |||||
| For the three months ended June 30, 2021 (unaudited) | ||||||||||||
| Net loss | $ | ( | ) | $ | $ | ( | ) | |||||
| Weighted average shares outstanding - Class A ordinary shares | ||||||||||||
| Basic and diluted loss per share - Class A ordinary shares | $ | $ | ( | ) | $ | ( | ) | |||||
| Weighted average shares outstanding - Class B ordinary shares | ||||||||||||
| Basic and diluted loss per share - Class B ordinary shares | $ | ( | ) | $ | $ | ( | ) | |||||
| For the period from February 5, 2021 (inception) through June 30, 2021 (unaudited) | ||||||||||||
| Net loss | $ | ( | ) | $ | $ | ( | ) | |||||
| Weighted average shares outstanding - Class A ordinary shares | ||||||||||||
| Basic and diluted loss per share - Class A ordinary shares | $ | $ | ( | ) | $ | ( | ) | |||||
| Weighted average shares outstanding - Class B ordinary shares | ( | ) | ||||||||||
| Basic and diluted loss per share - Class B ordinary shares | $ | ( | ) | $ | $ | ( | ) | |||||
10
MSD ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 3 — Basis of Presentation and Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed financial statements are presented in U.S. dollars in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for financial information and pursuant to the rules and regulations of the SEC. Accordingly, they do not include all of the information and footnotes required by GAAP. In the opinion of management, the unaudited condensed financial statements reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the balances and results for the periods presented. Operating results for the three months ended September 30, 2021 and the period from February 5, 2021 (inception) through September 30, 2021 are not necessarily indicative of the results that may be expected through December 31, 2021.
The accompanying unaudited condensed financial statements should be read in conjunction with the audited financial statements and notes thereto included in the 10Q, Current Report on Form 8-K and the final prospectus filed by the Company with the SEC on August 11, 2021, April 2, 2021 and March 24, 2021, respectively.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires 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 financial statements and the reported amounts of income and expenses during the reporting period. 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 financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. 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 had no cash equivalents as of September 30, 2021.
Investments Held in Trust Account
The Trust Investments are presented on the balance sheets at fair value at the end of each reporting period. Gains and losses resulting from the change in fair value of these securities is included in income on investments held in the Trust Account in the accompanying unaudited condensed statement of operations. The estimated fair values of the Trust Investments are determined using available market information.
Concentration of Credit Risk
Financial instruments that potentially subject
the Company to concentrations of credit risk consist of cash accounts in a financial institution, which, at times, may exceed the Federal
Deposit Insurance Corporation coverage limit of $
Fair Value of Financial Instruments
The fair value of the Company’s assets and liabilities which qualify as financial instruments under the FASB ASC Topic 820, “Fair Value Measurements,” equal or approximate the carrying amounts represented in the condensed balance sheets.
Fair Value Measurements
Fair value is defined as the price that would be received for sale of an asset or paid for transfer of a liability, in an orderly transaction between market participants at the measurement date. GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers consist of:
| ● | Level 1, defined as observable inputs such as quoted prices (unadjusted) for identical instruments in active markets; |
| ● | Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and |
| ● | Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. |
11
MSD ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
In some circumstances, the inputs used to measure fair value might be categorized within different levels of the fair value hierarchy. In those instances, the fair value measurement is categorized in its entirety in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement.
Derivative Liabilities
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its financial instruments, including issued stock purchase warrants and forward purchase agreements, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 480 and FASB ASC Topic 815-40, “Derivatives and Hedging – Contracts in Entity’s Own Equity” (“ASC 815-40”). The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period.
The
The agreement between the Company and a certain
investor, providing for the investor to purchase up to $
Offering Costs Associated with the Initial Public Offering
Offering costs consisted of legal, accounting, underwriting fees and other costs incurred through the Initial Public Offering that were directly related to the Initial Public Offering. Offering costs were allocated to the separable financial instruments issued in the Initial Public Offering based on a relative fair value basis, compared to total proceeds received. Offering costs associated with derivative warrant liabilities were expensed as incurred and presented as non-operating expenses in the condensed statements of operations. Offering costs associated with the Class A ordinary shares were charged against the carrying value of the Class A ordinary shares upon the completion of the Initial Public Offering. The Company classifies deferred underwriting commissions as non-current liabilities as their liquidation is not reasonably expected to require the use of current assets or require the creation of current liabilities.
