AEON Biopharma(AEON) - 2021 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Financial Statements. Presents Priveterra Acquisition Corp.'s unaudited condensed financial statements, covering balance sheets, operations, equity, cash flows, and explanatory notes Condensed Balance Sheets as of September 30, 2021 (unaudited) and December 31, 2020 Total assets and liabilities significantly increased due to IPO proceeds and warrant liabilities, resulting in a shift to stockholders' deficit | Metric | Sep 30, 2021 (Unaudited) | Dec 31, 2020 | Change | | :----- | :----------------------- | :----------- | :----- | | Assets | | | | | Cash | $663,540 | $— | +$663,540 | | Investments held in Trust Account | $276,058,470 | $— | +$276,058,470 | | Total Assets | $277,202,966 | $81,000 | +$277,121,966 | | Liabilities | | | | | Warrant liability | $8,497,200 | $— | +$8,497,200 | | Deferred underwriters' discount | $9,660,000 | $— | +$9,660,000 | | Total Liabilities | $22,198,695 | $59,588 | +$22,139,107 | | Stockholders' Equity (Deficit) | | | | | Total Stockholders' Equity (Deficit) | $(17,177,729) | $21,412 | $(17,199,141) | Condensed Statements of Operations for the three and nine months ended September 30, 2021 (unaudited) Net income for the period was primarily driven by unrealized gains on warrants, partially offset by formation and operating costs | Metric | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2021 | | :----- | :------------------------------ | :----------------------------- | | Formation and operating costs | $(450,892) | $(1,050,199) | | Unrealized gain on change in fair value of warrants | $6,088,400 | $9,599,733 | | Interest income | $21,434 | $58,469 | | Net Income | $5,658,942 | $7,952,957 | | Basic net income per share, Class A common stock | $0.16 | $0.26 | | Basic net income per share, Class B common stock | $0.16 | $0.26 | Condensed Statements of Changes in Stockholders' Deficit for the three and nine months ended September 30, 2021 (unaudited) Stockholders' equity shifted from positive to a significant deficit by September 30, 2021, due to Class A common stock accretion and accumulated deficits | Metric | Dec 31, 2020 | Mar 31, 2021 | Jun 30, 2021 | Sep 30, 2021 | | :----- | :----------- | :----------- | :----------- | :----------- | | Total Stockholders' Equity (Deficit) | $21,412 | $(18,843,477) | $(22,836,671) | $(17,177,729) | | Net income (loss) for the period | N/A | $6,319,210 | $(4,025,194) | $5,658,942 | | Accretion of Class A common stock to redemption value | N/A | $(26,383,166) | N/A | N/A | Condensed Statement of Cash Flows for the nine months ended September 30, 2021 (unaudited) Significant cash flows from financing (IPO, private placement warrants) were used for Trust Account investments, while operating activities resulted in a net cash outflow | Cash Flow Activity | Nine Months Ended Sep 30, 2021 | | :----------------- | :----------------------------- | | Net cash used in operating activities | $(1,332,155) | | Net cash used in investing activities | $(276,000,000) | | Net cash provided by financing activities | $277,995,695 | | Net Change in Cash | $663,540 | | Cash, end of period | $663,540 | Notes to Condensed Financial Statements Detailed notes explain condensed financial statements, covering organization, operations, financing, accounting policies, and fair value measurements Note 1 — Organization and Business Operation Blank check company Priveterra Acquisition Corp. completed its IPO in February 2021, raising $276 million for a Trust Account and $7.82 million from private placement warrants - Company incorporated on November 17, 2020, as a blank check company for a Business Combination[24] - Consummated IPO on February 11, 2021, selling 27,600,000 units at $10.00 per unit, generating $276,000,000 gross proceeds[26] - Simultaneously sold 5,213,333 Private Placement Warrants at $1.50 per warrant, generating $7,820,000 gross proceeds[27] - $276,000,000 from IPO and Private Placement Warrants proceeds placed in a Trust Account, to be invested in U.S. government securities or money market funds[28] - The company has 24 months from the IPO closing to complete an initial Business Combination, after which public shares will be redeemed[32] Note 2 — Revision of Previously Issued Financial Statements The company revised prior financial statements to reclassify all public shares as temporary equity and adjusted earnings per share calculations - Reclassified all public shares as temporary equity, revising previous financial statements[38][39] - Revised earnings per share calculation to allocate income and losses pro rata between Class A and Class B common stock[40] | Metric (as of June 30, 2021) | As Previously Reported | Revision Adjustment | As Revised | | :--------------------------- | :--------------------- | :------------------ | :--------- | | Class A common stock subject to possible redemption | $248,163,320 | $27,836,680 | $276,000,000 | | Total Stockholders' Equity (Deficit) | $5,000,009 | $(27,836,680) | $(22,836,671) | Note 