Adagio Medical Holdings, Inc 8-K/A, filed Aug 14, 2024
Adagio Medical Holdings, Inc. (ADGM)
8-K/A
2024-08-14
For: 2024-08-06
View Original
Added on
April 11, 2026
About this 8-K/A
Adagio Medical Holdings, Inc filed this 8-K/A on August 14, 2024, reporting on events of August 6, 2024.
Items reported
- Item 2.01: Completed an acquisition or sale of assets
- Item 9.01: Financial statements and exhibits
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Amendment No. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 14, 2024 (August 6, 2024)
ADAGIO MEDICAL HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
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Delaware
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001-42199
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99-1151466
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(State or other jurisdiction of incorporation)
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(Commission File Number)
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(I.R.S. Employer Identification No.)
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26051 Merit Circle, Suite 102
Laguna Hills, CA
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92653
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(Address of principal executive offices)
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(Zip Code)
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(949) 348-1188
(Registrant’s telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
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☐
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Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
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☐
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Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
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☐
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Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
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☐
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Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
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Securities registered pursuant to Section 12(b) of the Act:
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Title of each class
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Trading
Symbol(s)
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Name of each exchange
on which registered
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Common Stock, par value $0.0001 per share
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ADGM
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The Nasdaq Stock Market LLC
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Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 or Rule 12b-2 of the Securities Exchange Act of 1934.
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. ☐
Introductory Note
This Amendment No. 1 on Form 8-K/A (“Amendment No. 1”) amends the Current Report on Form 8-K of Adagio Medical Holdings, Inc., a Delaware corporation (formerly known as Aja HoldCo,
Inc., the “Company”), filed on August 6, 2024 (the “Original Report”), in which the Company reported, among other events, the completion of the Business Combination (as defined in the Original Report).
This Amendment No. 1 is being filed in order to (A) include (1) the unaudited condensed consolidated financial statements of Adagio Medical, Inc., a Delaware corporation (“Adagio”),
as of June 30, 2024 and for the six months ended June 30, 2024 and 2023, (2) Adagio’s Management’s Discussion and Analysis of Financial Condition and Results of Operations for the six months ended June 30, 2024 and 2023, (3) the unaudited condensed
consolidated financial statements of ARYA Sciences Acquisition Corp IV, a Cayman Islands exempted company (“ARYA”), as of June 30, 2024 and for the three and six months ended June 30, 2024 and 2023, (4) ARYA’s Management’s Discussion and Analysis
of Financial Condition and Results of Operations for the three and six months ended June 30, 2024 and 2023, (5) the unaudited condensed consolidated financial statements of Aja HoldCo, Inc. as of June 30, 2024 and for the three and six months ended
June 30, 2024, (6) Aja HoldCo, Inc.’s Management’s Discussion and Analysis of Financial Condition and Results of Operations for the three and six months ended June 30, 2024, and (7) the unaudited pro forma condensed combined financial information
of the Company as of and for the six months ended June 30, 2024 and for the year ended December 31, 2023, and (B) correct the amount of the transaction costs of the Business Combination reported in the section entitled “Business Combination” under
Item 2.01 of the Original Report.
This Amendment No. 1 does not amend any other item of the Original Report or purport to provide an update or a discussion of any developments at the Company or its subsidiaries,
including Adagio and ARYA, subsequent to the filing date of the Original Report. The information previously reported in or filed with the Original Report is hereby incorporated by reference to this Form 8-K/A.
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Item 2.01
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Completion of Acquisition or Disposition of Assets.
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Business Combination
The disclosure set forth in the “Introductory Note” in the Original Report with respect to the completion of the Business Combination, the PIPE Financing and the Convertible
Security Financing is incorporated by reference into this Item 2.01.
In conjunction with the consummation of the Business Combination with ARYA, we raised financing valued at approximately $84.2 million, which consisted of funds held in ARYA’s
trust account, a concurrent equity and warrant private placement (including $29.5 million of bridge financing used by us prior to closing and funds from ARYA’s trust account not redeemed), and a concurrent convertible security financing (including
$7 million of bridge financing used by us prior to closing), offset by approximately $13.1 million of transaction costs (including approximately $1 million for the payoff of the SVB Term Loan) relating to the closing of the Business Combination.
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Item 9.01
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Financial Statements and Exhibits.
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(a)
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Financial statements of businesses acquired.
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Included as Exhibits 99.1, 99.2, 99.3, 99.4, 99.5 and 99.6, respectively, and incorporated herein by reference are the (1) the unaudited condensed consolidated financial statements of
Adagio as of June 30, 2024 and for the six months ended June 30, 2024 and 2023, and the related notes thereto, (2) Adagio’s Management’s Discussion and Analysis of Financial Condition and Results of Operations for the six months ended June 30, 2024
and 2023, (3) the unaudited condensed consolidated financial statements of ARYA as of June 30, 2024 and for the three and six months ended June 30, 2024 and 2023, and the related notes thereto, (4) ARYA’s Management’s Discussion and Analysis of
Financial Condition and Results of Operations for the three and six months ended June 30, 2024 and 2023, (5) Aja HoldCo, Inc.’s unaudited condensed consolidated financial statements of the Company as of June 30, 2024 and for the three and six months
ended June 30, 2024 (6) Aja HoldCo, Inc.’s Management’s Discussion and Analysis of Financial Condition and Results of Operations for the three and six months ended June 30, 2024.
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(b)
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Pro forma financial information.
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The unaudited pro forma condensed combined financial information of the Company as of and for the six months ended June 30, 2024 and for the year ended December 31, 2023 is set forth
in Exhibit 99.7 and is incorporated herein by reference.
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(d)
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Exhibits
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Exhibit
Number
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Description
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Unaudited Condensed Consolidated Financial Statements of Adagio as of June 30, 2024 and for the six months ended June 30, 2024 and 2023
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Adagio’s Management’s Discussion and Analysis of Financial Condition and Results of Operations for the six months ended June 30, 2024 and 2023
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Unaudited Condensed Consolidated Financial Statements of ARYA as of June 30, 2024 and for the three and six months ended June 30, 2024 and 2023
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ARYA’s Management’s Discussion and Analysis of Financial Condition and Results of Operations for the three and six months ended June 30, 2024 and 2023
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Aja HoldCo, Inc.’s Unaudited Condensed Consolidated Financial Statements as of June 30, 2024 and for the Three and Six Months ended June 30, 2024
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Aja HoldCo, Inc.’s Management’s Discussion and Analysis of Financial Condition and Results of Operations for the three and six months ended June 30, 2024
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Unaudited Pro Forma Condensed Combined Financial Information of the Company as of and for the six months ended June 30, 2024 and for the year ended December 31, 2023
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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: August 14, 2024
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Adagio Medical Holdings, Inc.
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||
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By:
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/s/ John Dahldorf
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Name:
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John Dahldorf
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Title:
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Chief Financial Officer
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Exhibit 99.1
Table of Contents
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Condensed Consolidated Balance Sheets as of June 30, 2024 (Unaudited) and December 31, 2023
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2
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Unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss for the Six Months Ended June 30, 2024 and 2023
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3
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Unaudited Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Deficit for the Six Months Ended June 30, 2024 and 2023
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4
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Unaudited Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2024 and 2023
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5
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Notes to Unaudited Condensed Consolidated Financial Statements
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6
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Adagio Medical, Inc.
Condensed Consolidated Balance Sheets
(in thousands, except share data)
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June 30,
2024
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December 31, 2023
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|||||||
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(Unaudited)
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||||||||
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Assets
|
||||||||
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Current assets
|
||||||||
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Cash and cash equivalents
|
$
|
2,045
|
$
|
1,383
|
||||
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Accounts receivable, net
|
167
|
71
|
||||||
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Inventory, net
|
4,062
|
3,322
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||||||
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Prepaid expenses
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182
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232
|
||||||
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Other current assets
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180
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177
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||||||
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Total current assets
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6,636
|
5,185
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||||||
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Property and equipment, net
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1,154
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1,487
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||||||
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Right-of-use assets, net
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260
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130
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||||||
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Other assets
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19
|
23
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||||||
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Total assets
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$
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8,069
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$
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6,825
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||||
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Liabilities, convertible preferred stock, and stockholders’ deficit
|
||||||||
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Current liabilities
|
||||||||
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Accounts payable
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$
|
5,580
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$
|
3,830
|
||||
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Accrued liabilities
|
3,429
|
3,048
|
||||||
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Operating lease liabilities, current
|
140
|
79
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||||||
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Convertible notes payable, current
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50,955
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37,986
|
||||||
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Warrant liabilities
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417
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78
|
||||||
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Term loan, current
|
990
|
1,695
|
||||||
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Accrued transaction costs
|
145
|
444
|
||||||
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Other accrued liabilities
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3,000
|
1,572
|
||||||
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Total current liabilities
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64,656
|
48,732
|
||||||
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Operating lease liabilities, long-term
|
121
|
52
|
||||||
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Term loan, long-term
|
-
|
143
|
||||||
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Other long-term liabilities
|
6
|
8
|
||||||
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Total liabilities
|
64,783
|
48,935
|
||||||
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Commitments and contingencies (Note 10)
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||||||||
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Convertible preferred stock, $0.001 par value; 4,939,946 shares authorized as of June 30, 2024 and December 31, 2023; 4,732,044 shares and 4,939,946 shares issued and outstanding as of
June 30, 2024 and December 31, 2023, respectively, with aggregate liquidation preference of $86,936 and $91,637 as of June 30, 2024 and December 31, 2023, respectively
|
86,783
|
91,469
|
||||||
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Stockholders’ deficit
|
||||||||
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Common stock, $0.001 par value; 6,594,946 shares authorized as of June 30, 2024 and December 31, 2023; 786,782 shares and 786,510 shares issued as of June 30, 2024
and December 31, 2023, respectively; 780,180 shares and 779,908 shares outstanding as of June 30, 2024 and December 31, 2023, respectively.
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1
|
1
|
||||||
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Additional paid-in capital
|
6,163
|
1,608
|
||||||
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Accumulated other comprehensive income
|
22
|
17
|
||||||
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Accumulated deficit
|
(149,683
|
)
|
(135,205
|
)
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||||
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Total stockholders’ deficit
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(143,497
|
)
|
(133,579
|
)
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||||
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Total liabilities, convertible preferred stock, and stockholders’ deficit
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$
|
8,069
|
$
|
6,825
|
||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
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Adagio Medical, Inc.
Unaudited
Condensed Consolidated Statements of Operations and Comprehensive Loss
(in thousands, except share and per share data) |
|
Six months ended June 30,
|
||||||||
|
2024
|
2023
|
|||||||
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Revenue
|
$
|
280
|
$
|
181
|
||||
|
Cost of revenue and operating expenses:
|
||||||||
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Cost of revenue
|
1,224
|
719
|
||||||
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Research and development
|
6,334
|
9,207
|
||||||
|
Selling, general, and administrative
|
8,196
|
3,783
|
||||||
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Total cost of revenue and operating expenses
|
15,754
|
13,709
|
||||||
|
Loss from operations
|
(15,474
|
)
|
(13,528
|
)
|
||||
|
Other income (expense)
|
||||||||
|
Convertible notes fair value adjustment
|
2,531
|
(3,649
|
)
|
|||||
|
Warrant liabilities fair value adjustment
|
14
|
(60
|
)
|
|||||
|
Interest expense
|
(1,514
|
)
|
(597
|
)
|
||||
|
Interest income
|
3
|
-
|
||||||
|
Other (expense) income, net
|
(38
|
)
|
10
|
|||||
|
Total other income (expense), net
|
996
|
(4,296
|
)
|
|||||
|
Net loss
|
(14,478
|
)
|
(17,824
|
)
|
||||
|
Other comprehensive income (loss):
|
||||||||
|
Foreign currency translation adjustment
|
5
|
(5
|
)
|
|||||
|
Comprehensive loss
|
$
|
(14,473
|
)
|
$
|
(17,829
|
)
|
||
|
Basic and diluted net loss per common share
|
$
|
(18.56
|
)
|
$
|
(23.49
|
)
|
||
|
Basic and diluted weighted average shares outstanding
|
779,908
|
758,942
|
||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
|
Adagio Medical, Inc.
Unaudited
Condensed Consolidated Statements of Convertible Preferred Stock and Stockholders’ Deficit
(in thousands, except share data) |
|
Convertible Preferred Stock
|
Common Stock
|
|||||||||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Additional
Paid-in Capital
|
Accumulated
Deficit
|
Accumulated Other Comprehensive Income
|
Total
Stockholders’
Deficit
|
|||||||||||||||||||||||||
|
Balance as of December 31, 2022
|
4,939,946
|
$
|
91,469
|
756,160
|
$
|
1
|
$
|
1,153
|
$
|
(97,059
|
)
|
$
|
28
|
$
|
(95,877
|
)
|
||||||||||||||||
|
Foreign currency translation adjustment
|
-
|
-
|
-
|
-
|
-
|
-
|
(5
|
)
|
(5
|
)
|
||||||||||||||||||||||
|
Stock option exercises
|
-
|
-
|
4,758
|
-
|
10
|
-
|
-
|
10
|
||||||||||||||||||||||||
|
Stock-based compensation
|
-
|
-
|
-
|
-
|
204
|
-
|
-
|
204
|
||||||||||||||||||||||||
|
Net loss
|
-
|
-
|
-
|
-
|
-
|
(17,824
|
)
|
-
|
(17,824
|
)
|
||||||||||||||||||||||
|
Balance as of June 30, 2023
|
4,939,946
|
$
|
91,469
|
760,918
|
$
|
1
|
$
|
1,367
|
$
|
(114,883
|
)
|
$
|
23
|
$
|
(113,492
|
)
|
||||||||||||||||
|
Convertible Preferred Stock
|
Common Stock
|
|||||||||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Additional
Paid in Capital
|
Accumulated Deficit
|
Accumulated Other Comprehensive Income
|
Total
Stockholders’ Deficit
|
|||||||||||||||||||||||||
|
Balance as of December 31, 2023
|
4,939,946
|
$
|
91,469
|
779,908
|
$
|
1
|
$
|
1,608
|
$
|
(135,205
|
)
|
$
|
17
|
$
|
(133,579
|
)
|
||||||||||||||||
|
Foreign currency translation adjustment
|
-
|
-
|
-
|
-
|
-
|
-
|
5
|
5
|
||||||||||||||||||||||||
|
Exchange preferred stock for pre-funded warrants
|
(207,902
|
)
|
(4,686
|
)
|
-
|
-
|
4,332
|
-
|
-
|
4,332
|
||||||||||||||||||||||
|
Stock option exercises
|
-
|
-
|
272
|
-
|
2
|
-
|
-
|
2
|
||||||||||||||||||||||||
|
Stock-based compensation
|
-
|
-
|
-
|
-
|
221
|
-
|
-
|
221
|
||||||||||||||||||||||||
|
Net loss
|
-
|
-
|
-
|
-
|
-
|
(14,478
|
)
|
-
|
(14,478
|
)
|
||||||||||||||||||||||
|
Balance as of June 30, 2024
|
4,732,044
|
$
|
86,783
|
780,180
|
$
|
1
|
$
|
6,163
|
$
|
(149,683
|
)
|
$
|
22
|
$
|
(143,497
|
)
|
||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
|
Adagio Medical, Inc.
Unaudited
Condensed Consolidated Statements of Cash Flows
(in thousands) |
|
Six months ended June 30,
|
||||||||
|
2024
|
2023
|
|||||||
|
Cash flows from operating activities
|
||||||||
|
Net loss
|
$
|
(14,478
|
)
|
$
|
(17,824
|
)
|
||
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
||||||||
|
Depreciation and amortization
|
587
|
264
|
||||||
|
Non-cash operating lease expense
|
83
|
78
|
||||||
|
Stock-based compensation
|
221
|
204
|
||||||
|
Provision for inventory impairment
|
41
|
(16
|
)
|
|||||
|
Amortization of term loan discount
|
10
|
6
|
||||||
|
Loss on disposal of property and equipment
|
58
|
-
|
||||||
|
Change in fair value of convertible notes payable
|
(2,531
|
)
|
3,649
|
|||||
|
Change in fair value of warrant liabilities
|
(14
|
)
|
60
|
|||||
|
Net change in operating assets and liabilities
|
||||||||
|
Accounts receivable, net
|
(99
|
)
|
(77
|
)
|
||||
|
Inventory, net
|
(788
|
)
|
128
|
|||||
|
Prepaid expenses and other current assets
|
45
|
410
|
||||||
|
Accounts payable
|
1,750
|
230
|
||||||
|
Accrued liabilities
|
386
|
(99
|
)
|
|||||
|
Accrued transaction costs
|
(299
|
)
|
403
|
|||||
|
Other accrued liabilities
|
1,428
|
501
|
||||||
|
Operating lease liabilities
|
(84
|
)
|
(79
|
)
|
||||
|
Net cash used in operating activities
|
(13,684
|
)
|
(12,162
|
)
|
||||
|
Cash flows from investing activities
|
||||||||
|
Purchases of property and equipment
|
(337
|
)
|
(195
|
)
|
||||
|
Purchases of software
|
-
|
(7
|
)
|
|||||
|
Net cash used in investing activities
|
(337
|
)
|
(202
|
)
|
||||
|
Cash flows from financing activities
|
||||||||
|
Proceeds from exercise of common stock options
|
-
|
18
|
||||||
|
Proceeds from issuance of convertible notes payable
|
15,500
|
7,000
|
||||||
|
Proceeds from term loan
|
-
|
3,000
|
||||||
|
Repayment of non-convertible term loan
|
(857
|
)
|
(286
|
)
|
||||
|
Net cash provided by financing activities
|
14,643
|
9,732
|
||||||
|
Effect of foreign currency translation on cash and cash equivalents
|
40
|
(18
|
)
|
|||||
|
Increase / (Decrease) in cash and cash equivalents
|
662
|
(2,650
|
)
|
|||||
|
Cash and cash equivalents, beginning of period
|
1,383
|
5,547
|
||||||
|
Cash and cash equivalents, end of period
|
$
|
2,045
|
$
|
2,897
|
||||
|
Six months ended June 30,
|
||||||||
|
2024
|
2023
|
|||||||
|
Supplemental disclosures of cash flow information:
|
||||||||
|
Cash paid for interest
|
$
|
76
|
$
|
89
|
||||
|
Six months ended June 30,
|
||||||||
|
2024
|
2023
|
|||||||
|
Supplemental disclosure of noncash investing and financing activities:
|
||||||||
|
Right-of-use assets obtained in exchange for lease liabilities
|
$
|
(216
|
)
|
$
|
-
|
|||
|
Lease liabilities recorded for operating lease right-of-use assets
|
216
|
-
|
||||||
|
Amount of term loan proceeds allocated to warrant liabilities
|
-
|
36
|
||||||
|
Exchange preferred stock for pre-funded warrants
|
4,332
|
-
|
||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
5
|
Adagio Medical, Inc.
Unaudited
Notes to Condensed Consolidated Financial Statements
|
Note 1 - Organization and Description of Business
Adagio Medical, Inc. and its wholly-owned subsidiary (collectively, the “Company”) is a medical technology company focused on the development and commercialization of ablation technologies for the treatment of
cardiac arrhythmias, including atrial fibrillation, atrial flutter, and ventricular tachycardia. The Company’s technologies center on ultra-low temperature cryoablation (“ULTC”) and pulsed field cryoablation (“PFCA”), designed to produce durable,
contiguous, transmural lesions anywhere in the heart using the Company’s proprietary consoles, catheters, and stylets. The Company received CE Marking in Europe for its iCLAS™ Cryoablation System and VT Cryoablation System in June 2020 and March
2024, respectively, and has commercially launched in the EU. The Company has not launched commercially in the U.S. but is working towards obtaining the necessary regulatory approvals to do so.
The Company was incorporated in the state of Delaware on January 18, 2011, and is headquartered in Laguna Hills, California. Adagio Medical GmbH was formed in March 2020 and is a wholly-owned subsidiary that
provides direct sales, distribution, marketing services, and clinical trial management in Europe.
On February 13, 2024, ARYA Sciences Acquisition Corp IV, a Cayman Islands exempted company (“ARYA”), Aja HoldCo, Inc., a Delaware corporation (“ListCo”), Aja Merger Sub 1, a Cayman Islands exempted company (“ARYA
Merger Sub”), the Company, and Aja Merger Sub 2, Inc., a Delaware corporation (“Company Merger Sub”) entered into the business combination agreement (“Business Combination Agreement”) pursuant to which (i) ARYA Merger Sub will be merged with and
into ARYA (the “ARYA Merger”), with ARYA surviving the ARYA Merger as a direct wholly-owned subsidiary of ListCo and (ii) Company Merger Sub will be merged with and into Adagio (the “Adagio Merger” and, together with the ARYA Merger, the
“Mergers”), with Adagio surviving the Adagio Merger as a direct wholly-owned subsidiary of ListCo (the “Business Combination”). In connection with the consummation of the Business Combination, ListCo will change its name to “Adagio Medical
Holdings, Inc.” (“New Adagio”). The Business Combination closed on July 31, 2024. See Note 16-Subsequent Events.
Liquidity and Going Concern
The Company has limited revenue and has incurred operating losses and negative cash flows from operations since its inception and anticipates that it will continue to do so for at least the next several years. As
of June 30, 2024 and December 31, 2023, the Company had cash and cash equivalents of $2.0 million and $1.4 million, respectively. For the six months ended June 30, 2024 and 2023, net losses were $14.5 million and $17.8 million, respectively, and
net cash used in operating activities was $13.7 million and $12.2 million, respectively. As of June 30, 2024 and December 31, 2023, the Company had an accumulated deficit of $149.7 million and $135.2 million, respectively, and working capital
deficit of $58.0 million and $43.5 million, respectively.
Management does not believe the Company's current cash and cash equivalents are sufficient to fund operations for at least the next 12 months from the issuance date of the condensed consolidated financial
statements. Management believes that this raises substantial doubt about the Company’s ability to continue as a going concern.
Management intends to mitigate the conditions and events that raise substantial doubt about its ability to continue as a going concern entity by (i) pursuing a public offering of its common stock or in a business
combination (the “SPAC transaction”) with a Special Purpose Acquisition Company (the “SPAC”) to obtain additional capital and align the Company’s long-term operating strategy (refer to the Business Combination in Note 1-Organization and Description of Business for further detail), (ii) negotiate other cash equity or debt financing in the short-term, and (iii) continue to pursue the necessary regulatory approvals to launch commercially
in the U.S. market. However, there can be no assurances that the current plans will generate any liquidity to the Company or be available on terms acceptable to the Company.
6
|
Adagio Medical, Inc.
Unaudited
Notes to Condensed Consolidated Financial Statements
|
On July 31, 2024, the Company announced the closing of its previously announced Business Combination with the Company and ListCo (the “Closing”) (see
Note 1). As of July 31, 2024, substantial doubt about our ability to continue as a going concern was alleviated due to the closing of a business combination.
Strategic Realignment of Resources and Corporate Restructuring
On December 1, 2023, the Company’s management approved a strategic realignment of resources and corporate restructuring (the “RIF”) designed to reallocate capital, conformant to its business focus for the next two
years.
As part of the RIF, the Company initiated a reduction in its current workforce of 20 employees, representing approximately 19% of the Company’s employees, which was completed on December 15, 2023. In compliance
with the Worker Adjustment and Retraining Notification Act, the Company has provided termination notices to affected employees and government authorities if required.
The Company made no payment for severance or related benefit costs. The Company made no payment of retention bonuses.
Note 2 - Summary of Significant Accounting Policies
Basis of Presentation
The condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). Any reference in these notes to
applicable guidance is meant to refer to the authoritative United States generally accepted accounting principles as found in the Accounting Standards Codification (“ASC”) and Accounting Standards Update (“ASU”) of the Financial Accounting
Standards Board (“FASB”).
Unaudited Interim Financial Information
The accompanying interim condensed consolidated balance sheet as of June 30, 2024, the condensed consolidated statements of operations and comprehensive loss for the six months ended June 30, 2024 and 2023, the
condensed consolidated statements of convertible preferred stock and stockholders' deficit, and the condensed consolidated statements of cash flows for the six months ended June 30, 2024 and 2023, and the related footnote disclosures are
unaudited. These unaudited interim financial statements have been prepared in accordance with U.S. GAAP and, in management’s opinion, on a basis consistent with the audited financial statements and reflect all adjustments which only include
normal recurring adjustments necessary for the fair presentation of the Company’s financial position as of June 30, 2024 and its results of operations and comprehensive loss for the six months ended June 30, 2024 and 2023, and cash flows for the
six months ended June 30, 2024 and 2023. The results for the six months ended June 30, 2024 are not necessarily indicative of the results to be expected for the year ending December 31, 2024 or any other interim period.
Emerging Growth Company Status
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended, (the “Securities Act”), as modified by the Jumpstart our Business Startups Act of 2012 (the “JOBS
Act”).
7
|
Adagio Medical, Inc.
Unaudited
Notes to Condensed Consolidated Financial Statements
|
Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a
Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company
can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended
transition period which means that when an accounting 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 standard at the time private
companies adopt the new or revised standard.
Principles of Consolidation
The condensed consolidated financial statements include the accounts of Adagio Medical, Inc. and its wholly-owned subsidiary. All intercompany balances and transactions have been eliminated in consolidation.
Use of Estimates and Assumptions
The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities,
revenue, expenses and disclosures of contingent assets and liabilities. These estimates and assumptions are based on current facts, historical experience and various other factors believed to be reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying values of assets and liabilities and the recording of revenue and expenses that are not readily apparent from other sources. Actual results could differ from those estimates.
Segments
Operating segments are defined as components of an entity for which separate financial information is available and that is regularly reviewed by the Chief Operating Decision Maker (“CODM”) in deciding how to
allocate resources to an individual segment and in assessing performance. The Company’s CODM is its Chief Executive Officer. The Company has determined that it operates as one reportable segment, as the CODM reviews financial information
presented on a consolidated basis for purposes of making operating decisions, allocating resources, and evaluating financial performance.
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of three months or less from the date of purchase, including its money market account, to be cash equivalents. All of the Company’s cash
equivalents have liquid markets. Cash deposits held in accounts at each United States financial institution are insured up to $0.25 million by the Federal Deposit Insurance Corporation (“FDIC”). Cash deposits held in accounts at each European
Union financial institution are insured up to €0.1 million by the Deposit Guarantee Scheme. The Company maintains its cash in bank deposit accounts that, at times, may exceed the stated insured limits. Any loss incurred or lack of access to
uninsured funds could have a significant adverse impact on the Company's financial condition, results of operations and cash flows. Management does not expect any losses on such accounts.
Concentrations of Credit Risk and Off-Balance Sheet Risk
Financial instruments that potentially subject the Company to credit risk consist principally of cash and cash equivalents. The Company deposits its cash and cash equivalents with major financial institutions;
however, at times, deposits may exceed the amount of insurance provided. The Company has not experienced any losses on its deposits since inception.
8
|
Adagio Medical, Inc.
Unaudited
Notes to Condensed Consolidated Financial Statements
|
As of June 30, 2024, $1.2 million of the Company’s cash was held with Silicon Valley Bank (“SVB”), and exceeded federally insured limits. On March 10, 2023, Silicon Valley Bank was closed by the California
Department of Financial Protection and Innovation, which appointed the FDIC as receiver. On March 12, 2023, the Secretary of the Treasury, the chair of the Federal Reserve Board and the chairman of the FDIC released a joint statement related to
the FDIC’s resolution of the Silicon Valley Bank receivership, which provided that all depositors would have access to all their money starting March 13, 2023. As of the issuance date of these financial statements, all cash deposited by the
Company with SVB, now a division of First Citizens Bank and Trust Company, has been accessible by the Company.
Revenue Recognition
The Company generates product revenue primarily from the sale of cryoablation catheters, stylets, esophageal warming balloons, and other accessories (collectively, the “Consumables”) used with the Company’s
cryoablation consoles (“Consoles”). The Company sells its products directly to hospitals and medical centers. To a lesser extent, the Company also generates lease revenue from the implied rental of Consoles loaned to customers at no charge.
The Company accounts for revenue earned from contracts with customers under ASC 606, Revenue from Contracts with Customers (“ASC 606”). The core principle of ASC 606 is
that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The
Company recognizes revenue from sales to customers applying the following five steps:
| • |
Step 1: Identify the contract with the customer.
|
| • |
Step 2: Identify the performance obligations in the contract.
|
| • |
Step 3: Determine the transaction price.
|
| • |
Step 4: Allocate the transaction price to the performance obligations in the contract.
|
| • |
Step 5: Recognize revenue when, or as, the company satisfies a performance obligation.
|
The Company’s customer contracts generally have performance obligations that contain deliverables consisting of the Consumables and may also include Consoles loaned to customers. The Company evaluates each promise
within a multiple-performance obligation arrangement to determine whether it represents a distinct performance obligation. The primary performance obligations in the Company’s customer arrangements from which it derives revenue is the sale of the
Consumables.
When the Company loans the Console to the customer, it retains title to the Console at all times and does not require minimum purchase commitments from the customer related to any Consumables. In such cases, the
Company invoices the customer for the Consumables based on customer orders received. Over time, the Company expects to recover the cost of the loaned Console through the customer’s continued purchasing and use of additional Consumables. For these
reasons, the Company has determined that part of the arrangement consideration for the Consumables is an implied rental payment for use of the Console. Therefore, the Company allocates the arrangement consideration between the lease components
(i.e., the Console) and non-lease components (i.e., the Consumables) based on the relative estimated standalone selling price of each distinct performance obligation consistent with ASC 842, Leases and
ASC 606. Revenue allocated to the lease components was not material for the six months ended June 30, 2024 and 2023.
Revenue from sales to customers of the Consumables is classified as revenue in the Company's condensed consolidated statements of operations and comprehensive loss. The delivery of the Consumables are performance
obligations satisfied at a point in time, when the control of the goods is transferred to the customer (i.e., FOB Shipping Point). Revenue is recognized when control is transferred to the customer in an amount that reflects the consideration the
Company expects to be entitled to in exchange for the product.
9
|
Adagio Medical, Inc.
Unaudited
Notes to Condensed Consolidated Financial Statements
|
Other Revenue Considerations
Revenue is reported net of sales tax. The Company has made the accounting policy election not to recognize a separate performance obligation for the shipment of products to the customer but to account for it as
fulfillment cost.
The Company’s contracts primarily include fixed consideration. The Company only includes estimated variable amounts in the transaction price to the extent it is probable that a significant reversal of cumulative
revenue recognized will not occur when the uncertainty associated with the variable consideration is resolved. Customers are generally required to pay within 30 days.
Any incremental costs to obtain contracts are recorded as selling, general and administrative expense as incurred due to the short duration of the Company’s contracts.
The Company does not assess whether promised goods or services are performance obligations if they are deemed immaterial in the context of the contract with the customer. Additionally, the Company does not assess
whether a contract has a significant financing component if the expectation at contract inception is that the period between payment by the customer and the transfer of the promised goods or services to the customer will be one year or less.
For the six months ended June 30, 2024 and 2023, revenue was generated only from European markets.
Inventory
Inventory consists of raw materials, work-in-process, and finished products and is valued at the lower of cost or net realizable value. The method by which that amounts are removed from the inventory is first-in
first-out (“FIFO”). Cost may include materials, labor, and manufacturing overhead. The carrying value of inventory is reviewed for potential impairment whenever indicators suggest that the cost of inventory exceeds the carrying value and
management adjusts the inventory to its net realizable value. The Company also periodically evaluates inventory for estimated losses from excess quantities and obsolescence and writes down the cost of inventory to net realizable value at the time
such determinations are made. Net realizable value is determined using the estimated selling price, in the ordinary course of business, less estimated costs to complete and dispose. Inventory used in research and development activities is
expensed when incurred.
Property and Equipment
Property and equipment are recorded at cost, less accumulated depreciation. Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the related assets, generally
three to five years, or, in the case of leasehold improvements, over the remaining life of the lease term. Specifically, Consoles had a five-year useful life as of December 31, 2023, and effective on January 1, 2024, the useful life of Consoles
was changed to three years to better reflect the estimated periods during which these Consoles will remain in service. The impact of the change in the estimated useful life of Consoles is not material to the six months ended June 30, 2024, nor to
the future remaining life of the Consoles.
Property and equipment includes equipment that is loaned to customers and located at customer premises. The Company retains ownership of the equipment held for evaluation by customers and has the right to remove
the equipment if it is not being utilized according to expectations.
10
|
Adagio Medical, Inc.
Unaudited
Notes to Condensed Consolidated Financial Statements
|
Concentrations
The Company had two suppliers exceed 10.0% of total accounts payable as of June 30, 2024, representing 82.0% of accounts payable. As of December 31, 2023, the Company had three suppliers exceed 10.0% of total
accounts payable, representing 71.6% of accounts payable.
The Company’s five and ten largest suppliers accounted for approximately 45.3% and 55.0%, respectively, of the Company’s expenditures for the six months ended June 30, 2024. The Company’s five and ten largest
suppliers accounted for approximately 29.2% and 37.6%, respectively, of the Company’s expenditures for the six months ended June 30, 2023.
Impairment of Long-Lived Assets
The Company reviews long-lived assets, including property and equipment and finite-lived intangible assets, for impairment annually or whenever events or changes in business circumstances indicate that the carrying
amount of the assets may not be fully recoverable. An impairment loss is recognized when the asset’s carrying value exceeds the total undiscounted cash flows expected from its use and eventual disposition. The amount of the impairment loss is
determined as the excess of the carrying value of the asset over its fair value. For the six months ended June 30, 2024 and 2023, the Company determined that there was no impairment of long-lived assets.
Foreign Currency Translation and Transactions
The assets, liabilities, and results of operations of Adagio Medical GmbH are recorded using the Euro as the designated functional currency, which is the currency of the primary economic environment in which Adagio
Medical GmbH operates. Consequently, transactions in currencies other than Euro are measured and recorded in Euro. Upon consolidation with the Company, its assets and liabilities are translated to U.S. Dollars at currency exchange rates as of the
condensed consolidated balance sheet date and its revenues and expenses are translated at the weighted-average currency exchange rates during the applicable reporting periods. Translation adjustments resulting from the process of translating this
entity’s financial statements are reported in accumulated other comprehensive income (loss) in the condensed consolidated balance sheets and foreign currency translation adjustment in the condensed consolidated statements of operations and
comprehensive loss.
Leases
The Company accounts for its lease property under ASC 842. Under this guidance, arrangements meeting the definition of a lease are classified as operating or financing leases, and are recorded on the condensed
consolidated balance sheets as both a right-of-use asset and a lease liability, calculated by discounting fixed lease payments over the lease term at the rate implicit in the lease or the Company’s incremental borrowing rate, which is the rate
for collateralized borrowings based on the current economic environment, current borrowings, value of leases, currency in which the lease obligation is satisfied, rate sensitivity, lease term and materiality. Lease liabilities are increased by
interest and reduced by payments each period, and the right-of-use asset is amortized over the lease term. For operating leases, interest on the lease liability and the amortization of the right-of-use asset results in straight-line rent expense
over the lease term. Variable lease expenses are recorded when incurred.
The Company determines whether a contract is or contains a lease at the inception of the contract. A contract will be deemed to be or contain a lease if the contract conveys the right to control and direct the use
of identified property, plant, or equipment for a period of time in exchange for consideration. The Company generally must also have the right to obtain substantially all of the economic benefits from the use of the property, plant, and
equipment.
The Company uses the implicit rate in the lease agreement, when readily available, or its incremental borrowing rate as the basis to calculate the present value of future lease payments at lease commencement. The
incremental borrowing rate represents the rate the Company would have to pay to borrow funds on a collateralize basis over a similar term and in a similar economic environment.
11
|
Adagio Medical, Inc.
Unaudited
Notes to Condensed Consolidated Financial Statements
|
In calculating the right-of-use asset and lease liability, the Company elected to combine lease and non-lease components for its real estate leases. The Company adopted the policy election to exclude short-term
leases having initial terms of 12 months from the initial recognition provisions of ASC 842. Refer to Note 9-Operating Leases for additional details.
The Company's implied rental agreements for its consoles qualify as operating leases and as such, revenue is recognized in accordance with ASC 842, Leases and ASC 606, Revenue from Contracts with Customers. Revenue allocated to the lease components were not significant for the six months ended June 30, 2024 and June 30, 2023.
Cost of Revenue
Cost of revenue includes raw materials, direct labor, manufacturing overhead, shipping and receiving costs and other less significant indirect costs related to the production of the Company’s products.
Cost of revenue also includes the depreciation expense of Consoles loaned to the customers.
Research and Development
Research and development expenses consist primarily of salaries, consulting fees, and employee-related costs (including stock-based compensation) for personnel directly engaged in research and development
activities, clinical trial expenses, equipment costs, material costs, allocated rent and facilities costs, and depreciation. Research and development expenses relating to possible future products are expensed as incurred. The Company also accrues
and expenses costs for activities associated with clinical trials performed by third parties as incurred.
Selling, General and Administrative
Selling, general and administrative expenses consist primarily of salaries, and employee-related costs (including stock-based compensation) for personnel in executive, finance and other administrative functions,
allocated rent and facilities costs, legal fees relating to intellectual property and corporate matters, professional fees for accounting and consulting services, marketing costs and insurance costs. The Company expenses all selling, general, and
administrative costs as incurred. The incurred transaction costs are recorded in selling, general, and administrative costs.