Class A Ordinary Shares Subject to Possible Redemption
The Company accounts for its Class A ordinary
shares subject to possible redemption in accordance with the guidance in ASC 480. Class A ordinary shares subject to mandatory redemption
(if any) are classified as liability instruments and are measured at fair value. Conditionally redeemable Class A ordinary shares (including
Class A ordinary shares that feature redemption rights that are either within the control of the holder or subject to redemption upon
the occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity. At all other times,
Class A ordinary shares are classified as shareholders’ equity. The Company’s Class A ordinary shares feature certain redemption
rights that are considered to be outside of the Company’s control and subject to the occurrence of uncertain future events. Accordingly,
12
MSD ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Effective with the closing of the Initial Public Offering (including exercise of the over-allotment option), the Company recognized the accretion from initial book value to redemption amount, which resulted in charges against additional paid-in capital (to the extent available) and accumulated deficit.
Income Taxes
The Company complies with the accounting and reporting requirements of FASB ASC Topic 740, “Income Taxes,” which prescribes a recognition threshold and a measurement attribute for the 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’s management determined that the Cayman Islands is the Company’s only major tax jurisdiction. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of September 30, 2021. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position.
There is currently no taxation imposed on income by the Government of the Cayman Islands. In accordance with Cayman federal income tax regulations, income taxes are not levied on the Company. Consequently, income taxes are not reflected in the Company’s financial statement. The Company’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.
Net Income (Loss) per Ordinary Share
The Company complies with accounting and disclosure requirements of FASB ASC Topic 260, “Earnings Per Share.” The Company has two classes of shares, which are referred to as Class A ordinary shares and Class B ordinary shares. Income and losses are shared pro rata between the two classes of shares. Net income (loss) per common share is calculated by dividing the net income (loss) by the weighted average shares of ordinary shares outstanding for the respective period.
The calculation of diluted net income (loss)
per ordinary shares does not consider the effect of the warrants issued in connection with the Initial Public Offering (including exercise
of the over-allotment option) and the Private Placement to purchase an aggregate of
The following table reflects presents a reconciliation of the numerator and denominator used to compute basic and diluted net income (loss) per share for each class of ordinary shares:
Three Months Ended September 30, 2021 | Period From February 11, 2021 (Inception) Through September 30, 2021 | |||||||||||||||
13
MSD ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
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. The ASU also removes certain settlement conditions that are required for equity-linked contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. The Company early adopted the ASU on February 5, 2021 (inception) using the modified retrospective method for transition. Adoption of ASU 2020-06 did not impact the Company’s financial position, results of operations or cash flows.
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 accompanying financial statements.
Note 4 — Initial Public Offering
On March 29, 2021, the Company consummated its
Initial Public Offering of
Each unit had an offering price of $
Note 5 — Private Placement
Simultaneously with the closing of the Initial
Public Offering, the Company consummated the Private Placement of
Each whole Private Placement Warrant is exercisable for one whole Class
A ordinary share at a price of $
The Sponsor and the Company’s officers and directors agreed, subject to limited exceptions, not to transfer, assign or sell any of their Private Placement Warrants until 30 days after the completion of the initial Business Combination.
Note 6 — Related Party Transactions
Founder Shares
On February 11, 2021, the Sponsor paid an aggregate
of $
The Initial Shareholders agreed not to transfer, assign or sell any of their Founder Shares until the earlier to occur of: (A) one year after the completion of the initial Business Combination or earlier if, subsequent to the initial Business Combination, the closing price of the Class A ordinary share equals or exceeds $12.00 per share (as adjusted for share sub-divisions, capitalization of shares, share dividends, rights issuances, subdivisions reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days after the initial Business Combination, and (B) the date following the completion of the initial Business Combination on which the Company completes a liquidation, merger, share exchange or other similar transaction that results in all of the Company’s shareholders having the right to exchange their Class A ordinary shares for cash, securities or other property.