3 — Significant Accounting Policies The company's unaudited condensed financial statements adhere to GAAP for interim reporting, with key estimates including warrant liability fair value - Financial statements prepared in accordance with GAAP for interim financial information, with certain disclosures condensed or omitted[44] - Company is an "emerging growth company" and has elected to delay adoption of new or revised financial accounting standards, potentially affecting comparability[46][47] - Significant accounting estimate involves the determination of the fair value of the warrant liability[49] - Cash and cash equivalents: $663,540 in cash as of September 30, 2021; no cash equivalents[50] - Investments held in Trust Account are classified as trading securities and measured at fair value[51] - Offering costs of $15,630,212 were recognized, with $655,046 allocated to warrants (statement of operations) and $14,975,166 to temporary equity[52] - Class A common stock subject to possible redemption is classified as temporary equity at redemption value[54] - Net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of common stock outstanding, with earnings/losses shared pro rata between Class A and Class B common stock; diluted EPS is the same as basic EPS due to warrants being contingent on future events[57] - Warrants are determined to be derivative instruments, recorded at fair value on grant date and re-valued at each reporting date, with changes reported in the condensed statements of operations[60] - Fair value measurements use a three-tier hierarchy (Level 1, Level 2, Level 3), prioritizing observable inputs[61][63] - No material unrecognized tax benefits or accrued interest/penalties as of September 30, 2021, and December 31, 2020[65] - Management is evaluating the impact of COVID-19, but the specific financial impact is not readily determinable[67] - Adopted ASU 2020-06 on January 1, 2021, which did not materially impact financial position, results of operations or cash flows[68] Note 4 — Initial Public Offering The company completed its IPO on February 11, 2021, selling 27,600,000 units at $10.00 each, including an over-allotment option, with deferred underwriting fees and specific warrant terms - IPO closed on February 11, 2021, selling 27,600,000 units at $10.00 per unit, generating $276,000,000 gross proceeds[70] - Each unit included one Class A common stock and one-third of a Public Warrant, exercisable at $11.50 per share[71][72] - Underwriting fees: $5,520,000 paid at closing; $9,660,000 deferred, payable upon completion of a Business Combination[72] - Warrants become exercisable on the later of 12 months from IPO closing or 30 days after initial Business Combination, expiring five years after the Business Combination[74] - Company may call warrants for redemption at $0.01 per warrant if Class A common stock closing price equals or exceeds $18.00 for 20 trading days within a 30-trading day period[76][77] Note 5 — Private Placement The Sponsor purchased 5,213,333 Private Placement Warrants for $7,820,000 concurrently with the IPO, which are non-redeemable, have transfer restrictions, and can be exercised on a cashless basis - Sponsor purchased 5,213,333 Private Placement Warrants at $1.50 per warrant for $7,820,000[80] - Private Placement Warrants are not redeemable by the company, have transfer restrictions, and can be exercised on a cashless basis by the Sponsor[81] - Sponsor waived redemption rights for founder shares and public shares, and rights to liquidating distributions from the Trust Account if a Business Combination is not completed within the Combination Period[81] Note 6 — Related Party Transactions The Sponsor acquired 6,900,000 Class B common stock (Founder Shares) for $25,000, provided promissory notes for IPO expenses, and may provide Working Capital Loans, while the company pays administrative service fees - Sponsor acquired 6,900,000 Class B common stock (Founder Shares) for $25,000, following a stock split and full over-allotment exercise[82] - Founder Shares are subject to a lock-up period until one year after Business Combination or certain liquidity events, with an early release condition if Class A common stock price exceeds $12.00[83] - Promissory notes from Sponsor for IPO expenses ($75,000 initially, then additional $50,000) were non-interest bearing, unsecured, and repaid upon IPO closing[84][86] - Working Capital Loans from Sponsor or affiliates may be provided; $100,000 outstanding in June 2021 was converted into 66,667 Working Capital Warrants[87] - Company pays up to $25,000 per month for administrative services, including $10,000 to the Sponsor for office space and services[88] - $3,495 remains payable to a related party as of September 30, 2021, for incurred expenses[89] Note 7 — Commitments and Contingencies The company has a deferred underwriting fee of $9,660,000 payable upon business combination and grants registration rights to certain security holders - Deferred underwriting fee of $9,660,000 is payable to underwriters upon completion of a Business Combination[90] - Holders of founder shares, Private Placement Warrants, and Working Capital Warrants have registration rights for their securities[91] Note 8 — Stockholders' Deficit The company is authorized to issue preferred, Class A, and Class B common stock, with 6,900,000 Class B shares outstanding that convert to Class A upon business combination - Authorized 1,000,000 preferred shares ($0.0001 par value), none issued or outstanding[92] - Authorized 280,000,000 Class A common stock ($0.0001 par value), none issued or outstanding (excluding 27,600,000 shares subject to redemption)[92] - Authorized 20,000,000 Class B common stock ($0.0001 par value), with 6,900,000 shares issued and outstanding[94] - Class B common stock automatically converts to Class A common stock upon Business Combination, subject to adjustments to maintain 20% of total Class A common stock post-conversion[95] Note 9 — Recurring Fair Value Measurements The company's warrant liability, valued at $8,497,200 as of September 30, 2021, is a derivative instrument re-measured at fair value, with Public Warrants as Level 1 and Private Placement Warrants as Level 3 - Warrant liability valued at $8,497,200 as of September 30, 2021, classified as a derivative instrument and re-measured at fair value[96] - Public Warrants classified as Level 1 (active market quoted prices); Private Placement Warrants classified as Level 3 (unobservable inputs, valued using a modified Black-Scholes model)[97][99] - Investments held in Trust Account (U.S. Treasury Securities) are classified as Level 1[97] | Asset/Liability | Level 1 | Level 2 | Level 3 | | :-------------- | :------ | :------ | :------ | | Investments held in Trust Account – U.S. Treasury Securities | $276,058,470 | $— | $— | | Private Placement Warrants | $— | $— | $3,115,200 | | Public Warrants | $5,382,000 | $— | $— | | Input (for Private Placement Warrants valuation) | September 30, 2021 | | :----------------------------------------------- | :----------------- | | Risk-free interest rate | 0.98 % | | Expected term (years) | 5.0 | | Expected volatility | 11.85 % | | Dividend rate | 0.0 % | | Exercise price | $11.50 | | Change in Fair Value (Level 3) | Amount | | :----------------------------- | :----- | | Fair value at issuance February 11, 2021 | $18,028,933 | | Public Warrants reclassified to level 1 | $(9,200,000) | | Issuance of Private Placement Warrants upon conversion of Working Capital Loans | $68,000 | | Change in fair value | $(5,781,733) | | Fair Value at September 30, 2021 | $3,115,200 | Note 10 — Subsequent Events No subsequent events were identified requiring adjustment or disclosure in the condensed financial statements - No subsequent events identified requiring adjustment or disclosure in the condensed financial statements[103] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations. Management discusses the company's financial condition, liquidity, and operational results as a blank check company, focusing on net income drivers and critical accounting policies Overview Priveterra Acquisition Corp., a blank check company formed in November 2020, completed its IPO in February 2021, raising $276 million for a Trust Account, with 24 months to complete a business combination - Blank check company incorporated on November 17, 2020, for a Business Combination[107] - Consummated IPO on February 11, 2021, raising $276,000,000 gross proceeds, with $276,000,000 placed in a Trust Account[107][108] - Has 24 months from IPO closing (until February 11, 2023) to complete a Business Combination, or it will liquidate and redeem public shares[110] Liquidity and Capital Resources As of September 30, 2021, the company had $663,540 in cash and $954,716 in working capital, with management believing current resources are sufficient for operations through a business combination | Metric | As of Sep 30, 2021 | | :----- | :----------------- | | Cash | $663,540 | | Working Capital | $954,716 | - Liquidity needs prior to IPO were met by Sponsor's $25,000 capital contribution and $73,295 in unsecured promissory notes, which were repaid[112] - Management believes sufficient working capital and borrowing capacity exist to meet needs through a Business Combination or one year from filing[113] Results of Operations The company generated no operating revenues, with net income for the three and nine months ended September 30, 2021, primarily from unrealized gains on warrants and interest income, offset by costs - No operating revenues generated; activity focused on formation, IPO, and searching for a Business Combination[114] | Metric | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2021 | | :----- | :------------------------------ | :----------------------------- | | Net Income | $5,658,942 | $7,952,957 | | Unrealized gains on warrants | $6,088,400 | $9,599,733 | | Interest income from Trust Account | $21,434 | $58,469 | | Formation and operating costs | $(450,892) | $(1,050,199) | | Warrant