Accrued Transaction Costs
In connection with the Business Combination, the Company accrued transaction costs, consisting primarily of legal, accounting and other professional fees, which were incurred and expensed as of June 30, 2024, but
not yet paid. The accrued expenses are recorded in accrued transaction costs on the condensed consolidated balance sheets.
Fair Value Measurements
Fair value measurements are based on the premise that fair value is an exit price representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or liability. As a basis for considering such assumptions, the following
three-tier fair value hierarchy is used in determining the inputs for measuring fair value:
12
|
Adagio Medical, Inc.
Unaudited
Notes to Condensed Consolidated Financial Statements
|
| • |
Level 1-Quoted prices in active markets for identical assets or liabilities.
|
| • |
Level 2-Observable inputs other than Level 1 prices for similar assets or liabilities that are directly or indirectly observable in the marketplace.
|
| • |
Level 3-Unobservable inputs which are supported by little or no market activity and consist of financial instruments valued using pricing models, discounted cash flow methodologies or similar techniques, as well as instruments for
which the determination of fair value requires significant judgment or estimation.
|
Financial instruments measured at fair value are classified in their entirety based on the lowest level of input that is significant to the fair value measurement. Management’s assessment of the significance of a
particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. The use of different assumptions and/or estimation methodologies may have a material effect on estimated
fair values. Accordingly, the fair value estimates disclosed, or initial amounts recorded may not be indicative of the amount that the Company or holders of the instruments could realize in a current market exchange. The fair value of the
convertible notes payable and warrant liabilities may be impacted by certain unobservable inputs, most significantly with regard to discount rates, expected volatility and historical and projected performance. Significant changes to these inputs
in isolation could result in a significantly different fair value measurement.
Fair Value Option for Convertible Notes
As permitted under ASC 825, Financial Instruments (“ASC 825”), the Company elected the fair value option to account for the convertible promissory notes issued in October
2022 (the “October 2022 Convertible Notes”), April 2023 (the “April 2023 Convertible Notes”), November 2023 (the “November 2023 Convertible Notes”), February 2024 (the “February 2024 Convertible Notes”), May 2024 (the “May 2024 Convertible
Notes”), and June 2024 (the “June 2024 Convertible Notes”) in order to measure those liabilities at amounts that more accurately reflect the current economic environment in which the Company operates. The Company recorded the October 2022
Convertible Notes, April 2023 Convertible Notes, November 2023 Convertible Notes, February 2024 Convertible Notes, May 2024 Convertible Notes, and June 2024 Convertible Notes at fair value at issuance and subsequently remeasures them to fair
value at the end of each reporting period. Changes in fair value are recognized as convertible notes fair value adjustment in the condensed consolidated statements of operations and comprehensive loss. As a result of applying the fair value
option, direct costs and fees related to the issuance of the October 2022 Convertible Notes, April 2023 Convertible Notes, November 2023 Convertible Notes, February 2024 Convertible Notes, May 2024 Convertible Notes, and June 2024 Convertible
Notes were expensed as incurred (i.e., not recognized as deferred costs). Refer to Note 3-Fair Value Measurements for further detail.
Recent Accounting Standards
The Company’s management does not believe there are any recently issued, but not yet effective, accounting
pronouncement if currently adopted would have a material effect on the Company’s unaudited consolidated condensed financial statements.
Warrants
The Company accounts for certain common stock warrants and pre-funded warrants outstanding as warrant liabilities at fair value, determined using the Black-Scholes option pricing model, on the condensed
consolidated balance sheets in accordance with ASC 815, Derivatives and Hedging (“ASC 815”).
The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. The classification of derivative instruments, including
whether such instruments should be recorded as liabilities or as equity, is reassessed at the end of each reporting period. Equity instruments that are initially classified as equity that become subject to reclassification are reclassified to a
liability at the fair value of the instrument on the reclassification date. Derivative instrument liabilities are classified in the condensed consolidated balance sheets as current or non-current based on whether or not net-cash settlement of the
derivative instrument could be required within 12 months of the condensed consolidated balance sheet date.
13
|
Adagio Medical, Inc.
Unaudited
Notes to Condensed Consolidated Financial Statements
|
Changes in fair value are recognized as warrant liabilities fair value adjustment in the condensed consolidated statements of operations and comprehensive loss. The liability is subject to re-measurement at the end
of each reporting period. See Note 8-Warrants for additional information related to the warrants.
Term Loan
The Company accounts for the term loan at residual value on the date of issuance. The expected life of the term loan is the contractual term ending on the maturity date. The Company classifies the term loan as
current liabilities within twelve months of the maturity date or when otherwise due. Interest expense is recognized in the condensed consolidated statements of operations and comprehensive loss over the contractual term of the loan. See Note 7-Debt for additional information related to the term loan.
Convertible Preferred Stock
The Company records convertible preferred stock at fair value on the dates of issuance, net of issuance costs. Upon the occurrence of certain events that are outside the Company’s control, including a deemed
liquidation event, holders of the convertible preferred stock can cause redemption for cash. Each share of preferred stock would automatically be converted into shares of common stock at the then effective conversion rate immediately upon the
earlier of (i) the election of the holders of a majority of the outstanding shares of preferred stock, voting as a separate class on an as-converted to common stock basis, or (ii) the closing of the sale of the Company’s common stock in a firm
commitment, underwritten public offering registered under the Securities Act of 1933, as amended, with aggregate offering proceeds to the Company (before deduction for underwriters’ discounts and expenses relating to the issuance) of at least
$75.0 million and a public offering price per share equal to at least $67.83 (subject to adjustments for stock dividends, splits, combinations and similar events).
As the preferred stock is considered to be contingently redeemable, the preferred stock has been classified outside of permanent equity. The preferred stock will be accreted to its redemption value if the deemed
liquidation events are considered probable of occurring.
Stock-Based Compensation
The Company recognizes compensation expense for all stock-based awards issued to employees and non-employees based on the estimated grant-date fair value, which is recognized as expense on a straight-line basis
over the requisite service period. The Company has elected to recognize forfeitures as they occur. The fair value of stock options is determined using the Black-Scholes option-pricing model. The determination of fair value for stock-based awards
on the date of grant using an option-pricing model requires management to make certain assumptions including expected volatility, expected term, risk-free interest rate and expected dividends in addition to the Company’s common stock valuation.
Refer to Note 12-Stock-Based Compensation.
Due to the absence of an active market for the Company’s common stock, the Company utilized methodologies, approaches, and assumptions consistent with the American Institute of Certified Public Accountants Audit
and Accounting Practice Aid Series: Valuation of Privately Held Company Equity Securities Issued as Compensation to estimate the fair value of its common stock. In determining the exercise prices for
options granted, the Company considered the fair value of the common stock as of the grant date. The fair value of the common stock is determined based upon a variety of factors, including the Company’s financial position, historical performance
and operating results, the Company’s stage of development, the progress of the Company’s research and development programs, the prices at which the Company sold its convertible preferred stock, the superior rights, preferences and privileges of
the Company’s convertible preferred stock relative to its common stock, external market conditions affecting the medical technologies industry, the lack of marketability of the Company’s common stock, prospects of a transaction and market
performance of peer companies. Significant changes to the key assumptions underlying the factors used could result in different fair values of the Company at each valuation date.
14
|
Adagio Medical, Inc.
Unaudited
Notes to Condensed Consolidated Financial Statements
|
Income Taxes
Income taxes are recorded in accordance with ASC 740, Income Taxes (“ASC 740”), which provides for deferred taxes using an asset and liability approach. The Company
recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the condensed consolidated financial statements. Deferred tax assets and liabilities are determined based on the
difference between the condensed consolidated financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse and include Net Operating Loss (“NOL”)
carryforwards and Research and Development (“R&D”) tax credit carryforwards. Valuation allowances are provided if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be
realized.
The Company accounts for uncertain tax positions in accordance with the provisions of ASC 740. When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent that the
benefit would more likely than not be realized assuming examination by the taxing authority. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as
consideration of the available facts and circumstances.
The Company adopted ASU 2019-12, Simplifying the Accounting for Income Taxes in the first quarter of 2021 and has recorded franchise taxes not based on income outside of
income tax expense. The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had no accrual for interest and penalties on its condensed consolidated balance sheets and has
not recognized interest and/or penalties in the condensed consolidated statements of operations and comprehensive loss for the six months ended June 30, 2024 and 2023, respectively.
To date, there have been no interest or penalties charged in relation to the unrecognized tax benefits. Refer to Note 14-Income Taxes for additional details.
Note 3 - Fair Value Measurements
The Company’s financial instruments include its money market accounts (included as part of cash and cash equivalents), accounts receivable, accounts payable, common stock warrant liabilities, pre-funded warrant
liabilities, and convertible notes payables. The recorded carrying amounts of cash and equivalents, accounts receivable and accounts payable approximates fair value due to their short-term nature. The convertible notes, common stock warrant
liabilities, and pre-funded warrant liabilities are carried at fair value.
Assets and liabilities recognized at fair value on a recurring basis in the condensed consolidated balance sheets consists of cash equivalents, common stock warrant liabilities, pre-funded warrant liabilities, and
convertible notes payables. These items are categorized based upon the level of judgment associated with the inputs used to measure their fair values. Fair value is defined as the price that would be received from selling an asset or paid to
transfer a liability in an orderly transaction between market participants at the measurement date.
The following tables summarize the Company’s financial instruments at fair value based on the fair value hierarchy for each class of instrument (in thousands):
|
June 30, 2024 (Unaudited)
|
Level 1
|
Level 2
|
Level 3
|
|||||||||
|
Assets:
|
||||||||||||
|
Money market account
|
$
|
24
|
$
|
-
|
$
|
-
|
||||||
|
Liabilities:
|
||||||||||||
|
Convertible notes payables
|
$
|
-
|
$
|
-
|
$
|
50,955
|
||||||
|
Common stock warrant liabilities
|
$
|
-
|
$
|
-
|
$
|
64
|
||||||
|
Pre-funded warrant liabilities
|
$
|
-
|
$
|
-
|
$
|
353
|
||||||
15
|
Adagio Medical, Inc.
Unaudited
Notes to Condensed Consolidated Financial Statements
|
|
December 31, 2023
|
Level 1
|
Level 2
|
Level 3
|
|||||||||
|
Assets:
|
||||||||||||
|
Money market account
|
$
|
24
|
$
|
-
|
$
|
-
|
||||||
|
Liabilities:
|
||||||||||||
|
Convertible notes payables
|
$
|
-
|
$
|
-
|
$
|
37,986
|
||||||
|
Common stock warrant liabilities
|
$
|
-
|
$
|
-
|
$
|
78
|
||||||
There were no transfers made among the three levels in the fair value hierarchy for the six months ended June 30, 2024 and for the year ended December 31, 2023.
Convertible promissory notes
On October 27, 2022, the Company entered into a note purchase agreement with investors for the issuance and sale of convertible promissory notes with an aggregate principal amount of $9.5 million at an interest
rate of eight percent (8.0%) per annum. On April 4, 2023, November 28, 2023 and February 13, 2024, the October 2022 Convertible Notes were amended. Refer to Note 7-Debt for details.
On April 4, 2023, the Company issued a $5.0 million convertible promissory note that matures upon the termination of the Business Combination Agreement in accordance with its terms. The April 2023 Convertible Notes
accrues simple interest at eight percent (8.0%) per annum. Additionally, the Company obtained the right to issue up to $10.0 million in additional convertible promissory notes. On February 13, 2023, November
28, 2023 and February 13, 2024, the April 2023 Convertible Notes were amended. As of June 30, 2024, the total of $15.0 million convertible promissory note has been drawn by the Company. Refer to Note 7-Debt for details.
On November 28, 2023, the Company issued a $2.0 million convertible promissory note that matures upon the termination of the Business Combination Agreement in accordance with its terms. The November 2023
Convertible Notes accrues simple interest at eight percent (8.0%) per annum. Additionally, the Company obtained the right to issue up to $6.0 million in additional convertible promissory notes (“Delayed Draw Commitment”). On December 13, 2023,
December 28, 2023, and February 13, 2024, the November 2023 Convertible Notes were amended. As of June 30, 2024, the total of $8.0 million convertible promissory note has been drawn by the Company. Refer
to Note 7-Debt for details.
On February 13, 2024, the Company issued a $7.0 million convertible promissory note that matures upon the termination of the Business Combination Agreement in accordance with its terms. The February 2024
Convertible Notes accrues simple interest at eight percent (8.0%) per annum. As of June 30, 2024, the total of $7.0 million convertible promissory note has been drawn by the Company. Refer to Note 7-Debt
for details.
On May 21, 2024, the Company issued a $3.0 million convertible promissory note that matures upon the termination of the Business Combination Agreement in accordance with its terms. The May 2024 Convertible Notes
accrues simple interest at eight percent (8.0%) per annum. As of June 30, 2024, the total of $3.0 million convertible promissory note has been drawn by the Company. Refer
to Note 7-Debt for details.
On June 25, 2024, the Company issued a $2.5 million convertible promissory note that matures upon the termination of the Business Combination Agreement in accordance with its terms. The June 2024 Convertible Notes
accrues simple interest at eight percent (8.0%) per annum. As of June 30, 2024, the total of $2.5 million convertible promissory note has been drawn by the Company. Refer
to Note 7-Debt for details.
16
|
Adagio Medical, Inc.
Unaudited
Notes to Condensed Consolidated Financial Statements
|
The Company measures the October 2022 Convertible Notes, the April 2023 Convertible Notes, the November 2023 Convertible Notes, the February 2024 Convertible Notes, the May 2024 Convertible Notes, and the June 2024
Convertible Notes (collectively, “Convertible Notes”) at fair value based on significant inputs not observable in the market, which caused them to be classified as Level 3 measurements within the fair value hierarchy. Changes in the fair value of
the Convertible Notes related to updated assumptions and estimates were recognized as convertible notes fair value adjustment within the condensed consolidated statements of operations and comprehensive loss.
In determining the fair value of the Convertible Notes as of June 30, 2024, the Company applied the probability-weighted expected return method (“PWERM”). The PWERM determines the value of an instrument based upon
an analysis of future values for the potential instrument payouts under different future outcomes. The instrument value is based upon the present value of the probability of each future outcome becoming available to the instrument holders, and
the rights of each security.
The Company calculated the estimated fair value of convertible promissory notes as of June 30, 2024 using the following assumptions:
|
As of June 30, 2024 (Unaudited)
|
Discount rate
|
Expected
Term
(years)
|
Risk-Free
interest rate
|
Volatility
|
||||||||||||
|
October 2022 Convertible Notes
|
38.70
|
%
|
0.04
|
5.50
|
%
|
385
|
%
|
|||||||||
|
April 2023 Convertible Notes
|
31.90
|
%
|
0.04
|
5.50
|
%
|
385
|
%
|
|||||||||
|
November 2023 Convertible Notes
|
31.90
|
%
|
0.04
|
5.50
|
%
|
385
|
%
|
|||||||||
|
February 2024 Convertible Notes
|
31.90
|
%
|
0.04
|
5.50
|
%
|
385
|
%
|
|||||||||
|
May 2024 Convertible Notes
|
31.90
|
%
|
0.04
|
5.50
|
%
|
385
|
%
|
|||||||||
|
June 2024 Convertible Notes
|
31.90
|
%
|
0.04
|
5.50
|
%
|
385
|
%
|
|||||||||
The following table presents changes in the Level 3 convertible promissory notes measured at fair value for the periods ended June 30, 2024 and December 31, 2023, respectively (in thousands):
|
Six months ended June 30, 2024 (Unaudited)
|
Balance
(beginning of
period)
|
Additions
|
Fair value
measurement
adjustments
|
Balance
(end of
period)
|
||||||||||||
|
October 2022 Convertible Notes
|
$
|
13,469
|
$
|
-
|
$
|
617
|
$
|
14,086
|
||||||||
|
April 2023 Convertible Notes
|
15,385
|
-
|
650
|
$
|
16,035
|
|||||||||||
|
November 2023 Convertible Notes
|
9,312
|
3,000
|
(3,820
|
)
|
$
|
8,312
|
||||||||||
|
February 2024 Convertible Notes
|
-
|
7,000
|
(7
|
)
|
$
|
6,993
|
||||||||||
|
May 2024 Convertible Notes
|
-
|
3,000
|
26
|
$
|
3,026
|
|||||||||||
|
June 2024 Convertible Notes
|
-
|
2,500
|
3
|
$
|
2,503
|
|||||||||||
|
Year ended December 31, 2023
|
Balance
(beginning of
period)
|
Additions
|
Fair value
measurement
adjustments
|
Balance
(end of
period) |
||||||||||||
|
October 2022 Convertible Notes
|
$
|
9,500
|
$
|
-
|
$
|
3,969
|
$
|
13,469
|
||||||||
|
April 2023 Convertible Notes
|
-
|
15,000
|
385
|
$
|
15,385
|
|||||||||||
|
November 2023 Convertible Notes
|
-
|
5,000
|
4,132
|
$
|
9,312
|
|||||||||||
Common Stock Warrant Liabilities
The Company measured its common stock warrants at fair value based on significant inputs not observable in the market, which caused them to be classified as Level 3 measurements within the fair
value hierarchy. Changes in the fair value of the common stock warrants related to updated assumptions and estimates were recognized as warrant liabilities fair value adjustment within the condensed consolidated statements of operations and
comprehensive loss.
17
|
Adagio Medical, Inc.
Unaudited
Notes to Condensed Consolidated Financial Statements
|
The Company calculated the estimated fair value of common stock warrant liabilities as of June 30, 2024, using the following assumptions:
|
June 30, 2024
|
||||
|
(Unaudited)
|
||||
|
Expected Volatility
|
115% - 385
|
%
|
||
|
Risk Free rate
|
4.3% - 5.4
|
%
|
||
|
Expected dividend yield
|
0.0
|
%
|
||
|
Expected term (years)
|
0.3 - 8.6
|
|||
The following table presents changes in the Level 3 warrant liabilities measured at fair value for the six months ended June 30, 2024 and year ended December 31, 2023, respectively (in thousands):
|
Six months ended June 30, 2024 (Unaudited)
|
Common Stock Warrant Liabilities
|
|||
|
Balance (beginning of period)
|
$
|
78
|
||
|
Additions
|
-
|
|||
|
Fair value measurement adjustments
|
(14
|
)
|
||
|
Balance (end of period)
|
$
|
64
|
||
|
Year ended December 31, 2023
|
Common Stock Warrant Liabilities
|
|||
|
Balance (beginning of year)
|
$
|
-
|
||
|
Additions
|
36
|
|||
|
Fair value measurement adjustments
|
42
|
|||
|
Balance (end of year)
|
$
|
78
|
||
Pre-funded Warrant Liabilities
On June 25, 2024, the Company issued to certain investor the pre-funded warrants to purchase the Company’s Series E Preferred Stock, in exchange of the investor’s existing holding of Series E
Preferred Stock. The exercise price of the pre-funded warrants is $0.001 per warrant share. The Company measured the pre-funded warrants at fair value based on the indicated fair value of Series E Preferred Stock, which is not observable in the
market. The measurement caused the pre-funded warrant to be classified as Level 3 measurements within the fair value hierarchy. Changes in the fair value of the pre-funded warrants were recognized as warrant liabilities fair value adjustment
within the condensed consolidated statements of operations and comprehensive loss.
As of June 30, 2024, the Company estimated the fair value of Series E Preferred Stock by applying a conversion factor of 1.08 to the indicated fair value of Adagio common stock. Refer to Note 8-Warrants for additional information related to the pre-funded warrants.
18
|
Adagio Medical, Inc.
Unaudited
Notes to Condensed Consolidated Financial Statements
|
Note 4 - Inventory, net
Inventory as of June 30, 2024 and December 31, 2023 consists of the following (in thousands):
|
June 30, 2024
|
December 31, 2023
|
|||||||
|
(Unaudited)
|
||||||||
|
Raw materials
|
$
|
2,450
|
$
|
2,211
|
||||
|
Work-in-Process
|
469
|
197
|
||||||
|
Finished goods
|
1,143
|
914
|
||||||
|
Total inventory
|
$
|
4,062
|
$
|
3,322
|
||||
Obsolete and expired inventory are expensed as incurred. Inventory is recorded net of obsolescence and manufacturing scrap of $0.3 million and $62.0 thousand for the six months ended
June 30, 2024 and 2023.
Note 5 - Property and Equipment
The Company’s property and equipment, net, as of June 30, 2024 and December 31, 2023 consists of the following (in thousands):
|
June 30, 2024
|
December 31, 2023
|
|||||||
|
(Unaudited)
|
||||||||
|
Consoles
|
$
|
1,700
|
$
|
1,565
|
||||
|
Other machinery and equipment
|
905
|
772
|
||||||
|
Leasehold improvements
|
308
|
305
|
||||||
|
Tools and molds
|
230
|
221
|
||||||
|
Computer equipment
|
190
|
193
|
||||||
|
Demo equipment
|
66
|
66
|
||||||
|
Furniture and fixtures
|
49
|
49
|
||||||
|
Construction in process
|
-
|
54
|
||||||
|
Vehicles
|
39
|
39
|
||||||
|
Total property, plant, and equipment
|
3,487
|
3,264
|
||||||
|
Less: accumulated depreciation
|
(2,333
|
)
|
(1,777
|
)
|
||||
|
Property and equipment, net
|
$
|
1,154
|
$
|
1,487
|
||||
Depreciation expense was $0.6 million and $0.3 million for the six months ended June 30, 2024 and 2023, respectively.
Note 6 - Accrued Liabilities
The following table presents details of accrued liabilities as of June 30, 2024 and December 31, 2023 (in thousands):
|
June 30, 2024
|
December 31, 2023
|
|||||||
|
(Unaudited)
|
||||||||
|
Compensation and related expenses
|
$
|
2,467
|
$
|
1,566
|
||||
|
Research and development expenses
|
757
|
1,191
|
||||||
|
Other
|
205
|
291
|
||||||
|
Total accrued liabilities
|
$
|
3,429
|
$
|
3,048
|
||||
19
|
Adagio Medical, Inc.
Unaudited
Notes to Condensed Consolidated Financial Statements
|
Note 7 - Debt
Outstanding debt as of June 30, 2024 and December 31, 2023 consists of the following (in thousands):
|
June 30, 2024
|
December 31, 2023
|
|||||||
|
(Unaudited)
|
||||||||
|
October 2022 Convertible Notes measured at fair value
|
$
|
14,086
|
$
|
13,469
|
||||
|
April 2023 Convertible Notes measured at fair value
|
16,035
|
15,385
|
||||||
|
November 2023 Convertible Notes measured at fair value
|
8,312
|
9,132
|
||||||
|
February 2024 Convertible Notes measured at fair value
|
6,993
|
-
|
||||||
|
May 2024 Convertible Notes measured at fair value
|
3,026
|
-
|
||||||
|
June 2024 Convertible Notes measured at fair value
|
2,503
|
-
|
||||||
|
SVB term loan
|
990
|
1,838
|
||||||
|
Total outstanding debt
|
$
|
51,945
|
$
|
39,824
|
||||
October 2022 Convertible Notes
On October 27, 2022, the Company entered into the October 2022 Convertible Notes with investors for the issuance and sale of convertible promissory notes with an aggregate principal amount of $9.5 million at an
interest rate of eight percent (8.0%) per annum.
On April 4, 2023, the October 2022 Convertible Notes, which had an original maturity date of October 27, 2023, were amended to extend the maturity date to the latest of (i) January 5, 2024, (ii) termination of
agreements between the Company and ARYA in connection with a non-binding summary of certain proposed terms and conditions of a potential business combination (the “Transaction”), or (iii) the termination or lapse of the exclusivity period as
defined in the non-binding term sheet as mentioned above. The October 2022 Convertible Notes agreement was also amended to subordinate the October 2022 Convertible Notes to the April 2023 Convertible Notes (as described below) and provide for the
conversion of all principals and accrued interest in respect of all the October 2022 Convertible Notes into shares of Series E Preferred Stock of the Company in connection with the Transaction.
On November 28, 2023, the October 2022 Convertible Notes agreement was further amended to subordinate the October 2022 Convertible Notes to the April 2023 Convertible Notes and the November 2023 Convertible Notes
(as described below). In addition, in the event of the consummation of the Transaction, all principal and accrued interest in respect of the October 2022 Convertible Notes shall be converted into shares of the Company’s common stock, when
multiplied by the exchange ratio applicable to the Company's common stock in the Transaction, will entitle the holder of this note to receive a number of shares of the same class of common stock that are issued in the Private Investment in Public
Equity Financing (“PIPE Financing”) equal to the then outstanding principal amount and any accrued and unpaid interest under this note, divided by 75% of the effective price of each share of common stock sold in the PIPE Financing.
In the event of the sale of equity securities in the Company’s next round of equity financing of at least $10.0 million (excluding conversion of the October 2022 Convertible Notes) prior to the maturity date (a
“Qualified Financing”), all principal and accrued interest shall be converted into shares or units of the same class or series as are sold in the Qualified Financing.
20
|
Adagio Medical, Inc.
Unaudited
Notes to Condensed Consolidated Financial Statements
|
In the event of the sale of equity securities in the Company’s next round of equity financing prior to the maturity date that is not a Qualified Financing (“Non-Qualified Financing”), the notes will automatically
convert into shares or units of the same class or series as are sold in such Non-Qualified Financing.
For the conversion under both Qualified Financing and Non-Qualified Financing, the per share/unit conversion price for such equity securities shall be the lesser of (i) 75% of the average per share/unit price in
such equity financing and (ii) an amount equal to $146.9 million divided by the number of fully diluted common stock (or unit) equivalents at the time of the Qualified Financing or Non-Qualified Financing. In the event that (i) or (ii) applies,
the Company may create a sub-series of the preferred security on identical terms to the security issued in the Qualified Financing or Non-Qualified Financing, except that the aggregate liquidation preference of the sub-series will equal the total
principal and accrued interest under the notes at the time of conversion.
In the event there is no subsequent round of financing, the notes would become due and payable in accordance with the terms of the convertible note agreement.
On February 13, 2024, the October 2022 Convertible Notes agreement was further amended to extend the maturity date to the termination of the Business Combination Agreement, and subordinate the October 2022
Convertible Notes to the April 2023 Convertible Notes, the November 2023 Convertible Notes, and February 2024 Convertible Notes (as described below).
The total of $9.5 million principal was received by the Company as of December 31, 2022. As of June 30, 2024 and December 31, 2023, the principal amount outstanding was $9.5 million.
For the six months ended June 30, 2024 and 2023, the interest expense was $0.4 million and $0.4 million, respectively.
April 2023 Convertible Notes
On April 4, 2023, the Company issued a $5.0 million convertible promissory note that matures on the latest of (i) January 5, 2024, (ii) termination of agreements between the Company and ARYA in connection with a
non-binding summary of the Transaction, or (iii) the termination or lapse of the exclusivity period as defined in the non-binding term sheet as mentioned above. The April 2023 Convertible Notes accrues simple interest at eight percent (8.0%) per
annum. Additionally, the Company obtained the right to issue up to $10.0 million in additional convertible promissory notes available beginning one month after April 4, 2023 through the occurrence of an ARYA stockholder vote with regard to a
transaction. During the period from April 4, 2023 to December 31, 2023, the Company issued the additional $10.0 million.
On November 28, 2023, the April 2023 Convertible Notes were amended to align certain terms of the April 2023 Convertible Notes with the November 2023 Convertible Notes.
In the event of the consummation of the Transaction, this note shall automatically convert into the type of securities that are issued in the PIPE Financing in an amount equal to the then-outstanding principal
amount and any accrued and unpaid interest, divided by the effective price of the securities sold in the PIPE Financing.
Upon termination of the Transaction and prior to a Qualified Financing, all of the then-outstanding principal amount of this note and all other notes issued and any accrued and unpaid interest could be converted
into an amount of shares of the Company’s Series E Preferred Stock equal to the to be converted principal amount and any accrued and unpaid interest divided by the price per share/unit equal to $24.0 million divided by the Company’s fully-diluted
common stock equivalents at the time of the closing date of the conversion, provided that the Company shall cause the shares of Series E Preferred Stock issued upon conversion of this note to bear an aggregate liquidation preference amount equal
to 120% of the then-outstanding principal amount and accrued and unpaid interest under this note at the time of conversion.
21
|
Adagio Medical, Inc.
Unaudited
Notes to Condensed Consolidated Financial Statements
|
In the event of any sale of a new series or class of preferred equity securities by the Company following the termination of the Transaction with aggregate proceeds of at least $10.0 million (a “Qualified
Financing”), the then-outstanding principal amount and any accrued and unpaid interest could be converted into either the Company’s Series E Preferred Stock, or the shares to be issued and sold in the Qualified Financing, in each case in an
amount that is equal to (I) the to be converted principal amount and any accrued and unpaid interest divided by (II) the price per share/unit equal to the lesser of (aa) 75% of the per share/unit price in such Qualified Financing and (bb) an
amount equal to $24.0 million divided by the number of fully-diluted common stock (or unit) equivalents at the time of the Qualified Financing. In the event that the preferred equity security issued in the Qualified Financing bears a liquidation
preference less than 120%, the Company will create a sub-series of such preferred security on identical terms to the security issued in the Qualified Financing, except that the aggregate liquidation preference of such sub-series will be an amount
equal to 120% of the then-outstanding principal amount and accrued and unpaid interest under this note at the time of conversion.
In the event that the Company liquidates, the Company shall immediately upon the consummation of the change-of-control transaction or the liquidation event and prior to any payment to the equity holders of the
Company, pay to the investor an amount equal to the greater of 120% of the sum of (i) the then-outstanding principal amount and all accrued and unpaid interest hereunder plus (ii) all accrued and unpaid dividends owed to the investor or such
amount if all then-outstanding principal amount and any accrued and unpaid interest had be converted into common stock.
As of June 30, 2024 and December 31, 2023, the principal amount outstanding was $15.0 million.
For the six months ended June 30, 2024 and 2023, the interest expense was $0.5 million and $0.1 million, respectively.
November 2023 Convertible Notes
On November 28, 2023, the Company issued to Perceptive Life Sciences Master Fund, Ltd. (“Perceptive PIPE Investor”) a $2.0 million convertible promissory note that matures on the latest of (i) January 5, 2024, (ii)
termination of agreements between the Company and ARYA in connection with a non-binding summary of the Transaction, or (iii) the termination or lapse of the exclusivity period as defined in the non-binding term sheet as mentioned above. The
November Convertible Notes accrues simple interest at eight percent (8.0%) per annum. Additionally, the Company obtained the right to issue up to $6.0 million of Delayed Draw Commitment.
In the event of the consummation of the Transaction, this note shall automatically convert into the type of securities that are issued in the PIPE Financing in an amount equal to the then-outstanding principal
amount and any accrued and unpaid interest, divided by the effective price of the securities sold in the PIPE Financing.
Upon termination of the Transaction and prior to a Qualified Financing, all of the then-outstanding principal amount of this note and all other notes issued and any accrued and unpaid interest could be converted
into an amount of shares of the Company’s Series E Preferred Stock equal to the to be converted principal amount and any accrued and unpaid interest divided by the price per share/unit equal to $24.0 million divided by the Company’s fully-diluted
common stock equivalents at the time of the closing date of the conversion, provided that the Company shall cause the shares of Series E Preferred Stock issued upon conversion of this note to bear an aggregate liquidation preference amount equal
to 120% of the then-outstanding principal amount and accrued and unpaid interest under this note at the time of conversion.
22
|
Adagio Medical, Inc.
Unaudited
Notes to Condensed Consolidated Financial Statements
|
In the event of any sale of a new series or class of preferred equity securities by the Company following the termination of the Transaction with aggregate proceeds of at least $10.0 million (a “Qualified
Financing”), the then-outstanding principal amount and any accrued and unpaid interest could be converted into either the Company’s Series E Preferred Stock, or the shares to be issued and sold in the Qualified Financing, in each case in an
amount that is equal to (I) the to be converted principal amount and any accrued and unpaid interest divided by (II) the price per share/unit equal to the lesser of (aa) 75% of the per share/unit price in such Qualified Financing and (bb) an
amount equal to $24.0 million divided by the number of fully-diluted common stock (or unit) equivalents at the time of the Qualified Financing. In the event that the preferred equity security issued in the Qualified Financing bears a liquidation
preference less than 120%, the Company will create a sub-series of such preferred security on identical terms to the security issued in the Qualified Financing, except that the aggregate liquidation preference of such sub-series will be an amount
equal to 120% of the then-outstanding principal amount and accrued and unpaid interest under this note at the time of conversion.
In December 2023, the November 2023 Convertible Notes were amended to permit the issuance of a Delayed Draw Commitment in the principal amount of $1.0 million and $2.0 million on December 13, 2023 and December 28,
2023, respectively. The combined $3.0 million convertible promissory notes were issued pursuant to the clause and terms in the November 2023 Convertible Notes agreement.
As of June 30, 2024 and December 31, 2023, the principal amount outstanding was $8.0 million and $5.0 million, respectively.
For the six months ended June 30, 2024, the interest expense was $0.3 million.
February 2024 Convertible Notes
On February 13, 2024, the Company issued to Perceptive PIPE Investor a principal of $7.0 million convertible promissory note that matures upon the termination of the Business Combination Agreement in accordance
with its terms. The February 2024 Convertible Notes accrues simple interest at eight percent (8.0%) per annum.
In the event of the consummation of the Transaction, effective upon the closing of the Transaction, the February 2024 Convertible Notes will automatically be cancelled (or transferred to New Adagio) in connection
with the issuance of New Adagio Convertible Notes (as defined below) to Perceptive PIPE Investor, pursuant to, and in accordance with, the note purchase agreement and the Convertible Security Subscription Agreement (as defined below), dated
February 13, 2024, by and among New Adagio, ARYA, the Company and Perceptive PIPE Investor. Any interest accrued on the principal amount will be forfeited in connection with a cancellation (or transfer of the February 2024 Convertible Notes to
New Adagio).
Upon termination of the Transaction and prior to a Qualified Financing (as defined below), all of the then-outstanding principal amount of this note and any accrued and unpaid interest could be converted into an
amount of shares of the Company’s Series E Preferred Stock equal to the to be converted principal amount and any accrued and unpaid interest divided by the price per share/unit equal to $24.0 million divided by the Company’s fully-diluted common
stock equivalents at the time of the closing date of the conversion, provided that the Company shall cause the shares of Series E Preferred Stock issued upon conversion of this note to bear an aggregate liquidation preference amount equal to 120%
of the then-outstanding principal amount and accrued and unpaid interest under this note at the time of conversion.
In the event of any sale of a new series or class of preferred equity securities by the Company following the termination of the Transaction with aggregate proceeds of at least $10.0 million (excluding conversion
of the October 2022 Convertible Notes, the April 2023 Convertible Notes, the November 2023 Convertible Notes, and the February 2024 Convertible Notes) (a “Qualified Financing”), the then-outstanding principal amount and any accrued and unpaid
interest could be converted into either the Company’s Series E Preferred Stock, or the shares to be issued and sold in the Qualified Financing, in each case in an amount that is equal to (I) the to be converted principal amount and any accrued
and unpaid interest divided by (II) the price per share/unit equal to the lesser of (aa) 75% of the per share/unit price in such Qualified Financing and (bb) an amount equal to $24.0 million divided by the number of fully-diluted common stock (or
unit) equivalents at the time of the Qualified Financing. In the event that the preferred equity security issued in the Qualified Financing bears a liquidation preference less than 120%, the Company will create a sub-series of such preferred
security on identical terms to the security issued in the Qualified Financing, except that the aggregate liquidation preference of such sub-series will be an amount equal to 120% of the then-outstanding principal amount and accrued and unpaid
interest under this note at the time of conversion.
23
|
Adagio Medical, Inc.
Unaudited
Notes to Condensed Consolidated Financial Statements
|
As of June 30, 2024, the principal amount outstanding was $7.0 million.
For the six months ended June 30, 2024, the interest expense was $0.2 million.
In connection with the Business Combination, certain investors entered a securities purchase agreement, dated February 13, 2024, with ListCo (the “Convertible Security Subscription Agreement”), pursuant to which
ListCo will issue on the closing date to the certain investors (“Convert Investors”) $20.0 million of 13% senior secured convertible notes (the “New Adagio Convertible Notes”), which will be convertible into shares of New Adagio common stock, and
warrants (the “Convert Warrants”), each of which will be exercisable on a cashless basis or for one share of New Adagio common stock at $24.00 per share, subject to adjustment (the “Base Convert Financing”). The New Adagio Convertible Notes will
have a maturity of three years and nine months after the closing and interest will be payable in cash or compound as additional principal outstanding.