14
MSD ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Forward Purchase Agreement
On March 24, 2021, the
Company entered into a forward purchase agreement (the “Forward Purchase Agreement”) with the certain investor (the “Forward
Purchase Investor”), pursuant to which the Forward Purchase Investor agreed to purchase up to $
Related Party Loans and Advances
On February 8, 2021, the Sponsor agreed to loan
the Company up to $
In addition, in order to fund working capital
deficiencies or finance transaction costs in connection with a Business Combination, the Sponsor or an affiliate of the Sponsor, or certain
of 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 may repay the Working Capital Loans out of the proceeds
of the Trust Account released to the Company. Otherwise, the Working Capital Loans may be repaid only out of funds held outside the Trust
Account. 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. The Working
Capital Loans would either be repaid upon consummation of a Business Combination, without interest, or, at the lender’s discretion,
up to $
Administrative Services Agreement
On March 24, 2021, the Company entered into an
agreement that provided that, commencing on the date that the Company’s securities were first listed on Nasdaq through the earlier
of consummation of the initial Business Combination or the liquidation, the Company agreed to pay the Sponsor up to $
In addition, the Sponsor, officers and directors, or any of their respective affiliates will be reimbursed for any out-of-pocket expenses incurred in connection with activities on the Company’s behalf such as identifying potential target businesses and performing due diligence on suitable Business Combinations. The audit committee will review on a quarterly basis all payments that were made by the Company to the Sponsor, officers or directors, or the Company’s or their affiliates. Any such payments prior to an initial Business Combination will be made from funds held outside the Trust Account. No such amounts were reimbursed or accrued for as of September 30, 2021.
15
MSD ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 7 — Commitments and Contingencies
Registration and Shareholder Rights
The holders of the Founder Shares, Private Placement Warrants and warrants that may be issued upon conversion of Working Capital Loans (and any Class A ordinary shares issuable upon the exercise of the Private Placement Warrants and warrants that may be issued upon conversion of Working Capital Loans) were entitled to registration rights pursuant to a registration and shareholder rights agreement signed upon the effective date of the Initial Public Offering. The holders of these securities were entitled to make up to three demands, excluding short form demands, that the Company register such securities. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to the completion of the initial Business Combination. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
Underwriting Agreement
The Company granted the underwriters a 45-day
option from the date of this prospectus to purchase up to
The underwriters were entitled to an underwriting
discount of $
Risks and Uncertainties
Management continues to evaluate the impact of the COVID-19 pandemic on the industry 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 this condensed financial statement. The condensed financial statement does not include any adjustments that might result from the outcome of this uncertainty.
Note 8 — Class A Ordinary Shares Subject to Possible Redemption
The Company’s Class A ordinary shares feature
certain redemption rights that are considered to be outside of the Company’s control and subject to the occurrence of future events.
The Company is authorized to issue
The Class A ordinary shares subject to possible redemption reflected on the condensed balance sheet is reconciled on the following table:
| Gross proceeds | $ | |||
| Less: | ||||
| Fair value of Public Warrants at issuance | ( | ) | ||
| Offering costs allocated to Class A ordinary shares subject to possible redemption | ( | ) | ||
| Plus: | ||||
| Accretion of Class A ordinary shares subject to possible redemption amount | ||||
| Class A ordinary shares subject to possible redemption | $ |
16
MSD ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note 9 — Shareholders’ Equity
Preference Shares — The Company
is authorized to issue
Class A Ordinary Shares —
The Company is authorized to issue
Class B Ordinary Shares — The
Company is authorized to issue
Ordinary shareholders of record are entitled to one vote for each share held on all matters to be voted on by shareholders and holders of Class A ordinary shares and holders of Class B ordinary shares will vote together as a single class on all matters submitted to a vote of the shareholders except as required by law; provided that only holders of Class B ordinary shares will have the right to vote on the appointment of directors prior to or in connection with the completion of the initial Business Combination.
