References in this report (the "Quarterly Report") to "we," "us" or the
"Company" refer to Medicus Sciences Acquisition Corp. References to our
"management" or our "management team" refer to our officers and directors, and
references to the "Sponsor" refer to Medicus Sciences Holdings LLC. The
following discussion and analysis of the Company's financial condition and
results of operations should be read in conjunction with the financial
statements and the notes thereto contained elsewhere in this Quarterly Report.
Certain capitalized terms used but not defined in the below discussion and
elsewhere in this Quarterly Report have the meanings ascribed to them in the
footnotes to the accompanying unaudited condensed financial statements included
as part of this Quarterly Report.
Special Note Regarding Forward-Looking Statements
This Quarterly Report includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act and Section 21E of the Exchange Act that
are not historical facts, and involve risks and uncertainties that could cause
actual results to differ materially from those expected and projected. All
statements, other than statements of historical fact included in this Quarterly
Report including, without limitation, statements in this "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
regarding the Company's financial position, business strategy and the plans and
objectives of management for future operations, are forward-looking statements.
Words such as "expect," "believe," "anticipate," "intend," "estimate," "seek"
and variations and similar words and expressions are intended to identify such
forward-looking statements. Such forward-looking statements relate to future
events or future performance, but reflect management's current beliefs, based on
information currently available. A number of factors could cause actual events,
performance or results to differ materially from the events, performance and
results discussed in the forward-looking statements. For information identifying
important factors that could cause actual results to differ materially from
those anticipated in the forward-looking statements, please refer to the Risk
Factors section of the Company's Annual Report on Form 10-K for the year ended
December 31, 2021 filed with the SEC. The Company's securities filings can be
accessed on the EDGAR section of the SEC's website at www.sec.gov. Except as
expressly required by applicable securities law, the Company disclaims any
intention or obligation to update or revise any forward-looking statements
whether as a result of new information, future events or otherwise.
Overview
We are a blank check company formed under the laws of the Cayman Islands in
November 26, 2020 for the purpose of effecting a merger, capital stock exchange,
asset acquisition, stock purchase, reorganization or other similar business
combination with one or more businesses. We intend to effectuate our Business
Combination using cash from the proceeds of the IPO and the sale of the Private
Placement Warrants, our ordinary shares, debt or a combination of cash, shares
and debt.
All activity through September 30, 2022 relates to our formation, IPO, and
search for a prospective initial Business Combination target.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date.
Our only activities from November 26, 2020 (inception) to September 30, 2022,
were organizational activities and those necessary to consummate the IPO and
subsequent to the IPO, the search for a Business Combination. We do not expect
to generate any operating revenues until after the completion of our Business
Combination. We generate non-operating income in the form of interest income on
cash and investments held in the Trust Account after the IPO. We incur increased
expenses as a result of being a public company (for legal, financial reporting,
accounting and auditing compliance), as well as expenses for due diligence on
target companies for our initial Business Combination.
For the three months ended September 30, 2022, we had a net income of $382,828,
which consisted of interest earned on investments held in Trust Account of
$305,878 and change in fair value of warrant liability and derivative liability
- FPA, net of $251,076, offset by operating costs of $174,126.
For the nine months ended September 30, 2022, we had a net income of $4,205,041,
which consisted of interest earned on investments held in Trust Account of
$378,060 and change in fair value of warrant liability and derivative liability
- FPA, net of $4,385,177, offset by operating costs of $558,196.
For the three months ended September 30, 2021, we had a net income of $2,259,376
which consisted of non-cash gain of $2,426,517 related to changes in the fair
value of the warrants and FPA, formation costs and costs related to our IPO and
search for a prospective initial Business Combination target of $168,309, and
interest earned on the investments held in the Trust Account of $1,168.
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For the nine months ended September 30, 2021, we had a net income of $2,162,712
which consisted of non-cash gain of $2,831,668 related to changes in the fair
value of the warrants and FPA and interest earned on the investments held in the
Trust Account of $7,046, offset by the loss from offering cost expenses
allocated to warrants of $205,898 and formation costs and costs related to our
IPO and search for a prospective initial Business Combination target of
$470,104.
Liquidity and Capital Resources
As of September 30, 2022, we had cash of $976,557, available for working capital
needs. All remaining cash was held in the Trust Account and is generally
unavailable for our use except that interest earned on the Trust Account can be
released to us for payment of taxes, prior to an initial Business Combination.
On February 18, 2021, we consummated the IPO of 9,200,000 units, including
1,200,000 units sold pursuant to the full exercise of the underwriters' option
to purchase additional units to cover over-allotments, at $10.00 per unit,
generating gross proceeds of $92,000,000.