On the closing date, the February 2024 Convertible Notes will convert into New Adagio Convertible Notes and Convert Warrants on the same terms as the other Convert Investors executing the Convertible Security
Subscription Agreement (the conversion of the 2024 Bridge Financing Note held by the Perceptive PIPE Investor into New Adagio Convertible Notes and Convert Warrants and purchase of New Adagio Convertible Notes and Convert Warrants by the other
Convert Investors in the Base Convert Financing, the “Convertible Security Financing”). Subject to ARYA and New Adagio receiving any new financing or commitment for financing, whether in the form of equity, debt or convertible debt, before the
closing date, the Perceptive PIPE Investor may request that on the closing date the February 2024 Convertible Notes is repaid with the funds raised in connection with such Additional Financing instead of such 2024 Bridge Financing Note converting
into New Adagio Convertible Notes and Convert Warrants. The New Adagio Convertible Notes, the Convert Warrants or any shares of New Adagio common stock issuable in connection with the Convertible Security Financing have not been registered under
the Securities Act and will be issued in reliance upon the exemption provided in Section 4(a)(2) of the Securities Act. ListCo will grant the Perceptive PIPE Investor and the Convert Investors certain registration rights in connection with the
Convertible Security Financing. The Convertible Security Financing is contingent upon, among other things, the substantially concurrent closing of the Business Combination.
May 2024 Convertible Notes
On May 21, 2024, the Company issued to Perceptive PIPE Investor a $3.0 million convertible promissory note that matures upon the termination of the Business Combination Agreement in accordance with its terms. The
May 2024 Convertible Notes accrues simple interest at eight percent (8.0%) per annum.
In the event of the consummation of the Transaction, this note shall automatically convert into the type of securities that are issued in the PIPE Financing in an amount equal to the then-outstanding principal
amount and any accrued and unpaid interest, divided by the effective price of the securities sold in the PIPE Financing.
Upon termination of the Transaction and prior to a Qualified Financing, all of the then-outstanding principal amount of this note and all other notes issued and any accrued and unpaid interest could be converted
into an amount of shares of the Company’s Series E Preferred Stock equal to the to be converted principal amount and any accrued and unpaid interest divided by the price per share/unit equal to $24.0 million divided by the Company’s fully-diluted
common stock equivalents at the time of the closing date of the conversion, provided that the Company shall cause the shares of Series E Preferred Stock issued upon conversion of this note to bear an aggregate liquidation preference amount equal
to 120% of the then-outstanding principal amount and accrued and unpaid interest under this note at the time of conversion.
24
|
Adagio Medical, Inc.
Unaudited
Notes to Condensed Consolidated Financial Statements
|
In the event of any sale of a new series or class of preferred equity securities by the Company following the termination of the Transaction with aggregate proceeds of at least $10.0 million (a “Qualified
Financing”), the then-outstanding principal amount and any accrued and unpaid interest could be converted into either the Company’s Series E Preferred Stock, or the shares to be issued and sold in the Qualified Financing, in each case in an
amount that is equal to (I) the to be converted principal amount and any accrued and unpaid interest divided by (II) the price per share/unit equal to the lesser of (aa) 75% of the per share/unit price in such Qualified Financing and (bb) an
amount equal to $24.0 million divided by the number of fully-diluted common stock (or unit) equivalents at the time of the Qualified Financing. In the event that the preferred equity security issued in the Qualified Financing bears a liquidation
preference less than 120%, the Company will create a sub-series of such preferred security on identical terms to the security issued in the Qualified Financing, except that the aggregate liquidation preference of such sub-series will be an amount
equal to 120% of the then-outstanding principal amount and accrued and unpaid interest under this note at the time of conversion.
As of June 30, 2024, the principal amount outstanding was $3.0 million.
For the six months ended June 30, 2024, the interest expense was $26.3 thousand.
June 2024 Convertible Notes
On June 25, 2024, the Company issued to Perceptive PIPE Investor a $2.5 million convertible promissory note that matures upon the termination of the Business Combination Agreement in accordance with its terms. The
June 2024 Convertible Notes accrues simple interest at eight percent (8.0%) per annum.
In the event of the consummation of the Transaction, this note shall automatically convert into the type of securities that are issued in the PIPE Financing in an amount equal to the then-outstanding principal
amount and any accrued and unpaid interest, divided by the effective price of the securities sold in the PIPE Financing.
Upon termination of the Transaction and prior to a Qualified Financing, all of the then-outstanding principal amount of this note and all other notes issued and any accrued and unpaid interest could be converted
into an amount of shares of the Company’s Series E Preferred Stock equal to the to be converted principal amount and any accrued and unpaid interest divided by the price per share/unit equal to $24.0 million divided by the Company’s fully-diluted
common stock equivalents at the time of the closing date of the conversion, provided that the Company shall cause the shares of Series E Preferred Stock issued upon conversion of this note to bear an aggregate liquidation preference amount equal
to 120% of the then-outstanding principal amount and accrued and unpaid interest under this note at the time of conversion.
In the event of any sale of a new series or class of preferred equity securities by the Company following the termination of the Transaction with aggregate proceeds of at least $10.0 million (a “Qualified
Financing”), the then-outstanding principal amount and any accrued and unpaid interest could be converted into either the Company’s Series E Preferred Stock, or the shares to be issued and sold in the Qualified Financing, in each case in an
amount that is equal to (I) the to be converted principal amount and any accrued and unpaid interest divided by (II) the price per share/unit equal to the lesser of (aa) 75% of the per share/unit price in such Qualified Financing and (bb) an
amount equal to $24.0 million divided by the number of fully-diluted common stock (or unit) equivalents at the time of the Qualified Financing. In the event that the preferred equity security issued in the Qualified Financing bears a liquidation
preference less than 120%, the Company will create a sub-series of such preferred security on identical terms to the security issued in the Qualified Financing, except that the aggregate liquidation preference of such sub-series will be an amount
equal to 120% of the then-outstanding principal amount and accrued and unpaid interest under this note at the time of conversion.
25
|
Adagio Medical, Inc.
Unaudited
Notes to Condensed Consolidated Financial Statements
|
As of June 30, 2024, the principal amount outstanding was $2.5 million.
For the six months ended June 30, 2024, the interest expense was $2.7 thousand.
SVB Term Loan
On February 3, 2023, the Company entered into an agreement to obtain an initial term loan advance of $3.0 million and a right to issue a subsequent term loan advance of $2.0 million pursuant to the Loan and
Security Agreement (“LSA”) with Silicon Valley Bank (“SVB Term Loan”). The loans mature on January 1, 2025 and the Company must make monthly payments at a floating rate per annum equal to the greater of (1) seven percent (7.0%) and (2) the market
prime rate plus one and one half of one percent (1.5%).
In connection with the issuance of the SVB Term Loan, the Company issued liability - classified warrants with a fair value of $28.5 thousand to purchase 32,720 shares of common stock of the Company (“Initial
Warrants”), and a contingent right, with a fair value of $7.1 thousand, to obtain an additional 16,360 shares of the common stock (“Additional Warrants”) upon the nonoccurrence of the Interest Only Milestone. The Interest Only Milestone
(“Milestone”) refers to a specific condition that is met on or before April 30, 2023. To satisfy this Milestone, the Company must ensure that no event of default has occurred. If this condition is met, the Company must provide SVB (i) the intent
for the sale of all capital stock of the Company, or (ii) an executed term sheet for a priced equity financing of at least $40.0 million from the sale of the Company’s capital stock.
The initial recognition of the warrant liabilities and the contingent right resulted in a discount of $35.6 thousand to the SVB Term Loan. The discount is being amortized to interest expense over the term of the
LSA.
As of June 30, 2024, the subsequent term loan advance of $2.0 million had not been drawn. As of June 30, 2024 and December 31, 2023, the outstanding principal of SVB Term Loan is $1.0 million and $1.9 million,
respectively; and the unamortized debt discount is $9.7 thousand and $19.4 thousand, respectively. For the six months ended June 30, 2024 and 2023, the interest expense was $78.3 thousand and $0.1 million, respectively.
Note 8 - Warrants
SVB Common Stock Warrant
On February 3, 2023, in conjunction with the LSA, the Company issued Initial Warrants to purchase 32,720 shares of common stock of the Company, and a contingent right to obtain an additional 16,360 shares of the
common stock upon the nonoccurrence of the Interest Only Milestone as mentioned above. The Additional Warrants are subject to the same terms as the Initial Warrants (collectively “SVB Warrants”). As of June 30, 2024, the Additional Warrants had
not been distributed. All the Additional Warrants were distributed as of June 30, 2023.
The exercise price of the SVB Warrants is $7.97 per share. The warrants are fully exercisable and will expire on February 3, 2033.
Pre-funded Warrants
On June 25, 2024, in conjunction with the Series E Preferred Stock exchange agreement (refer to Note 11-Mezzanine Equity and Stockholders’ Deficit), the Company issued to a
certain investor 207,902 shares of pre-funded warrants to purchase 207,902 shares of Series E Preferred Stock, in exchange of the investor’s existing holding of 207,902 shares of Series E Preferred Stock.
26
|
Adagio Medical, Inc.
Unaudited
Notes to Condensed Consolidated Financial Statements
|
The exercise price of the pre-funded warrants is $0.001 per share. The pre-funded warrants are exercisable, at the option of the holder, on any day on or after the issuance date, in whole or in part. As an
alternative to immediate cash payment, the investor may elect to exercise the pre-funded warrant through a cashless exercise.
Note 9 - Operating Leases
The Company leases distribution and research and development facilities as well as sub-leases office and manufacturing space from third parties and related parties (refer to Note
15-Related Party Transactions) under its operating leases. The leases have expirations ranging from July 2024 to June 2026, some of which include rent escalations or an option to extend the lease for up to three years per renewal. The
exercise of lease renewal options is at the sole discretion of the Company. Where leases contain an option to renew, any period beyond the option date is only included as part of the lease term if the Company is reasonably certain to exercise the
option.
As of June 30, 2024 and December 31, 2023, the Company does not have any finance or short-term leases and has not entered into leases which have not yet commenced that would entitle the Company to significant
rights or create additional obligations during the periods as of June 30, 2024 and December 31, 2023.
The following table summarizes quantitative information of the Company’s operating leases for the six months ended June 30, 2024 and 2023 (in thousands):
|
Six months ended June 30 (Unaudited)
|
2024
|
2023
|
||||||
|
Operating cash flows paid for operating leases
|
$
|
92
|
$
|
88
|
||||
|
Weighted average remaining lease term (years)
|
1.8
|
1.9
|
||||||
|
Weighted average discount rate
|
8.0
|
%
|
8.0
|
%
|
||||
Operating lease cost was $0.1 million and $0.1 million for the six months ended June 30, 2024 and 2023, respectively. The Company did not incur any variable lease cost for the six months ended June 30, 2024 and
2023.
The following table presents the future minimum payments under the non-cancelable operating leases as of June 30, 2024 (in thousands):
|
Six months ending June 30 (Unaudited)
|
||||
|
Six months ending December 31, 2024
|
$
|
79
|
||
|
Year ending December 31, 2025
|
154
|
|||
|
Year ending December 31, 2026
|
48
|
|||
|
Total undiscounted future cash flows
|
281
|
|||
|
Less: imputed interest
|
(18
|
)
|
||
|
Total operating lease liability
|
$
|
263
|
||
27
|
Adagio Medical, Inc.
Unaudited
Notes to Condensed Consolidated Financial Statements
|
Note 10 - Commitments and Contingencies
Litigation
The Company is not currently party to any legal proceedings. At each reporting date, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable
under the provisions of the authoritative guidance that addresses accounting for contingencies. The Company expenses as incurred the costs related to such legal proceedings, if any.
Note 11 - Mezzanine Equity and Stockholders’ Deficit
Authorized Shares
The Company’s Amended and Restated Articles of Incorporation authorize the issuance of two classes of stock designated as common and preferred stock, each having a par value of $0.001 per share. The number of
shares authorized as of June 30, 2024 is 11,534,892 consisting of 6,594,946 shares of common stock and 4,939,946 shares of preferred stock, designated as Series A, Series B, Series C, Series D, and Series E preferred stock in the amounts included
in the table below.
Convertible Preferred Stock
The Company classifies convertible preferred stock as temporary equity on the accompanying condensed consolidated balance sheets, as all such preferred stock is redeemable either at the option of the holder or upon
an event outside the control of the Company. The requirements of a deemed liquidation event, as defined within its amended and restated certificate of incorporation filed in November 2020, are not entirely within the Company’s control. In the
event of such a deemed liquidation event, the proceeds from the event are distributed in accordance with the liquidation preferences, provided that the holders of preferred stock have not converted their shares into common stock. The Company
records the issuance of preferred stock at the issuance price less related issuance costs. The Company has not adjusted the carrying value of outstanding preferred stock to its liquidation preference because a deemed liquidation event is not
probable of occurring as of the end of the reporting period.
During the six months ended June 30, 2024, the Company executed the following transactions:
| • |
On June 25, 2024, 207,902 shares of Series E Preferred Stock were extinguished and exchanged for 207,902 shares of pre-funded warrants to purchase Series E Preferred Stock. See Note 8-Warrants
for additional information regarding the pre-funded warrants. The difference between the carrying value of the extinguished Series E Preferred Stock and the fair value of the issued pre-funded warrants is recorded in additional paid-in
capital.
|
There were no preferred stock transactions during the year ended December 31, 2023.
The following table summarizes information related to issuance of the Company’s preferred stock as of June 30, 2024 (in thousands, except share data):
|
Preferred
Stock
Class
|
Number of
Shares
Authorized
|
Shares Issued
and Outstanding
|
Carrying Value
(1)
|
Conversion
Price Per
Share
|
Number of
Common Stock
Equivalent Shares
|
Liquidation
Preference
|
||||||||||||||||||
|
Series A
|
270,856
|
270,856
|
$
|
2,500
|
$
|
9.23
|
270,856
|
$
|
2,500
|
|||||||||||||||
|
Series B
|
815,730
|
815,730
|
10,626
|
13.04
|
815,730
|
10,637
|
||||||||||||||||||
|
Series C
|
981,596
|
981,596
|
15,988
|
16.30
|
981,596
|
16,000
|
||||||||||||||||||
|
Series D
|
992,064
|
992,064
|
19,990
|
20.16
|
992,064
|
20,000
|
||||||||||||||||||
|
Series E
|
1,879,700
|
1,671,798
|
37,679
|
22.61
|
1,671,798
|
37,799
|
||||||||||||||||||
|
4,939,946
|
4,732,044
|
$
|
86,783
|
4,732,044
|
$
|
86,936
|
||||||||||||||||||
| (1) |
The carrying value reflects the gross proceeds received from the sale of the preferred stock less issuance costs.
|
28
|
Adagio Medical, Inc.
Unaudited
Notes to Condensed Consolidated Financial Statements
|
The following table summarizes information related to issuance of the Company’s preferred stock as of December 31, 2023 (in thousands, except share data):
|
Preferred
Stock
Class
|
Number of
Shares
Authorized
|
Shares Issued and
Outstanding
|
Carrying Value
(1)
|
Conversion
Price Per Share
|
Number of
Common Stock
Equivalent Shares
|
Liquidation
Preference
|
||||||||||||||||||
|
Series A
|
270,856
|
270,856
|
$
|
2,500
|
$
|
9.23
|
270,856
|
$
|
2,500
|
|||||||||||||||
|
Series B
|
815,730
|
815,730
|
10,626
|
13.04
|
815,730
|
10,637
|
||||||||||||||||||
|
Series C
|
981,596
|
981,596
|
15,988
|
16.30
|
981,596
|
16,000
|
||||||||||||||||||
|
Series D
|
992,064
|
992,064
|
19,990
|
20.16
|
992,064
|
20,000
|
||||||||||||||||||
|
Series E
|
1,879,700
|
1,879,700
|
42,365
|
22.61
|
1,879,700
|
42,500
|
||||||||||||||||||
|
4,939,946
|
4,939,946
|
$
|
91,469
|
4,939,946
|
$
|
91,637
|
||||||||||||||||||
| (1) |
The carrying value reflects the gross proceeds received from the sale of the preferred stock less issuance costs.
|
The relative rights, terms, privileges, and restrictions granted to or imposed upon preferred stockholders are described below:
Preferred Stock - Dividends
Prior and in preference to any declaration or payment of any dividends to the holders of common stock, the holders of preferred stock shall be entitled to receive dividends out of any assets legally available
therefor, at the rate of eight percent (8%) of the original issue price per share per annum. The original issue price of Series A, Series B, Series C, Series D, and Series E is $9.23, $13.04, $16.30, $20.16, and $22.61, respectively. The
dividends shall not be cumulative.
In the event that the dividend amount declared by the Board of Directors of the Company is insufficient to permit payment of the full aforesaid dividends, such dividends will be paid ratably to each holder of
preferred stock in proportion to the dividend amounts to which each holder of preferred stock is entitled. After payment of the full amount of the aforesaid dividends, any additional dividends declared shall be distributed to the holder of common
stock and preferred stock in proportion to the number of shares of common stock that would be held by such holder on an as-converted to common stock basis.
No dividends on preferred stock or common stock have been declared by the Board of Directors as of June 30, 2024 and December 31, 2023.
Liquidation Preference
In the event of liquidation of the Company, including a merger, acquisition, or sale of all or substantially all the assets of the Company, holders of preferred stock are entitled to receive an amount equal to the
original issue price of each share of preferred stock held plus any dividends declared but not yet paid, prior to any distribution of assets or surplus funds of the Company to common stock shareholders. After payment has been made to the holders
of the preferred stock of the full amounts to which they are entitled as noted above, the remaining assets would be distributed among the holders of the common stock pro rata based on the number of shares of common stock held by each holder.
If, at the time of liquidation, the assets are insufficient to permit full payment of the liquidation preferences of the series listed in the order above, the assets must be distributed ratably among the holders of
the series in proportion to the full preferential amount each such holder is otherwise entitled to receive in respect to such shares.
29
|
Adagio Medical, Inc.
Unaudited
Notes to Condensed Consolidated Financial Statements
|
Voting Rights
So long as the shares of preferred stock that are convertible into at least 1,000,000 shares of common stock (subject to appropriate adjustment in the event of any stock dividends, stock split, combination or other
similar recapitalization with respect to the common stock) are issued and outstanding, the holders of preferred stock, voting as a separate class on an as-converted to common stock basis, shall have the right to elect four members of the Board of
Directors of the Company. The holders of common stock, voting as a separate class, shall have the right to elect one member of the Board of Directors. The remaining directors shall be elected by the holders of the common stock and the preferred
stock, voting together as a single class on an as-converted to common stock basis.
On all other matters, the holders of the preferred stock shall have full voting rights and powers equal to the voting rights and powers of the holders of common stock.
Fractional votes by the holders of preferred stock shall not be permitted and any fractional voting rights shall be rounded to the nearest whole number.
Conversion Rights
Each share of preferred stock shall be convertible, at the option of the holder, into shares of common stock without the payment of any additional consideration. The preferred stock shall be convertible into the
number of fully paid and nonassessable shares of common stock which results from dividing the conversion price per share in effect for the preferred stock at the time of conversion into the per share conversion value. The initial per share
conversion price of Series A, Series B, Series C, Series D, and Series E is $9.23, $13.04, $16.30, $20.16, and $22.61, respectively. The initial conversion price is subject to adjustment for antidilution provisions, as defined. The per share
conversion value of Series A, Series B, Series C, Series D, and Series E is $9.23, $13.04, $16.30, $20.16, and $22.61, respectively.
Each share of preferred stock shall automatically be converted into shares of common stock at the then effective conversion rate immediately upon the earlier of (i) the election of the holders of a majority of the
outstanding shares of preferred stock, voting as a separate class on an as-converted to common stock basis, or (ii) the closing of the sale of the Company’s common stock in a firm commitment, underwritten public offering registered under the
Securities Act of 1933, as amended, with aggregate offering proceeds to the Company (before deduction for underwriters’ discounts and expenses relating to the issuance) of at least $75.0 million and a public offering price per share equal to at
least $67.83 (subject to adjustments for stock dividends, splits, combinations and similar events).
Protective Provisions
So long as there are at least 1,000,000 shares of preferred stock outstanding, the Company shall not (by merger, reclassification, amendment or otherwise), without first obtaining the approval of the holders of at
least seventy percent (70%) of the then outstanding shares of preferred stock, voting separately as a class, to, among other things: (i) amend the certificate of incorporation or bylaws; (ii) adversely alter or change the rights, preferences or
privileges of the preferred stock; (iii) increase or decrease the aggregate number of authorized shares of any class of the capital stock of the Company.
So long as shares of Series E preferred stock that are convertible into at least 500,000 shares of common stock (subject to appropriate adjustment in the event of any stock dividend, stock split, combination or
other similar recapitalization with respect to the common stock) are issued and outstanding, the Company shall not directly or indirectly (by merger, reclassification, amendment or otherwise), without first obtaining the approval of the holders
of at least a majority of the voting power of the then outstanding shares of Series E preferred stock, voting separately as a class, to, among other things: (i) amend, alter, repeal or waive any provision of the certificate of incorporation or
bylaws of the Company in a manner that adversely affects the holders of the Series E preferred stock in a manner different from any other series of preferred stock; (ii) create or authorize the creation of or issue any other security convertible
into to exercisable for any equity security having rights, preferences or privileges senior to the Series E preferred stock; (iii) increase or decrease the authorized number of shares of Series E preferred stock.
30
|
Adagio Medical, Inc.
Unaudited
Notes to Condensed Consolidated Financial Statements
|
Common Stock
Each share of common stock is entitled to one vote.
Common stock reserved for future issuance consisted of the following as of June 30, 2024 and December 31, 2023:
|
June 30, 2024
|
December 31, 2023
|
||
|
(Unaudited)
|
|||
|
Conversion of preferred stock
|
4,732,044
|
4,939,946
|
|
|
Stock options issued and outstanding under the 2012 and 2022 Plan
|
742,409
|
747,001
|
|
|
Common shares available for future grant under the 2012 and 2022 Plan
|
31,604
|
27,012
|
|
|
Common stock reserved for future issuance
|
5,506,057
|
5,713,959
|
Note 12 - Stock-Based Compensation
2012 Stock Incentive Plan
In January 2011, the Board approved the 2012 Stock Incentive Plan (the “2012 Plan”), which permitted grants of Incentive Stock Options (“ISOs”) and Non-statutory Stock Options (“NSOs”) to employees, directors and
consultants. The maximum number of shares that can be granted under the 2012 Plan cannot exceed 1,255,000 shares. The 2012 Plan had a maximum 10-year term and as such, terminated in January 2022.
2022 Stock Incentive Plan
In April 2022, the Board approved, in conjunction with the termination of the 2012 Plan, the 2022 Stock Incentive Plan (the “2022 Plan”), permitting ISOs and NSOs to
employees, directors and consultants. The maximum number of shares granted under the 2022 Plan cannot exceed 203,855 plus any shares subject to stock options granted under the 2012 Plan that expired or
were otherwise terminated without having been exercised in full, were forfeited, or were repurchased by the Company. The 2022 Plan is intended as the successor to and continuation of the 2012 Plan (thereafter both the 2012 and 2022 Plans are
referred to as the “Stock Incentive Plan”).
The Stock Incentive Plan provides a means whereby participants may purchase shares of common stock pursuant to ISOs or NSOs and such persons may be granted shares of common stock for consideration consisting of
cash and/or past services rendered to or on behalf of the Company. ISOs may only be granted to employees. NSOs and stock purchase rights may be granted to employees and consultants. Generally, options awards only have service conditions that need
to be met for the awards to vest, with the exception of grants to two non-employees that had performance obligations that were deemed to be immaterial.
The stock options generally vest over four years and have a ten-year contractual term. The fair value of each employee and non-employee stock option grant is estimated on the date of grant using the Black-Scholes
option pricing model. As the Company lacks company-specific historical and implied volatility information required for valuation, the Company estimates its expected stock volatility based on the historical volatility of a publicly traded set of
peer companies. Due to the lack of historical exercise history, the expected life term of ISOs that were granted after 2013 was determined using the “simplified method” provided by the Securities and Exchange Commission in Staff Accounting
Bulletins Number 107 and 110. The expected life term of NSOs is determined either by using the “simplified method,” or by calculating the time to expiry from the grant date. The risk-free interest rate is determined by reference to the U.S.
Treasury yield curve in effect at the time of grant for time periods approximately equal to the expected term of the award. Expected dividend yield is zero as the Company has never paid nor does it expect to pay any cash dividend in the near
future.
31
|
Adagio Medical, Inc.
Unaudited
Notes to Condensed Consolidated Financial Statements
|
The following table summarizes stock option activity during the six months ended June 30, 2024:
|
(Unaudited)
|
Number of
Shares
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Contractual
Life (in
years)
|
Aggregate
Intrinsic
Value (in
thousands)
|
||||||||||||
|
Outstanding, December 31, 2023
|
747,001
|
$
|
6.17
|
7.45
|
$
|
72
|
||||||||||
|
Forfeited
|
(4,592
|
)
|
$
|
4.76
|
||||||||||||
|
Outstanding, June 30, 2024
|
742,409
|
$
|
6.18
|
6.95
|
$
|
4
|
||||||||||
|
Vested and expected to vest, June 30, 2024
|
723,710
|
$
|
6.20
|
6.92
|
$
|
4
|
||||||||||
|
Vested and exercisable, June 30, 2024
|
537,222
|
$
|
6.45
|
6.47
|
$
|
4
|
||||||||||
There were no stock options exercised during the six months ended June 30, 2024. Certain stock option grants under the Stock Incentive Plan allow the recipient to exercise the options prior to the options becoming
fully vested. Under the Stock Incentive Plan, the Company retains the right to repurchase common shares that have been issued upon early exercise of options at the original issue price. Cash received for the early exercise of unvested stock
options is initially recorded as a liability. At each reporting date, the vested shares are released to equity.
The fair value of awards vested was $0.2 million during the six months ended June 30, 2024. As of June 30, 2024, the total unrecognized compensation related to unvested stock option awards granted was $0.4 million,
which the Company expects to recognize over a weighted-average period of approximately 2.0 years.
Total Stock-Based Compensation
The following table summarizes the total stock-based compensation expense for the stock options expense recorded in the condensed consolidated statements of operations and comprehensive loss for the six months
ended June 30, 2024 and 2023 (in thousands):
|
Six months ended June 30, (Unaudited)
|
||||||||
|
2024
|
2023
|
|||||||
|
Selling, general, and administration
|
$
|
192
|
$
|
176
|
||||
|
Research and development
|
29
|
28
|
||||||
|
Total stock-based compensation
|
$
|
221
|
$
|
204
|
||||
Note 13 - Net Loss Per Common Share
Basic net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period. Diluted
net loss per common share excludes the potential impact of the Company’s convertible preferred stock, common stock warrants, and common stock options because the Company's net losses would cause such shares to be anti-dilutive. Therefore, as the
Company recorded net losses in the periods presented, basic and diluted net loss per common share are the same.
32
|
Adagio Medical, Inc.
Unaudited
Notes to Condensed Consolidated Financial Statements
|
The following table sets forth the computation of basic and diluted net loss per share attributable to common stockholders for the periods presented (in thousands, except share and per share
data):
|
Six months ended June 30, (Unaudited)
|
2024
|
2023
|
||
|
Numerator:
|
||||
|
Net loss attributable to common stockholders
|
(14,478)
|
(17,824)
|
||
|
Denominator:
|
||||
|
Weighted-average shares outstanding used in computing net loss per share attributable to common stockholders - basic and diluted
|
779,908
|
758,942
|
||
|
Net loss per share attributable to common stockholders - basic and diluted
|
(18.56)
|
(23.49)
|
The following potentially dilutive securities were excluded from the computation of diluted net loss per share calculations for the periods presented because the impact of including them would be anti-dilutive:
|
Six months ended June 30, (Unaudited)
|
2024
|
2023
|
|
|
Convertible preferred stock
|
4,732,044
|
4,939,946
|
|
|
Stock options
|
742,409
|
712,946
|
|
|
Common stock warrants
|
49,080
|
49,080
|
|
|
Total
|
5,523,533
|
5,701,972
|
Note 14 - Income Taxes
The Company accounts for income taxes in accordance with ASC 740. Under the provisions of ASC 740, management is required to evaluate whether a valuation allowance should be established against its deferred tax
assets. The Company currently has a full valuation allowance against our deferred tax assets. As of each reporting date, the Company’s management considers new evidence, both positive and negative, that could impact management’s view with regard
to future realization of deferred tax assets. For the six months ended June 30, 2024, there was no material change from fiscal year ended December 31, 2023 in the amount of the Company's deferred tax assets that are not considered to be more
likely than not to be realized in future years.
For the six months ended June 30, 2024, the effective tax rate for the Company’s operations was 0.0%. The effective tax rate differed from the U.S. federal statutory rate primarily due to state income taxes, losses
from the German subsidiary that is subject to different effective tax rates, stock-based compensation, fair value adjustments for convertible notes and warrant liabilities, and a change in the valuation allowance that offset the tax benefit on
the current period pre-tax loss.
For the six months ended June 30, 2023, the effective tax rate for the Company’s operations was 0.0%.The effective tax rate differed from the U.S. federal statutory rate primarily due to state income taxes, losses
from the German subsidiary that is subject to different effective tax rates, stock-based compensation and a change in the valuation allowance that offset the tax benefit on the current period pre-tax loss.
The Company is subject to U.S. federal income tax as well as income tax of foreign and state tax jurisdictions. The tax years 2019-2023 remain open to examination by the major taxing jurisdictions to which the
Company is subject, except the Internal Revenue Service for which the tax years 2020-2023 remain open.
33
|
Adagio Medical, Inc.
Unaudited
Notes to Condensed Consolidated Financial Statements
|
Note 15 - Related Party Transactions
Shared Services Agreement
During the six months ended June 30, 2024 and 2023, the Company incurred $0.8 million and $0.6 million, respectively, for finance and accounting services and other general and administrative support services
(“Shared Services Agreement”) to Fjord Ventures (“Fjord”), a company owned and operated by the Company’s CEO. The transactions are recorded as selling, general and administrative expenses on the condensed consolidated statements of operations and
comprehensive loss.
Laguna Hills Sublease
In addition to the Shared Services Agreement, the Company also sub-leases approximately 4,992 square feet of office and manufacturing space in Laguna Hills, California from Fjord. On March 31, 2024, the sub-lease
with Fjord is expired.
During the six months ended June 30, 2024 and 2023, the Company incurred $25.5 thousand and $50.9 thousand of lease expense, respectively, under the sub-lease agreement.
Refer to Note 9-Operating Leases for further detail.
October 2022 Convertible Notes
On October 27, 2022, the Company issued a $0.5 million convertible promissory note to Fjordinvest, LLC (“Fjordinvest”), a company owned and operated by the Company’s CEO. On April 4, 2023, November 28, 2023 and
February 13, 2024, the October 2022 Convertible Notes were amended. Refer to Note 7-Debt for additional information regarding the October 2022 Convertible Notes.
Note 16 - Subsequent Events
The Company evaluates subsequent events and transactions that occurred after the condensed consolidated balance sheet date up to August 14, 2024, the date the condensed consolidated financial statements are
available to be issued. During this period, the Company did not identify any subsequent events that would have required adjustment in the condensed consolidated financial statements.
July 2024 Convertible Notes
On July 23, 2024, the Company issued a $1.0 million convertible promissory note (“July 2024 Convertible Notes”) to Perceptive PIPE Investor that matures upon the termination of the Business Combination Agreement in
accordance with its terms. It accrues simple interest at eight percent (8.0%) per annum.
Effective upon the closing of the Transaction, the July 2024 Convertible Notes was automatically convert into the type of securities that are issued in the PIPE Financing in an amount
equal to the then-outstanding principal amount and any accrued and unpaid interest, divided by the effective price of the securities sold in the PIPE Financing.
34
|
Adagio Medical, Inc.
Unaudited
Notes to Condensed Consolidated Financial Statements
|
Consummation of Business Combination
On July 31, 2024, the Company announced the closing of its previously announced Business Combination with ARYA and ListCo. Upon the closing of the merger, ListCo changed its name to “Adagio Medical Holdings, Inc.”
The common stock of New Adagio began trading on August 1, 2024, under the symbols ADGM on the Nasdaq Capital Market. Upon the consummation of the Business Combination, ARYA and the Company became the direct wholly-owned subsidiaries of Adagio
Medical Holding, Inc.
In conversion of the Company’s certain liabilities and equity outstanding prior to the closing of the merger:
| a) |
each common stock warrant of Adagio (other than the pre-funded warrants for Series E Preferred Stocks) were terminated in accordance with the terms of the applicable warrant agreement;
|
| b) |
all issued and outstanding October 2022 Convertible Notes including any accrued and unpaid interest thereon, are automatically and fully converted into shares of Adagio common stock in accordance with the terms of such October 2022
Convertible Notes, and October 2022 Convertible Notes are cancelled, satisfied, extinguished, discharged and retired in connection with such conversion;
|
| c) |
all issued and outstanding April 2023 Convertible Notes, November 2023 Convertible Notes, May 2024 Convertible Notes, June 2024 Convertible Notes, and July 2024 Convertible Notes including any accrued and unpaid interest thereon, are
exchanged for New Adagio common stock and warrants exercisable for shares of New Adagio common stock, subject to adjustment, based on the terms and subject to the conditions set forth in the applicable bridge notes agreement and
applicable subscription agreements;
|
| d) |
each share of preferred stock, par value $0.001 per share, of Adagio that is issued and outstanding are automatically converted into shares of Adagio common stock, and each such share of Adagio preferred stock are cancelled;
|
| e) |
all issued and outstanding shares of Adagio common stock (other than treasury shares and shares with respect to which appraisal rights under the Delaware General Corporation Law are properly exercised and not withdrawn). Each
pre-funded warrants for Series E Preferred Stocks that had been issued and outstanding immediately prior to the Adagio Merger Effective Time are automatically cancelled and extinguished and converted into the right to receive shares of
New Adagio common stock based on the exchange ratio set forth in the Business Combination Agreement;
|
| f) |
each issued, outstanding and unexercised option to purchase Adagio common stock had been vested prior to the closing of merger with an aggregate value that exceeds the aggregate exercise price of such Adagio option (each an
“In-the-Money Adagio Option”) are cancelled and extinguished in exchange for options to purchase shares of New Adagio common stock, and each issued and outstanding Adagio equity award (other than an In-the-Money Adagio Option) are
automatically cancelled and extinguished for no consideration, and each holder thereof will cease to have any rights with respect thereto;
|
| g) |
outstanding SVB Term Loan is paid off by Adagio prior to the Closing; and
|
| h) |
$7,000,000 of February 2024 Convertible Notes is converted into New Adagio convertible notes and convert warrants.
|
35
|
Adagio Medical, Inc.
Unaudited
Notes to Condensed Consolidated Financial Statements
|
In connection with the Business Combination, the combined company raised financing valued at approximately $84.2 million, which consisted of funds held in ARYA’s trust account, a concurrent equity and warrant
private placement (including $29.5 million of bridge financing used by Adagio prior to closing and funds from ARYA’s trust account not redeemed) led by, among others, Perceptive PIPE Investor, RA Capital Management and RTW Investments, and a
concurrent convertible security financing (including $7.0 million of bridge financing used by Adagio prior to closing) led by, among others, an institutional investor and Perceptive PIPE Investor.
The Business Combination is expected to be accounted for as a forward-merger in accordance with U.S. GAAP. Under this method of accounting, ListCo is treated as the ‘‘accounting acquirer’’ and Adagio as the
‘‘accounting acquiree’’ for financial reporting purposes. Accordingly, the Business Combination is expected to be accounted for using the acquisition method of accounting. The acquisition method of accounting is based on FASB ASC 805 and uses the
fair value concepts defined in ASC 820. As of the date the condensed consolidated financial statements are available to be issued, the Company is still in the process of analyzing the accounting impact of the Business Combination.
36
Exhibit 99.2
ADAGIO’S MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and results of operations of Adagio Medical, Inc. and its subsidiary prior to the Business
Combination (for purposes of this section, collectively referred to as “Adagio”, “we,” “us” and “our”) should be read together with our condensed consolidated financial statements and related notes included in this
proxy statement/prospectus. The discussion and analysis should also be read together with the “Unaudited Pro Forma Condensed Financial Information.” This discussion contains forward-looking statements based
upon current beliefs, plans, and expectations that involve numerous risks, uncertainties, and assumptions, including, but not limited to, those described under the heading “Risk Factors.” Actual results may differ materially from those contained in
any forward-looking statements.
Overview
We are a developmental stage medical device company focused on the development and commercialization of ablation technologies for the treatment of cardiac arrhythmias, including atrial fibrillation (“AF”), atrial flutter (“AFL”), and ventricular tachycardia (“VT”). Our unique portfolio is based on Ultra-Low Temperature
Cryoablation (“ULTC”) and Pulsed-Field Cryoablation (“PFCA”). Our technology is based on the hypothesis that the ability to consistently create durable, contiguous,
transmural lesions is a foundation for improving the effectiveness and outcomes of cardiac ablations in both atria and ventricles.
Adagio’s product portfolio consists of three product families: iCLAS™ atrial ULTC catheter and accessories, vCLAS™ ventricular ULTC catheter, and Cryopulse™ atrial PFCA catheter and accessories. All of these
catheters share the same ULTC cryoablation console. A standalone Pulsed-Field Ablation (PFA) console connected to a cryoablation console for PFCA treatment synchronization is used in conjunction with
Cryopulse catheter, subject to future integration for maximum operational flexibility and minimum footprint. We received CE Marking in Europe for our iCLAS™ Cryoablation System in May 2020 and have commercially
launched in the EU.