The Class B ordinary shares will automatically
convert into Class A ordinary shares at the time of the consummation of the initial Business Combination on a one-for-one basis, subject
to adjustment for share sub-divisions, share capitalizations, reorganizations, recapitalizations and the like, and subject to further
adjustment. In the case that additional Class A ordinary shares or equity-linked securities are issued or deemed issued in connection
with the initial Business Combination, the number of Class A ordinary shares issuable upon conversion of all Founder Shares will equal,
in the aggregate, on an as-converted basis,
Note 10 — Warrants
As of September 30, 2021, there were
17
MSD ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
The warrants have an exercise price of $
The Private Placement Warrants are identical to the Public Warrants underlying the Units sold in the Initial Public Offering, except (i) that the Private Placement Warrants and the Class A ordinary shares issuable upon exercise of the Private Placement Warrants will not be transferable, assignable or salable until 30 days after the completion of a Business Combination, subject to certain limited exceptions, (ii) except as described below, the Private Placement Warrants will be non-redeemable so long as they are held by the Sponsor or its permitted transferees and (iii) the Sponsor or its permitted transferees will have the option to exercise the Private Placement Warrants on a cashless basis and have certain registration rights. If the Private Placement Warrants are held by someone other than the Sponsor or its permitted transferees, the Private Placement Warrants will be redeemable by the Company in all redemption scenarios and exercisable by such holders on the same basis as the Public Warrants.
Redemption of warrants when the price per Class A ordinary share equals or exceeds $18.00:
Once the warrants become exercisable, the Company may call the outstanding warrants for redemption (except as described herein with respect to the Private Placement Warrants):
| ● | in whole and not in part; |
| ● | at a price of $0.01 per warrant; |
| ● | upon a minimum of 30 days’ prior written notice of redemption to each warrant holder; and |
The Company will not redeem the warrants as described above unless a registration statement under the Securities Act covering the issuance of the Class A ordinary shares issuable upon exercise of the warrants is then effective and a current prospectus relating to those Class A ordinary shares is available throughout the 30-day redemption period.
18
MSD ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Redemption of warrants when the price per Class A ordinary share equals or exceeds $10.00:
Once the warrants become exercisable, the Company may call the outstanding warrants for redemption (except as described herein with respect to the Private Placement Warrants):
| ● | in whole and not in part; |
| ● | at $0.10 per warrant upon a minimum of 30 days’ prior written notice of redemption provided that holders will be able to exercise their warrants on a cashless basis prior to redemption and receive that number of Class A ordinary shares to be determined by reference to an agreed table based on the redemption date and the “fair market value” of Class A ordinary shares; |
| ● | if, and only if, the closing price of Class A ordinary shares equals or exceeds $10.00 per share (as adjusted) for any 20 trading days within the 30-trading day period ending three trading days before the Company sends the notice of redemption to the warrant holders; and |
The “fair market value” of Class
A ordinary shares for the above purpose shall mean the volume weighted average price of Class A ordinary shares during the 10 trading
days immediately following the date on which the notice of redemption is sent to the holders of warrants. In no event will the warrants
be exercisable on a cashless basis in connection with this redemption feature for more than
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.
Note 11 — Fair Value Measurements
The following table presents information about the Company’s assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2021 and indicates the fair value hierarchy of the valuation techniques that the Company utilized to determine such fair value.
| Description | Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Other Unobservable Inputs (Level 3) | |||||||||
| Assets: | ||||||||||||
| Investments held in Trust Account - money market funds | $ | $ | $ | |||||||||
| Liabilities: | ||||||||||||
| Derivative liabilities - Public warrants | $ | $ | $ | |||||||||
| Derivative liabilities - Private placement warrants | $ | $ | $ | |||||||||
| Derivative liabilities - Forward purchase agreement | $ | $ | $ | |||||||||
Transfers to/from Levels 1, 2, and 3 are recognized
at the beginning of the reporting period. The estimated fair value of Public Warrants for $
Level 1 instruments include investments in money market funds invested in US government securities. The Company uses inputs such as actual trade data, quoted market prices from dealers or brokers, and other similar sources to determine the fair value of its investments.
19
MSD ACQUISITION CORP.