issue costs | N/A | $(655,046) | Contractual Obligations The company has an administrative services agreement for up to $25,000 per month and a deferred underwriting fee of $9,660,000 payable upon business combination, along with registration rights for certain security holders - Administrative services agreement: up to $25,000 per month payable to Sponsor and officers, ceasing upon Business Combination or liquidation[116] - Deferred underwriting fee of $9,660,000 payable upon completion of an Initial Business Combination[118] - Initial stockholders and Private Placement Warrant holders have registration rights[117] Critical Accounting Policies Key accounting policies include treating warrants as derivative financial instruments, allocating IPO proceeds, classifying Trust Account investments as trading securities, and classifying redeemable Class A common stock as temporary equity - Warrants are treated as derivative financial instruments, recorded at fair value with changes reported in statements of operations[119] - IPO proceeds are allocated between Class A common stock and warrants using the residual method[120] - Investments in Trust Account (U.S. government securities/money market funds) are classified as trading securities and presented at fair value[122] - Class A common stock subject to possible redemption is classified as temporary equity at redemption value[123] - Net income (loss) per share calculation involves pro rata sharing of earnings/losses between Class A and Class B common stock; diluted EPS equals basic EPS as warrants are contingent[124] - Adoption of ASU 2020-06 on January 1, 2021, did not materially impact financial statements[125] Off-Balance Sheet Arrangements As of September 30, 2021, the company had no off-balance sheet arrangements - No off-balance sheet arrangements as of September 30, 2021[127] Inflation The company believes inflation did not materially impact its business, revenues, or operating results during the reported period - Inflation did not have a material impact on business, revenues, or operating results[127] JOBS Act As an "emerging growth company" under the JOBS Act, the company has elected to delay the adoption of new accounting standards, potentially affecting comparability - As an "emerging growth company," the company elected to delay adoption of new or revised accounting standards, potentially affecting comparability[129] - Evaluating benefits of other reduced reporting requirements under the JOBS Act, such as exemptions from auditor attestation, certain compensation disclosures, and PCAOB rules[130] Item 3. Quantitative and Qualitative Disclosures About Market Risk. As a smaller reporting company, Priveterra Acquisition Corp. is not required to provide quantitative and qualitative disclosures about market risk - As a smaller reporting company, not required to provide quantitative and qualitative disclosures about market risk[131] Item 4. Controls and Procedures. Management concluded that disclosure controls and procedures were effective as of September 30, 2021, with no material changes in internal control over financial reporting - Disclosure controls and procedures were evaluated and deemed effective as of September 30, 2021[132] - No material changes in internal control over financial reporting occurred during the fiscal quarter[134] PART II - OTHER INFORMATION Item 1. Legal Proceedings. The company reported no legal proceedings - No legal proceedings to report[135] Item 1A. Risk Factors. There have been no material changes to the risk factors previously disclosed in the company's Quarterly Report on Form 10-Q and IPO prospectus - No material changes to risk factors previously disclosed in the June 30, 2021, Form 10-Q and IPO prospectus[136] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. The Sponsor purchased 6,900,000 Class B common stock and 5,213,333 Private Placement Warrants, with $100,000 of Working Capital Loans converted into 66,6666 warrants, all under Section 4(a)(2) of the Securities Act - Sponsor purchased 5,750,000 founder shares for $25,000, later adjusted to 6,900,000 Class B common stock[137] - Sponsor purchased 5,213,333 Private Placement Warrants for $7,820,000 concurrently with the IPO[139] - $100,000 of Working Capital Loans converted into 66,6666 warrants on June 28, 2021[140] - All unregistered sales were made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933[139][140] Item 3. Defaults upon Senior Securities. The company reported no defaults upon senior securities - No defaults upon senior securities[140] Item 4. Mine Safety Disclosures. This item is not applicable to the company - Not applicable[140] Item 5. Other Information. The company reported no other information - No other information to report[140] Item 6. Exhibits. This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL interactive data files - Includes certifications from CEO and CFO (Sections 302 and 906 of Sarbanes-Oxley Act) and XBRL interactive data files[142][143][144][145][146][147][148]