We are continually working towards reaching the next milestone in the development process for our portfolio of technologies. We received CE Marking in Europe for our VT Cryoablation System in March 2024 and have
commercially launched in the EU. Key milestones include data readouts, clinical trials, and regulatory and commercialization developments in both the U.S. and European markets. The data readouts for each device are key valuation-driving milestones
because investors use this data to understand the efficacy of the procedures. It is expected that favorable readouts will drive additional investment and financing for us at market terms.
We have not launched commercially in the U.S. but are working towards obtaining the necessary regulatory approvals to do so. We have incurred net losses in each year since our inception in 2011. As of June 30, 2024 and
December 31, 2023, we had an accumulated deficit of $149.7 million and $135.2 million, respectively. Our net losses were $14.5 million and $17.8 million for the six months ended June 30, 2024 and 2023, respectively. Substantially all of our net
losses resulted from costs incurred in connection with our research and development programs and from general and administrative costs associated with our operations. As of June 30, 2024 and December 31, 2023, we had cash of $2.0 million and $1.4
million, respectively.
Our accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and liabilities in the normal course of business. Our financial
statements do not include any adjustments relating to the recoverability and classification of asset amounts or the classification of liabilities that might be necessary should we be unable to continue as a going concern. The recurring losses,
working capital deficiency, the need for capital to fund our operations, including clinical trial and regulatory approval expenses, and the amount of cash reserve are factors that raise substantial doubt about our ability to continue as a going
concern for the twelve-month period from the date the financial statements included herein were made available. See Note 1-Organization and Description of Business in our condensed consolidated financial
statements for the periods ended June 30, 2024 and December 31, 2023 for the additional information on our assessment.
Our need for additional capital will depend in part on the scope and costs of our development activities. To date, we have not generated any significant revenue from the sale of commercialized products.
Our ability to generate product revenue will depend on the successful development and eventual commercialization of our products in the United States and Europe. Until such time, if ever, we expect to finance our operations through the sale of equity
or debt, borrowings under credit facilities, or through potential collaborations, other strategic transactions or government and other grants. Adequate capital may not be available to us when needed or on acceptable terms. If we are unable to raise
capital, we could be forced to delay, reduce, suspend or cease our research and development programs or any future commercialization efforts, which would have a negative impact on our business, prospects, operating results and financial condition.
See the section of this proxy statement/prospectus titled “Risk Factors” for additional information.
Business Combination
The disclosure set forth in the “Introductory Note” in the Original Report with respect to the completion of the Business Combination, the PIPE Financing and the Convertible Security Financing is
incorporated by reference into Item 2.01.
In conjunction with the consummation of the Business Combination with ARYA and Adagio, we raised financing valued at approximately $84.2 million, which consisted of funds held in ARYA’s trust account, a concurrent equity and warrant private placement (including $29.5 million of bridge financing used by Adagio prior to closing and funds from ARYA’s trust account not
redeemed), and a concurrent convertible security financing (including $7.0 million of bridge financing used by Adagio prior to closing), offset by approximately $13.1 million of transaction costs (including approximately $1.0 million for the
payoff of the SVB Term Loan) relating to the closing of the Business Combination.
Impact of COVID-19 Pandemic
The markets we operate in could see continued impacts from COVID-19 for the foreseeable future, and the emergence of new variants of COVID-19 creates significant uncertainty as to how long COVID-19 will continue to
impact our business. The magnitude of the impact of the COVID-19 pandemic on our productivity, results of operations and financial position and its disruption to our business and our clinical programs and timelines will depend, in part, on the length
and severity of outbreaks, restrictions and other measures designed to prevent the spread of COVID-19 and on our ability to conduct business in the ordinary course.
Key Factors Affecting Our Performance
We compete primarily on the basis that our products are designed to enable more physicians to treat more patients more efficiently and effectively. Our continued success depends on our ability to:
| • |
continue to develop innovative, proprietary products that address significant clinical needs in a manner that is safe and effective for patients and easy-to-use for physicians;
|
| • |
obtain and maintain regulatory clearances or approvals;
|
| • |
demonstrate safety and effectiveness in our sponsored and third-party clinical trials;
|
| • |
expand its sales force across key markets to increase physician awareness;
|
| • |
obtain and maintain coverage and adequate reimbursement for procedures using its products;
|
| • |
attract and retain skilled research, development, sales and clinical personnel;
|
| • |
cost-effectively manufacture, market and sell its products; and
|
| • |
obtain, maintain, enforce and defend our intellectual property rights and operate its business without infringing, misappropriating or otherwise violating the intellectual property rights of others.
|
Innovation
Our business strategy relies significantly on innovation to develop and introduce new products and to differentiate our products from our competitors. We
expect our research and development expenditures to increase as we make additional investments to support our growth strategies. We plan to increase our research and development expenditures with internal initiatives, as well as potentially licensing
or acquiring technology from third parties. We also expect expenditures associated with our manufacturing organization to grow over time as production volume increases and we bring new products to market. Our internal and external investments will be
focused on initiatives that we believe will offer the greatest opportunity for growth and profitability. With a significant investment in research and development, a strong focus on innovation and a well-managed innovation process, we believe we can
continue to innovate and grow.
Regulatory
Our commercial success will depend upon a number of factors, some of which are beyond our control, including the receipt of regulatory clearances, approvals, or authorizations for existing or new product offerings by
us, or product enhancements. We must complete additional clinical testing before we can seek regulatory approval in the United States and begin commercialization of our products. After our products are cleared, approved, or authorized, numerous and
pervasive regulatory requirements continue to apply. As such, our ability to navigate, obtain and maintain the required regulatory clearances, approvals, or authorizations, as well as comply with other regulatory requirements, for our products will
in part drive our results of operations and impact our business.
Investments in Our Growth
In order to generate future growth, we plan to continue to expand and leverage our sales and marketing infrastructure to increase our customer base and grow our business. Identifying and recruiting qualified sales and
marketing personnel and training them on our products, applicable federal and state laws and regulations, and on our internal policies and procedures requires significant time, expense and attention. It often takes several months or more before a
sales representative is fully trained and productive. Our ability to increase our customer base and achieve broader market acceptance of our products will also depend to a significant extent on our ability to expand our marketing efforts as our plans
to dedicate significant resources to its marketing programs.
Competition
Our industry is intensely competitive, subject to rapid change and significantly affected by new product introductions and other market activities of industry
participants. Our most significant competitors are large, well-capitalized companies. We must continue to successfully compete considering our competitors’ existing and future products and related pricing and their resources to successfully market to
the physicians who could use our products. Publications of clinical results by us, our competitors and other third parties can also have a significant influence on whether, and the degree to which, we are able to gain market share and increase
utilization of our products.
Reimbursement and Insurance Coverage
In both U.S. and non-U.S. markets, our ability to successfully commercialize and achieve market acceptance of our products depends, in significant part, on the availability of adequate financial coverage and
reimbursement from third-party payors, including governmental payors (such as the Medicare and Medicaid programs in the United States), managed care organizations and private health insurers. Third-party payors decide which treatments they will cover
and establish reimbursement rates for those treatments. Our products are purchased by hospitals and other providers who will then seek reimbursement from third-party payors for the procedures performed using our products. Reimbursement systems in
international markets vary significantly by country and by region within some countries, and reimbursement approvals must be obtained on a country-by-country basis. In certain international markets, a product must be approved for reimbursement before
it can be approved for sale in that country. Furthermore, many international markets have government-managed healthcare systems that control reimbursement for new devices and procedures. In most markets there are private insurance systems as well as
government-managed systems.
Key Components of Results of Operations
Revenues
We generate product revenue primarily from the sale of the catheters, stylets and warming balloons (“Consumables”) used with our consoles. We sell our products directly to hospitals and medical centers. To a lesser
extent, we also generate lease revenue from the implied rental of consoles loaned to customers at no charge. We recognize revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers, when we transfer promised goods or services to
customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Please refer to Note 2-Summary of Significant Accounting Policies in
our condensed consolidated financial statements for the periods ended June 30, 2024 and December 31, 2023 for additional details on our revenue recognition policy. Our revenue is subject to fluctuation due to the foreign currency in which our
products are sold.
Costs and Operating Expenses
Cost of Revenue
Cost of revenue includes raw materials, direct labor, manufacturing overhead, shipping and receiving costs and other less significant indirect costs related to the production of our products. Cost of revenue also
includes the depreciation expense of consoles loaned to the customers.
Research and Development Expenses
Research and development expenses are expensed when incurred and are related to the development of our product candidates which includes pre-clinical, clinical, quality assurance, and research and development
operational activities. These costs consist of:
| • |
salaries, benefits, and other employee-related costs, including stock-based compensation expense for personnel engaged in research and development functions;
|
| • |
activities associated with clinical trials performed by third parties;
|
| • |
professional fees;
|
| • |
equipment, materials, and costs related to product manufacturing; and
|
| • |
other operational costs including rent and facilities costs, and depreciation.
|
Adagio does not track research and development expenses by project or product, as Adagio is at an earlier stage in its pre-clinical and clinical development. Management believes that the breakdown of research and
development expenses by project or product would be arbitrary and would not provide a meaningful assessment.
Management expects the research and development expenses to increase, as Adagio will incur incremental expenses associated with the product candidates that are currently under development and in pre-clinical and
clinical trials. Product candidates in later stages of clinical development generally have higher development costs, primarily due to the increased size and duration of later-stage clinical trials.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of salaries, and employee-related costs (including stock-based compensation) for personnel in executive, finance and other administrative
functions, allocated rent and facilities costs, legal fees relating to intellectual property and corporate matters, professional fees for accounting and consulting services, marketing costs and insurance costs, and transaction costs in connection
with the Business Combination. We expense all selling, general and administrative costs as incurred.
Convertible notes fair value adjustment
We recorded the October 2022 Convertible Notes, the April 2023 Notes, the November 2023 Notes, the 2024 Bridge Financing Note, the May 2024 Notes, and the June 2024 Notes at fair value at issuance and
subsequently remeasure them to fair value at each reporting period. Changes in fair value are recognized as convertible notes fair value adjustment in the condensed consolidated statements of operations and comprehensive loss.
Warrant liabilities fair value adjustment
We accounted for certain common stock warrants outstanding as warrant liabilities at fair value, determined using the Black-Scholes option pricing model. The liability is subject to re-measurement at
each reporting period and any change in fair value is recognized warrant liabilities fair value adjustment in the condensed consolidated statements of operations and comprehensive loss.
Interest expense
Interest expense is primarily incurred from our outstanding debt obligations, including those under the October 2022 Convertible Notes, the April 2023 Notes, the November 2023 Notes, the February 2024
Notes, the May 2024 Notes, June 2024 Notes, and the SVB Term Loan.
Interest Income
Interest income consists primarily of interest earned on our cash, cash equivalents, and marketable securities.
Other (expense) income, net
Other (expense) income, net primarily consists of foreign currency unrealized and realized gain / loss, and other income related to research and development (“R&D”)
tax credit.
Results of Operations
Comparison for the Six Months Period Ended June 30, 2024 and 2023 (unaudited)
The following table sets forth a summary of our results of operations. This information should be read together with our condensed consolidated financial statements and related notes.
|
For the six months ended June 30,
|
Change
|
|||||||||||||||
|
(In thousands)
|
2024
|
2023
|
$ |
%
|
||||||||||||
|
Revenue
|
$
|
280
|
181
|
99
|
55
|
%
|
||||||||||
|
Costs of revenue and operating expenses:
|
||||||||||||||||
|
Cost of revenue
|
1,224
|
719
|
505
|
70
|
%
|
|||||||||||
|
Research and development
|
6,334
|
9,207
|
(2,873
|
)
|
-31
|
%
|
||||||||||
|
Selling, general and administrative
|
8,196
|
3,783
|
4,413
|
117
|
%
|
|||||||||||
|
Total costs of revenue and operating expenses
|
15,754
|
13,709
|
2,045
|
15
|
%
|
|||||||||||
|
Other income (expense)
|
||||||||||||||||
|
Convertible notes fair value adjustment
|
2,531
|
(3,649
|
)
|
6,180
|
-169
|
%
|
||||||||||
|
Warrant liabilities fair value adjustment
|
14
|
(60
|
)
|
74
|
-123
|
%
|
||||||||||
|
Interest expense
|
(1,514
|
)
|
(597
|
)
|
(917
|
)
|
154
|
%
|
||||||||
|
Interest income
|
3
|
-
|
3
|
n.m.
|
||||||||||||
|
Other income (expense), net
|
(38
|
)
|
10
|
(48
|
)
|
|
n.m.
|
|||||||||
|
Total other income (expense)
|
996
|
(4,296
|
)
|
5,292
|
-123
|
%
|
||||||||||
|
Loss, before income taxes
|
(14,478
|
)
|
(17,824
|
)
|
3,346
|
-19
|
%
|
|||||||||
|
Net loss
|
(14,478
|
)
|
(17,824
|
)
|
3,346
|
-19
|
%
|
|||||||||
|
Other comprehensive income:
|
||||||||||||||||
|
Foreign currency translation adjustment
|
5
|
(5
|
)
|
10
|
n.m.
|
|||||||||||
|
Comprehensive loss
|
$
|
(14,473
|
)
|
(17,829
|
)
|
3,356
|
-19
|
%
|
||||||||
n.m. = not meaningful
Revenue
Our revenue was $0.3 million for the six months ended June 30, 2024 and was $0.2 million for the six months ended June 30, 2023. The increase of $0.1 million, or 55% is due to the increase
of consumable sales. For the six months ended June 30, 2024 and 2023, revenue was generated only in European markets.
Costs of revenue and operating expenses
Cost of revenue
Cost of revenue increased to $1.2 million for the six months ended June
30, 2024, from $0.7 million for the six months ended June 30, 2023. The increase of $0.5
million, or 70%, primarily resulted from a $0.2 million increase in cost of good sold related to increased sales and a $0.3 million increase in the depreciation of consoles.
Research and development expenses
Research and development expenses decreased to $6.3 million for the six months ended June 30, 2024
from $9.2 million for the six months ended June 30, 2023. The $2.9 million decrease, or 31%, was primarily related to a $0.9 million decrease of manufacturing absorption costs, $0.6 million decrease in product manufacturing, $0.6 million decrease in clinical trial expense, $0.2 million decrease in animal testing cost, $0.1 million decrease in travel costs related to clinical studies, $0.3 million decrease in payroll, and $0.2 million decrease in costs related to prototypes and other research and development costs. The decrease in research and development
expenses results from Adagio receiving CE Marking on VT Cryoablation in March 2024.
The following is a breakdown of our research and development costs by type of expense:
|
For the six months ended June 30,
|
||||||||
|
(In thousands)
|
2024
|
2023
|
||||||
|
Clinical trial costs
|
$
|
2,223
|
$
|
2,872
|
||||
|
Quality assurance costs
|
1,562
|
1,417
|
||||||
|
Pre-clinical trial costs and other research and development costs
|
1,468
|
1,896
|
||||||
|
Operational costs
|
1,081
|
3,022
|
||||||
|
Total research and development expenses
|
$
|
6,334
|
$
|
9,207
|
||||
Our clinical trial expenses relate to trials for our iCLAS atrial ULTC catheter and system (CYROCURE-2), iCLAS atrial ULTC catheter and system (iCLAS for PsAF), vCLAS ventricular ULTC catheter (CYROCURE-VT), vCLAS
ventricular ULTC catheter (FULCRUM-VT), and PFCA catheter. Clinical trial costs include the expenses spent on clinical trials studies and other related expenses. Quality assurance includes regulatory fees and third-party service fees. Pre-clinical
trial costs and other research and development costs includes the expenses resulting from professional fees, prototypes, and animal testing. Operational costs includes the expenses spent on product manufacturing.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased to $8.2 million from $3.8 million for the six months ended
June 30, 2024 and 2023, respectively. The increase in selling, general and administrative expenses of $4.4 million, or 117%, is primarily due to an increase of $3.3 million in professional fees which include legal and accounting fees related to the transaction costs associated with the Business Combination and an increase in payroll and personnel expense of $1.0 million and an increase in building and maintenance costs of $0.1 million.
Convertible notes fair value adjustment
The increase in the convertible notes fair value adjustment of $6.2 million is due to the fair value remeasurement of the convertible notes payables
for six months ended June 30, 2024 compared to June 30, 2023.
Warrant liabilities fair value adjustment
The increase in the warrant liabilities fair value adjustment of $74.0 thousand is due to the fair value
remeasurement of the warrant liabilities for six months ended June 30, 2024 compared to June 30, 2023.
Interest expense
Interest expense increased to $1.5 million from $0.6 million for the six months ended June 30, 2024 and 2023, respectively. The increase of $0.9 million was interest incurred from the convertible promissory notes issued in October 2022, April 2023, November 2023, February
2024, May 2024, June 2024, and the SVB term loan issued in February 2023.
Interest income
Interest income increased to $3.0 thousand from nil for the six months ended June 30, 2024 and 2023, respectively. The increase in interest income of $3.0 thousand, is primarily due to the increase of
cash balances in an asset management account.
Other (expense) income, net
Other expense was $38.0 thousand for the six months ended June 30, 2024 compared to other
income of $10.0 thousand for the six months ended June 30, 2023. This decrease in other income of $49.0 thousand was primarily attributable to the net increase in foreign exchange currency loss by $46.9 thousand.
Comparison for the Years Ended December 31, 2023 and 2022
The following table sets forth a summary of our results of operations. This information should be read together with our consolidated financial statements and related notes.
|
Year Ended December 31,
|
Change
|
|||||||||||||||
|
(In thousands)
|
2023
|
2022
|
$ |
%
|
||||||||||||
|
Revenue
|
$
|
300
|
$
|
189
|
$
|
111
|
59
|
%
|
||||||||
|
Costs of revenue and operating expenses:
|
||||||||||||||||
|
Cost of revenue
|
1,306
|
875
|
431
|
49
|
%
|
|||||||||||
|
Research and development
|
15,399
|
17,855
|
(2,456
|
)
|
-14
|
%
|
||||||||||
|
Selling, general and administrative
|
11,537
|
5,372
|
6,165
|
115
|
%
|
|||||||||||
|
Total costs of revenue and operating expenses
|
28,242
|
24,102
|
4,140
|
17
|
%
|
|||||||||||
|
Other income (expense)
|
||||||||||||||||
|
Convertible notes fair value adjustment
|
(8,486
|
)
|
-
|
(8,486
|
)
|
100
|
%
|
|||||||||
|
Warrant liabilities fair value adjustment
|
(42
|
)
|
-
|
(42
|
)
|
100
|
%
|
|||||||||
|
Interest expense
|
(1,659
|
)
|
(137
|
)
|
(1,522
|
)
|
1,111
|
%
|
||||||||
|
Interest income
|
3
|
39
|
(36
|
)
|
-92
|
%
|
||||||||||
|
Other income (expense), net
|
(20
|
)
|
338
|
(358
|
)
|
|
n.m.
|
|||||||||
|
Total other income (expense)
|
(10,204
|
)
|
240
|
(10,444
|
)
|
|
|
n.m.
|
||||||||
|
Loss, before income taxes
|
(38,146
|
)
|
(23,673
|
)
|
(14,473
|
)
|
61
|
%
|
||||||||
|
Net loss
|
(38,146
|
)
|
(23,673
|
)
|
(14,473
|
)
|
n.m
|
|||||||||
|
Other comprehensive income:
|
||||||||||||||||
|
Foreign currency translation adjustment
|
(11
|
)
|
24
|
(35
|
)
|
|
n.m.
|
|||||||||
|
Comprehensive loss
|
$
|
(38,157
|
)
|
$
|
(23,649
|
)
|
$
|
(14,508
|
)
|
61
|
%
|
|||||
n.m. = not meaningful
Revenue
Our revenue was $0.3 million for the year ended December 31, 2023 and $0.2 million for the year ended December 31, 2022. The increase of $0.1 million, or 59% is due to the increase of
consumable sales. For the years ended December 31, 2023 and 2022, revenue was generated only in European markets.
Costs of revenue and operating expenses
Cost of revenue
Cost of revenue increased to $1.3 million for the year ended December 31, 2023, from $0.9 million for the year ended December 31, 2022. The increase of $0.4 million, or 49%,
primarily resulted from the increase of obsolescence and scrap.
Research and development expenses
Research and development expenses decreased to $15.4 million for the year ended December 31, 2023 from $17.9 million for the year ended December 31, 2022. The $2.5 million decrease, or 14%, was primarily related to a
$3.0 million decrease of raw materials used in operational costs as a part of research and development activities, $1.3 million decrease in product manufacturing, offset by a $1.0 million increase in clinical trial expenses, $0.6 million increase
in payroll, and a $0.2 million increase in animal testing expense. The decrease in product manufacturing, and the increases in pre-clinical trial expense and clinical trial expense are due to that Adagio focused more on pre-clinical and clinical
studies in order to obtain regulatory approval in both the European and United States markets.
The following is a breakdown of our research and development costs by type of expense:
|
Year Ended December 31,
|
||||||||
|
(In thousands)
|
2023
|
2022
|
||||||
|
Clinical trial costs
|
5,504
|
4,562
|
||||||
|
Pre-clinical trial costs
|
$
|
4,147
|
$
|
3,825
|
||||
|
Quality assurance costs
|
2,957
|
2,390
|
||||||
|
Pre-clinical trial costs and other research and development costs
|
2,791
|
7,078
|
||||||
|
Total research and development expenses
|
$
|
15,399
|
$
|
17,855
|
||||
Our clinical trial expenses relate to trials for our iCLAS atrial ULTC catheter and system (CYROCURE-2), iCLAS atrial ULTC catheter and system (iCLAS for PsAF), vCLAS ventricular ULTC catheter (CYROCURE-VT), vCLAS
ventricular ULTC catheter (FULCRUM-VT), and PFCA catheter. Clinical trial costs includes the expenses spent on clinical trials studies and other related expenses. Quality assurance includes regulatory fees and third-party service fees. Research and
development operational costs includes the expenses spent on product manufacturing. Pre-clinical trial costs and other research and development costs includes the expenses resulting from professional fees, prototypes, and animal testing.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased to $11.5 million from $5.4 million for the years ended December 31, 2023 and 2022, respectively. The increase in selling, general and
administrative expenses of $6.2 million, or 115%, is primarily due to an increase of $4.7 million in professional fees which include legal and accounting fees related to the transaction costs associated with the Business Combination, an increase in
payroll and personnel expense of $1.0 million, and an increase in building and maintenance costs of $0.5 million.
Convertible notes fair value adjustment
Convertible notes fair value adjustment changed to $8.5 million for the year ended December 31, 2023 from nil million for the year ended December 31, 2022. The $8.5 million was related to the
increase of fair value by $4.0 million, $0.4 million and $4.1 million on the October 2022 Convertible Notes, the April 2023 Notes and the November 2023 Notes, respectively, during the year ended December 31, 2023. For the year ended December 31,
2022, we did not recognize any change in fair value related to the October 2022 Convertible Notes as there were not significant changes to the business, financing scenarios, or market conditions since the date of issuance.
Warrant liabilities fair value adjustment
Warrant liabilities fair value adjustment changed to $42.0 thousand for the year ended December 31, 2023 from nil million for the year ended December 31, 2022. The $42.0 thousand was related to the increase of fair
value on the common stock warrant liabilities during the year ended December 31, 2023.
Interest expense
Interest expense increased to $1.7 million from $0.1 million for the years ended December 31, 2023 and 2022, respectively. The increase of $1.5 million was interest incurred from the convertible
promissory notes issued in October 2022, April 2023, and November 2023, and the SVB Term Loan issued in February 2023.
Interest income
Interest income decreased to $3.0 thousand for the year ended December 31, 2023 from $39.0 thousand for the year ended December 31, 2022. The decrease in interest income of $36.0 thousand or 92% was driven by the
decrease of cash balances in an asset management account.
Other (expense) income, net
Other expense was $20.0 thousand for the year ended December 31, 2023 compared to other income of $0.3 million for the year ended December 31, 2022. This decrease in other income of $0.3 million was primarily
attributable to an increase in other expense of $0.5 million, related to the R&D tax credit received in 2022 for which Adagio no longer qualifies in 2023, offset by a favorable decrease of $0.2 million in foreign exchange currency unrealized
loss.
Liquidity and Capital Resources
Sources of Liquidity
To date, we have financed our operations primarily through the sale of equity securities, convertible promissory notes and SVB Term Loan. Since inception we have incurred
operating losses and negative cash flows and anticipate continuing to do so for at least the next several years.
As of June 30, 2024 and December 31, 2023, Adagio had cash and cash equivalents of $2.0 million and $1.4 million, respectively. For the six months ended June 30, 2024 and 2023, net losses were $14.5 million and $17.8
million, respectively, and net cash used in operating activities was $13.7 million and $12.2 million, respectively.
We do not believe our current cash and cash equivalents are sufficient to fund operations for at least the next 12 months from the issuance date of the financial statements. We believe that this
raises substantial doubt about our ability to continue as a going concern.
We intend to mitigate the conditions and events that raise substantial doubt about its ability to continue as a going concern entity by (i) pursuing a public offering of its common
stock or in a business combination with a special purpose acquisition company (“SPAC”) to obtain additional capital and align our long-term
operating strategy (refer to Note 1-Organization and Description of Business in our condensed consolidated financial statements for the periods ended June 30,
2024 and December 31, 2023 for additional details), (ii) negotiate other cash equity or debt financing in the short-term, and (iii) continue to pursue the necessary regulatory approvals to launch commercially in the U.S. market. However, there
can be no assurances that the current plans will generate any liquidity to us or be available on terms acceptable to us, or if at all.
Future Funding Requirements
In the future, we may need to raise additional funds through the issuance of debt and/or equity securities or otherwise. Until such time, if ever, that we can generate revenue sufficient to achieve profitability, we
expect to finance our operations through equity or debt financings, which may not be available to us on the timing needed or on terms that we deem to be favorable. To the extent that we raise additional capital through the sale of equity or
convertible debt securities, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of common stockholders. Debt financing and
preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures or declaring
dividends. If we are unable to maintain sufficient financial resources, our business, financial condition and results of operations will be materially and adversely affected. We may be required to delay, limit, reduce or terminate our product
discovery and development activities or future commercialization efforts.
Our future liquidity and capital funding requirements will depend on numerous factors, including:
| • |
our revenue growth;
|
| • |
our research and development efforts;
|
| • |
our sales and marketing activities;
|
| • |
our ability to raise additional funds to finance our operations;
|
| • |
the outcome, costs and timing of any clinical trial results for our current or future products;
|
| • |
the emergence and effect of competing or complementary products;
|
| • |
the availability and amount of reimbursement for procedures using our products;
|
| • |
our ability to maintain, expand and defend the scope of our intellectual property portfolio, including the amount and timing of any payments we may be required to make, or that we may receive, in connection with
the licensing, filing, prosecution, defense and enforcement of any patents or other intellectual property rights;
|
| • |
our ability to retain our current employees and the need and ability to hire additional management and sales, scientific and medical personnel;
|
| • |
the terms and timing of any collaborative, licensing or other arrangements that we have or may establish;
|
| • |
debt service requirements;
|
| • |
the extent to which we acquire or invest in businesses, products or technologies;
|
Our primary uses of capital are, and we expect will continue to be, investment in our commercial organization and related expenses, clinical research and development services, and related supplies, legal and other
regulatory expenses, general administrative costs and working capital.
See the section of this proxy statement/prospectus titled “Risk Factors” for additional risks associated with our substantial capital requirements.
Debt Obligations
October 2022 Convertible Notes
In October 2022, we entered into a Note Purchase Agreement with investors for the issuance and sale of convertible promissory notes (the “October 2022 Convertible Notes”) with an aggregate principal amount of $9.5 million at an interest rate of eight percent (8.0%) per year. The October 2022 Convertible Notes had an original
maturity date of October 27, 2023, which was subsequently extended to the latest of (i) January 5, 2024, (ii) termination of agreements between Adagio and ARYA in connection with a non-binding summary of certain proposed terms and conditions of the
Business Combination, or (iii) the termination or lapse of the exclusivity period as defined in the non-binding term sheet as mentioned above.
The October 2022 Convertible Notes were also amended to be subordinate to the April 2023 Notes (as described below) and provide for the conversion of all principal and accrued
interest in respect of all the October 2022 Convertible Notes into shares of Series E Preferred Stock of Adagio in connection with the Business Combination. (refer to Note 7-Debt in our condensed consolidated financial statements for the periods ended June 30, 2024 and December 31, 2023 for additional details).
In November 2023 and February 2024, the October 2022 Convertible Notes were further amended to also subordinate the November 2023 Notes and the 2024 Bridge Financing Note. Upon the consummation of the
Business Combination, all principal and accrued interest in respect of the October 2022 Convertible Notes were converted into shares of Adagio Common Stock when multiplied by the exchange ratio applicable to the Adagio Common Stock in the Business
Combination, which entitled the holder of this note to receive a number of shares of the same class of common stock that were issued in the PIPE Financing equal to the then outstanding principal amount and any accrued and unpaid interest under this
note, divided by 75% of the effective price of each share of common stock sold in the PIPE Financing.
April 2023 Notes
In April 2023, we issued a $5.0 million convertible promissory note that would mature on the latest of (i) January 5, 2024, (ii) termination of agreements between Adagio and ARYA in connection with
the Business Combination, or (iii) the termination or lapse of the exclusivity period as defined in the non-binding term sheet as mentioned above, and accrued simple interest at eight percent (8.0%) per annum. Additionally, we obtained the right to
issue up to $10.0 million in additional convertible promissory notes available beginning one month after April 4, 2023 through the occurrence of an ARYA stockholder vote with regard to the Business Combination.
In November 2023, the April 2023 Notes were amended to align certain terms to the November 2023 Notes (refer to Note 7-Debt in our condensed consolidated
financial statements for the periods ended June 30, 2024 and December 31, 2023 for additional details).
Upon the consummation of the Business Combination, the April 2023 Notes automatically converted into the type of securities that are issued in the PIPE Financing in an amount equal to the principal
amount and any accrued and unpaid interest, divided by the effective price of the securities sold in the PIPE Financing.
November 2023 Notes
On November 28, 2023, Adagio issued to Perceptive Life Sciences Master Fund, Ltd. (the “Perceptive PIPE Investor”), a $2.0 million convertible promissory
note that would mature on the latest of (i) January 5, 2024, (ii) termination of agreements between Adagio and ARYA in connection with a non-binding summary of the Business Combination, or (iii) the termination or lapse of the exclusivity period as
defined in the non-binding term sheet as mentioned above (the “November 2023 Notes”). The November 2023 Notes accrued simple interest at eight percent (8.0%) per annum. Additionally, Adagio obtained the right
to issue up to $6.0 million of Delayed Draw Commitment available beginning one month after November 28, 2023 through the occurrence of an ARYA stockholder vote with regard to the Business Combination.
In December 2023, the November 2023 Notes were amended to permit the issuance of a Delayed Draw Commitment in the original amount of $6.0 million. On December 13, 2023 and December 28, 2023, Adagio
drew the principal amount of $1.0 million and $2.0 million, respectively. During the six months ended June 30, 2024, Adagio drew the remaining principal amount of $3.0 million. The combined $6.0 million convertible promissory notes were issued
pursuant to the clause and terms in the November 2023 Notes agreement (refer to Note 7-Debt in our condensed consolidated financial statements for the periods ended June 30, 2024 and December 31, 2023 for
additional details).
Upon the consummation of the Business Combination, the November 2023 Notes automatically converted into the type of securities that are issued in the PIPE Financing in an amount equal to the
then-outstanding principal amount and any accrued and unpaid interest, divided by the effective price of the securities sold in the PIPE Financing.
2024 Bridge Financing Note
In connection with the Business Combination, certain investors executed a securities purchase agreement, dated February 13, 2024, with ListCo (the “Convertible
Security Subscription Agreement”), pursuant to which ListCo would issue on the Closing Date to certain investors (“Convert Investors”) $20.0 million of 13% senior secured convertible notes (the “New Adagio Convertible Notes”), which would be convertible into shares of New Adagio Common Stock and warrants (the “Convert Warrants”), each of which would be exercisable on
a cashless basis or for one share of New Adagio Common Stock at $24.00 per share, subject to adjustment (the “Base Convert Financing”). The New Adagio Convertible Notes would have a maturity of three years and
nine months after the Closing and interest would be payable in cash or compound as additional principal outstanding.
The Perceptive PIPE Investor also purchased a $7.0 million convertible promissory note of Adagio (the “2024 Bridge Financing Note”) pursuant to a note
purchase agreement, dated February 13, 2024, by and among the Perceptive PIPE Investor, Adagio and ListCo (the “2024 Bridge Financing Note Subscription Agreement”).
As of the issuance date, Adagio received the principal of $7.0 million. On the Closing Date, pursuant to the terms of the 2024 Bridge Financing Note and the 2024 Bridge Financing Note Subscription
Agreement, the 2024 Bridge Financing Note converted into New Adagio Convertible Notes and Convert Warrants, and the Perceptive PIPE Investor will subscribe for $5.5 million of New Adagio Convertible Notes and 937,500 Convert Warrants, on the same
terms as the Convert Investors executing the Convertible Security Subscription Agreement (such commitment by the Perceptive PIPE Investor to purchase New Adagio Convertible Notes and Convert Warrants, the “Perceptive
Convertible Note Commitment,” and the conversion of the 2024 Bridge Financing Note and purchase of New Adagio Convertible Notes and Convert Warrants pursuant to the Perceptive Convertible Note Commitment as part of the Base Convert
Financing, the “Convertible Security Financing”). Subject to ARYA and New Adagio receiving any new financing or commitment for financing, whether in the form of equity, debt or convertible debt, before the
closing date, the Perceptive PIPE Investor had the right to request that on the closing date the 2024 Bridge Financing Note be repaid, the Perceptive Convertible Note Commitment is reduced or a combination of both. The New Adagio Convertible Notes,
the Convert Warrants or any shares of New Adagio Common Stock issued in connection with the Convertible Security Financing have not been registered under the Securities Act and were issued in reliance upon the exemption provided in Section 4(a)(2) of
the Securities Act. New Adagio has granted the Convert Investors certain registration rights in connection with the Convertible Security Financing. The Convertible Security Financing was contingent upon, among other things, the substantially
concurrent closing of the Business Combination. As set forth in the Convertible Security Subscription Agreement, the closing of $7,500,000 of financing by the Contingent Investor in the Convertible Security Financing was conditioned on New Adagio
having a certain amount of available unrestricted cash on the Closing Date.
May 2024 Notes
On May 21, 2024, Adagio issued a $3.0 million convertible promissory note (“May 2024 Notes”) to Perceptive PIPE Investor that matures upon the termination of the Business Combination Agreement in
accordance with its terms. It accrues simple interest at eight percent (8.0%) per annum.
Effective upon the closing of the Business Combination, the May 2024 Notes automatically converted into shares of New Adagio Common Stock that were issued in the PIPE Financing in an amount equal
to the then-outstanding principal amount and any accrued and unpaid interest, divided by the effective price of the securities sold in the PIPE Financing.
June 2024 Notes
On June 25, 2024, Adagio issued a $2.5 million convertible promissory note (“June 2024 Notes”) to Perceptive PIPE Investor that matures upon the termination of the Business Combination Agreement in
accordance with its terms. It accrues simple interest at eight percent (8.0%) per annum.
Effective upon the closing of the Business Combination, the June 2024 Notes automatically converted into share of New Adagio Common Stock that were issued in the PIPE Financing in an amount equal
to the then-outstanding principal amount and any accrued and unpaid interest, divided by the effective price of the securities sold in the PIPE Financing.
July 2024 Notes
On July 23, 2024, Adagio issued a $1.0 million convertible promissory note (“July 2024 Notes”) to Perceptive PIPE Investor that matures upon the termination of the Business Combination Agreement in
accordance with its terms. It accrues simple interest at eight percent (8.0%) per annum.
Effective upon the closing of the Business Combination, the July 2024 Notes automatically converted into share of New Adagio Common Stock that were issued in the PIPE Financing in an amount equal
to the then-outstanding principal amount and any accrued and unpaid interest, divided by the effective price of the securities sold in the PIPE Financing.
SVB Term Loan
In February 2023, we entered into an agreement with Silicon Valley Bank to borrow an initial term loan advance of $3.0 million and a right to borrow a subsequent term loan advance of $2.0 million. The loans mature on
January 1, 2025. In conjunction with the SVB Term Loan, we issued warrants to acquire 32,720 common stock shares in February 2023, and distributed additional warrants to acquire 16,360 common stock shares as of June 30, 2023. (Refer to Note 8-Warrants in our condensed consolidated financial statements for the periods ended June 30, 2024 and
December 31, 2023 for additional details).