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
For periods where no observable traded price is available, the fair value of the Public Warrants is measured at fair value using a Monte Carlo simulation. The estimated fair value of the Private Placement Warrants is measured at fair value using a Black-Scholes option pricing model. The fair value of the forward purchase agreement is determined as the estimated unit value less the net present value of the forward purchase agreement. The estimated fair value of the Public Warrants and the Private Placement Warrants, prior to the Public Warrants being traded in an active market, is determined using Level 3 inputs. Inherent in a Monte Carlo simulation and a Black-Scholes model are assumptions related to expected stock-price volatility, expected life, risk-free interest rate and dividend yield. The Company estimates the volatility of its warrants based on implied volatility from the Company’s traded warrants, once the Public Warrants were traded in active market, and from historical volatility of select peer company’s shares that matches the expected remaining life of the warrants. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected remaining life of the warrants. The expected life of the warrants is assumed to be equivalent to their remaining contractual term. The dividend rate is based on the historical rate, which the Company anticipates remaining at zero. Any changes in these assumptions can change the valuation significantly.
The following table provides quantitative information regarding Level 3 fair value measurements inputs at their measurement dates:
| Initial Fair Value | September 30, 2021 | |||||||
| Exercise price | $ | $ | ||||||
| Unit price | $ | $ | ||||||
| Volatility | % | |||||||
| Term (years) | | |||||||
| Risk-free rate | % | % | ||||||
The change in the fair value of derivative liabilities, measured using Level 3 inputs, for the three months ended September 30, 2021 and for the period from February 5, 2021 (inception) through September 30, 2021 is summarized as follows:
| Derivative liabilities at February 5, 2021 (inception) | $ | |||
| Issuance of derivative liabilities - Warrant Liabilites | ||||
| Issuance of derivative liabilities - FPA | ||||
| Change in fair value of derivative liabilities | ||||
| Derivative liabilities at March 31, 2021 | ||||
| Transfer of Public Warrants to Level 1 | ( | ) | ||
| Change in fair value of derivative liabilities | ||||
| Derivative liabilities at June 30, 2021 | ||||
| Change in fair value of derivative liaiblites | ( | ) | ||
| Derivative liabilities at September 30, 2021 | $ |
Note 12 — Subsequent Events
The Company evaluated subsequent events and transactions that occurred up to the date the condensed financial statements were issued. Based upon this review, except as set forth above, other than the restatements described in Note 2, the Company did not identify any subsequent events that would have required adjustment or disclosure in the condensed financial statements.
20
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
References to the “Company,” “MSD Acquisition Corp.,” “MSD Acquisition,” “our,” “us” or “we” refer to MSD Acquisition Corp. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited interim condensed financial statements and the notes thereto contained elsewhere in this report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q/A includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Exchange Act. We have based these forward-looking statements on our current expectations and projections about future events. These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions about us that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” or the negative of such terms or other similar expressions. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those described in our other SEC filings.
Overview
We are a blank check company incorporated as a Cayman Islands exempted company on February 5, 2021. We were formed for the purpose of effecting a Business Combination. We are an emerging growth company and, as such, we are subject to all of the risks associated with emerging growth companies.
The registration statement for our Initial Public Offering was declared effective on March 24, 2021. On March 29, 2021, we consummated our Initial Public Offering generating gross proceeds of $575.0 million, and incurring offering costs of approximately $33 million, of which approximately $20.1 million was for deferred underwriting commissions (see Note 7).
Simultaneously with the closing of the Initial Public Offering, we consummated the Private Placement, at a price of $1.50 per Private Placement Warrant with the Sponsor, generating gross proceeds of $14.0 million (see Note 5).
Upon the closing of Initial Public Offering and the Private Placement, $575.0 million ($10.00 per Unit) of the net proceeds of the Initial Public Offering and certain of the proceeds of the Private Placement were placed in the Trust Account with Continental Stock Transfer & Trust Company acting as trustee and will be invested in the Trust Investments, until the earlier of: (i) the completion of a Business Combination and (ii) the distribution of the Trust Account as described below.