Simultaneously with the closing of the IPO, we consummated the sale of 5,022,222
Private Placement Warrants to the Sponsor and Maxim Partners LLC (3,642,222
Private Placement Warrants to the Sponsor and 1,380,000 to Maxim Partners LLC)
at a price of $0.90 per Private Placement Warrant, generating total gross
proceeds of $4,520,000.
Transaction costs amounted to $4,677,181 consisting of $1,840,000 of
underwriting commissions, $2,300,000 of deferred underwriting commissions, the
fair value of the representative shares of $920 and $537,181 of other cash
offering costs.
Following the closing of the IPO, an aggregate of $92,000,000 ($10.00 per unit)
from the net proceeds and the sale of the Private Placement Warrants was held in
the Trust Account.
We intend to use substantially all of the funds held in the Trust Account,
including any amounts representing interest earned on the Trust Account (less
taxes payable) to complete our initial Business Combination. We may withdraw
interest from the Trust Account to pay franchise and income taxes. To the extent
that our equity or debt is used, in whole or in part, as consideration to
complete our initial Business Combination, the remaining proceeds held in the
Trust Account will be used as working capital to finance the operations of the
target business or businesses, make other acquisitions and pursue our growth
strategies.
We intend to use the funds held outside the Trust Account primarily to identify
and evaluate target businesses, perform business due diligence on prospective
target businesses, travel to and from the offices, plants or similar locations
of prospective target businesses or their representatives or owners, review
corporate documents and material agreements of prospective target businesses,
and structure, negotiate and complete a Business Combination.
The cash held outside of the Trust Account as of September 30, 2022 may not be
sufficient to allow us to operate until February 18, 2023 (liquidation date),
assuming that an initial Business Combination is not consummated during that
time. If our estimates of the costs of identifying a target business,
undertaking in-depth due diligence and negotiating an initial Business
Combination are less than the actual amount necessary to do so, we may have
insufficient funds available to operate our business prior to our Business
Combination. Moreover, we may need to obtain additional financing either to
complete our Business Combination or because we become obligated to redeem a
significant number of our Public Shares upon completion of our Business
Combination, in which case we may issue additional securities or incur debt in
connection with such Business Combination. If we are unable to complete our
initial Business Combination because we do not have sufficient funds available
to us, we will be forced to cease operations and liquidate the Trust Account.
In connection with the Company's assessment of going concern considerations in
accordance with Financial Accounting Standard Board's ("FASB") Accounting
Standards Update ("ASU") 2014-15, "Disclosures of Uncertainties about an
Entity's Ability to Continue as a Going Concern," the Company has until February
18, 2023, to consummate a Business Combination. It is uncertain that the Company
will be able to consummate a Business Combination by this time. If a Business
Combination is not consummated by this date, there will be a mandatory
liquidation and subsequent dissolution of the Company. Management has determined
that the mandatory liquidation, should a Business Combination not occur, and
potential subsequent dissolution, raise substantial doubt about the Company's
ability to continue as a going concern. Management intends to complete a
Business Combination; however we cannot guarantee that a Business Combination
will take place. No adjustments have been made to the carrying amounts of assets
or liabilities should the Company be required to liquidate after February 18,
2023.
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Off-Balance Sheet Arrangements; Commitments and Contractual Obligations
We have no obligations, assets or liabilities which would be considered
off-balance sheet arrangements as of September 30, 2022. We do not participate
in transactions that create relationships with unconsolidated entities or
financial partnerships, often referred to as variable interest entities, which
would have been established for the purpose of facilitating off-balance sheet
arrangements. We have not entered into any off-balance sheet financing
arrangements, established any special purpose entities, guaranteed any debt or
commitments of other entities, or purchased any non-financial assets.
Contractual Obligations
We do not have any long-term debt, capital lease obligations, operating lease
obligations or long-term liabilities, other than described below.
Maxim Group LLC agreed to defer $2,300,000 in underwriting commission until the
completion of the Company's initial Business Combination, if any, which deferred
commission would be paid out of the Trust Account. Such funds will be released
only upon consummation of an initial Business Combination. If the Business
Combination is not consummated, such deferred commission will be forfeited. None
of the underwriters will be entitled to any interest accrued on the deferred
commission. Up to 40% of such 2.5%, or 1.0% of the gross proceeds of our IPO,
may be re-allocated to other FINRA members that provide services to us in
identifying or consummating our initial Business Combination, in the sole
discretion of our Sponsor. In no event will more than an aggregate of 30% of
such 1.0%, or 0.3% of the gross proceeds (or 1.8% of the gross proceeds in the
aggregate) be paid to, received by, or directed to, Maxim Group LLC or any other
underwriter(s) participating in this offering (including any associated persons
or affiliates of Maxim Group LLC and any participating underwriter(s)), for
their services rendered in connection with our IPO.