Cash Flows
The following table shows a summary of our cash flows for each of the periods shown below:
|
Six months ended
June 30,
|
Year Ended
December 31,
|
|||||||||||||||
|
(In thousands)
|
2024
|
2023
|
2023
|
2022
|
||||||||||||
|
Statement of cash flows data:
|
||||||||||||||||
|
Net Cash Used in Operating Activities
|
$
|
(13,684
|
)
|
$
|
(12,162
|
)
|
$
|
(25,652
|
)
|
$
|
(22,412
|
)
|
||||
|
Net Cash Used in Investing Activities
|
(337
|
)
|
(202
|
)
|
(340
|
)
|
(500
|
)
|
||||||||
|
Net Cash Provided by Financing Activities
|
14,643
|
9,732
|
21,875
|
9,525
|
||||||||||||
|
Effect of Foreign Currency Translation on cash
|
40
|
(18
|
)
|
(47
|
)
|
81
|
||||||||||
|
Net Increase / (Decrease) in Cash and Cash Equivalents
|
$
|
662
|
$
|
(2,650
|
)
|
$
|
(4,164
|
)
|
$
|
(13,306
|
)
|
|||||
Comparison of Results for the six months Ended June 30, 2024 and 2023 (unaudited)
Cash Flows Used in Operating Activities
Net cash used in operating activities for the six months ended June 30, 2024 was $13.7 million, consisting primarily of a net loss of $14.5 million as adjusted for non-cash items of $1.5 million,
and net by the change in our net operating assets and liabilities of $2.3 million. Non-cash items primarily consisted of $0.6 million in depreciation and amortization, $0.2 million in stock-based compensation, $0.1 million loss on the disposal of
property and equipment, $0.1 million in noncash operating lease expenses, and offset by a gain of $2.5 million from the change in fair value of convertible notes payable. Changes in our net operating assets and liabilities year-over-year was
primarily due to a $1.8 million increase in accounts payable, a $1.4 million increase in other accrued liabilities and a $0.4 million increase in accrued liabilities, which were primarily driven by the increase in interest related the convertible
notes and the increase in transaction costs related to the Business Combination; offset by a $0.3 million decrease in accrued transaction costs, $0.1 million increase in accounts receivable, and $0.8 million increase in inventory, which were
primarily driven by the purchase of additional inventory and the increase in sales.
Net cash used in operating activities for the six months ended June 30, 2023 was $12.2 million, consisting primarily of a net loss of $17.8 million as adjusted for non-cash items of $4.2 million,
and a net change in our net operating assets and liabilities of $1.4 million. Non-cash items primarily consisted of a loss of $3.6 million related to the change in fair value of convertible notes payables, $0.3 million in depreciation and
amortization, and a $0.2 million in stock-based compensation, $0.1 million loss related to the fair value of warrant liabilities, and $0.1 million in noncash operating lease expenses. Changes in our net operating assets and liabilities
year-over-year, was primarily due to a $0.1 million decrease in inventory, $0.4 million decrease in prepaid expenses and other current assets, $0.2 million increase in accounts payable, a $0.4 million increase in accrued transaction costs, and a
$0.5 million increase in other accrued liabilities which was primarily driven by the increase in interest related the convertible notes, and the increase in transaction costs related to the Business Combination; offset by $0.1 million decrease in
operating leases liabilities, $0.1 million decrease in accrued liabilities, and $0.1 million increase in accounts receivable, which were primarily driven by an a decrease in payroll expenses, and the payment of lease liabilities.
Cash Flow Used in Investing Activities
Net cash used in investing activities for the six months ended June 30, 2024 was $0.3 million as compared to $0.2 million for the six months ended June 30, 2023. The increase of $0.1 million is
primarily due to increased purchase of property and equipment in 2024.
Cash Flow Provided by Financing Activities
Net cash provided by financing activities for the six months ended June 30, 2024 was $14.6 million as compared to $9.7 million for the six months ended June 30, 2023. The
increase of $4.9 million is primarily due to receiving $15.5 million from the issuance of the $7.0 million 2024 Bridge Financing Note, $3.0 million May 2024
Notes, $2.5 million June 2024 Notes, and the draw of $3.0 million November 2023 Notes during the six months ended June 30, 2024, net by a $0.9 million repayment of SVB
Term Loan during the six months ended June 30, 2024; whereas during the six months ended June 30, 2023, there was $7.0 million received from the issuance of the April 2023 Notes, and $3.0 million proceeds received the issuance of SVB Term Loan, net by a $0.3 million repayment of SVB Term Loan during six months ended June 30, 2023.
Comparison of Results for the Years Ended December 31, 2023 and 2022
Cash Flows Used in Operating Activities
Net cash used in operating activities for the year ended December 31, 2023 was $25.7 million, consisting primarily of a net loss of $38.1 million as adjusted for non-cash items of $9.7 million, and
a net change in our net operating assets and liabilities of $2.8 million. Non-cash items primarily consisted of a $8.5 million change in fair value of convertible notes payables, $0.5 million in depreciation and amortization, $0.2 million non-cash
operating lease expense, and a $0.4 million in stock-based compensation. Changes in our net operating assets and liabilities year-over-year, was primarily due to a $2.8 million increase in accounts payable, a $0.9 million increase in accrued
liabilities, a $0.4 million increase in accrued transaction costs, and a $1.4 million increase in other accrued liabilities, which were primarily driven by the increase in payroll expenses, and the increase in transaction costs related to the
Business Combination; the changes was offset by a $3.0 million increase in inventory.
Net cash used in operating activities for the year ended December 31, 2022 was $22.4 million, consisting primarily of a net loss of $23.7 million as adjusted for non-cash items of $0.9 million, and
a net change in our net operating assets and liabilities of $0.3 million. Non-cash items primarily consisted of $0.5 million in depreciation and amortization, and a $0.4 million in stock-based compensation. Changes in our net operating assets and
liabilities year-over-year, was primarily due to a $0.4 million increase in accounts payable, and a $0.2 million increase in accrued liabilities, which were primarily driven by the increase in payroll expenses, professional fees, and the expenditures
in research and development; the changes was offset by a $0.3 million increase in prepaid expenses and other current assets.
Cash Flow Used in Investing Activities
Net cash used in investing activities for the year ended December 31, 2023 was $0.3 million as compared to $0.5 million for the year ended December 31, 2022. The decrease of $0.2 million is
primarily due to decreased activities in purchasing property and equipment in 2023.
Cash Flow Provided by Financing Activities
Net cash provided by financing activities for the year ended December 31, 2023 was $21.9 million as compared to $9.5 million for the year ended December 31, 2022. The increase of $12.4 million is
due to receiving $20.0 million and $3.0 million in proceeds from issuance of convertible notes payable and proceeds from issuance of SVB Term Loan, respectively, net by a $1.2 million repayment of non-convertible term loan during the year ended
December 31, 2023; whereas during the year ended December 31, 2022, the proceeds from issuance of convertible notes payable is $9.5 million.
Off-Balance Sheet Arrangements
During the periods presented, we did not have, nor do we currently have, any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special
purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. We are, therefore, not exposed to the financing, liquidity, market, or credit risk
that could arise if we had engaged in those types of relationships.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in our audited consolidated financial statements and accompanying
notes included elsewhere in this proxy statement/prospectus. We base our estimates on historical experience, current business factors and various other assumptions that we believe are necessary to consider forming a basis for making judgments about
the carrying values of assets and liabilities, the recorded amounts of revenue and expenses and the disclosure of contingent assets and liabilities. We are subject to uncertainties such as the impact of future events, economic and political factors,
and changes in our business environment; therefore, actual results could differ from these estimates.
Accordingly, the accounting estimates used in the preparation of our audited consolidated financial statements will change as new events occur, as more experience is acquired, as additional information is obtained and
as our operating environment changes. Changes in estimates are made when circumstances warrant. Such changes in estimates and refinements in estimation methodologies are reflected in reported results of operations; if material, the effects of changes
in estimates are disclosed in the notes to our audited consolidated financial statements.
On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates under different assumptions or conditions.
Our significant accounting policies are described in Note 2-Summary of Significant Accounting Policies to our consolidated financial statements. These are the policies that we
believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations.
Stock-Based Compensation
We recognize compensation expense for all stock-based awards issued to employees and non-employees based on the estimated grant-date fair value, which is recognized as expense on a straight-line
basis over the requisite service period. We have elected to recognize forfeitures as they occur. The fair value of stock options is determined using the Black-Scholes option-pricing model. The determination of fair value for stock-based awards on
the date of grant using an option-pricing model requires management to make certain assumptions including expected volatility, expected term, risk-free interest rate and expected dividends in addition to our common stock valuation. The assumptions
used in calculating the fair value of stock-based awards represent our best estimates and involve inherent uncertainties and the application of our judgment.
All stock-based compensation costs are recorded in cost of products sold, research and development expense or selling, general, and administrative expense in the consolidated statements of
operations and comprehensive loss based upon the respective employee’s or non-employee’s roles.
Common Stock Valuations
Due to the absence of a public trading market, we determined the fair value of our common stock by considering numerous objective and subjective factors. The factors considered include, but are not limited to:
| (i) |
the results of contemporaneous independent third-party valuations of our common stock;
|
| (ii) |
the prices, rights, preferences and privileges of our preferred stock relative to those of our common stock;
|
| (iii) |
the lack of marketability of our common stock;
|
| (iv) |
actual operating and financial results;
|
| (v) |
current business conditions and projects; and
|
| (vi) |
the likelihood of achieving a liquidity event
|
As of June 30, 2024 and December 31, 2023, the fair value of our common stock was determined with probability weighted expected return method (“PWERM”), which assessed the
probability weighted depending on different scenarios. As of June 30, 2024, the valuation was based on the scenario (i) bankruptcy/suboptimal sale scenario reflecting a zero return to common shareholders, with 0% probability, (ii) an “as converted”
merger with a 95% probability, and (iii) a delayed but successful liquidity event per the option pricing method, with 5% probability. As of December 31, 2023, the valuation was based on the scenario (i) the bankruptcy/suboptimal sale scenario
reflecting a zero return to common shareholders, with 20% probability (ii) a consummation of a business combination transaction with a SPAC, with 40% probability, and (iii) a delayed but successful liquidity event per the option pricing method, with
40% probability.
As of June 30, 2024, in determining the value under the “as converted” merger, we utilized (i) a diluted equity value of $9.9 million and (ii) all dilutive instruments are expected to convert or be exercised resulting
in 6,134,692 total common shares outstanding.
As of December 31, 2023, in determining the value under the consummation of a business combination transaction with a SPAC scenario, we utilized the preliminary terms of the letter of intent with such SPAC that (i) the
transaction based on diluted equity value of $38.8 million and (ii) all dilutive instruments are expected to convert or be exercised resulting in 6,369,633 total common shares outstanding.
The valuation under the scenario of a delayed but successful liquidity event per the option pricing method was determined by the fair value per share at a marketable basis applied by a discount for
lack marketability (“DLOM”). The fair value per share at a marketable basis was determined using the interval option value allocation approach. The DLOM was determined based on Finnerty put option model,
marketability factors and restricted stock studies.
The significant unobservable inputs into the valuation model include:
| • |
the timing of potential events (for example, a consummation of a business combination transaction with a SPAC) and their probability of occurring;
|
| • |
the selection of guideline public company multiples; and
|
| • |
a discount for the lack of marketability of the common stock.
|
An increase or decrease in any of the unobservable inputs in isolation could result in a material change. In the future, depending on the weight of evidence and valuation approaches used, these or
other inputs may have a more significant impact on the estimated fair value.
Convertible Notes Valuation
As permitted under ASC 825, Financial Instruments (“ASC 825”), Adagio elected the fair value option to account for the October 2022 Convertible Notes,
the April 2023 Notes, the November 2023 Notes, the 2024 Bridge Financing Note, the May 2024 Notes, and the June 2024 Notes in order to measure those liabilities at amounts that more accurately reflect the current economic environment in which
Adagio operates.
Adagio recorded the October 2022 Convertible Notes, the April 2023 Notes, the November 2023 Notes, the 2024 Bridge Financing Note, the May 2024 Notes, and the June 2024 Notes at
fair value at issuance and subsequently remeasures them to fair value at each reporting period. Changes in fair value are recognized as convertible notes fair value adjustment in the statements of operations and comprehensive loss. As a result of
applying the fair value option, direct costs and fees related to the issuance of the October 2022 Convertible Notes, the April 2023 Notes, the November 2023 Notes, the 2024 Bridge Financing Note, the May 2024
Notes, and the June 2024 Notes were expensed as incurred (i.e., not recognized as deferred costs). Refer to Note 3-Fair Value Measurements in our condensed consolidated financial statements for the
periods ended June 30, 2024 and December 31, 2023 for additional detail.
As of June 30, 2024, Adagio calculated the value of the convertible notes based on the equity value from 409(a) valuations, considering the expected payoff of the convertible notes upon different types of events.
Utilizing the PWERM, Adagio assessed the probability that the October 2022 Convertible Notes would be converted to common stock through the result of a mandatory prepayment, PIPE Financing, or no PIPE Financing and no
Qualified Financing (refer to Note 7-Debt in our condensed consolidated financial statements for the periods ended June 30, 2024 and December 31, 2023 for additional detail), weighted with a probability of
0%, 95% and 5%, respectively, as of June 30, 2024.
Utilizing the PWERM, Adagio assessed the probability that the April 2023 Notes, November 2023 Notes, May 2024 Notes, and June 2024 Notes would be converted to common stock
through the result of a liquidation event, PIPE Financing, or no PIPE Financing and no Qualified Financing, weighted with a probability of 0%, 95% and 5%, respectively, as of June 30, 2024. Adagio also implied a credit spread by calibrating the value
of the April 2023 Notes at issuance to the par value and then adjusted the calibrated credit spread for seniority difference and the market related movements as appropriate.
Utilizing the PWERM, Adagio assessed the probability that the 2024 Bridge Financing Notes would be converted to common stock as a result of a liquidation
event, consummation of a transaction, or no transaction and no Qualified Financing, weighted with a probability of 0%, 95% and 5% as of June 30, 2024.
As of December 31, 2023, Adagio calculated the value of the convertible notes based on the equity value from 409(a) valuations, considering the expected payoff of the convertible notes upon different types of events.
Utilizing the PWERM, Adagio assessed the probability that the October 2022 Convertible Notes would be converted to common stock through the result of mandatory prepayment, Private Investment in PIPE Financing, or no
PIPE Financing and no Qualified Financing, weighted with a probability of 20%, 40% and 40%, respectively, as of December 31, 2023.
Utilizing the PWERM, Adagio assessed the probability that the April 2023 Notes and the November 2023 Notes would be converted to common stock as a result of a liquidation
event, PIPE Financing, or no PIPE Financing & no Qualified Financing, weighted with a probability of 20%, 40% and 40% as of December 31, 2023. Adagio also implied a credit spread by calibrating the value of the April 2023 Notes at issuance to the
par value and then adjusted the calibrated credit spread for seniority difference and the market related movements as appropriate.
Additional assumptions used to estimate the fair value include: (i) the expected timing of the conversion, (ii) the amount subject to equity conversion, the sum of the notes’ principal and unpaid accrued interest,
(iii) expected volatility, (iv) risk-free interest rate, and (v) the discount rate, based on the observed option-adjusted spread (OAS) data of traded bonds rated CCC-.
Common Stock Warrants
Adagio accounts for certain common stock warrants outstanding as warrant liabilities at fair value, determined using the Black-Scholes option pricing model based on the common stock
value from 409(a) valuation. The assumption used to estimate the fair value include: (i) expected volatility, (ii) risk-free interest rate, (iii) expected dividend yield, and (iv) expected term.
The liability is subject to re-measurement at each reporting period and any change in fair value is recognized in the condensed consolidated statements of operations and
comprehensive loss. See Note 8-Warrants in our condensed consolidated financial statements for the periods ended June 30, 2024 and
December 31, 2023 for additional information related to the warrants.
Pre-funded Warrants
On June 25, 2024, Adagio issued to a certain investor the pre-funded warrants to purchase Adagio’s Series E Preferred Stock, in exchange of the investor’s existing holding of Series E Preferred
Stock. The exercise price of the pre-funded warrants is $0.001 per warrant share. Adagio measured the pre-funded warrants at fair value based on the indicated fair value of Series E Preferred Stock, which is not observable in the market. The
measurement caused the pre-funded warrant to be classified as Level 3 measurements within the fair value hierarchy. Changes in the fair value of the pre-funded warrants were recognized as warrant liabilities fair value adjustment within the condensed
consolidated statements of operations and comprehensive loss.
As of June 30, 2024, Adagio estimated the fair value of Series E Preferred Stock by applying a conversion factor of 1.08 to the indicated fair value of Adagio common stock. See Note 8-Warrants for additional information related to the pre-funded warrants.
Term Loan
Adagio accounts for the SVB Term Loan at residual value on the date of issuance. The expected life of the SVB Term Loan is the contractual term ending on the maturity date. Adagio
classifies the term loan as current liabilities within twelve months of the maturity date or when otherwise due. Interest expense is recognized in the consolidated statements of operations and comprehensive loss over the contractual term of the
loan. See Note 7-Debt in our condensed consolidated financial statements for the periods ended June 30, 2024 and December 31, 2023 for additional information related to the SVB Term Loan.
Convertible Preferred Stock
Adagio records convertible preferred stock at fair value on the dates of issuance, net of issuance costs. Upon the occurrence of certain events that are outside our control, including a deemed
liquidation event, holders of the convertible preferred stock can cause redemption for cash. As the preferred stock is considered to be contingently redeemable, the preferred stock has been classified outside of permanent equity. The preferred
stock will be accreted to its redemption value if the deemed liquidation events are considered probable of occurring.
Strategic Realignment of Resources and Corporate Restructuring
On December 1, 2023, Adagio’s management approved a strategic realignment of resources and corporate restructuring (the “RIF”) designed to reallocate capital, conformant to its
business focus for the next two years. As part of the RIF, Adagio initiated a reduction in its current workforce of 20 employees, representing approximately 19% of Adagio’s employees, which was completed on December 15, 2023. In compliance
with the Worker Adjustment and Retraining Notification Act, Adagio has provided termination notices to affected employees and government authorities if required.
Adagio made no payment for severance or related benefit costs. Adagio made no payment of retention bonuses.
Emerging Growth Company Status
We are an emerging growth company (“EGC”), as defined in the JOBS Act. The JOBS Act permits companies with EGC status to take advantage of an extended transition period to comply with new or
revised accounting standards, delaying the adoption of these accounting standards until they would apply to private companies. We have elected to use this extended transition period to enable us to comply with new or revised accounting standards
that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS
Act. As a result, our financial statements may not be comparable to companies that comply with the new or revised accounting standards as of public company effective dates.
In addition, we intend to rely on the other exemptions and reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, if, as an EGC, we
intend to rely on such exemptions, we are not required to, among other things: (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act; (ii)
provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act; (iii) comply with any requirement that may be adopted by the Public Company
Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis); and (iv) disclose certain
executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the Chief Executive Officer’s compensation to median employee compensation.
We will remain an EGC under the JOBS Act until the earliest of (i) the last date of our fiscal year in which we have total annual gross revenue of at least $1.235 billion, (ii) the date on which we are deemed to be a “large accelerated filer” under the rules of the SEC with at least $700.0 million of outstanding securities held by non-affiliates, or (iii) the date on which we
have issued more than $1.0 billion in non-convertible debt securities during the previous three-years.
Qualitative and Quantitative Disclosures About Market Risk
We have operations primarily within the United States and we are exposed to market risk in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to
adverse changes in financial market prices and rates. We do not believe that inflation has had a material effect on our business, results of operations or financial condition. Nonetheless, if our costs were to become subject to significant
inflationary pressures, we may not be able to fully offset such higher costs. Our inability or failure to do so could harm our business, results of operations or financial condition.
Our revenue generated in Europe, as well as costs and expenses denominated in Euro, expose us to the risk of fluctuations in foreign currency exchange rates against the U.S. dollar. We are exposed to foreign currency
risks related to our revenue and operating expenses, along with certain intercompany transactions, denominated in Euro. Accordingly, changes in exchange rates may negatively affect our future revenue and other operating results as expressed in U.S.
dollars. We do not believe that foreign currency exchange risk has had a material effect on our business, results of operations or financial condition.
Recent Accounting Pronouncements
See Note 2-Summary of Significant Accounting Policies in our condensed consolidated financial statements for the periods ended June 30,
2024 and December 31, 2023 for a description of recent accounting pronouncements applicable to our financial statements.
Exhibit 99.3
Table of Contents
|
Page
|
|
|
Financial Statements
|
1
|
|
Consolidated Condensed Balance Sheets as of June 30, 2024 (Unaudited) and December 31, 2023
|
1
|
|
Unaudited Consolidated Condensed Statements of Operations for the Three and Six Months Ended June 30, 2024 and 2023
|
2
|
|
Unaudited Consolidated Condensed Statements of Changes in Shareholders’ Deficit for the Three and Six Months Ended June 30, 2024 and 2023
|
2 |
|
Unaudited Consolidated Condensed Statements of Cash Flows for the Six Months Ended June 30, 2024 and 2023
|
3
|
|
Notes to Unaudited Consolidated Condensed Financial Statements
|
4
|
ARYA SCIENCES ACQUISITION CORP IV
CONSOLIDATED CONDENSED BALANCE SHEETS
|
June 30,
2024
|
December 31,
2023
|
|||||||
|
Assets
|
(Unaudited)
|
|||||||
|
Current assets:
|
||||||||
|
Cash
|
$
|
26,058
|
$
|
20,191
|
||||
|
Prepaid expenses
|
28,463
|
56,547
|
||||||
|
Total current assets
|
54,521
|
76,738
|
||||||
|
Cash held in Trust Account
|
37,938,923
|
40,575,949
|
||||||
|
Total Assets
|
$
|
37,993,444
|
$
|
40,652,687
|
||||
|
Liabilities and Shareholders’ Deficit
|
||||||||
|
Current liabilities:
|
||||||||
|
Accounts payable
|
$
|
156,536
|
$
|
130,524
|
||||
|
Accrued expenses
|
6,569,307
|
9,837,703
|
||||||
|
Due to related party
|
―
|
210,000
|
||||||
|
Convertible promissory note - related party
|
3,616,000
|
2,175,000
|
||||||
|
Total current liabilities
|
10,341,843
|
12,353,227
|
||||||
|
Deferred underwriting commissions
|
2,616,250
|
2,616,250
|
||||||
|
Total liabilities
|
12,958,093
|
14,969,477
|
||||||
|
Commitments and Contingencies
|
||||||||
|
Class A ordinary shares, $0.0001 par value; 3,300,016 and 3,690,831 shares subject to possible redemption at approximately $11.47 and $10.97 per share as of June 30, 2024 and December 31,
2023, respectively
|
37,838,923
|
40,475,949
|
||||||
|
Shareholders’ Deficit:
|
||||||||
|
Preference shares, $0.0001 par value; 1,000,000 shares authorized; none issued or outstanding as of June 30, 2024 and December 31, 2023
|
—
|
—
|
||||||
|
Class A ordinary shares, $0.0001 par value; 479,000,000 shares authorized; 499,000 shares issued and outstanding (excluding 3,300,016 and 3,690,831 shares subject to possible redemption)
as of June 30, 2024 and December 31, 2023, respectively
|
50
|
50
|
||||||
|
Class B ordinary shares, $0.0001 par value; 20,000,000 shares authorized; 3,737,500 shares issued and outstanding as of June 30, 2024 and December 31, 2023, respectively
|
374
|
374
|
||||||
|
Additional paid-in capital
|
412,421
|
—
|
||||||
|
Accumulated deficit
|
(13,216,419
|
)
|
(14,793,163
|
)
|
||||
|
Total shareholders’ deficit
|
(12,803,574
|
)
|
(14,792,739
|
)
|
||||
|
Total Liabilities and Shareholders’ Deficit
|
$
|
37,993,444
|
$
|
40,652,687
|
||||
The accompanying notes are an integral part of these unaudited consolidated condensed financial statements.
1
ARYA SCIENCES ACQUISITION CORP IV
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
|
For the Three Months Ended
June 30,
|
For the Six Months Ended
June 30,
|
|||||||||||||||
|
2024
|
2023
|
2024
|
2023
|
|||||||||||||
|
General and administrative expenses
|
$
|
252,199
|
$
|
78,851
|
$
|
863,939 |
$
|
1,047,448
|
||||||||
|
Loss from operations
|
(252,199
|
)
|
(78,851
|
)
|
(863,939
|
)
|
(1,047,448
|
)
|
||||||||
|
Gain on extinguishment of legal expenses
|
2,302,557
|
—
|
3,577,104
|
—
|
||||||||||||
|
Subscription agreement expense
|
(713,794)
|
—
|
(2,134,199
|
)
|
—
|
|||||||||||
|
Interest earned on cash and investments held in Trust Account
|
486,027
|
460,364
|
997,778
|
1,589,210
|
||||||||||||
| Total Other income (expense), net |
2,074,790 |
460,364 |
2,440,683 |
1,589,210 | ||||||||||||
|
Net income
|
$
|
1,822,591
|
$
|
381,513
|
$
|
1,576,544
|
$
|
541,762
|
||||||||
|
Basic and diluted weighted average shares outstanding of Class A ordinary shares
|
3,922,090
|
3,690,831
|
3,922,090
|
7,485,358
|
||||||||||||
|
Basic and diluted net income per share, Class A ordinary share
|
$
|
0.24
|
$
|
0.05
|
$
|
0.21
|
$
|
0.05
|
||||||||
|
Basic and diluted weighted average shares outstanding of Class B ordinary shares
|
3,737,500
|
3,737,500
|
3,737,500
|
3,737,500
|
||||||||||||
|
Basic and diluted net income per share, Class B ordinary share
|
$
|
0.24
|
$
|
0.05
|
$
|
0.21
|
$
|
0.05
|
||||||||
The accompanying notes are an integral part of these unaudited consolidated condensed financial statements.
ARYA SCIENCES ACQUISITION CORP IV
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIT
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2024
|
Ordinary Shares
|
Additional
Paid-in
Capital
|
Accumulated
Deficit
|
Total
Shareholders’
Deficit
|
|||||||||||||||||||||||||
|
Class A
|
Class B
|
|||||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
|||||||||||||||||||||||||
|
Balance – December 31, 2023
|
499,000
|
$
|
50
|
3,737,500
|
$
|
374
|
$
|
—
|
$
|
(14,793,163
|
)
|
$
|
(14,792,739
|
)
|
||||||||||||||
|
Subscription Agreement Expense
|
—
|
—
|
—
|
—
|
1,420,405
|
—
|
1,420,405
|
|||||||||||||||||||||
|
Adjustment of accretion of Class A ordinary shares subject to possible redemption
|
—
|
—
|
—
|
—
|
(902,751
|
)
|
-
|
(902,751
|
)
|
|||||||||||||||||||
|
Net loss
|
—
|
—
|
—
|
—
|
—
|
(245,847
|
)
|
(245,847
|
)
|
|||||||||||||||||||
|
Balance – March 31, 2024 (unaudited)
|
499,000
|
50
|
3,737,500
|
374
|
517,654
|
(15,039,010
|
)
|
(14,520,932
|
)
|
|||||||||||||||||||
|
Subscription Agreement Expense
|
—
|
—
|
—
|
—
|
713,794
|
—
|
713,794
|
|||||||||||||||||||||
|
Adjustment of accretion of Class A ordinary shares subject to possible redemption
|
—
|
—
|
—
|
—
|
(819,027
|
)
|
—
|
(819,027
|
)
|
|||||||||||||||||||
|
Net income
|
—
|
—
|
—
|
—
|
—
|
1,822,591
|
1,822,591
|
|||||||||||||||||||||
|
Balance – June 30, 2024 (unaudited)
|
499,000
|
$
|
50
|
3,737,500
|
$
|
374
|
$
|
412,421
|
$
|
(13,216,419
|
)
|
$
|
(12,803,574
|
)
|
||||||||||||||
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2023
|
Ordinary Shares
|
Additional
Paid-in
Capital
|
Accumulated
Deficit
|
Total
Shareholders’
Deficit
|
|||||||||||||||||||||||||
|
Class A
|
Class B
|
|||||||||||||||||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
|||||||||||||||||||||||||
|
Balance – December 31, 2022
|
499,000
|
$
|
50
|
3,737,500
|
$
|
374
|
$
|
—
|
$
|
(8,640,891
|
)
|
$
|
(8,640,467
|
)
|
||||||||||||||
|
Adjustment of accretion of Class A ordinary shares subject to possible redemption
|
—
|
—
|
—
|
—
|
—
|
(1,548,845
|
)
|
(1,548,845
|
)
|
|||||||||||||||||||
|
Net income
|
—
|
—
|
—
|
—
|
—
|
160,249
|
160,249
|
|||||||||||||||||||||
|
Balance – March 31, 2023 (unaudited)
|
499,000
|
50
|
3,737,500
|
374
|
—
|
(10,029,487
|
)
|
(10,029,063
|
)
|
|||||||||||||||||||
|
Adjustment of accretion of Class A ordinary shares subject to possible redemption
|
—
|
—
|
—
|
—
|
—
|
(600,365
|
)
|
(600,365
|
)
|
|||||||||||||||||||
|
Net income
|
—
|
—
|
—
|
—
|
—
|
381,513
|
381,513
|
|||||||||||||||||||||
|
Balance – June 30, 2023 (unaudited)
|
499,000
|
$
|
50
|
3,737,500
|
$
|
374
|
$
|
—
|
$
|
(10,248,339
|
)
|
$
|
(10,247,915
|
)
|
||||||||||||||
The accompanying notes are an integral part of these unaudited consolidated condensed financial statements.
2
ARYA SCIENCES ACQUISITION CORP IV
UNAUDITED CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
|
For the Six Months Ended
June 30,
|
||||||||
|
2024
|
2023
|
|||||||
|
Cash Flows from Operating Activities:
|
||||||||
|
Net income
|
$
|
1,576,544
|
$
|
541,762
|
||||
|
Adjustments to reconcile net income to net cash used in operating activities:
|
||||||||
|
Gain on extinguishment of legal expenses
|
(3,577,105
|
)
|
—
|
|||||
|
Subscription Agreement Expense
|
2,134,199 |
—
|
||||||
|
Interest earned on cash and investments held in Trust Account
|
(997,778
|
)
|
(1,589,210
|
)
|
||||
|
Changes in operating assets and liabilities:
|
||||||||
|
Prepaid expenses
|
28,085
|
(208,604
|
)
|
|||||
|
Accounts payable
|
26,012
|
13,717
|
||||||
|
Accrued expenses
|
308,707
|
529,319
|
||||||
|
Due to related party
|
(210,000
|
)
|
60,000
|
|||||
|
Net cash used in operating activities
|
(711,133
|
)
|
(653,016
|
)
|
||||
|
Cash Flows from Investing Activities:
|
||||||||
|
Cash deposited in Trust Account
|
(724,000
|
)
|
(560,000
|
)
|
||||
|
Cash withdrawn from Trust Account for redemption
|
4,358,804
|
115,071,882
|
||||||
|
Net cash provided by financing activities
|
3,634,804
|
114,511,882
|
||||||
|
Cash Flows from Financing Activities:
|
||||||||
|
Proceeds from convertible promissory note – related party
|
1,441,000
|
1,140,000
|
||||||
|
Redemption of Class A ordinary shares
|
(4,358,804
|
)
|
(115,071,882
|
)
|
||||
|
Net cash used in financing activities
|
(2,917,804
|
)
|
(113,931,882
|
)
|
||||
|
Net change in cash
|
5,867
|
(73,016
|
)
|
|||||
|
Cash - beginning of the period
|
20,191
|
91,049
|
||||||
|
Cash - end of the period
|
$
|
26,058
|
$
|
18,033
|
||||
The accompanying notes are an integral part of these unaudited consolidated condensed financial statements.
3
ARYA SCIENCES ACQUISITION CORP IV
NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2024
Note 1 - Description of Organization and Business Operations
ARYA Sciences Acquisition Corp IV (the “Company” or “ARYA”) was incorporated as a Cayman Islands exempted company on August 24, 2020. The Company was formed for the purpose of effecting a merger, share exchange,
asset acquisition, share purchase, reorganization or similar business combination with one or more businesses (the “Business Combination”). The Company is an emerging growth company and, as such, the Company is subject to all of the risks
associated with emerging growth companies.
All activity for the period from August 24, 2020 (inception) through June 30, 2024 was related to the Company’s formation and initial public offering (the “Initial Public Offering”) described below, and since the
Initial Public Offering, the search for a prospective initial Business Combination. The Company will not generate any operating revenues until after the completion of its initial Business Combination, at the earliest. The Company generates
non-operating income in the form of income earned on investments or cash held in the Trust Account (as defined below) from the proceeds derived from the Initial Public Offering.
The Company has one wholly owned subsidiary, Aja Holdco, Inc., a Delaware corporation (“ListCo” or “HoldCo”), formed on December 19, 2023 and ARYA
Merger Sub, a Cayman Islands exempted company (“ARYA Merger Sub”) formed on December 18, 2023.
The Company’s sponsor is ARYA Sciences Holdings IV, a Cayman Islands exempted company (the “Sponsor”). The registration statement for the Company’s Initial Public Offering was declared effective on February 25,
2021. On March 2, 2021, the Company consummated its Initial Public Offering of 14,950,000 Class A ordinary shares (the “Public Shares”), including the 1,950,000 Public Shares as a result of the underwriters’ full exercise of their over-allotment
option, at an offering price of $10.00 per Public Share, generating gross proceeds of $149.5 million, and incurring offering costs of approximately $8.8 million, inclusive of approximately $5.2 million in deferred underwriting commissions (see Note
5). On August 8, 2022, the Company received a waiver from one of the underwriters of its Initial Public Offering pursuant to which such underwriter waived all rights to its 50% share of the deferred underwriting commissions payable upon completion
of an initial Business Combination (the “Waiver”). In connection with the Waiver, the underwriter also agreed that (i) the Waiver is not intended to allocate its 50% portion of the deferred underwriting commissions to the other underwriter that has
not waived its right to receive its share of the deferred underwriting commissions and (ii) the waived portion of the deferred underwriting commissions can, at the discretion of the Company, be paid to one or more parties or otherwise be used in
connection with an initial Business Combination.
Simultaneously with the closing of the Initial Public Offering, the Company consummated the private placement (“Private Placement”) of 499,000 Class A ordinary shares (the “Private Placement Shares”), at a price of
$10.00 per Private Placement Share to the Sponsor, generating gross proceeds of approximately $5.0 million (see Note 4).
Upon the closing of the Initial Public Offering and the Private Placement, $149.5 million ($10.00 per Public Share) of the net proceeds of the Initial Public Offering and certain of the proceeds of the Private
Placement were placed in a trust account (the “Trust Account”), located in the United States, with Continental Stock Transfer & Trust Company acting as trustee, and were invested only in United States “government securities” within the meaning
of Section 2(a)(16) of the Investment Company Act of 1940, as amended (the “Investment Company Act”), having a maturity of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 promulgated under the Investment Company
Act which invest only in direct U.S. government treasury obligations, until the earlier of (i) the completion of a Business Combination and (ii) the distribution of the Trust Account as described below. On February 27, 2023, the Company delivered
an instruction letter to Continental Stock Transfer & Trust Company, acting as trustee, to liquidate the investments held in the Trust Account and instead to hold the funds in the Trust Account in cash in an interest-bearing demand deposit
account until the earlier of the consummation of an initial Business Combination or the Company’s liquidation. The Company is taking these steps in order to mitigate the risk that the Company might be deemed to be an investment company for purposes
of the Investment Company Act following the adoption of the First Extension Amendment Proposal described below. For more information on the partial liquidation of the Trust Account in connection with the adoption of the First Extension Amendment
Proposal and the related redemption of Class A ordinary shares, see below.
The Company’s management has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering and the sale of Private Placement Shares, although substantially all of the
net proceeds are intended to be applied generally toward consummating a Business Combination. There is no assurance that the Company will be able to complete a Business Combination successfully. The Company must complete one or more initial
Business Combinations having an aggregate fair market value of at least 80% of the net assets held in the Trust Account (excluding the amount of deferred underwriting commissions and taxes payable on the interest earned on the Trust Account) at the
time of the signing of the agreement to enter into the initial Business Combination. However, the Company will only complete a Business Combination if the post-transaction company owns or acquires 50% or more of the outstanding voting securities of
the target or otherwise acquires a controlling interest in the target sufficient for it not to be required to register as an investment company under the Investment Company Act.
The Company will provide the holders (the “Public Shareholders”) of Public Shares, 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 shareholder 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, solely in its discretion. The Public Shareholders will be entitled to redeem their Public Shares for a pro rata portion of the amount then in the Trust Account (initially anticipated to be $10.00 per Public Share, plus any pro
rata interest earned on the funds held in the Trust Account and not previously released to the Company to pay income taxes). 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 of its Initial Public Offering (as discussed in Note 5).
These Public Shares are classified as temporary equity upon the completion of the Initial Public Offering in accordance with the 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 a majority of the ordinary shares, represented in person or by proxy and entitled to vote thereon, voted at a
shareholder meeting are voted in favor of the Business Combination. If a shareholder vote is not required by law and the Company does not decide to hold a shareholder vote for business or other reasons, the Company will, pursuant to the amended and
restated memorandum and articles of association which the Company adopted upon the consummation of the Initial Public Offering and subsequently amended in connection with the adoption of First Extension Amendment Proposal and Second Extension
Amendment Proposal described below (as amended from time to time, the “Amended and Restated Memorandum and Articles of Association”), conduct the redemptions pursuant to the tender offer rules of the U.S. Securities and Exchange Commission (“SEC”)
and file tender offer documents with the SEC prior to completing a Business Combination. If, however, shareholder approval of the transactions is required by law, or the Company decides to obtain shareholder approval for business or other reasons,
the Company will offer to redeem shares in conjunction with a proxy solicitation pursuant to the proxy rules and not pursuant to the tender offer rules. Additionally, each Public Shareholder may elect to redeem their Public Shares irrespective of
whether they vote for or against the proposed transaction or vote at all. If the Company seeks shareholder approval in connection with a Business Combination, the initial shareholders (as defined below) agreed to vote their Founder Shares (as
defined below in Note 4) and any Public Shares they hold in favor of a Business Combination. In addition, the initial shareholders agreed to waive their redemption rights with respect to their Founder Shares, Private Placement Shares and Public
Shares in connection with the completion of a Business Combination.