Our management has broad discretion with respect to the specific application of the net proceeds of its 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. Our initial Business Combination must be with one or more operating businesses or assets with a fair market value equal to at least 80% of the net assets held in the Trust Account (excluding the deferred underwriting commissions and taxes payable on the income earned on the Trust Account) at the time we sign a definitive agreement in connection with the initial Business Combination. However, we will only complete a Business Combination if the post-Business Combination company owns or acquires 50% or more of the outstanding voting securities of the target business or otherwise acquires a controlling interest in the target business sufficient for it not to be required to register as an investment company under the Investment Company Act.
If we are unable to complete a Business Combination within the Combination Period, we will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest (which interest shall be net of taxes payable and up to $100,000 of interest to pay dissolution expenses), divided by the number of then issued and outstanding Public Shares, which redemption will completely extinguish Public Shareholders’ rights as shareholders (including the right to receive further liquidation distributions, if any) and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the remaining shareholders and the board of directors, liquidate and dissolve, subject, in the case of clauses (ii) and (iii), to our obligations under Cayman Islands law to provide for claims of creditors and in all cases subject to the other requirements of applicable law.
21
Liquidity and Capital Resources
As of September 30, 2021, the Company had $0.6 million in its operating bank account and working capital of approximately $1.2 million.
The Company’s liquidity needs through September 30, 2021 were satisfied through $25,000 paid by the Sponsor to cover certain expenses in exchange for the issuance of the Founder Shares, a loan of approximately $192,000 from the Sponsor pursuant to the Note (as defined in Note 6), and the proceeds from the consummation of the Private Placement not held in the Trust Account of $2.5 million. The Company repaid the Note in full on March 30, 2021. In addition, in order to finance transaction costs in connection with a Business Combination, the Sponsor or an affiliate of the Sponsor, or certain of the Company’s officers and directors may, but are not obligated to, provide the Company Working Capital Loans (as defined in Note 6). As of September 30, 2021, there were no amounts outstanding under any Working Capital Loan.
Based on the foregoing, management believes that we will have sufficient working capital and borrowing capacity from our Sponsor or an affiliate of our Sponsor, or certain of our officers and directors to meet its needs through the earlier of the consummation of a Business Combination or one year from this filing. Over this time period, we will be using these funds for paying existing accounts payable, identifying and evaluating prospective initial Business Combination candidates, performing due diligence on prospective target businesses, paying for travel expenditures, selecting the target business to merge with or acquire, and structuring, negotiating and consummating the Business Combination.
Management continues to evaluate the impact of the COVID-19 pandemic on the industry and has concluded that while it is reasonably possible that the virus could have a negative effect on our financial position, results of our operations and/or search for a target company, the specific impact is not readily determinable as of the date of the unaudited condensed financial statements. The unaudited condensed financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Results of Operations
Our entire activity since inception up to September 30, 2021 was in preparation for our formation and the Initial Public Offering. We will not be generating any operating revenues until the closing and completion of our initial Business Combination.
For the three months ended September 30, 2021, we had net income of approximately $3,519,000, which consisted of income from investments held in the Trust Account of approximately $7,000 and approximately $3,728,000 non-operating gain resulting from the change in fair value of derivative liabilities, offset by approximately $186,000 in general and administrative expense and approximately $30,000 in related party general and related party expenses.
For the period from February 5, 2021 (inception) through ended September 30, 2021, we had net loss of approximately $3,100,000, which consisted of approximately $514,000 in general and administrative expense, approximately $70,000 in related party general and related party expenses, approximately $697,000 of offering costs associated with the issuance of our Public Warrants, and approximately $1,846,000 non-operating loss resulting from the change in fair value of derivative liabilities, offset by income from investments held in the Trust Account of approximately $29,000.
Contractual Obligations
Registration and Shareholder Rights
The holders of the Founder Shares, Private Placement Warrants and warrants that may be issued upon conversion of Working Capital Loans (and any Class A ordinary shares issuable upon the exercise of the Private Placement Warrants and warrants that may be issued upon conversion of Working Capital Loans) were entitled to registration rights pursuant to a registration and shareholder rights agreement signed upon the effective date of the Initial Public Offering. The holders of these securities were entitled to make up to three demands, excluding short form demands, that we register such securities. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to the completion of the initial Business Combination. We will bear the expenses incurred in connection with the filing of any such registration statements.
