AEON Biopharma(AEON) - 2021 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements Q1 2021 financial statements reflect post-IPO status, detailing initial funding, redeemable equity, net income from warrant fair value changes, and a key reclassification of warrants to liabilities Condensed Balance Sheets As of March 31, 2021, the post-IPO balance sheet shows $278.1 million in assets (mostly trust cash), $21.0 million in liabilities (warrant, deferred discount), and $252.0 million in redeemable common stock Condensed Balance Sheet Summary (As of March 31, 2021) | Category | Amount (USD) | | :--- | :--- | | Assets | | | Cash | 1,441,499 | | Cash and marketable securities held in Trust Account | 276,008,319 | | Total Assets | 278,146,648 | | Liabilities | | | Warrant liability | 10,862,133 | | Deferred underwriters' discount | 9,660,000 | | Total current liabilities | 467,992 | | Total Liabilities | 20,990,125 | | Equity | | | Common stock subject to possible redemption | 251,956,520 | | Total stockholder's equity | 5,000,001 | Condensed Statement of Operations For Q1 2021, the company reported $6.3 million net income, primarily from a $7.2 million unrealized gain on warrant liability fair value, offset by $0.2 million in operating costs and $0.7 million in transaction costs Statement of Operations Highlights (For the three months ended March 31, 2021) | Item | Amount (USD) | | :--- | :--- | | Formation and operating costs | (200,863) | | Loss from operations | (200,863) | | Unrealized gain on change in fair value of warrants | 7,166,800 | | Transaction costs | (655,046) | | Interest income | 8,319 | | Net Income | 6,319,210 | Condensed Statement of Changes in Stockholders' Equity For Q1 2021, stockholders' equity increased to $5.0 million, driven by $264.6 million from IPO unit sales and $6.3 million net income, offset by offering costs and a $252.2 million reclassification for redemption - The company's equity was significantly impacted by the IPO proceeds, net income, and the reclassification of funds for potential share redemptions, resulting in a final balance of $5,000,001[16] Condensed Statement of Cash Flows For Q1 2021, cash increased by $1.4 million, driven by $278.0 million from financing (IPO, warrant sales), offset by $276.0 million invested in the Trust Account and $0.6 million used in operations Cash Flow Summary (For the three months ended March 31, 2021) | Cash Flow Activity | Amount (USD) | | :--- | :--- | | Net cash used in operating activities | 554,518 | | Net cash used in investing activities | (276,000,000) | | Net cash provided by financing activities | 277,996,017 | | Net Change in Cash | 1,441,499 | Notes to Condensed Financial Statements The notes detail the company's formation, February 2021 IPO, accounting policies, and a key revision to reclassify warrants as liabilities due to SEC guidance, also covering related party transactions, commitments, and warrant fair value - The company is a blank check company formed in November 2020 for the purpose of effecting a business combination. All activity through March 31, 2021, relates to its formation and the IPO[21][22] - On February 11, 2021, the company completed its IPO of 27,600,000 units at $10.00 per unit, generating gross proceeds of $276,000,000[23] - Following an SEC statement on April 12, 2021, the company re-evaluated its accounting for warrants, concluding they should be recorded as derivative liabilities at fair value on the balance sheet, rather than as equity. This prompted a revision of its financial statements[34][35][36] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's blank check status, noting $1.4 million operating cash and $276 million in trust as of March 31, 2021, with $6.3 million net income primarily from a non-cash unrealized gain on warrant liabilities, and sufficient working capital for its search - The company is a blank check company that consummated its IPO on February 11, 2021, raising $276 million in gross proceeds, which was placed in a trust account[98][99] - As of March 31, 2021, the company had approximately $1.4 million in cash and $1.7 million in working capital to fund its search for a business combination[102] - For the three months ended March 31, 2021, the company reported net income of $6,319,210, driven by a non-cash unrealized gain of $7,166,800 on its warrant liability[106] - A critical accounting policy involves treating warrants as derivative financial instruments recorded at fair value, with changes reported in the statement of operations[111] Quantitative and Qualitative Disclosures About Market Risk As a smaller reporting company, the company is not required to provide quantitative and qualitative disclosures about market risk - As a smaller reporting company, the registrant is not required to provide quantitative and qualitative disclosures about market risk[125] Controls and Procedures Management concluded disclosure controls were ineffective as of March 31, 2021, due to a material weakness in internal control over financial reporting regarding improper warrant classification, with a remediation plan underway - Management concluded that disclosure controls and procedures were not effective as of March 31, 2021, due to a material weakness[126] - The material weakness stemmed from the improper classification of warrants as equity on the balance sheet, which should have been classified as liabilities. This was identified after an SEC Staff Statement on the topic[129] - The company plans to remediate this weakness by enhancing access to accounting literature and increasing communication with personnel and third-party professionals on complex accounting applications[130] PART II - OTHER INFORMATION Legal Proceedings The company reported no legal proceedings - There are no legal proceedings to report[131] Risk Factors New material risks relate to warrant accounting as liabilities, potentially causing financial fluctuations, and a disclosed material weakness in internal control over financial reporting could adversely affect investor confidence and lead to litigation - A new risk factor is that warrants are accounted for as liabilities measured at fair value, which may cause quarterly financial results to fluctuate based on factors outside the company's control[131][132][133] - The company has identified a material weakness in its internal control over financial reporting as of March 31, 2021, which could impact its ability to accurately report financial results[134] - The company faces potential litigation and other risks as a result of the material weakness and the change in accounting for the warrants[137] Unregistered Sales of Equity Securities and Use of Proceeds This section details two unregistered equity sales: the Sponsor's purchase of 6.9 million founder shares for $25,000, and 5.2 million Private Placement Warrants for $7.8 million concurrent with the IPO, both exempt from registration - The Sponsor purchased 6,900,000 Class B founder shares for $25,000 in an unregistered sale[138] - The company completed a private sale of 5,213,333 Private Placement Warrants to the Sponsor at $1.50 per warrant, for total proceeds of $7,820,000[141] Defaults upon Senior Securities The company reported no defaults upon senior securities - None[142] Mine Safety Disclosures This item is not applicable to the company - Not applicable[142] Other Information The company reported no other information - None[142] Exhibits Exhibits filed with Form 10-Q include CEO and CFO certifications under Sarbanes-Oxley Act of 2002 and XBRL data files - The exhibits filed include CEO and CFO certifications under Sections 302 and 906 of the Sarbanes-Oxley Act, along with XBRL instance and taxonomy documents[143]