4
Notwithstanding the foregoing, if the Company seeks shareholder approval of its Business Combination and does not conduct redemptions in connection with its Business Combination pursuant to the tender offer rules,
the Amended and Restated Memorandum and Articles of Association 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 15% of the Class A ordinary shares, without the prior consent of the
Company.
The Company’s Sponsor, officers and directors (the “initial shareholders”) agreed not to propose an amendment to the Amended and Restated Memorandum and Articles of Association (a) that would modify the substance or
timing of the Company’s obligation to provide holders of its Public Shares the right to have their shares redeemed in connection with a Business Combination or to redeem 100% of the Public Shares if the Company does not complete its Business
Combination within the time period during which the Company is required to consummate a Business Combination pursuant to the Amended and Restated Memorandum and Articles of Association (the “Business Combination Period”), or (b) with respect to any
other provision relating to the rights of Public Shareholders, unless the Company provides the Public Shareholders with the opportunity to redeem their Class A ordinary shares in conjunction with any such amendment.
If the Company has not completed a Business Combination within the Business 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 earned on the funds held in the Trust Account
and not previously released to the Company to pay its income taxes, if any (less up to $100,000 of interest to pay dissolution expenses), divided by the number of the then-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 Company’s remaining
shareholders and its board of directors, liquidate and dissolve, subject in the case of clauses (ii) and (iii) to the Company’s obligations under Cayman Islands law to provide for claims of creditors and the requirements of other applicable law.
The initial shareholders agreed to waive their liquidation rights with respect to the Founder Shares and Private Placement Shares held by them if the Company fails to complete a Business Combination within the
Business Combination Period. However, if the initial shareholders 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 Business Combination Period. The underwriters of the Initial Public Offering agreed to waive their rights to their deferred underwriting commissions (see Note 5) held in the Trust Account
in the event the Company does not complete a Business Combination within the Business Combination Period and, in such event, such amounts will be included with the other funds held in the Trust Account that will be available to fund the redemption
of the Public Shares. In the event of such distribution, it is possible that the per share value of the assets remaining available for distribution (including Trust Account assets) will be only $10.00 per share initially held in the Trust Account.
In order to protect the amounts held in the Trust Account, the Sponsor agreed to be liable to the Company if and to the extent any claims by a third party (excluding the Company’s independent registered public accounting firm) for services rendered
or products sold to the Company, or a prospective target business with which the Company has discussed entering into a transaction 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 Public Share due to reductions in the value of the assets in the Trust Account, in each case net of the
interest that may be withdrawn to pay for the Company’s tax obligations. This liability will not apply with respect to any claims by a third party who executed a waiver of any right, title, interest or claim of any kind in or to any monies held in
the Trust Account or 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”).
Moreover, 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 all vendors, service providers (excluding 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. The Company has not asked
the Sponsor to reserve for such indemnification obligations, nor has the Company independently verified whether the Sponsor has sufficient funds to satisfy its indemnity obligations and the Company believes that the Sponsor’s only assets are
securities of the Company. The Sponsor may not be able to satisfy those obligations. None of the Company’s officers or directors will indemnify the Company for claims by third parties including, without limitation, claims by vendors and prospective
target businesses.
On February 28, 2023, the Company held an extraordinary general meeting of shareholders in view of approving an amendment to its Amended and Restated Memorandum and Articles of Association to extend the date (the
“Termination Date”) by which the Company has to consummate a Business Combination from March 2, 2023 (the “Original Termination Date”) to June 2, 2023 (the “Previous Articles Extension Date”) and to allow the Company, without another shareholder
vote, to elect to extend the Termination Date to consummate a Business Combination on a monthly basis for up to nine times by an additional one month each time after the Previous Articles Extension Date, by resolution of the Company’s board of
directors, if requested by the Sponsor, and upon five days’ advance notice prior to the applicable Termination Date, until March 2, 2024 or a total of up to thirty-six months after the Original Termination Date, unless the closing of a Business
Combination shall have occurred prior thereto or the Amended and Restated Memorandum and Articles of Association have been amended prior thereto in order to further extend the Termination Date (the “First Extension Amendment Proposal”). In
connection with the initial three-month extension from the Original Termination Date to the Previous Articles Extension Date the Sponsor made an initial deposit into the Trust Account of $420,000 in exchange for the Second Convertible Promissory
Note (as defined below). In connection with any subsequent optional monthly extensions following the Previous Articles Extension Date, the Sponsor made deposits of $140,000 per month into the Trust Account, as provided for in the amendment to the
Amended and Restated Memorandum and Articles of Association that was adopted on February 28, 2023.
The Company approved one-month extensions on June 2, 2023, July 2, 2023, August 2, 2023, September 2, 2023, October 2, 2023, November 2, 2023, December 2, 2023, January 2, 2024 and February 2, 2024. In connection
with the extensions on June 2, 2023, July 2, 2023, August 2, 2023, and September 2, 2023, the Company drew an aggregate amount of $560,000 from the Second Convertible Promissory Note in the principal amount of up to $1,680,000. In connection with
the extensions on October 2, 2023, November 2, 2023 and December 2, 2023, January 2, 2024 and February 2, 2024, the Company drew an aggregate amount of $900,000 from the Third Promissory Note (as defined below). The Company also drew additional
funds under the Second Convertible Promissory Note and the Third Promissory Note in view of funding the Company’s ongoing working capital (for more information see Note 4).
5
As contemplated by the Amended and Restated Memorandum and Articles of Association, the holders of Public Shares were able to elect to redeem all or a portion of their Public Shares in exchange for their pro rata
portion of the funds held in the Trust Account in connection with the First Extension Amendment Proposal. On February 28, 2023, the First Extension Amendment Proposal was adopted and 11,259,169 Public Shares were redeemed for an aggregate amount of
$115,071,882. Following the adoption of the First Extension Amendment Proposal, the Company has 4,189,831 Class A ordinary shares, including 3,690,831 Public Shares and 499,000 Private Placement Shares, and 3,737,500 Class B ordinary shares issued
and outstanding. See below for more information on additional redemptions in connection with the second amendment of the Amended and Restated Memorandum and Articles of Association to further extend the time period the Company has to consummate a
Business Combination following March 2, 2024.
On February 27, 2024, the Company held an extraordinary general meeting of shareholders to approve an amendment to the Company’s Amended and Restated Memorandum and Articles of Association to extend the Termination
Date by which the Company has to consummate a Business Combination from March 2, 2024 (the “Previous Termination Date”) to April 2, 2024 (the “Articles Extension Date”) and to allow the Company without another shareholder vote, to elect to extend
the Termination Date to consummate a Business Combination on a monthly basis up to eleven times by an additional one month each time after the Articles Extension Date, by resolution of the Company’s board of directors, if requested by the Sponsor,
and upon five days’ advance notice prior to the applicable Termination Date, until March 2, 2025, or a total of up to twelve months after the Previous Termination Date, unless the closing of a Business Combination shall have occurred prior thereto
(the “Second Extension Amendment Proposal”). The Sponsor agreed that if the Second Extension Amendment Proposal (as defined below) was approved, it or one or more of its affiliates, members or third-party designees (the “Lender”) will contribute to
the Company as a loan $111,000 to be deposited into the Trust Account. In addition, in the event the Company does not consummate a Business Combination by the Articles Extension Date, the Lender will contribute to the Company as a loan for an
aggregate deposit of up to $1,221,000 in eleven equal installments to be deposited into the Trust Account for each of the eleven one-month optional extensions following the Articles Extension Date. On February 9, 2024, the Company drew on the
unsecured convertible promissory note, dated February 8, 2024, by and between the Company and the Sponsor (the “Fourth Convertible Promissory Note”) in order to fund the $111,000 monthly deposits into the Trust Account and the Sponsor has the
option to convert any amounts outstanding under the Fourth Convertible Promissory Note into Class A ordinary shares, at a conversion price equal to $10.00 per share, in connection with a Business Combination.
On February 27, 2024, the Second Extension Amendment Proposal was adopted and 390,815 Public Shares were redeemed for an aggregate amount of approximately $4,358,804. Following the adoption of the Second Extension
Amendment Proposal, the Company had 3,799,016 Class A ordinary shares, including 3,300,016 Public Shares and 499,000 private placement shares, and 3,737,500 Class B ordinary shares issued and outstanding. Following the approval of the Second
Extension Amendment Proposal, the ordinary shares held by the initial shareholders represented 56.2% of the issued and outstanding ordinary shares (including Private Placement Shares). For more information on the extensions that were approved to
extend the Business Combination Period beyond April 2, 2024, see Note 9.
On February 26, 2024, the Company received a notice from the staff of the Listing Qualifications Department (the “Listing Department”) of The Nasdaq Stock Market LLC (“Nasdaq”) indicating that, unless the Company
timely requested a hearing (the “Hearing”) before the Nasdaq Hearings Panel (the “Panel”), trading of the Company’s securities on The Nasdaq Capital Market would be suspended at the opening of business on March 6, 2024, due to the Company’s
noncompliance with Nasdaq IM-5101-2, which requires that a special purpose acquisition company complete one or more business combinations within 36 months of the effectiveness of its Initial Public Offering registration statement. The Company
timely requested the Hearing before the Panel to request sufficient time to complete the Company’s previously disclosed Proposed Adagio Business Combination. Subsequently, on March 26, 2024, the Company received an additional and separate notice
from the staff of the Listing Department of Nasdaq formally notifying the Company that the deficiency under Nasdaq Listing Rule 5620(a) requiring the Company to hold an annual meeting of shareholders within twelve months of its fiscal year ended
December 21, 2022, serves as an additional and separate basis for delisting. The Panel considered both matters at the hearing that was held on April 25, 2024. On May 13, 2024, the Panel issued written notice of its decision to grant the Company’s
request for an exception to its listing deficiencies until August 23, 2024 in light of the progress the Company has made toward closing the Proposed Adagio Business Combination. The Panel advised the Company that August 23, 2024 represents the full
extent of the Panel’s discretion to grant continued listing while the Company is non-compliant with the Nasdaq’s Listing Rules. There can be no assurance that the Company will be able to satisfy Nasdaq’s continued listing requirements, obtain a
favorable determination of the Panel on the Company’s ability to remain listed on The Nasdaq Capital Market and maintain compliance with other Nasdaq listing requirements prior to or following the consummation of a Business Combination.
On April 2, 2024, the Company approved the first one-month extension of the time period during which it may consummate an initial Business Combination. In connection with this extension of the Business Combination
Period to May 2, 2024, the Company drew an aggregate of $111,000 from the Fourth Convertible Promissory Note. As provided for in the Amended and Restated Memorandum and Articles of Association, the Company will deposit the extension funds into the
Trust Account.
On May 2, 2024, the Company approved the second one-month extension of the time period during which it may consummate an initial Business Combination. In connection with this extension of the Business Combination
Period to June 2, 2024, the Company drew an aggregate of $111,000 from the Fourth Convertible Promissory Note. As provided for in the Amended and Restated Memorandum and Articles of Association, the Company will deposit the extension funds into the
Trust Account. The Company also drew $74,000 under the Fourth Convertible Promissory Note for general working capital purposes.
On June 2, 2024, the Company approved the third one-month extension of the time period during which it may consummate an initial business combination (such time period, the “Business Combination Period”). In
connection with this extension of the Business Combination Period to July 2, 2024 (the “Extension”), the Company drew an aggregate of $111,000 (the “Extension Funds”) from the unsecured promissory note in the principal amount of up to $1,000,000
(the “Fourth Convertible Promissory Note”), dated February 8, 2024, by and between the Company and ARYA Sciences Holdings IV (the “Sponsor”). As provided for in the Company’s amended and restated memorandum and articles of association (as amended,
the “A&R Memorandum and Articles of Association”), the Company will deposit the Extension Funds into the trust account that was established by the Company in connection with its initial public offering (the “Trust Account”). The Company also
drew $53,000 under the Fourth Convertible Promissory Note and $11,000 from the unsecured promissory note in the principal amount of $1,680,000, dated February 8, 2023, by and between the Company and the Sponsor for general working capital purposes
(as amended on February 14, 2024, the “Second Convertible Promissory Note”).
On June 28, 2024,the Company issued an unsecured convertible promissory note (the “Fifth Convertible Promissory Note”) to the Sponsor, pursuant to which the Company may borrow $150,000 (the “Working Capital Loan”)
from the Sponsor for general corporate purposes and the funding of the deposits required to be made into the Company’s trust account in connection with the monthly extensions of the time period during which the Company may consummate a Business
Combination (as defined below) in accordance with the Company’s amended and restated memorandum and articles of association, as amended from time to time. Such loan may, at the Sponsor’s discretion, be converted into the Company’s Class A ordinary
shares, par value $0.0001 per share (the “Working Capital Shares”), at a conversion price equal to $10.00 per Working Capital Share.
6
Going Concern
As of June 30, 2024, the Company had $26,058 in its operating bank account and a working capital deficit of $10,287,324.
As of June 30, 2024 , there was $120,000 of borrowings outstanding under the First Convertible Promissory Note. As of June 30, 2024 and December 31,
2023, $1,585,000 was drawn under the Second Convertible Promissory Note. As of June 30, 2024 and December 31, 2023, $900,000 and $470,000, was drawn under the Third Promissory Note, respectively. As of June 30, 2024 and December 31, 2023, $540,000
and $0, was drawn under the Fourth Convertible Promissory Note, respectively.
On July 31, 2024, the Company announced the closing of its previously announced Business Combination with Adagio Medical Inc. and Aja HoldCo Inc.
(“ListCo”) (the “Closing”) (see Note 5). As of July 31, 2024, substantial doubt about the Company’s ability to continue as a going concern was alleviated due to the closing of a business combination.
Risks and Uncertainties
Results of operations and the Company’s ability to complete a 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 its control. The Company’s business of pursuing and consummating an initial Business Combination could be impacted by, among other things, downturns in the financial markets or in economic conditions, export controls, tariffs,
trade wars, 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 or the conflict in Israel and Palestine. The Company 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 materially impact the Company’s business and its ability to complete an initial Business Combination.
Note 2 - Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited consolidated 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, certain disclosures included in the annual financial statements have been consolidated condensed or omitted from these unaudited consolidated condensed financial
statements as they are not required for interim financial statements. In the opinion of management, the unaudited consolidated 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 and six months ended June 30, 2024 are not necessarily indicative of the results that may be expected through December 31, 2024 or any future
periods.
The accompanying unaudited consolidated condensed financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Annual Report on Form 10-K filed by the
Company with the SEC on March 29, 2024.
Principles of Consolidation
The accompanying unaudited consolidated condensed financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated
in consolidation.
Emerging Growth Company
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain
exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm
attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, 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 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 consolidated condensed financial statements with another public company which is neither an emerging growth company nor an emerging growth
company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Concentration of Cash Balances
The Company has significant cash balances at financial institutions which throughout the year regularly exceed the federally insured limit of $250,000. Any loss incurred or a lack of access to such funds could have a
significant adverse impact on the Company’s financial condition, results of operations, and cash flows.
7
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 June 30, 2024 and December 31, 2023.
Use of Estimates
The preparation of unaudited consolidated condensed financial statements in conformity with U.S. GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets,
liabilities and expenses and disclosure of contingent assets and liabilities at the date of the unaudited consolidated condensed financial statements. Actual results could differ from those estimates.
Trust Account
Initially, the Company’s portfolio of investments was comprised of U.S. Treasury securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act, with a maturity of 185 days or less, or
investments in money market funds that invest in U.S. government securities and generally have a readily determinable fair value, or a combination thereof. When the Company’s investments held in the Trust Account are comprised of U.S. government
securities, the investments are classified as trading securities. When the Company’s investments held in the Trust Account are comprised of money market funds, the investments are recognized at fair value. Trading securities and investments in
money market funds 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 are included in interest income and unrealized gain on
investments held in Trust Account in the accompanying consolidated condensed statements of operations. The estimated fair values of investments held in the Trust Account are determined using available market information. On February 27, 2023, the
Company delivered an instruction letter to Continental Stock Transfer & Trust Company, acting as trustee, to liquidate the investments held in the Trust Account and instead to hold the funds in the Trust Account in cash in an interest-bearing
demand deposit account until the earlier of the consummation of an initial Business Combination or the Company’s liquidation. The Company is taking these steps in order to mitigate the risk that the Company might be deemed to be an investment
company for purposes of the Investment Company Act following the adoption of the First Extension Amendment Proposal described above (see Note 1).
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 and Disclosures,” approximates the carrying amounts represented in
the 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 include:
| • |
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.
|
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.
As of June 30, 2024 and December 31, 2023, the carrying values of cash, accounts payable, accrued expenses and due to related party approximate their fair values due to the short-term nature of the instruments. The fair
value of investments held in Trust Account was determined using quoted prices in active markets.
Offering Costs Associated with the Initial Public Offering
Offering costs consisted of legal, accounting, underwriting and other costs incurred that were directly related to the Initial Public Offering and that were charged to Class A ordinary shares subject to redemption
upon the completion of 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 the Class A ordinary shares issued were charged against the carrying value of the Class A ordinary shares subject to possible redemption 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.
8
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’ deficit. The Public 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, as of June 30, 2024 and December 31, 2023, 3,300,016 and 3,690,831 Class A ordinary shares subject to possible
redemption are presented at redemption value as temporary equity, outside of the shareholders’ deficit section of the Company’s balance sheets.
Income Taxes
FASB ASC Topic 740, “Income Taxes” 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. There were no unrecognized tax benefits as of June 30, 2024 and December 31, 2023. 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. As of June 30, 2024 and December 31, 2023,
there were no unrecognized tax benefits and no amounts were accrued for the payment of interest and penalties. 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 the Cayman Islands’ income tax regulations, income taxes are not levied on the Company. Consequently,
income taxes are not reflected in the Company’s unaudited consolidated condensed financial statements. 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 Per Ordinary Share
The Company has two classes of shares: Class A ordinary shares and Class B ordinary shares. Income and losses are shared pro rata between the two classes of shares. Net income per ordinary share is computed by
dividing net income by the weighted-average number of ordinary shares outstanding during the periods. Accretion associated with the Class A ordinary shares subject to possible redemption is excluded from earnings per share as the redemption value
approximates fair value.
The following table reflects the calculation of basic and diluted net (loss) income per ordinary share (in dollars, except per share amounts):
|
For the Three Months Ended June 30,
|
||||||||||||||||
|
2024
|
2023
|
|||||||||||||||
|
Class A
|
Class B
|
Class A
|
Class B
|
|||||||||||||
|
Basic and diluted net income per ordinary share
|
||||||||||||||||
|
Numerator:
|
||||||||||||||||
|
Allocation of net income
|
$
|
1,313,094
|
$
|
1,291,832
|
$
|
189,558
|
$
|
191,955
|
||||||||
|
Denominator:
|
||||||||||||||||
|
Basic and diluted weighted average shares outstanding
|
3,799,016
|
3,737,500
|
3,690,831
|
3,737,500
|
||||||||||||
|
Basic and diluted net income per ordinary share
|
$
|
0.24
|
$
|
0.24
|
$
|
0.05
|
$
|
0.05
|
||||||||
|
For the Six Months Ended June 30,
|
||||||||||||||||
|
2024
|
2023
|
|||||||||||||||
|
Class A
|
Class B
|
Class A
|
Class B
|
|||||||||||||
|
Basic and diluted net income per ordinary share
|
||||||||||||||||
|
Numerator:
|
||||||||||||||||
|
Allocation of net income
|
$
|
1,207,966
|
$
|
1,151,113
|
$
|
361,341
|
$
|
180,421
|
||||||||
|
Denominator:
|
||||||||||||||||
|
Basic and diluted weighted average shares outstanding
|
3,922,090
|
3,737,500
|
7,485,358
|
3,737,500
|
||||||||||||
|
Basic and diluted net income per ordinary share
|
$
|
0.21
|
$
|
0.21
|
$
|
0.05
|
$
|
0.05
|
||||||||
Recent Accounting Standards
The Company’s management does not believe there are any recently issued, but not yet effective, accounting pronouncement if currently adopted would have a material effect on the Company’s unaudited consolidated
condensed financial statements.
Note 3 – Initial Public Offering
On March 2, 2021, the Company consummated its Initial Public Offering of 14,950,000 Public Shares, including the 1,950,000 Public Shares as a result of the underwriters’ full exercise of their over-allotment option,
at an offering price of $10.00 per Public Share, generating gross proceeds of $149.5 million, and incurring offering costs of approximately $8.8 million, inclusive of approximately $5.2 million in deferred underwriting commissions. For more
information on the Waiver related to a portion of the deferred underwriting commissions that the Company received on August 8, 2022 and the partial liquidation of the Trust Account in connection with the adoption of the First Extension Amendment
Proposal, the Second Extension Amendment Proposal and the related redemptions of Class A ordinary shares, also see Note 1 above.
9
Note 4 – Related Party Transactions
Founder Shares
On January 4, 2021, the Sponsor paid $25,000 to cover for certain expenses on behalf of the Company in exchange for issuance of 3,737,500 Class B ordinary shares, par value $0.0001 (the “Founder Shares”). In February
2021, the Sponsor transferred an aggregate of 90,000 Founder Shares to the Company’s independent directors. The Sponsor agreed to forfeit up to 487,500 Founder Shares to the extent that the over-allotment option was not exercised in full by the
underwriters, so that the Founder Shares would represent 20.0% of the Company’s issued and outstanding ordinary shares (excluding the Private Placement Shares) after the Initial Public Offering. The underwriters fully exercised the over-allotment
option on March 2, 2021; thus, these 487,500 Founder Shares were no longer subject to forfeiture.
The initial shareholders agreed, subject to limited exceptions, 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 and (B) subsequent to the initial Business Combination, (x) if the closing price of the Company’s Class A ordinary shares equals or exceeds $12.00 per share (as adjusted for share sub-divisions, share capitalizations, 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, or (y) the date on which the Company completes a liquidation, merger, share exchange,
reorganization or other similar transaction that results in all of the Public Shareholders having the right to exchange their ordinary shares for cash, securities or other property. For more information on how the transfer restrictions will be
amended in connection with the Proposed Adagio Business Combination (as defined below) and the execution of the Investor Rights Agreement (as defined below), also see Note 5.
Private Placement Shares
Simultaneously with the closing of the Initial Public Offering, the Company consummated the Private Placement of 499,000 Private Placement Shares, at a price of $10.00 per Private Placement Share to the Sponsor,
generating gross proceeds of approximately $5.0 million.
The Private Placement Shares are not transferable or salable until 30 days after the completion of the initial Business Combination. Certain proceeds from the Private Placement Shares have been added to the proceeds
from the Initial Public Offering held in the Trust Account.
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 Shares until 30 days after the completion of the initial
Business Combination.
Related Party Loans
On March 2, 2021, the Sponsor agreed to loan the Company an aggregate of up to $300,000 to cover for expenses related to the Initial Public Offering pursuant to a promissory note (the “Note”) and the Company
subsequently reclassified the outstanding amount due to the Sponsor as borrowing under the Note. This loan was non-interest bearing and payable upon the completion of the Initial Public Offering. The Company borrowed approximately $161,000 under
the Note and fully repaid the Note upon closing of the Initial Public Offering. Subsequent to the repayment, the loan facility was no longer available to the Company.
In addition, in order to finance transaction costs in connection with a Business Combination, the Sponsor, affiliates of the Sponsor, or the Company’s officers and directors may, but are not obligated to, loan the
Company funds as may be required (“Working Capital Loans”). If the Company completes a Business Combination, the Company may repay any Working Capital Loans that may have been extended to the Company by the Sponsor, affiliates of the Sponsor, or
the Company’s officers and directors 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 the proceeds held outside the Trust Account to repay any Working Capital Loans but no proceeds held in the Trust Account would be used to repay such Working Capital Loans. Except for the terms of the
First Convertible Promissory Note, the Second Convertible Promissory Note, the Third Promissory Note and the Fourth Convertible Promissory Note, each as further described below, the terms of such Working Capital Loans have not been determined and
no written agreements exist with respect to any other loans between the Company and the Sponsor, affiliates of the Sponsor, or the Company’s officers and directors. The Working Capital Loans would either be repaid upon the consummation of a
Business Combination, without interest, or, at the lenders’ discretion, up to $1.5 million of such Working Capital Loans may be convertible into shares of the post Business Combination entity at a price of $10.00 per share. The shares would be
identical to the Private Placement Shares. Except as described below, as of June 30, 2024 and December 31, 2023, the Company had no other outstanding borrowings under Working Capital Loans.
On November 7, 2022, the Company issued an unsecured convertible promissory note (the “First Convertible Promissory Note”) to the Sponsor, pursuant to which the Company borrowed $120,000 (the “First Convertible
Working Capital Loan”) from the Sponsor for general corporate purposes. Such loan may, at the Sponsor’s discretion, be converted into Class A ordinary shares, par value $0.0001 per share, of the Company (the “Working Capital Shares”) at a
conversion price equal to $10.00 per Working Capital Share. The terms of the Working Capital Shares will be identical to those of the Private Placement Shares that were issued to the Sponsor in connection with the Initial Public Offering. The First
Convertible Working Capital Loan will not bear any interest and will be repayable by the Company to the Sponsor, if not converted or repaid on the effective date of a Business Combination involving the Company and one or more businesses. The
maturity date of the First Convertible Working Capital Loan may be accelerated upon the occurrence of an Event of Default (as defined under the First Convertible Promissory Note). The Company granted customary registration rights to the Sponsor
with respect to any Working Capital Shares, which shall constitute “Registrable Securities” pursuant to that certain Registration and Shareholder Rights Agreement, dated March 2, 2021, by and among the Company, the Sponsor and the other parties
thereto (the “Registration and Shareholders Rights Agreement”). Further, each newly issued Working Capital Share shall bear the same transfer restrictions that apply to the Private Placement Shares, as contemplated by the Letter Agreement, dated
February 25, 2021, by and among the Company, the Sponsor and the other parties thereto (the “Letter Agreement”). As of June 30, 2024 and December 31, 2023, there were $120,000 of borrowings outstanding under the First Convertible Promissory Note.
10
On February 28, 2023, the Company issued a non-interest bearing, unsecured convertible promissory note to the Sponsor in connection with the First Extension Amendment Proposal, pursuant to which the Company may
borrow up to $1,680,000 from the Sponsor for general corporate purposes and the funding of the deposits that the Company is required to make pursuant to its Amended and Restated Memorandum and Articles of Association (as amended following the
adoption of the First Extension Amendment Proposal at the Company’s extraordinary general meeting of shareholders on February 28, 2023) and following the request of the Sponsor in connection with an optional monthly extension of the time period
during which the Company may consummate a Business Combination (the “Second Convertible Promissory Note”). Up to $1,380,000 of the amounts loaned under the Second Convertible Promissory Note will be convertible at the option of the Sponsor into
Working Capital Shares. This working capital loan outstanding pursuant to the Second Convertible Promissory Note (the “Second Working Capital Loan”) will not bear any interest and will be repayable by the Company to the Sponsor to the extent the
Company has funds available outside of the Trust Account and if not converted or repaid on the effective date of a Business Combination. The maturity date of the Second Convertible Working Capital Loan may be accelerated upon the occurrence of an
Event of Default (as defined under the Second Convertible Promissory Note). The Company granted customary registration rights to the Sponsor with respect to any Working Capital Shares issued pursuant to the Second Convertible Promissory Note, which
shall constitute “Registrable Securities” pursuant the Registration and Shareholders Rights Agreement. Further, each newly issued Working Capital Share shall bear the same transfer restrictions that apply to the Private Placement Shares, as
contemplated by the Letter Agreement.
On April 18, 2023, June 2, 2023, July 6, 2023, August 2, 2023 and September 5, 2023, the Company withdrew an additional $400,000, $140,000, $140,000, $140,000 and $165,000, respectively, from the Second Convertible
Promissory Note (see Note 1). As of June 30, 2024 and December 31, 2023, $1,585,000 were drawn under the Second Convertible Promissory Note.
On September 27, 2023, the Company issued an unsecured promissory note to the Sponsor (the “Third Promissory Note”), pursuant to which the Company may borrow $900,000 from the Sponsor for general corporate purposes
and to fund the deposits required to be made into the Company’s trust account in connection with the monthly extensions of the time period during which the Company may consummate a business combination in accordance with the Company’s amended and
restated memorandum and articles of association, as amended during the shareholder meeting on February 28, 2023. This working capital loan outstanding pursuant to the Third Promissory Note (the “Third Working Capital Loan”) will not bear any
interest. In the event that the Company does not consummate a Business Combination, the Third Promissory Note will be repaid from funds held outside of the Trust Account or will be forfeited, eliminated or otherwise forgiven. The maturity date of
the Third Working Capital Loan may be accelerated upon the occurrence of an Event of Default (as defined under the Third Promissory Note). On October 2, 2023, November 2, 2023 and December 2, 2023, the Company approved the fifth, sixth and seventh
one-month extension of the Business Combination Period, respectively. In connection with such extensions of the Business Combination Period to January 2, 2024, the Company drew an aggregate amount of $420,000 from the Third Promissory Note. As
provided for in the Company’s amended and restated memorandum and articles of association, the Company deposited the extension funds into the trust account that was established by the Company in connection with its Initial Public Offering. The
Company also drew an aggregate of $50,000 under the Third Promissory Note for working capital purposes. As of June 30, 2024, $900,000 was drawn under the Third Promissory Note.
On February 8, 2024, the Company issued an unsecured convertible promissory note to the Sponsor (the “Fourth Convertible Promissory Note”), pursuant to which the Company may borrow $1,000,000 from the Sponsor for
general corporate purposes and to fund the monthly deposits required to be made into the Trust Account in order to extend the time period during which the Company may consummate a Business Combination (the “Fourth Working Capital Loan”) in
accordance with the Amended and Restated Memorandum and Articles of Association. The Fourth Working Capital Loan will not bear any interest. In the event that the Company does not consummate a Business Combination, the Fourth Convertible Promissory
Note will be repaid from funds held outside of the Trust Account or will be forfeited, eliminated or otherwise forgiven. The maturity date of the Fourth Working Capital Loan may be accelerated upon the occurrence of an Event of Default (as defined
under the Fourth Convertible Promissory Note). Any Working Capital Shares issuable upon conversion of the Fourth Convertible Promissory Note will not be registered under the Securities Act and will be issued in reliance on the exemption from
registration requirements thereof provided by Section 4(a)(2) of the Securities Act. As of June 30, 2024, $540,000 was drawn under the Fourth Convertible Promissory Note.
On February 13, 2024, the Company and the Sponsor entered into an amendment to the Second Convertible Promissory Note, pursuant to which the total principal amount up to $1,680,000 of the amounts loaned under the
Second Convertible Promissory Note will be convertible at the option of the Sponsor into Working Capital Shares upon the completion of a Business Combination. On February 13, 2024, the Company and the Sponsor also amended and restated the Third
Promissory Note to provide that the total principal amount loaned under the Second Convertible Promissory Note will be convertible at the option of the Sponsor into Working Capital Shares upon the completion of a Business Combination.
On June 28, 2024,the Company issued an unsecured convertible promissory note (the “Fifth Convertible Promissory Note”) to the Sponsor, pursuant to which the Company may borrow $150,000 (the “Working Capital Loan”)
from the Sponsor for general corporate purposes and the funding of the deposits required to be made into the Company’s trust account in connection with the monthly extensions of the time period during which the Company may consummate a Business
Combination (as defined below) in accordance with the Company’s amended and restated memorandum and articles of association, as amended from time to time. Such loan may, at the Sponsor’s discretion, be converted into the Company’s Class A ordinary
shares, par value $0.0001 per share (the “Working Capital Shares”), at a conversion price equal to $10.00 per Working Capital Share.
Upon the closing of the Business Combination on July 31, 2024 (see Note 5), all issued and outstanding First, Second, Third, Fourth and Fifth Convertible Promissory notes (discussed above and
collectively referred to as the “Convertible Notes”), including any accrued and unpaid interest thereon, were fully converted into shares of New Adagio common stock and, or, Warrants in accordance with the terms of each Convertible Note, subject
to adjustment, based on the terms and subject to the conditions set forth in the applicable bridge notes agreement and applicable subscription agreements.
Administrative Support Agreement
Commencing on the date that the Company’s registration statement relating to its Initial Public Offering was declared effective through the earlier of consummation of the initial Business Combination and the
Company’s liquidation, the Company agreed to reimburse the Sponsor for office space, secretarial and administrative services provided to the Company in the amount of $10,000 per month. The Company incurred approximately $0 and $30,000 in general
and administrative expenses in the accompanying unaudited condensed statements of operations for the three months ended June 30, 2024 and 2023, respectively. The Company incurred approximately $30,000 and $60,000 in general and administrative
expenses in the accompanying unaudited condensed statements of operations for the six months ended June 30, 2024 and 2023, respectively. As of June 30, 2024 and December 31, 2023, the Company had $0 and $210,000, respectively, included in due to
related party on the condensed balance sheets.
Note 5 - Commitments and Contingencies
Registration Rights
The holders of Founder Shares and Private Placement Shares, including Private Placement Shares that may be issued upon conversion of Working Capital Loans, are entitled to registration rights pursuant to the
Registration and Shareholders Rights Agreement. The holders of these securities are entitled to make up to three demands, excluding short form demands, that the Company registers such securities. In addition, the holders have certain “piggyback”
registration rights with respect to registration statements filed subsequent to the Company’s completion of its Business Combination. However, the Registration and Shareholders Rights Agreement provides that the Company will not permit any
registration statement filed under the Securities Act to become effective until termination of the applicable lock-up period, which occurs (i) in the case of the Founder Shares, in accordance with the Letter Agreement, the Company’s initial
shareholders entered into and (ii) in the case of the Private Placement Shares, 30 days after the completion of the Company’s Business Combination. The Company will bear the expenses incurred in connection with the filing of any such registration
statements. See below for information on the Investor Rights Agreement that was executed in connection with a proposed Business Combination and that will replace the Registration and Shareholders Rights Agreement in connection with the closing of
the proposed Business Combination.
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Underwriting Agreement
The Company granted the underwriters a 45-day option from the final prospectus relating to the Initial Public Offering to purchase up to 1,950,000 additional Public Shares to cover over-allotments at
the Initial Public Offering price less the underwriting discounts and commissions. On March 2, 2021, the underwriters fully exercised the over-allotment option.
The underwriters were paid an underwriting discount of $0.20 per Public Share, or approximately $3.0 million in the aggregate, paid upon the closing of the Initial Public Offering. In addition, $0.35
per Public Share, or approximately $5.2 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 the Company completes a Business Combination, subject to the terms of the underwriting agreement.
On August 8, 2022, the Company received the Waiver from one of the underwriters. In connection with the Waiver, the underwriter also agreed that (i) the Waiver is not intended to allocate its 50% portion of the
deferred underwriting commissions to the other underwriter that has not waived its right to receive its share of the deferred underwriting commissions and (ii) the waived portion of the deferred underwriting commissions can, at the discretion of
the Company, be paid to one or more parties or otherwise be used in connection with an initial Business Combination. During the period ended September 30, 2023, the Company derecognized approximately $2.6 million of the deferred underwriting
commissions and recorded an adjustment to the carrying value of the shares of Class A ordinary shares subject to redemption.
Upon the closing of the Business Combination on July 31, 2024, as discussed below, the Company was granted the option to issue shares in lieu of a cash payment for transaction expenses and deferred fees incurred by its
underwriter, within 60 days of the closing, as of the filing, the Company has not effectuated this option. At Closing the Company incurred an additional transaction closing fee of $1,268,875. The Company’s total costs due to the underwriter was
$3,885,125 at closing.
Business Combination Agreement
On February 13, 2024, the Company, ListCo, Aja Merger Sub 1, a Cayman Islands exempted company (“ARYA Merger Sub”), Aja Merger Sub 2, Inc., a Delaware corporation (“Adagio Merger Sub”), and Adagio Medical, Inc.
(“Adagio”) entered into a business combination agreement (the “Business Combination Agreement”), in connection with a proposed business combination (the “Proposed Adagio Business Combination”), which contains certain customary representations,
warranties, and covenants by the parties thereto. As further described in the Business Combination Agreement, the closing of the Proposed Adagio Business Combination (the “Closing”) is subject to certain customary conditions and risks.