22
Underwriting Agreement
We granted the underwriters a 45-day option from the date of this prospectus to purchase up to 7,500,000 additional Units at the Initial Public Offering price less the underwriting discounts and commissions. On March 29, 2021, the underwriter fully exercised its over-allotment option.
The underwriters were entitled to an underwriting discount of $0.20 per unit, or $11.5 million in the aggregate, paid upon the closing of the Initial Public Offering. In addition, $0.35 per unit, or approximately $20.1 million in the aggregate will be payable to the underwriters for deferred underwriting commissions. The deferred fee will become payable to the underwriters from the amounts held in the Trust Account solely in the event that we complete a Business Combination, subject to the terms of the underwriting agreement.
Critical Accounting Policies
Derivative Liabilities
We do not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. We evaluate all of our financial instruments, including issued stock purchase warrants and forward purchase agreements, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 480 and ASC 815-40. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period.
The Public Warrants and the Private Placement Warrants are recognized as derivative liabilities in accordance with ASC 815-40. Accordingly, we recognize the warrant instruments as liabilities at fair value and adjusts the instruments to fair value at each reporting period. The liabilities are subject to re-measurement at each balance sheet date until exercised. The initial fair value of the Public Warrants is measured at fair value using a Monte Carlo simulation. The estimated fair value of the Private Placement Warrants is measured at fair value using a Black-Scholes option pricing model. The determination of the fair value of the warrant liability may be subject to change as more current information becomes available and accordingly the actual results could differ significantly.
The agreement between the Company and a certain investor, providing for the investor to purchase up to $50,000,000 of units, with each unit consisting of one Class A ordinary share and one-fifth of one warrant to purchase one Class A ordinary share, at a purchase price of $10.00 per unit in a private placement concurrently with the closing of the initial Business Combination, is recognized as a derivative liability in accordance with ASC 815-40. Accordingly, the Company recognizes the instrument as a liability at fair value and with changes in fair value recognized in the Company’s statement of operations. The fair value of the forward purchase agreement is determined as the estimated unit value less the net present value of the forward purchase agreement.
Class A Ordinary Shares Subject to Possible Redemption
We account for our Class A ordinary shares subject to possible redemption in accordance with the guidance in ASC 480. Class A ordinary shares subject to mandatory redemption (if any) are classified as liability instruments and are measured at fair value. Conditionally redeemable Class A ordinary shares (including Class A ordinary shares that feature 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) are classified as temporary equity. At all other times, Class A ordinary shares are classified as shareholders’ equity. Our Class A ordinary shares feature certain redemption rights that are considered to be outside of our control and subject to the occurrence of uncertain future events. Accordingly, 57,500,000 Class A ordinary shares subject to possible redemption are presented as temporary equity, outside of the shareholders’ equity section of our unaudited condensed balance sheet.
Effective with the closing of the Initial Public Offering (including exercise of the over-allotment option), we recognized the accretion from initial book value to redemption amount, which resulted in charges against additional paid-in capital (to the extent available) and accumulated deficit.
23
Net Income (Loss) per Ordinary Share
We comply with accounting and disclosure requirements of FASB ASC Topic 260, “Earnings Per Share.” We have two classes of shares, which are referred to as Class A ordinary shares and Class B ordinary shares. Income and losses are shared pro rata between the two classes of shares. Net income (loss) per common share is calculated by dividing the net income (loss) by the weighted average shares of ordinary shares outstanding for the respective period.
The calculation of diluted net income (loss) per ordinary shares does not consider the effect of the warrants issued in connection with the Initial Public Offering (including exercise of the over-allotment option) and the Private Placement to purchase an aggregate of 20,833,333 Class A ordinary shares since their inclusion would be anti-dilutive under the treasury stock method. As a result, diluted net income (loss) per share is the same as basic net income (loss) per share for the three months ended September 30, 2021 and for the period from February 5, 2021 (inception) through September 30, 2021. Accretion associated with the redeemable Class A ordinary shares is excluded from earnings per share as the redemption value approximates fair value.
Recent Accounting Standards
In August 2020, the FASB issued ASU 2020-06, which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU also removes certain settlement conditions that are required for equity-linked contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. We early adopted the ASU on February 5, 2021 (inception) using the modified retrospective method for transition. Adoption of the ASU did not impact our financial position, results of operations or cash flows.