We entered into an administrative services agreement pursuant to which we pay
the Sponsor a total of $10,000 per month for office space, utilities,
secretarial and administrative support services.
Critical Accounting Policies and Estimates
The preparation of unaudited condensed financial statements and related
disclosures in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities, disclosure of
contingent assets and liabilities at the date of the financial statements, and
income and expenses during the period reported. Actual results could materially
differ from those estimates. We have identified the following critical
accounting policies and estimates:
Warrant Liabilities and Derivative Liabilities - Forward Purchase Agreement
We account for the warrants and the FPA as either equity-classified or
liability-classified instruments based on an assessment of the specific terms of
the warrants and FPA and the applicable authoritative guidance in Financial
Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC")
Topic 480, Distinguishing Liabilities from Equity ("ASC 480") and ASC 815,
Derivatives and Hedging ("ASC 815"). The assessment considers whether the
warrants and FPA are freestanding financial instruments pursuant to ASC 480,
meet the definition of a liability pursuant to ASC 480, and meet all of the
requirements for equity classification under ASC 815, including whether the
warrants and FPA are indexed to the Company's own ordinary shares and whether
the warrant holders could potentially require "net cash settlement" in a
circumstance outside of our control, among other conditions for equity
classification. This assessment, which requires the use of professional
judgment, is conducted at the time of issuance of the warrants and execution of
the FPA and as of each subsequent quarterly period end date while the warrants
and FPA are outstanding. For issued or modified warrants that meet all of the
criteria for equity classification, such warrants are required to be recorded as
a component of additional paid-in capital at the time of issuance. For issued or
modified warrants that do not meet all the criteria for equity classification,
such warrants are required to be recorded at their initial fair value on the
date of issuance, and each balance sheet date thereafter. Changes in the
estimated fair value of liability-classified warrants are recognized as a
non-cash gain or loss on the statements of operations.
We account for the warrants and FPA in accordance with ASC 815-40 under which
the warrants and FPA do not meet the criteria for equity classification and must
be recorded as derivatives. The fair value of the public warrants were initially
estimated using a Monte Carlo simulation model. The Public and Private Placement
Warrants have been estimated using its quoted market price as of September 30,
2022. The fair value of the Private Placement Warrants has historically been
estimated using the modified Black-Scholes-Merton model. The fair value of the
FPA has been estimated using an adjusted net assets method.
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Offering Costs Associated with the IPO
We comply with the requirements of the ASC 340-10-S99-1. Offering costs
consisted of legal, accounting, underwriting fees and other costs incurred
through the IPO that were directly related to the IPO. We allocated the offering
costs between ordinary shares and warrants using a relative fair value method,
pursuant to which the offering costs allocated to the public warrants will be
expensed immediately. Accordingly, as of September 30, 2022, allocated offering
costs in the aggregate of $205,898 have been charged to operations.
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 a liability instrument 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, 9,200,000 Class A ordinary
shares subject to possible redemption were presented as temporary equity,
outside of the shareholders' deficit section of our unaudited condensed balance
sheets.
Recent Accounting Pronouncements
In August 2020, the FASB issued Accounting Standards Update ("ASU") 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)" ("ASU
2020-06") to simplify accounting for certain financial instruments. ASU 2020-06
eliminates the current models that require separation of beneficial conversion
and cash conversion features from convertible instruments and simplifies the
derivative scope exception guidance pertaining to equity classification of
contracts in an entity's own equity. The new standard also introduces additional
disclosures for convertible debt and freestanding instruments that are indexed
to and settled in an entity's own equity. ASU 2020-06 amends the diluted
earnings per share guidance, including the requirement to use the if-converted
method for all convertible instruments. ASU 2020-06 is effective for fiscal
years beginning after December 15, 2023, including interim periods within those
fiscal years, with early adoption permitted. The Company is currently assessing
the impact, if any, that ASU 2020-06 would have on its financial position,
results of operations or cash flows.
As of the date of this Quarterly Report, management does not believe that any
recently issued, but not yet effective, accounting standards, if currently
adopted, would have a material effect on our unaudited condensed financial
statements.
Factors That May Adversely Affect our Results of Operations
Our results of operations and our ability to complete an initial Business
Combination may be adversely affected by various factors that could cause
economic uncertainty and volatility in the financial markets, many of which are
beyond our control. Our business could be impacted by, among other things,
downturns in the financial markets or in economic conditions, increases in oil
prices, inflation, increases in interest rates, supply chain disruptions,
declines in consumer confidence and spending, the ongoing effects of the
COVID-19 pandemic, including resurgences and the emergence of new variants, and
geopolitical instability, such as the military conflict in the Ukraine. We
cannot at this time fully predict the likelihood of one or more of the above
events, their duration or magnitude or the extent to which they may negatively
impact our business and our ability to complete an initial Business Combination.
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