The Business Combination Agreement provides, among other things, for the consummation of the following transactions:
| 1. |
ARYA Merger Sub will merge with and into the Company (the “ARYA Merger”) and Adagio Merger Sub will merge with and into Adagio (the “Adagio Merger” and, together with the ARYA Merger, the “Mergers”), with the Company and Adagio surviving
the Mergers and, after giving effect to such Mergers, each of the Company and Adagio becoming a wholly owned subsidiary of ListCo, on the terms and subject to the conditions in the Business Combination Agreement;
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| 2. |
(i) each issued and outstanding Class A ordinary share will be automatically cancelled, extinguished and converted into the right to receive one share of common stock, par value $0.0001 per share, of ListCo after giving effect to the
consummation of the transactions contemplated by the Business Combination Agreement (“New Adagio”) (the “New Adagio Common Stock”) and (ii) each issued and outstanding Class B ordinary share will be automatically cancelled, extinguished and
converted into the right to receive one share of New Adagio Common Stock, other than 1,000,000 Class B ordinary shares that will be forfeited by the Sponsor, and issued to PIPE Investors (as defined below), including Perceptive Life
Sciences Master Fund, Ltd, a Cayman Islands exempted company (the “Perceptive PIPE Investor”). 1,147,500 shares of New Adagio Common Stock issuable to the Sponsor will be subject to share trigger price vesting and will vest if, prior to the
tenth anniversary of the Closing, the post-closing share price of New Adagio equals or exceeds $24.00 per share for any 20 trading days within any 30 trading day period (the “Share Trigger Price Vesting”);
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| 3. |
(i) each warrant of Adagio will be either (x) terminated, or (y) “net” exercised in exchange for shares of common stock, par value $0.01 per share, of Adagio (“Adagio Common Stock”); (ii) all issued and outstanding unsecured convertible
promissory notes of Adagio (excluding the convertible notes issued by Adagio to the Perceptive PIPE Investor pursuant to the note purchase agreements dated April 4, 2023 and November 28, 2023, between Adagio and the Perceptive PIPE Investor
(collectively, the “2023 Bridge Financing Notes”) and the 2024 Bridge Financing Notes (as defined below)) (the “Adagio Convertible Notes”), including any accrued and unpaid interest thereon, will be automatically and fully converted into
shares of Adagio Common Stock in accordance with the terms of such Adagio Convertible Notes and such Adagio Convertible Notes will be cancelled, satisfied, extinguished, discharged and retired in connection with such conversion (the “Adagio
Convertible Notes Conversion”); (iii) each share of preferred stock, par value $0.001 per share, of Adagio (the “Adagio Preferred Stock”) that is issued and outstanding will be automatically converted into shares of Adagio Common Stock and
each such share of Adagio Preferred Stock will be cancelled; (iv) all issued and outstanding shares of Adagio Common Stock (other than treasury shares and shares with respect to which appraisal rights under the Delaware General Corporation
Law, as amended, are properly exercised and not withdrawn) will be automatically cancelled, extinguished and converted into the right to receive shares of New Adagio Common Stock based on the exchange ratio set forth in the Business
Combination Agreement; (v) each issued, outstanding and unexercised option to purchase Adagio Common Stock (“Adagio Option”) that is vested as of such time or will vest in connection with, or after taking into account the effect of, the
consummation of the transactions contemplated by the Business Combination Agreement with an aggregate value that exceeds the aggregate exercise price of such Adagio Option (each an “In-the-Money Adagio Option”) will be cancelled and
extinguished in exchange for options to purchase shares of New Adagio Common Stock, and each issued and outstanding Adagio equity award (other than an In-the-Money Adagio Option) will automatically be canceled and extinguished for no
consideration and each holder thereof will cease to have any rights with respect thereto.
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Amendment to the Business Combination Agreement
On June 25, 2024, the Company and Adagio entered into a Consent and Amendment No. 1 to the Business Combination Agreement (the “Amendment No. 1”), pursuant to which, among other
things: (i) the Company consented to Adagio entering an exchange agreement (the “Exchange Agreement”) and the transactions contemplated thereunder with RA Capital Healthcare Fund, L.P., a Delaware limited
partnership (“RA Capital”), pursuant to which, RA Capital would exchange a certain number of its existing Company Series E Preferred Shares (as defined in the Business Combination Agreement) for pre-funded
warrants (each, a “Pre-Funded Warrant for Series E Preferred Shares”) to purchase Company Series E Preferred Shares, with each Pre-Funded Warrant for Series E
Preferred Shares issued and outstanding as of immediately prior to the Company Merger Effective Time (as defined in the Business Combination Agreement) being automatically canceled and extinguished and converted into the right to receive a number
of HoldCo Shares (as defined in the Business Combination Agreement) equal to the Exchange Ratio (as defined in the Business Combination Agreement); (ii) the definition of the term “Fully Diluted HoldCo Closing Capitalization” as provided in the
Business Combination Agreement was expanded to include the number of pre-funded warrants outstanding immediately after the Company Merger Effective Time that each represented the right to purchase HoldCo Shares; (iii) (a) the aggregate share
reserve under the Key Employee Incentive Plan (as defined in the Business Combination Agreement) should be up to the Key Employee Incentive Plan Maximum Amount, which was the aggregate number of HoldCo Shares equal to the product obtained by
multiplying (A) the quotient of (x) fifteen percent (15%) divided by (y) thirty-five percent (35%) by (B) the Aggregate Incentive Equity Pool, which was the aggregate number of HoldCo Shares equal to (x) the Aggregate HoldCo Share Reserve (as
defined hereunder) minus (y) the Fully Diluted HoldCo Closing Capitalization, and (b) the aggregate share reserve under the HoldCo Incentive Equity Plan (as defined in the Business Combination Agreement) should be equal to the Incentive Equity
Plan Maximum Amount plus an increase as provided in the Business Combination Agreement, which Incentive Equity Plan Maximum Amount was the aggregate number of HoldCo Shares equal to the product obtained by multiplying (A) the quotient of (x)
twenty percent (20%) divided by (y) thirty-five percent (35%) by (B) the Aggregate Incentive Equity Pool; and (iv) following the Closing, ListCo’s name would be changed to ‘‘Adagio Medical Holdings, Inc.” (or such other name mutually agreed to by
ARYA and Adagio). As defined in the Amendment No. 1, “Aggregate HoldCo Share Reserve” meant the aggregate number of HoldCo Shares equal to the quotient obtained by dividing (i) the Fully Diluted HoldCo Closing Capitalization by (ii) sixty-five
percent (65%).
Sponsor Letter Agreement
Concurrently with the execution of the Business Combination Agreement, the Company, the Sponsor, each holder of Class B ordinary shares (the “Other Class B Shareholders” and with the Sponsor, the “Class B
Shareholders”), including the Company’s directors and officers (together with the Class B Shareholders, the “Insiders”), ListCo and Adagio entered into a letter agreement (the “Sponsor Letter Agreement”), pursuant to which, among other things, (i)
each Class B Shareholder agreed to vote in favor of each of the transaction proposals to be voted upon at the meeting of the Company’s shareholders, including approval of the Business Combination Agreement and the transactions contemplated thereby,
(ii) each Class B Shareholder agreed to waive any adjustment to the conversion ratio set forth in the amended and restated memorandum and articles of association or any other anti-dilution or similar protection with respect to the Class B ordinary
shares (whether resulting from the transactions contemplated by the Subscription Agreements (as defined below) or otherwise), (iii) each of the Insiders and the Company agreed to terminate the lock-up provisions contained in the Letter Agreement
between the Company, the Sponsor and the other parties thereto, and to replace such lock-up provisions with the transfer restrictions included in the Investor Rights Agreement (as defined below), (iv) each Class B Shareholder agreed to be bound by
certain transfer restrictions with respect to his, her or its shares in the Company prior to the Closing, (v) the Sponsor agreed that 1,147,500 shares of New Adagio Common Stock issued to the Sponsor will be subject to Share Trigger Price Vesting,
and (vi) the Sponsor has agreed to irrevocably forfeit, surrender and transfer to the Company for no consideration 1,000,000 Class B ordinary shares, which will be issued by ListCo to the PIPE Investors, including the Perceptive PIPE Investor, as
incentive shares.
Adagio Stockholder Transaction Support Agreements
Pursuant to the Business Combination Agreement, certain stockholders of Adagio entered into transaction support agreements (collectively, the “Adagio Transaction Support Agreements”) with the Company and Adagio,
pursuant to which such stockholders of Adagio agreed to, among other things, (i) vote in favor of the Business Combination Agreement and the transactions contemplated thereby and (ii) be bound by certain other covenants and agreements related to
the Proposed Adagio Business Combination.
PIPE Financing (Private Placement)
In connection with the execution of the Business Combination Agreement, ListCo and the Company entered into Subscription Agreements (the “Subscription Agreements”) with the Perceptive PIPE Investor and certain other
investors (the “Other PIPE Investors,” and, together with the Perceptive PIPE Investor, the “PIPE Investors”), pursuant to which the PIPE Investors committed financing valued at approximately $45,000,000, which includes (i) commitments by certain
investors to subscribe for and purchase Class A ordinary shares in the open market and not to redeem such shares prior to the date the Closing occurs (the “Closing Date”), (ii) non-redemption commitments by certain investors that are shareholders
of the Company, (iii) agreements to subscribe for and purchase shares of New Adagio Common Stock, (iv) the contribution of $23,000,000 of 2023 Bridge Financing Notes to ListCo pursuant to the terms of the Subscription Agreement executed by the
Perceptive PIPE Investor, and (v) an additional cash investment by the Perceptive PIPE Investor of approximately $8.1 million (which amount may be reduced by up to approximately $1,070,575 subject to Additional Financing being raised prior to
Closing), as described in more detail below (together, the “PIPE Financing”). In connection with the PIPE Financing, the PIPE Investors will also subscribe for (i) warrants to purchase shares of New Adagio Common Stock at $10.00 per share, subject
to adjustment (the “Base Warrants”) or (ii) a combination of Base Warrants and pre-funded warrants, each exercisable for one share of New Adagio Common Stock at $0.01 per share (the “Pre-Funded Warrants,” and together with the Base Warrants, the
“PIPE Warrants”). As provided for in the Subscription Agreements, the number of shares of New Adagio Common Stock and Base Warrants issuable to the PIPE Investors will depend on the redemption value of the Class A ordinary shares at Closing, the
average per share price of the Class A ordinary shares purchased by certain PIPE Investors in the open market and the amount of interest on the 2023 Bridge Financing Notes that will have accrued and be unpaid at Closing and be contributed to ListCo
in exchange for shares of New Adagio Common Stock. The shares of New Adagio Common Stock and PIPE Warrants to be issued pursuant to the Subscription Agreements have not been registered under the Securities Act and will be issued in reliance upon
the exemption provided in Section 4(a)(2) of the Securities Act. ListCo will grant the PIPE Investors certain registration rights in connection with the PIPE Financing. The PIPE Financing is contingent upon, among other things, the substantially
concurrent Closing.
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The Company has concluded that the New Adagio Common Stock and PIPE Warrants to be issued under certain of the Subscription Agreements (the “Open Market Subscription Agreements”) that include an open market purchase
and non-redemption obligation for subscribing investors (the “Open Market Investors”) qualify as equity under ASC 815-40 (“Derivatives and Hedging–Contracts in Entity’s Own Equity”); therefore, the Company will recognize the New Adagio Common Stock
and PIPE Warrants to be issued under such Open Market Subscription Agreements (such securities, the “Open Market PIPE Securities”) by recording an entry to additional paid-in capital (APIC) in shareholders’ equity in its balance sheet. In
accordance with ASC 815-40-30-1, the New Adagio Common Stock and PIPE Warrants will be recorded and measured at fair value (i.e., most often representative of proceeds received for equity-linked instruments; however, when estimating the fair value
of the New Adagio Common Stock and PIPE Warrants, the Company has followed the guidance in ASC 820 Fair Value Measurement. In connection with Open Market Investor’s commitment to irrevocably subscribe for and agree to purchase from ListCo the
number of Open Market PIPE Securities set forth on the signature page of the applicable Open Market Subscription Agreements, on the terms and subject to the conditions set forth in such Open Market Subscription Agreements, which include, without
limitation, the agreement not to redeem the Class A ordinary shares purchased in the open market prior to Closing, the Company will record an amount equal to the full fair value of the New Adagio Common Stock and PIPE Warrants to be issued to the
Open Market PIPE Investor in connection with the Closing.
On July 23, 2024, the Perceptive Life Sciences Master Fund, Ltd., a Cayman Islands exempted company (the “Perceptive PIPE Investor”) indicated an
interest to increase its investment in the PIPE Financing by such amount that is necessary for the minimum unrestricted cash condition of the Contingent Investor to be met. Such additional subscription would be on the same terms as provided in the
Subscription Agreement that the Perceptive PIPE Investor executed on February 13, 2024 and amended on June 24, 2024. The Closing occurred on July 31, 2024, New Adagio is required to have approximately $32,129,000 of available unrestricted cash for
the Contingent Investor to fund its $7,500,000 commitment under the Convertible Security Subscription Agreement. Assuming that a maximum redemption scenario occurs, that no Additional Financing is raised prior to Closing and that transaction
expenses payable at Closing are approximately $14.3 million (current estimate subject to change), the Perceptive PIPE Investor may, pursuant to such indication of interest, increase its new money commitment under the PIPE Financing by approximately
$9 million, resulting in the issuance of approximately 1,080,000 additional shares of New Adagio Common Stock at Closing to the Perceptive PIPE Investor. Assuming such issuance of additional shares of New Adagio Common Stock to the Perceptive PIPE
Investor in the maximum redemption scenario, the post-Closing ownership of the Perceptive PIPE Investor and the initial shareholders (as defined in the Proxy Statement/Prospectus) may increase by approximately 2.6%.
Convertible Security Financing (Private Placement)
In connection with the execution of the Business Combination Agreement, certain investors, including the Perceptive PIPE Investor (the “Convert
Investors”), executed a securities purchase agreement, dated February 13, 2024, with ListCo (the “Convertible Security Subscription Agreement”), pursuant to which ListCo will issue on the Closing Date to the Convert Investors $20,000,000 aggregate
principal amount of 13% senior secured convertible notes (the “New Adagio Convertible Notes”), which will be convertible into shares of New Adagio Common Stock at a conversion price of $10.00 per share, subject to adjustment (the “Conversion
Shares”), and 1,500,000 warrants (the “Convert Warrants”), each Convert Warrant being exercisable on a cashless basis or for cash at a price of $24.00 per share, subject to adjustment (the “Base Convert Financing”). Such $20,000,000 of financing in
the form of New Adagio Convertible Notes includes the Perceptive Convertible Note Commitment (as defined below) and includes the conversion of the 2024 Bridge Financing Notes (as defined below) into New Adagio Convertible Notes at Closing, subject
in each case to Additional Financing (as defined below) being raised prior to Closing, as further described below. The New Adagio Convertible Notes will have a maturity of three years and nine months after Closing and interest will be payable in
cash or compound as additional principal outstanding. The Perceptive PIPE Investor also purchased a $7,000,000 convertible promissory note of Adagio (the “2024 Bridge Financing Notes”) pursuant to a note purchase agreement, dated February 13, 2024,
by and among the Perceptive PIPE Investor, Adagio and ListCo (the “2024 Bridge Financing Notes Subscription Agreement”). On the Closing Date, pursuant to the terms of the 2024 Bridge Financing Notes and the 2024 Bridge Financing Note Subscription
Agreement, the 2024 Bridge Financing Notes converted into $7,000,000 of New Adagio Convertible Notes and 525,000 Convert Warrants, and the Perceptive PIPE Investor did not subscribe for an additional $5,500,000 of New Adagio Convertible Notes and
412,500 Convert Warrants, for a total of $12,500,000 in aggregate principal amount of New Adagio Convertible Notes and 937,500 Convert Warrants, on the same terms as the Convert Investors executing the Convertible Security Subscription Agreement
(such commitment by the Perceptive PIPE Investor to purchase New Adagio Convertible Notes and Convert Warrants, the “Perceptive Convertible Note Commitment,” and the conversion of the 2024 Bridge Financing Note and purchase of New Adagio
Convertible Notes and Convert Warrants pursuant to the Perceptive Convertible Note Commitment as part of the Base Convert Financing, the “Convertible Security Financing”). Subject to the Company and New Adagio receiving any new financing or
commitment for financing (any such financing, an “Additional Financing”), whether in the form of equity, debt or convertible debt, before the Closing Date, the Perceptive PIPE Investor did not request that on the Closing Date the 2024 Bridge
Financing Note is repaid, the Perceptive Convertible Note Commitment is reduced or a combination of both. The New Adagio Convertible Notes and the Convert Warrants issuable in connection with the Convertible Security Financing have not been
registered under the Securities Act and will be issued in reliance upon the exemption provided in Section 4(a)(2) of the Securities Act. ListCo will grant the Convert Investors certain registration rights in connection with the Convertible Security
Financing. The Convertible Security Financing is contingent upon, among other things, the substantially concurrent Closing. As set forth in the Convertible Security Subscription Agreement, the closing of $7,500,000 of financing by an affiliate of
ATW Partners, LLC (the “Contingent Investor”), in the Convertible Security Financing is conditioned on New Adagio having at least $48 million (as reduced by $2 million (prorated for partial months) for each calendar month anniversary from November
30, 2023 until the Closing Date) of available unrestricted cash on the Closing Date.
Pursuant to the terms of the Convertible Security Subscription Agreement, on the Closing Date, ListCo, certain of its subsidiaries (other than Adagio Medical GmbH, a company organized under the laws of Germany and an
excluded subsidiary thereunder) (the “Subsidiaries”) and Allegro Management LLC, as the collateral agent (the “Collateral Agent”) on behalf of the Convert Investors, will enter into a security and pledge agreement (the “Convert Security Document”),
pursuant to which ListCo and the Subsidiaries will (i) pledge the equity interests in the Subsidiaries to the Collateral Agent, (ii) pledge all of their respective promissory notes, securities and other instruments evidencing indebtedness to the
Collateral Agent, and (iii) grant to the Collateral Agent a security interest in and lien on all of their respective personal property and assets, including, among other items, all of their deposit accounts, chattel paper, documents, equipment,
general intangibles, instruments and inventory, and all proceeds therefrom, in each case subject to customary exceptions, all as set forth in the form of the Convert Security Document. Additionally, pursuant to the terms of the Convertible
Security Subscription Agreement, on the Closing Date, the Subsidiaries will deliver a guaranty (the “Convert Guaranty”) to the Collateral Agent pursuant to which the Subsidiaries will, jointly and severally, guaranty ListCo’s obligation to repay
the New Adagio Convertible Notes and all other obligations of ListCo under the Convertible Security Subscription Agreement and the New Adagio Convertible Notes and other related transaction documents, as set forth in the form of the Convert
Guaranty. Any additional subsidiaries of ListCo formed or acquired after the closing date will be required to join the Convert Guaranty as additional guarantors.
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Convert Registration Rights Agreement
The Conversion Shares, the Convert Warrants, the Convert Warrant Shares, the New Adagio Convertible Notes and any capital stock of ListCo issued or issuable with respect to the Conversion Shares, have not been
registered under the Securities Act. In connection with the Convertible Security Subscription Agreement, ListCo and the Convert Investors agreed to enter into a Registration Rights Agreement (the “Convert Registration Rights Agreement”), pursuant
to which ListCo will be required to file a registration statement on Form S-3 or, if not available, Form S-1 (the “Convert Registration Statement”) with the SEC to register for resale all of the Registrable Securities (as defined in the Convert
Registration Rights Agreement), including the Conversion Shares, the Convert Warrant Shares and any shares issuable with respect to the New Adagio Convertible Notes, as soon as practicable, but in no event later than 45 days after the Closing Date.
In the event that the number of shares registered for resale under the Convert Registration Statement is insufficient to cover all of the Registrable Securities, ListCo will amend the Registration Statement or file with the SEC a new registration
statement to cover at least the Required Registration Amount (as defined in the Convert Registration Rights Agreement) as of the trading day immediately preceding the date of the filing of such amendment or new registration statement, as soon as
practicable, but in any event not later than 15 days after the necessity therefor arises. If ListCo fails to file the Convert Registration Statement when required, fails to obtain effectiveness by SEC when required or fails to maintain the
effectiveness of the Convert Registration Statement pursuant to the Convert Registration Rights Agreement, then as partial relief for the damages to any holder by reason of any such delay in or reduction of, its ability to sell the underlying
shares of New Adagio Common Stock, ListCo will be required to pay each holder of Registrable Securities relating to such Convert Registration Statement an amount equal to one percent of such Convert Investor’s original principal amount according to
the timelines laid out in the Convert Registration Rights Agreement. The Convert Registration Rights Agreement also provides the parties with “piggy-back” registration rights, subject to certain requirements and customary conditions.
Investor Rights Agreement
Concurrently with the execution of the Business Combination Agreement, the Company, ListCo, the Perceptive PIPE Investor, the Sponsor and the Other Class B Shareholders, and certain Adagio stockholders entered into
an investor rights agreement (the “Investor Rights Agreement”) pursuant to which, among other things, the Perceptive PIPE Investor, the Sponsor, the Other Class B Shareholders, certain Adagio stockholders and investors in the Convertible Security
Financing will be granted certain customary registration rights. Further, subject to customary exceptions set forth in the Investor Rights Agreement, the shares of New Adagio Common Stock beneficially owned or owned of record by the Sponsor, the
Perceptive PIPE Investor, certain officers and directors of the Company and New Adagio (including any shares of New Adagio Common Stock issued pursuant to the Business Combination Agreement or the PIPE Financing) will be subject to a lock-up period
beginning on the Closing Date until the date that is the earlier of (i) 365 days following the Closing Date (or six months after the Closing Date, in the case of Olav Bergheim, John Dahldorf, Hakon Bergheim, Todd Wider, Michael Henderson and Leslie
Trigg) or (ii) the first date subsequent to the Closing Date with respect to which the closing price of the shares of New Adagio Common Stock equals or exceeds $12.00 per share for any 20 trading days within any 30-trading day period commencing at
least 150 days after the Closing Date.
Pursuant to the terms of the Investor Rights Agreement, ListCo will be obligated to file a registration statement to register the resale of certain shares of New Adagio Common Stock within 45 days after the Closing,
and ListCo is required at all times to maintain the effectiveness of such resale registration statement for the benefit of the holders party to the agreement. In addition, pursuant to the terms of the Investor Rights Agreement and subject to
certain requirements and customary conditions, the certain Adagio stockholders, the Perceptive PIPE Investor and the Sponsor (including the Permitted Transferees (as defined therein) of the Perceptive PIPE Investor and the Sponsor) may demand at
any time or from time to time, that ListCo file a registration statement on Form S-3 (or on Form S-1 if Form S-3 is not available) to register the securities of ListCo held by such holders. The Investor Rights Agreement will also provide holders
party thereto with “piggy-back” registration rights, subject to certain requirements and customary conditions.
The Registration and Shareholder Rights Agreement will be terminated in connection with the consummation of the Business Combination and replaced by the Investor Rights Agreement.
Adoption of Second Extension Amendment Proposal
On February 27, 2024, the Company held an extraordinary general meeting of shareholders in view of approving an amendment to the Amended and Restated Memorandum and Articles of Association to extend the Termination
Date from the Previous Termination Date to the Articles Extension Date and to allow the Company, without another shareholder vote, to elect to extend the Termination Date to consummate a Business Combination on a monthly basis for up to eleven
times by an additional one month each time after the Articles Extension Date, by resolution of the Company’s board of directors, if requested by the Sponsor, and upon five days’ advance notice prior to the applicable Termination Date, until March
2, 2025 or a total of up to forty-eight months from the closing of the initial public offering, unless the closing of a Business Combination shall have occurred prior thereto (the “Second Extension Amendment Proposal”). In connection with the
initial one-month extension from the Previous Termination Date to the Articles Extension Date, the Company made a deposit into the Trust Account of $111,000 and drew down on the Fourth Convertible Promissory Note to finance this deposit. In
connection with any subsequent optional monthly extensions following the Articles Extension Date, the Sponsor is expected to make deposits of $111,000 per month into the Trust Account and borrow the necessary funds from the Sponsor in the form of
convertible notes, as provided for in the amendment to the Amended and Restated Memorandum and Articles of Association that was adopted on February 27, 2024.
As contemplated by the Amended and Restated Memorandum and Articles of Association, the holders of Public Shares were able to elect to redeem all or a portion of their Public Shares in exchange for their pro rata
portion of the funds held in the Trust Account in connection with the Second Extension Amendment Proposal. On February 27, 2024, the Second Extension Amendment Proposal was adopted and 390,815 Public Shares were redeemed for an aggregate amount of
approximately $4,358,804. Following the adoption of the Second Extension Amendment Proposal, the Company had 3,799,016 Class A ordinary shares, including 3,300,016 Public Shares and 499,000 private placement shares, and 3,737,500 Class B ordinary
shares issued and outstanding. Following the approval of the Second Extension Amendment Proposal, the ordinary shares held by the initial shareholders represented 56.2% of the issued and outstanding ordinary shares (including Private Placement
Shares).
Non-Redemption Subscription Agreements
In connection with the execution of the Business Combination Agreement, ListCo and the Company entered into Non-redemption Subscription Agreements (the “Non-redemption Subscription Agreements”) with certain other
investors (the “Non-Redeeming Subscribed Investors”) pursuant to which the Non-Redeeming Subscribed Investors committed financing valued at approximately $2,000,000, which includes ListCo is seeking commitments from interested investors to
purchase in a private placement, contingent upon, and substantially concurrently with the closing of the Transaction, (i) shares (the “Shares”) of ListCo’s common stock, par value $0.0001 per share (the “Common Stock”) , (ii) warrants, each
representing the right to purchase shares of Common Stock and to be represented by a warrant and (iii) the Investor and its affiliates agree (a) not to sell or transfer any of the Non-Redeeming Subscribed Investors”) the company’s Shares prior
to the closing of the Transaction and (b) not to redeem any Investor Company Shares prior to or in connection with the Transaction. On the Closing Date, Non-Redeeming Subscribed Investors shall deliver evidence reasonably satisfactory to ListCo
that Investor continues to hold the Investor Company Shares and has not tendered such shares for redemption.
The Company has concluded that the New Adagio Common Stock and Warrants (“Non-Redeeming Shares and Warrants”) issued under certain Non-redemption Subscription Agreements qualify as equity under ASC 815-40 (“Derivatives
and Hedging–Contracts in Entity’s Own Equity”). Consequently, the Company will recognize these Non-Redeeming Shares and Warrants by recording an entry to additional paid-in capital (APIC) in shareholders’ equity in its balance sheet. According to
ASC 815-40-30-1, the Non-Redeeming Shares and Warrants will be recorded and measured at fair value, usually represented by the proceeds received for equity-linked instruments. When estimating the fair value of these instruments, the Company
follows the guidance in ASC 820, Fair Value Measurement.
Regarding the Non-Redeeming Subscribed Investors' commitment to irrevocably subscribe and purchase the number of Non-Redeeming Shares and Warrants listed in the Non-redemption Subscription
Agreements, the Company agrees to the terms and conditions set forth in the agreements, including not redeeming the Class A ordinary shares purchased in the open market before closing. The Company will record an amount equal to the full fair
value of the Non-Redeeming Shares and Warrants to be issued to the Non-Redeeming Subscribed Investor at the closing.
15
Approval of Business Combination Agreement
On July 26, 2024, the Company held an annual general meeting of shareholders (the “Meeting”) to consider and vote upon the Business Combination Proposal, the ARYA Merger Proposal, the Director Election Proposal and
the Adjournment Proposal, each as more fully described in the definitive proxy statement/prospectus that the Company filed with the U.S. Securities and Exchange Commission (the “SEC”) on July 12, 2024 (the “Proxy Statement”). The shareholders of
the Company approved the Business Combination Proposal, the ARYA Merger Proposal and the Director Election Proposal. As there were sufficient votes to approve the Business Combination Proposal, the ARYA Merger Proposal and the Director Election
Proposal, the Adjournment Proposal was not presented to shareholders.
Consummation of Business Combination
On July 31, 2024, Adagio announced the closing of its previously announced Business Combination with the Company and ListCo (the “Closing”). In connection with the Closing, ListCo changed its name to
“Adagio Medical Holdings, Inc.” (ListCo following the Closing, “New Adagio”). The shares of common stock of New Adagio began trading on August 1, 2024, under the ticker symbol “ADGM” on the Nasdaq Capital Market. Upon the consummation of the
Business Combination, Adagio and the Company became the direct wholly-owned subsidiaries of New Adagio.
In connection with the Business Combination, the combined company raised financing valued at approximately $84.2 million, which consisted of funds held in the Company’s trust account, a concurrent equity and warrant
private placement (including $29.5 million of bridge financing used by Adagio prior to closing and funds from the Company’s trust account not redeemed) led by, among others, Perceptive PIPE Investor, RA Capital Management and RTW Investments, and a
concurrent convertible security financing (including $7.0 million of bridge financing used by Adagio prior to closing) led by, among others, an institutional investor and Perceptive PIPE Investor.
The Business Combination is expected to be accounted for as a forward-merger in accordance with U.S. GAAP. Under this method of accounting, ListCo is treated as the “accounting acquirer” and Adagio as the “accounting
acquiree” for financial reporting purposes. Accordingly, the Business Combination is expected to be accounted for using the acquisition method of accounting. The acquisition method of accounting is based on FASB ASC 805 and uses the fair value
concepts defined in ASC 820. As of the date the condensed consolidated financial statements are available to be issued, the Company is still in the process of analyzing the accounting impact of the Business Combination.
Note 6 - Class A Ordinary Shares Subject to Possible Redemption
The Public Shares feature certain redemption rights that are considered to be outside of the Company’s control and subject to the occurrence of future events. As of June 30, 2024 and December 31, 2023, there were
3,300,016 and 3,690,831 Class A ordinary shares subject to possible redemption, respectively.
16
The Public Shares issued in the Initial Public Offering in connection with the over-allotment exercise were recognized in Class A ordinary shares subject to possible redemption as follows:
|
Gross proceeds
|
$
|
149,500,000
|
||
|
Less:
|
||||
|
Offering costs allocated to Class A ordinary shares subject to possible redemption
|
(8,734,896
|
)
|
||
|
Plus:
|
||||
|
Accretion on Class A ordinary shares subject to possible redemption amount
|
8,147,540
|
|||
|
Plus:
|
||||
|
Waiver of deferred underwriting commissions
|
2,616,250
|
|||
|
Class A ordinary shares subject to possible redemption at December 31, 2022
|
151,528,894
|
|||
|
Less:
|
||||
|
Redemption of Class A ordinary shares
|
(115,071,882
|
)
|
||
|
Plus:
|
||||
|
Adjustment for accretion of Class A ordinary shares subject to possible redemption
|
4,018,937
|
|||
|
Class A ordinary shares subject to possible redemption at December 31, 2023
|
$
|
40,475,949
|
||
|
Less:
|
||||
|
Redemption of Class A ordinary shares
|
(4,358,804
|
)
|
||
|
Plus:
|
||||
|
Adjustment for accretion of Class A ordinary shares subject to possible redemption
|
902,751
|
|||
|
Class A ordinary shares subject to possible redemption at March 31, 2024
|
$
|
37,019,896
|
||
|
Plus:
|
||||
|
Adjustment for accretion of Class A ordinary shares subject to possible redemption
|
819,027
|
|||
|
Class A ordinary shares subject to possible redemption at June 30, 2024
|
$
|
37,838,923
|
Note 7 - Shareholders’ Deficit
Preference Shares - The Company is authorized to issue 1,000,000 preference shares with such designations, voting and other rights and preferences as may be
determined from time to time by the Company’s board of directors. As of June 30, 2024 and December 31, 2023, there were no preference shares issued or outstanding.
Class A Ordinary Shares - The Company is authorized to issue 479,000,000 Class A ordinary shares with a par value of
$0.0001 per share. Holders of the Company’s Class A ordinary shares are entitled to one vote for each share. As of June 30, 2024 and December 31, 2023, there were 3,799,016 and 4,189,831 Class A ordinary shares issued and outstanding, of which
3,300,016 and 3,690,831 were subject to possible redemption and classified in temporary equity (see Note 6), respectively.
On February 27, 2024, the Company’s stockholders redeemed 390,815 Public Shares for an aggregate amount of approximately $4,358,804.
Class B Ordinary Shares - The Company is authorized to issue 20,000,000 Class B ordinary shares with a par value of
$0.0001 per share. As of June 30, 2024 and December 31, 2023, there were 3,737,500 Class B ordinary shares issued and outstanding (see Note 4).
Ordinary shareholders of record are entitled to one vote for each share held on all matters to be voted on by shareholders at a general meeting of the Company. 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.
The Class B ordinary shares will automatically convert into Class A ordinary shares on the first business day following the consummation of the initial Business Combination at a ratio such that the number of Class A
ordinary shares issuable upon conversion of all Founder Shares will equal, in the aggregate, on an as-converted basis, 20% of the sum of (i) the total number of ordinary shares issued and outstanding (excluding the Private Placement Shares) upon
the consummation of the Initial Public Offering, plus (ii) the sum of the total number of Class A ordinary shares issued or deemed issued or issuable upon conversion or exercise of any equity-linked securities or rights issued or deemed issued, by
the Company in connection with or in relation to the consummation of the initial Business Combination, excluding any Class A ordinary shares or equity-linked securities exercisable for or convertible into Class A ordinary shares issued, deemed
issued, or to be issued, to any seller in the initial Business Combination and any Private Placement Shares issued to the Sponsor, members of the Company’s management team or any of their affiliates upon conversion of Working Capital Loans. In no
event will the Class B ordinary shares convert into Class A ordinary shares at a rate of less than one to one.
Note 8 – Fair Value Measurements
Transfers to/from Levels 1, 2, and 3 are recognized at the end of the reporting period. There was a transfer of U.S. Treasury securities to cash during the year ended December 31, 2023, the amount held in trust are
no longer fair valued. Level 1 instruments include investments U.S. Treasury securities with an original maturity of 185 days or less. On February 27, 2023, the Company delivered an instruction letter to Continental Stock Transfer & Trust
Company acting, as trustee, to liquidate the investments held in the Trust Account and instead to hold the funds in the Trust Account in cash in an interest-bearing demand deposit account until the earlier of the consummation of an initial Business
Combination or the Company’s liquidation. The Company is taking these steps in order to mitigate the risk that the Company might be deemed to be an investment company for purposes of the Investment Company Act following the adoption of the First
Extension Amendment Proposal described above (see Note 1).
17
During the six months ended June 30, 2024, the Company entered into an Open Market Subscription Agreement and Non-Redemption Subscription Agreement, discussed in Note 5. The Company has concluded that the New Adagio
Common Stock and PIPE Warrants and Non-Redeeming Shares and Warrants to be issued under certain of Open Market Subscription Agreements and Non-Redeeming Subscription Agreements that include an open market purchase and non-redemption obligation
for Open Market Investors and Non-Redeeming Subscribed Investors qualify as equity under ASC 815-40 (“Derivatives and Hedging–Contracts in Entity’s Own Equity”); therefore, the Company will recognize the New Adagio Common Stock and PIPE
Warrants to be issued under such Open Market Subscription Agreements and Non-Redeeming Subscription Agreements (such securities, the “Open Market PIPE Securities” and “Non-Redeeming Shares and Warrants”) by recording an entry to additional
paid-in capital (APIC) in shareholders’ equity in its Consolidated Condensed Balance Sheet and Subscription Agreement expense on its Consolidated Condensed Statement of Operations. In accordance with ASC 815-40-30-1, the New Adagio Common Stock
and PIPE Warrants and Non-Redeeming Shares and Warrants will be recorded and measured at fair value (i.e., most often representative of proceeds received for equity-linked instruments; however, when estimating the fair value of the New Adagio
Common Stock and PIPE Warrants and Non-Redeeming Shares and Warrants, the Company has followed the guidance in ASC 820 Fair Value Measurement. In connection with Open Market Investor’s commitment to irrevocably subscribe for and agree to
purchase from ListCo the number of Open Market PIPE Securities and Non-Redeeming Shares and Warrants set forth on the signature page of the applicable Open Market Subscription Agreements, on the terms and subject to the conditions set forth in
such Open Market Subscription Agreements, which include, without limitation, the agreement not to redeem the Class A ordinary shares purchased in the open market prior to Closing, the Company will record an amount equal to the full fair value
of the New Adagio Common Stock and PIPE Warrants to be issued to the Open Market PIPE Investor in connection with the Closing. The estimated amount of New Adagio Common Stock shares and PIPE Warrants to be issued on the Close of the Transaction
as of the inception of the Open Market Subscription agreements mentioned above, are 219,877 and 183,493, respectively. The estimated amount Non-Redeeming Shares and Warrants to be issued on the Close of the Transaction as of the inception of
the Non-Redeeming Subscription Agreements mentioned above, are 76,681 and 166,160, respectively.