Our management does not believe that any other recently issued, but not yet effective, accounting standards updates, if currently adopted, would have a material effect on the accompanying financial statement.
Off-Balance Sheet Arrangements
As of September 30, 2021, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item. As of September 30, 2021, we were not subject to any market or interest rate risk. The net proceeds of the Initial Public Offering, including amounts in the Trust Account, will be invested in the Trust Investments. Due to the short-term nature of these investments, we believe there will be no associated material exposure to interest rate risk.
We have not engaged in any hedging activities since our inception and we do not expect to engage in any hedging activities with respect to the market risk to which we are exposed.
24
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial 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 officer have concluded that during the period covered by this report, our disclosure controls and procedures were not effective as of September 30, 2021, because of a material weakness in our internal control over financial reporting. 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 the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. Specifically, the Company’s management has concluded that our control around the interpretation and accounting for certain complex features of the Class A ordinary shares and warrants issued by the Company, and the presentation of earnings per share was not effectively designed or maintained. This material weakness resulted in the restatement of the Company’s interim financial statements for the quarters ended March 31, 2021 and June 30, 2021. Additionally, this material weakness could result in a misstatement of the carrying value of Class A ordinary shares and warrants, and related accounts and disclosures, and presentation of earnings per share that would result in a material misstatement of the financial statements that would not be prevented or detected on a timely basis. As a result, our management performed additional analysis as deemed necessary to ensure that our financial statements were prepared in accordance with generally accepted accounting principles in the United States of America. Accordingly, management believes that the financial statements included in this Form 10-Q present fairly, in all material respects, our financial position, result of operations and cash flows of the periods presented. Management understands that the accounting standards applicable to our financial statements are complex and has since the inception of the Company benefited from the support of experienced third-party professionals with whom management has regularly consulted with respect to accounting issues. Management intends to continue to further consult with such professionals in connection with accounting matters.
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.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the fiscal quarter ended September 30, 2021, covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting except for the below.
Our principal executive officer and principal financial officer performed additional accounting and financial analyses and other post-closing procedures including consulting with subject matter experts related to the accounting for certain complex features of the Class A ordinary shares and warrants issued by the Company, and the presentation of earnings per share. The Company’s management has expended, and will continue to expend, a substantial amount of effort and resources for the remediation and improvement of our internal control over financial reporting. While we have processes to properly identify and evaluate the appropriate accounting technical pronouncements and other literature for all significant or unusual transactions, we have expanded and will continue to improve these processes to ensure that the nuances of such transactions are effectively evaluated in the context of the increasingly complex accounting standards.
25
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
As of the date of this Quarterly Report on Form 10-Q/A, there have been no material changes to the risk factors disclosed in our final prospectus filed with the SEC on March 25, 2021.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Simultaneously with the closing of the Initial Public Offering, we consummated the Private Placement of 9,333,333 warrants, at a price of $1.50 per Private Placement Warrant with the Sponsor, generating gross proceeds of $14.0 million (see Note 5).
Of the gross proceeds received from the Initial Public Offering and the full exercise of the option to purchase additional Shares, $575,000,000 was placed in the Trust Account. The net proceeds of the Initial Public Offering and certain proceeds from the Private Placement are invested in U.S. government treasury bills with a maturity of 180 days or less and in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act which invest only in direct U.S. government treasury obligations.
We paid a total of approximately $11.5 million in underwriting discounts and commissions related to the Initial Public Offering. In addition, the underwriters agreed to defer $20.1 million in underwriting discounts and commissions.
Item 3. Defaults upon Senior Securities
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
26
Item 6. Exhibits.
| * | These certifications are furnished to the SEC pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, nor shall they be deemed incorporated by reference in any filing under the Securities Act of 1933, except as shall be expressly set forth by specific reference in such filing. |
27
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| Dated: December 21, 2021 | MSD ACQUISITION CORP. | |
| By: | /s/ Gregg Lemkau | |
| Name: | Gregg Lemkau | |
| Title: | Chief Executive Officer | |
28