To determine the Fair Value of the New Adagio Common Stock on inception, the Company used the following Level 3 inputs:
|
February 13,
2024
|
||||
|
Base Share Price
|
$
|
10.00
|
||
|
Adjusted per Share (1.2X Purchase Price Ratio)
|
$
|
8.33
|
||
|
Adjusted share price
|
$
|
7.00
|
||
|
Probablility of Closing
|
75.00
|
%
|
||
|
Estimated fair value per Share at Closing
|
$
|
5.25
|
||
To determine the Fair Value of the PIPE Warrants on inception, the Company used the following Level 3 inputs:
|
February 13,
2024
|
||||
|
Base Share Price
|
$
|
7.00
|
||
|
Strike price, as defined in Subscription Agreement
|
$
|
10.00
|
||
|
Term (Months)
|
12.00
|
|||
|
Average volatility rate
|
70.00
|
%
|
||
|
Probability of Closing
|
75.00 |
% |
||
|
Estimated expected Warrant price
|
$
|
1.21
|
||
|
Estimated fair value per Warrant at Closing (1.2x Coverage Ratio)
|
$
|
1.45
|
||
To determine the Fair Value of the Non-Redeeming Subscription Agreement Shares on inception, the Company used the following Level 3 inputs:
|
June 21,
2024
|
||||
|
Base Share Price
|
$
|
10.00
|
||
|
Adjusted per Share (1.2X Purchase Price Ratio)
|
$
|
8.33
|
||
|
Adjusted share price
|
$
|
7.08
|
||
|
Probability of Closing
|
95.00
|
%
|
||
|
Estimated fair value per Share at Closing
|
$
|
6.73
|
||
To determine the Fair Value of the Non-Redeeming Subscription Agreement Warrants on inception, the Company used the following Level 3 inputs:
|
June 21,
2024
|
||||
|
Base Share Price
|
$
|
10.00
|
||
|
Strike price, as defined in Subscription Agreement
|
$
|
10.00
|
||
|
Term (Months)
|
12.00
|
|||
|
Average volatility rate
|
70.00
|
|||
|
Probability of Closing
|
95.00
|
%
|
||
|
Estimated expected Warrant price
|
$
|
1.25
|
||
|
Estimated fair value per Warrant at Closing (1.2x Coverage Ratio)
|
$
|
1.19
|
||
During the six months ended June 30, 2024, the Fair Value of the instruments above were recorded in additional paid-in capital in shareholders’ equity in its Balance Sheet and Subscription Agreement expense on its
Statement of Operations was $2,134,199.
18
Note 9 - Subsequent Events
The Company evaluated subsequent events and transactions that occurred up to the date the unaudited consolidated condensed financial statements were issued and has concluded that, other than the events described
below, all such events that would require recognition or disclosure have been recognized or disclosed.
On July 31, 2024, Adagio announced the closing of its previously announced Business Combination with the Company and ListCo (the “Closing”). In connection with the Closing, ListCo changed its name to
“Adagio Medical Holdings, Inc.” (ListCo following the Closing, “New Adagio”). The shares of common stock of New Adagio began trading on August 1, 2024, under the ticker symbol “ADGM” on the Nasdaq Capital Market. Upon the consummation of the
Business Combination, Adagio and the Company became the direct wholly-owned subsidiaries of New Adagio (see Note 5).
19
Exhibit 99.4
ARYA’s Management’s Discussion and Analysis of Financial Condition and Results of Operations
References to the “Company,” “ARYA Sciences Acquisition Corp IV,” “ARYA,” “our,” “us” or “we” refer to ARYA Sciences Acquisition Corp IV. The following discussion and analysis of the Company’s
financial condition and results of operations should be read in conjunction with the unaudited interim consolidated 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
Some of the statements contained in this report may constitute “forward-looking statements” for purposes of the federal securities laws. Our forward-looking statements include, but are not limited to, statements
regarding our or our management team’s expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances,
including any underlying assumptions, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “would”
and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking.
The forward-looking statements contained in this report are based on our current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future
developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to
be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, the following risks, uncertainties (some of which are beyond our control) or other factors:
| • |
we have no operating history and no revenues, and you have no basis on which to evaluate our ability to achieve our business objective;
|
| • |
our ability to select an appropriate target business or businesses;
|
| • |
our ability to complete a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or more businesses (the “Business Combination”);
|
| • |
our expectations around the performance of a prospective target business or businesses;
|
| • |
our success in retaining or recruiting, or changes required in, our officers, key employees or directors following our initial Business Combination;
|
| • |
our officers and directors allocating their time to other businesses and potentially having conflicts of interest with our business or in approving our initial Business Combination;
|
| • |
our potential ability to obtain additional financing to complete our initial Business Combination or reimburse any loans ARYA Sciences Holdings IV (the “Sponsor”) may loan to the Company (the “Working Capital
Loans”), including the unsecured convertible promissory note to the Sponsor, pursuant to which the Company borrowed $120,000 (the “First Convertible Working Capital Loan”), the unsecured convertible promissory note to the Sponsor, pursuant
to which the Company may borrow up to $1,680,000 (the “Second Convertible Working Capital Loan”), the unsecured promissory note to the Sponsor pursuant to which the Company may borrow up to $900,000 (the “Third Working Capital Loan”) and
the unsecured convertible promissory note to the Sponsor pursuant to which the Company may borrow up to $1,000,000 (the “Fourth Working Capital Loan,” and together with the First Convertible Working Capital Loan, the Second Convertible
Working Capital Loan and the Third Working Capital Loan, the “Convertible Working Capital Loans”);
|
| • |
our pool of prospective target businesses;
|
| • |
our ability to consummate an initial Business Combination due to the uncertainty resulting from general economic and political conditions such as recessions, interest rates, international currency
fluctuations and health epidemics and pandemics (including the ongoing COVID-19 pandemic), inflation, changes in diplomatic and trade relationships and acts of war or terrorism (such as the military conflict between Ukraine, the Russian
Federation and Belarus that started in February 2022 or the conflict in Israel and Palestine);
|
| • |
the ability of our officers and directors to generate a number of potential Business Combination opportunities;
|
| • |
our ability to obtain additional financing to complete a Business Combination;
|
| • |
our public securities’ potential liquidity and trading;
|
| • |
the use of funds not held in the trust account (“Trust Account”) or available to us from interest income on the Trust Account balance;
|
| • |
our ability to continue as a going concern;
|
| • |
the Trust Account not being subject to claims of third parties;
|
| • |
our financial performance following our initial public offering (the “Initial Public Offering”);
|
| • |
the number of redemptions by our public shareholders in connection with a proposed Business Combination; and
|
| • |
the other risks and uncertainties discussed herein and in our filings with the U.S. Securities and Exchange Commission (the “SEC”), including in our Annual Report on Form 10-K filed with the SEC on March 29,
2024.
|
Should one or more of these risks or uncertainties materialize, or should any of our assumptions prove incorrect, actual results may vary in material respects from those projected in these forward-looking statements.
We undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.
Overview
We are a blank check company incorporated as a Cayman Islands exempted company on August 24, 2020. We were formed for the purpose of effecting a Business Combination with one or more businesses. Our sponsor is ARYA
Sciences Holdings IV, a Cayman Islands exempted company.
Our registration statement for our Initial Public Offering was declared effective on February 25, 2021. On March 2, 2021, we consummated its Initial Public Offering of 14,950,000 Class A ordinary shares (the “Public
Shares”), including 1,950,000 Public Shares as a result of the underwriters’ full exercise of their over-allotment option, at an offering price of $10.00 per Public Share, generating gross proceeds of $149.5 million, and incurring offering costs of
approximately $8.8 million, inclusive of approximately $5.2 million in deferred underwriting commissions. On August 8, 2022, the Company received a waiver from one of its underwriters pursuant to which such underwriter waived all rights to its 50%
share of the deferred underwriting commissions payable upon completion of a Business Combination (the “Waiver”). In connection with the Waiver, the underwriter also agreed that (i) the Waiver is not intended to allocate its 50% portion of the
deferred underwriting commissions to the other underwriter that has not waived its right to receive its share of the deferred underwriting commissions and (ii) the waived portion of the deferred underwriting commissions can, at the discretion of
the Company, be paid to one or more parties or otherwise be used in connection with a Business Combination.
Simultaneously with the closing of the Initial Public Offering, we consummated the private placement of 499,000 Private Placement Shares, at a price of $10.00 per Private Placement Share to the Sponsor, generating
gross proceeds of approximately $5.0 million.
Upon the closing of the Initial Public Offering and the Private Placement, $149.5 million ($10.00 per Public Share) of the net proceeds of the Initial Public Offering and certain of the proceeds from the sale of the
Private Placement were placed in the Trust Account, located in the United States, with Continental Stock Transfer & Trust Company, acting as trustee (“Continental”), and were, from the consummation of the Initial Public Offering through
February 27, 2023, invested only in U.S. “government securities” within the meaning set forth in Section 2(a)(16) of the Investment Company Act of 1940, as amended (the “Investment Company Act”), with a maturity of 185 days or less or in money
market funds meeting certain conditions under Rule 2a-7 promulgated under the Investment Company Act, as determined by us, until the earlier of (i) the completion of a Business Combination and (ii) the distribution of the Trust Account as described
below. On February 27, 2023, the Company delivered an instruction letter to Continental, to liquidate the investments held in the Trust Account and instead to hold the funds in the Trust Account in cash in an interest-bearing demand deposit account
until the earlier of the consummation of a Business Combination or the Company’s liquidation. The Company is taking these steps in order to mitigate the risk that the Company might be deemed to be an investment company for purposes of the
Investment Company Act following the adoption of the First Extension Amendment Proposal (for more information see below “—Adoption of First Extension Amendment Proposal”).
For more information on the partial liquidation of the Trust Account in connection with the adoption of the First Extension Amendment Proposal and the related redemption of Class A ordinary shares, also see below under “—Adoption of First Extension Amendment Proposal.”
As further described below under “—Adoption of First Extension Amendment Proposal” and “—Adoption of Second Extension Amendment Proposal,”
in connection with the adoption of the First Extension Amendment Proposal, 11,259,169 Public Shares were redeemed for an aggregate amount of $115,071,882.05, and in connection with the adoption of the Second Extension Amendment Proposal, 390,815
additional Public Shares were redeemed for an aggregate amount of approximately $4,358,804.
Our management has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering and the sale of Private Placement Shares, although substantially all of the net proceeds
are intended to be applied generally toward consummating a Business Combination.
On July 31, 2024, Adagio announced the closing of its previously announced Business Combination with the Company and ListCo. Upon the closing of the merger, ListCo changed its name to “Adagio Medical Holdings, Inc.”
The common stock of New Adagio began trading on August 1, 2024, under the symbols ADGM on the Nasdaq Capital Market. Upon the consummation of the Business Combination, Adagio and the Company became the direct wholly-owned subsidiaries of Adagio
Medical Holding, Inc. (see Note 5).
The issuance of additional shares in the Business Combination:
| • |
may significantly dilute the equity interest of investors in our Initial Public Offering, which will receive shares of New Adagio Common Stock (as defined below) in connection with the consummation of the
Proposed Adagio Business Combination (as defined below);
|
| • |
could cause a change in control if a substantial number of our Class A ordinary shares or shares of New Adagio Common Stock are issued, which may affect, among other things, our ability to use our net
operating loss carry forwards, if any, and could result in the resignation or removal of our present officers and directors;
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may have the effect of delaying or preventing a change of control of us by diluting the share ownership or voting rights of a person seeking to obtain control of us; and
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may adversely affect prevailing market prices for our Class A ordinary shares or any shares of New Adagio Common Stock.
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Similarly, if we issue debt or otherwise incur significant debt, it could result in:
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default and foreclosure on our assets if our operating revenues after a Business Combination are insufficient to repay our debt obligations;
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acceleration of our obligations to repay the indebtedness even if we make all principal and interest payments when due if we breach certain covenants that require the maintenance of certain financial ratios
or reserves without a waiver or renegotiation of that covenant;
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our immediate payment of all principal and accrued interest, if any, if the debt is payable on demand;
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our inability to obtain necessary additional financing if the debt contains covenants restricting our ability to obtain such financing while the debt security is outstanding;
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our inability to pay dividends on our Class A ordinary shares or any shares of New Adagio Common Stock following the consummation of the Proposed Adagio Business Combination;
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using a substantial portion of our cash flow to pay principal and interest on our debt, which will reduce the funds available for dividends on our Class A ordinary shares or any shares of New Adagio Common
Stock following the consummation of the Proposed Adagio Business Combination, if declared, expenses, capital expenditures, acquisitions and other general corporate purposes;
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limitations on our flexibility in planning for and reacting to changes in our business and in the industry in which we operate;
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increased vulnerability to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation; and
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limitations on our ability to borrow additional amounts for expenses, capital expenditures, acquisitions, debt service requirements, execution of our strategy and other purposes and other disadvantages
compared to our competitors who have less debt.
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Proposed Adagio Business Combination
Business Combination Agreement
On February 13, 2024, the Company, Aja HoldCo, Inc., a Delaware corporation (“ListCo” or “HoldCo”), Aja Merger Sub 1, a Cayman Islands exempted company (“ARYA Merger Sub”), Aja Merger Sub 2, Inc., a Delaware
corporation (“Adagio Merger Sub”), and Adagio Medical, Inc. (“Adagio”) entered into a business combination agreement (the “Business Combination Agreement”), in connection with a proposed business combination (the “Proposed Adagio Business
Combination”), which contains certain customary representations, warranties, and covenants by the parties thereto. As further described in the Business Combination Agreement, the closing of the Proposed Adagio Business Combination (the “Closing”)
is subject to certain customary conditions and risks.
The Business Combination Agreement provides, among other things, for the consummation of the following transactions:
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ARYA Merger Sub will merge with and into ARYA (the “ARYA Merger”) and Adagio Merger Sub will merge with and into Adagio (the “Adagio Merger” and, together with the ARYA Merger, the “Mergers”), with ARYA and
Adagio surviving the Mergers and, after giving effect to such Mergers, each of ARYA and Adagio becoming a wholly owned subsidiary of ListCo, on the terms and subject to the conditions in the Business Combination Agreement;
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(i) each issued and outstanding Class A ordinary share will be automatically cancelled, extinguished and converted into the right to receive one share of common stock, par value $0.0001 per share, of ListCo
after giving effect to the consummation of the transactions contemplated by the Business Combination Agreement (“New Adagio”) (the “New Adagio Common Stock”) and (ii) each issued and outstanding Class B ordinary share will be
automatically cancelled, extinguished and converted into the right to receive one share of New Adagio Common Stock, other than 1,000,000 Class B ordinary shares that will be forfeited by the Sponsor, and issued to PIPE Investors (as
defined below), including Perceptive Life Sciences Master Fund, Ltd, a Cayman Islands exempted company (the “Perceptive PIPE Investor”). 1,147,500 shares of New Adagio Common Stock issuable to the Sponsor will be subject to share trigger
price vesting and will vest if, prior to the tenth anniversary of the Closing, the post-closing share price of New Adagio equals or exceeds $24.00 per share for any 20 trading days within any 30 trading day period (the “Share Trigger
Price Vesting”);
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(i) each warrant of Adagio will be either (x) terminated, or (y) “net” exercised in exchange for shares of common stock, par value $0.01 per share, of Adagio (“Adagio Common Stock”); (ii) all issued and
outstanding unsecured convertible promissory notes of Adagio (excluding the convertible notes issued by Adagio to the Perceptive PIPE Investor pursuant to the note purchase agreements dated April 4, 2023 and November 28, 2023, between
Adagio and the Perceptive PIPE Investor (collectively, the “2023 Bridge Financing Notes”) and the 2024 Bridge Financing Notes (as defined below)) (the “Adagio Convertible Notes”), including any accrued and unpaid interest thereon, will be
automatically and fully converted into shares of Adagio Common Stock in accordance with the terms of such Adagio Convertible Notes and such Adagio Convertible Notes will be cancelled, satisfied, extinguished, discharged and retired in
connection with such conversion (the “Adagio Convertible Notes Conversion”); (iii) each share of preferred stock, par value $0.001 per share, of Adagio (the “Adagio Preferred Stock”) that is issued and outstanding will be automatically
converted into shares of Adagio Common Stock and each such share of Adagio Preferred Stock will be cancelled; (iv) all issued and outstanding shares of Adagio Common Stock (other than treasury shares and shares with respect to which
appraisal rights under the Delaware General Corporation Law, as amended, are properly exercised and not withdrawn) will be automatically cancelled, extinguished and converted into the right to receive shares of New Adagio Common Stock
based on the exchange ratio set forth in the Business Combination Agreement; (v) each issued, outstanding and unexercised option to purchase Adagio Common Stock (“Adagio Option”) that is vested as of such time or will vest in connection
with, or after taking into account the effect of, the consummation of the transactions contemplated by the Business Combination Agreement with an aggregate value that exceeds the aggregate exercise price of such Adagio Option (each an
“In-the-Money Adagio Option”) will be cancelled and extinguished in exchange for options to purchase shares of New Adagio Common Stock, and each issued and outstanding Adagio equity award (other than an In-the-Money Adagio Option) will
automatically be canceled and extinguished for no consideration and each holder thereof will cease to have any rights with respect thereto.
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Amendment to the Business Combination Agreement
On June 25, 2024, the Company and Adagio entered into a Consent and Amendment No. 1 to the Business Combination Agreement (the “Amendment No. 1”), pursuant to which, among other things: (i) the Company consented to Adagio entering an exchange agreement (the “Exchange Agreement”) and the transactions contemplated thereunder with RA Capital Healthcare Fund, L.P., a Delaware limited partnership (“RA Capital”), pursuant to which, RA Capital would exchange a certain number of its existing Company Series E Preferred Shares (as defined in the Business Combination Agreement) for pre-funded
warrants (each, a “Pre-Funded Warrant for Series E Preferred Shares”)
to purchase Company Series E Preferred Shares, with each Pre-Funded Warrant for Series E Preferred Shares issued and outstanding as of immediately prior to the Company Merger Effective Time (as defined in the Business Combination Agreement) being
automatically canceled and extinguished and converted into the right to receive a number of HoldCo Shares (as defined in the Business Combination Agreement) equal to the Exchange Ratio (as defined in the Business Combination Agreement); (ii) the
definition of the term “Fully Diluted HoldCo Closing Capitalization” as provided in the Business Combination Agreement was expanded to include the number of pre-funded warrants outstanding immediately after the Company Merger Effective Time that
each represented the right to purchase HoldCo Shares; (iii) (a) the aggregate share reserve under the Key Employee Incentive Plan (as defined in the Business Combination Agreement) should be up to the Key Employee Incentive Plan Maximum Amount,
which was the aggregate number of HoldCo Shares equal to the product obtained by multiplying (A) the quotient of (x) fifteen percent (15%) divided by (y) thirty-five percent (35%) by (B) the Aggregate Incentive Equity Pool, which was the
aggregate number of HoldCo Shares equal to (x) the Aggregate HoldCo Share Reserve (as defined hereunder) minus (y) the Fully Diluted HoldCo Closing Capitalization, and (b) the aggregate share reserve under the HoldCo Incentive Equity Plan (as
defined in the Business Combination Agreement) should be equal to the Incentive Equity Plan Maximum Amount plus an increase as provided in the Business Combination Agreement, which Incentive Equity Plan Maximum Amount was the aggregate number of
HoldCo Shares equal to the product obtained by multiplying (A) the quotient of (x) twenty percent (20%) divided by (y) thirty-five percent (35%) by (B) the Aggregate Incentive Equity Pool; and (iv) following the Closing, ListCo’s name would be
changed to ‘‘Adagio Medical Holdings, Inc.” (or such other name mutually agreed to by ARYA and Adagio). As defined in the Amendment No. 1, “Aggregate HoldCo Share Reserve” meant the aggregate number of HoldCo Shares equal to the quotient obtained
by dividing (i) the Fully Diluted HoldCo Closing Capitalization by (ii) sixty-five percent (65%).
Sponsor Letter Agreement
Concurrently with the execution of the Business Combination Agreement, ARYA, the Sponsor, each holder of Class B ordinary shares (the “Other Class B Shareholders” and with the Sponsor, the “Class B Shareholders”),
including ARYA’s directors and officers (together with the Class B Shareholders, the “Insiders”), ListCo and Adagio entered into a letter agreement (the “Sponsor Letter Agreement”), pursuant to which, among other things, (i) each Class B
Shareholder agreed to vote in favor of each of the transaction proposals to be voted upon at the meeting of ARYA shareholders, including approval of the Business Combination Agreement and the transactions contemplated thereby, (ii) each Class B
Shareholder agreed to waive any adjustment to the conversion ratio set forth in the amended and restated memorandum and articles of association or any other anti-dilution or similar protection with respect to the Class B ordinary shares (whether
resulting from the transactions contemplated by the Subscription Agreements (as defined below) or otherwise), (iii) each of the Insiders and ARYA agreed to terminate the lock-up provisions contained in that certain Letter Agreement, dated February
25, 2021, by and among the Company, the Sponsor and the other parties thereto (the “Letter Agreement”), and to replace such lock-up provisions with the transfer restrictions included in the Investor Rights Agreement (as defined below), (iv) each
Class B Shareholder agreed to be bound by certain transfer restrictions with respect to his, her or its shares in ARYA prior to the Closing, (v) the Sponsor agreed that 1,147,500 shares of New Adagio Common Stock issued to the Sponsor will be
subject to Share Trigger Price Vesting, and (vi) the Sponsor has agreed to irrevocably forfeit, surrender and transfer to ARYA for no consideration 1,000,000 Class B ordinary shares, which will be issued by ListCo to the PIPE Investors, including
the Perceptive PIPE Investor, as incentive shares.
Adagio Stockholder Transaction Support Agreements
Pursuant to the Business Combination Agreement, certain stockholders of Adagio entered into transaction support agreements (collectively, the “Adagio Transaction Support Agreements”) with ARYA and Adagio, pursuant to
which such stockholders of Adagio agreed to, among other things, (i) vote in favor of the Business Combination Agreement and the transactions contemplated thereby and (ii) be bound by certain other covenants and agreements related to the Proposed
Adagio Business Combination.
PIPE Financing (Private Placement)
In connection with the execution of the Business Combination Agreement, ListCo and ARYA entered into Subscription Agreements (the “Subscription Agreements”) with the Perceptive PIPE Investor and certain other
investors (the “Other PIPE Investors,” and, together with the Perceptive PIPE Investor, the “PIPE Investors”), pursuant to which the PIPE Investors committed financing valued at approximately $45,000,000, which includes (i) commitments by certain
investors to subscribe for and purchase Class A ordinary shares in the open market and not to redeem such shares prior to the date the Closing occurs (the “Closing Date”), (ii) non-redemption commitments by certain investors that are shareholders
of ARYA, (iii) agreements to subscribe for and purchase shares of New Adagio Common Stock, (iv) the contribution of $23,000,000 of 2023 Bridge Financing Notes to ListCo pursuant to the terms of the Subscription Agreement executed by the Perceptive
PIPE Investor, and (v) an additional cash investment by the Perceptive PIPE Investor of approximately $8.1 million (which amount may be reduced by up to approximately $1,070,575 subject to Additional Financing being raised prior to Closing), as
described in more detail below (together, the “PIPE Financing”). In connection with the PIPE Financing, the PIPE Investors will also subscribe for (i) warrants to purchase shares of New Adagio Common Stock at $10.00 per share, subject to adjustment
(the “Base Warrants”) or (ii) a combination of Base Warrants and pre-funded warrants each exercisable for one share of New Adagio Common Stock at $0.01 per share (the “Pre-Funded Warrants,” and together with the Base Warrants, the “PIPE Warrants”).
As provided for in the Subscription Agreements, the number of shares of New Adagio Common Stock and Base Warrants issuable to the PIPE Investors will depend on the redemption value of the Class A ordinary shares at Closing, the average per share
price of the Class A ordinary shares purchased by certain PIPE Investors in the open market and the amount of interest on the 2023 Bridge Financing Notes that will have accrued and be unpaid at Closing and be contributed to ListCo in exchange for
shares of New Adagio Common Stock. The shares of New Adagio Common Stock and PIPE Warrants to be issued pursuant to the Subscription Agreements have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), and will
be issued in reliance upon the exemption provided in Section 4(a)(2) of the Securities Act. ListCo will grant the PIPE Investors certain registration rights in connection with the PIPE Financing. The PIPE Financing is contingent upon, among other
things, the substantially concurrent Closing.
The Company has concluded that the New Adagio Common Stock and PIPE Warrants to be issued under certain of the Subscription Agreements (the “Open Market Subscription Agreements”) that include an open market purchase
and non-redemption obligation for subscribing investors (the “Open Market Investors”) qualify as equity under ASC 815-40 (“Derivatives and Hedging–Contracts in Entity’s Own Equity”); therefore, the Company will recognize the New Adagio Common Stock
and PIPE Warrants to be issued under such Open Market Subscription Agreements (such securities, the “Open Market PIPE Securities”) by recording an entry to additional paid-in capital (APIC) in shareholders’ equity in its balance sheet. In
accordance with ASC 815-40-30-1, the New Adagio Common Stock and PIPE Warrants will be recorded and measured at fair value (i.e., most often representative of proceeds received for equity-linked instruments; however, when estimating the fair value
of the New Adagio Common Stock and PIPE Warrants, the Company has followed the guidance in ASC 820 Fair Value Measurement. In connection with Open Market Investor’s commitment to irrevocably subscribe for and agree to purchase from ListCo the
number of Open Market PIPE Securities set forth on the signature page of the applicable Open Market Subscription Agreements, on the terms and subject to the conditions set forth in such Open Market Subscription Agreements, which include, without
limitation, the agreement not to redeem the Class A ordinary shares purchased in the open market prior to Closing, the Company will record an amount equal to the full fair value of the New Adagio Common Stock and PIPE Warrants to be issued to the
Open Market PIPE Investor in connection with the Closing.
On July 23, 2024, the Perceptive Life Sciences Master Fund, Ltd., a Cayman Islands exempted company (the “Perceptive PIPE Investor”) indicated an interest to increase its investment in the PIPE Financing by such
amount that is necessary for the minimum unrestricted cash condition of the Contingent Investor to be met. Such additional subscription would be on the same terms as provided in the Subscription Agreement that the Perceptive PIPE Investor executed
on February 13, 2024 and amended on June 24, 2024. Assuming the Closing occurs on July 29, 2024, New Adagio would be required to have approximately $32,129,000 of available unrestricted cash for the Contingent Investor to fund its $7,500,000
commitment under the Convertible Security Subscription Agreement. Assuming that a maximum redemption scenario occurs, that no Additional Financing is raised prior to Closing and that transaction expenses payable at Closing are approximately $14.3
million (current estimate subject to change), the Perceptive PIPE Investor may, pursuant to such indication of interest, increase its new money commitment under the PIPE Financing by approximately $9 million, resulting in the issuance of
approximately 1,080,000 additional shares of New Adagio Common Stock at Closing to the Perceptive PIPE Investor. Assuming such issuance of additional shares of New Adagio Common Stock to the Perceptive PIPE Investor in the maximum redemption
scenario, the post-Closing ownership of the Perceptive PIPE Investor and the initial shareholders (as defined in the Proxy Statement/Prospectus) may increase by approximately 2.6%.
Convertible Security Financing (Private Placement)
In connection with the execution of the Business Combination Agreement, certain investors, including the Perceptive PIPE Investor (the “Convert Investors”), executed a securities purchase agreement, dated February
13, 2024, with ListCo (the “Convertible Security Subscription Agreement”), pursuant to which ListCo will issue on the Closing Date to the Convert Investors $20,000,000 aggregate principal amount of 13% senior secured convertible notes (the “New
Adagio Convertible Notes”), which will be convertible into shares of New Adagio Common Stock at a conversion price of $10.00 per share, subject to adjustment (the “Conversion Shares”), and 1,500,000 warrants (the “Convert Warrants”), each Convert
Warrant being exercisable on a cashless basis or for cash at a price of $24.00 per share, subject to adjustment (the “Base Convert Financing”). Such $20,000,000 of financing in the form of New Adagio Convertible Notes includes the Perceptive
Convertible Note Commitment (as defined below) and includes the conversion of the 2024 Bridge Financing Notes (as defined below) into New Adagio Convertible Notes at Closing, subject in each case to Additional Financing (as defined below) being
raised prior to Closing, as further described below. The New Adagio Convertible Notes will have a maturity of three years and nine months after Closing and interest will be payable in cash or compound as additional principal outstanding. The
Perceptive PIPE Investor also purchased a $7,000,000 convertible promissory note of Adagio (the “2024 Bridge Financing Notes”) pursuant to a note purchase agreement, dated February 13, 2024, by and among the Perceptive PIPE Investor, Adagio and
ListCo (the “2024 Bridge Financing Notes Subscription Agreement”). On the Closing Date, pursuant to the terms of the 2024 Bridge Financing Notes and the 2024 Bridge Financing Note Subscription Agreement, the 2024 Bridge Financing Notes will convert
into $7,000,000 of New Adagio Convertible Notes and 525,000 Convert Warrants, and the Perceptive PIPE Investor will subscribe for an additional $5,500,000 of New Adagio Convertible Notes and 412,500 Convert Warrants, for a total of $12,500,000 in
aggregate principal amount of New Adagio Convertible Notes and 937,500 Convert Warrants, on the same terms as the Convert Investors executing the Convertible Security Subscription Agreement (such commitment by the Perceptive PIPE Investor to
purchase New Adagio Convertible Notes and Convert Warrants, the “Perceptive Convertible Note Commitment,” and the conversion of the 2024 Bridge Financing Note and purchase of New Adagio Convertible Notes and Convert Warrants pursuant to the
Perceptive Convertible Note Commitment as part of the Base Convert Financing, the “Convertible Security Financing”). Subject to ARYA and New Adagio receiving any new financing or commitment for financing (any such financing, an “Additional
Financing”), whether in the form of equity, debt or convertible debt, before the Closing Date, the Perceptive PIPE Investor may request that on the Closing Date the 2024 Bridge Financing Note is repaid, the Perceptive Convertible Note Commitment is
reduced or a combination of both. The New Adagio Convertible Notes and the Convert Warrants issuable in connection with the Convertible Security Financing have not been registered under the Securities Act and will be issued in reliance upon the
exemption provided in Section 4(a)(2) of the Securities Act. ListCo will grant the Convert Investors certain registration rights in connection with the Convertible Security Financing. The Convertible Security Financing is contingent upon, among
other things, the substantially concurrent Closing. As set forth in the Convertible Security Subscription Agreement, the closing of $7,500,000 of financing by an affiliate of ATW Partners, LLC (the “Contingent Investor”), in the Convertible
Security Financing is conditioned on New Adagio having at least $48 million (as reduced by $2 million (prorated for partial months) for each calendar month anniversary from November 30, 2023 until the Closing Date) of available unrestricted cash on
the Closing Date.
Pursuant to the terms of the Convertible Security Subscription Agreement, on the Closing Date, ListCo, certain of its subsidiaries (other than Adagio Medical GmbH, a company organized under the laws of Germany and an
excluded subsidiary thereunder) (the “Subsidiaries”) and Allegro Management LLC, as the collateral agent (the “Collateral Agent”) on behalf of the Convert Investors, will enter into a security and pledge agreement (the “Convert Security Document”),
pursuant to which ListCo and the Subsidiaries will (i) pledge the equity interests in the Subsidiaries to the Collateral Agent, (ii) pledge all of their respective promissory notes, securities and other instruments evidencing indebtedness to the
Collateral Agent, and (iii) grant to the Collateral Agent a security interest in and lien on all of their respective personal property and assets, including, among other items, all of their deposit accounts, chattel paper, documents, equipment,
general intangibles, instruments and inventory, and all proceeds therefrom, in each case subject to customary exceptions, all as set forth in the form of the Convert Security Document. Additionally, pursuant to the terms of the Convertible
Security Subscription Agreement, on the Closing Date, the Subsidiaries will deliver a guaranty (the “Convert Guaranty”) to the Collateral Agent pursuant to which the Subsidiaries will, jointly and severally, guaranty ListCo’s obligation to repay
the New Adagio Convertible Notes and all other obligations of ListCo under the Convertible Security Subscription Agreement and the New Adagio Convertible Notes and other related transaction documents, as set forth in the form of the Convert
Guaranty. Any additional subsidiaries of ListCo formed or acquired after the closing date will be required to join the Convert Guaranty as additional guarantors.
Convert Registration Rights Agreement
The Conversion Shares, the Convert Warrants, the Convert Warrant Shares, the New Adagio Convertible Notes and any capital stock of ListCo issued or issuable with respect to the Conversion Shares, have not been
registered under the Securities Act. In connection with the Convertible Security Subscription Agreement, ListCo and the Convert Investors agreed to enter into a Registration Rights Agreement (the “Convert Registration Rights Agreement”), pursuant
to which ListCo will be required to file a registration statement on Form S-3 or, if not available, Form S-1 (the “Convert Registration Statement”) with the SEC to register for resale all of the Registrable Securities (as defined in the Convert
Registration Rights Agreement), including the Conversion Shares, the Convert Warrant Shares and any shares issuable with respect to the New Adagio Convertible Notes, as soon as practicable, but in no event later than 45 days after the Closing Date.
In the event that the number of shares registered for resale under the Convert Registration Statement is insufficient to cover all of the Registrable Securities, ListCo will amend the Registration Statement or file with the SEC a new registration
statement to cover at least the Required Registration Amount (as defined in the Convert Registration Rights Agreement) as of the trading day immediately preceding the date of the filing of such amendment or new registration statement, as soon as
practicable, but in any event not later than 15 days after the necessity therefor arises. If ListCo fails to file the Convert Registration Statement when required, fails to obtain effectiveness by SEC when required or fails to maintain the
effectiveness of the Convert Registration Statement pursuant to the Convert Registration Rights Agreement, then as partial relief for the damages to any holder by reason of any such delay in or reduction of, its ability to sell the underlying
shares of New Adagio Common Stock, ListCo will be required to pay each holder of Registrable Securities relating to such Convert Registration Statement an amount equal to one percent of such Convert Investor’s original principal amount according to
the timelines laid out in the Convert Registration Rights Agreement. The Convert Registration Rights Agreement also provides the parties with “piggy-back” registration rights, subject to certain requirements and customary conditions.
Investor Rights Agreement
Concurrently with the execution of the Business Combination Agreement, ARYA, ListCo, the Perceptive PIPE Investor, the Sponsor and the Other Class B Shareholders, and certain Adagio stockholders entered into an
investor rights agreement (the “Investor Rights Agreement”) pursuant to which, among other things, the Perceptive PIPE Investor, the Sponsor, the Other Class B Shareholders, certain Adagio stockholders and investors in the Convertible Security
Financing will be granted certain customary registration rights. Further, subject to customary exceptions set forth in the Investor Rights Agreement, the shares of New Adagio Common Stock beneficially owned or owned of record by the Sponsor, the
Perceptive PIPE Investor, certain officers and directors of ARYA and New Adagio (including any shares of New Adagio Common Stock issued pursuant to the Business Combination Agreement or the PIPE Financing) will be subject to a lock-up period
beginning on the Closing Date until the date that is the earlier of (i) 365 days following the Closing Date (or six months after the Closing Date, in the case of Olav Bergheim, John Dahldorf, Hakon Bergheim, Todd Wider, Michael Henderson and Leslie
Trigg) or (ii) the first date subsequent to the Closing Date with respect to which the closing price of the shares of New Adagio Common Stock equals or exceeds $12.00 per share for any 20 trading days within any 30-trading day period commencing at
least 150 days after the Closing Date.
Pursuant to the terms of the Investor Rights Agreement, ListCo will be obligated to file a registration statement to register the resale of certain shares of New Adagio Common Stock within 45 days after the Closing,
and ListCo is required at all times to maintain the effectiveness of such resale registration statement for the benefit of the holders party to the agreement. In addition, pursuant to the terms of the Investor Rights Agreement and subject to
certain requirements and customary conditions, the certain Adagio stockholders, the Perceptive PIPE Investor and the Sponsor (including the Permitted Transferees (as defined therein) of the Perceptive PIPE Investor and the Sponsor) may demand at
any time or from time to time, that ListCo file a registration statement on Form S-3 (or on Form S-1 if Form S-3 is not available) to register the securities of ListCo held by such holders. The Investor Rights Agreement will also provide holders
party thereto with “piggy-back” registration rights, subject to certain requirements and customary conditions.
The Registration and Shareholder Rights Agreement will be terminated in connection with the consummation of the Business Combination and replaced by the Investor Rights Agreement.
Adoption of First Extension Amendment Proposal
On February 27, 2023, the Company delivered an instruction letter to Continental, to liquidate the investments held in the Trust Account and instead to hold the funds in the Trust Account in cash in an
interest-bearing demand deposit account until the earlier of the consummation of a Business Combination or the Company’s liquidation. The Company is taking these steps in order to mitigate the risk that the Company might be deemed to be an
investment company for purposes of the Investment Company Act following the adoption of the First Extension Amendment Proposal described below.
On February 28, 2023, the Company held an extraordinary general meeting of shareholders in view of approving an amendment to its amended and restated memorandum and articles of association to extend the date (the
“Termination Date”) by which the Company has to consummate a Business Combination from March 2, 2023 (the “Original Termination Date”) to June 2, 2023 (the “Previous Articles Extension Date”) and to allow the Company, without another shareholder
vote, to elect to extend the Termination Date to consummate a Business Combination on a monthly basis for up to nine times by an additional one month each time after the Previous Articles Extension Date, by resolution of the Board, if requested by
the Sponsor, and upon five days’ advance notice prior to the applicable Termination Date, until March 2, 2024 or a total of up to thirty-six months from the closing of the Initial Public Offering, unless the closing of a Business Combination shall
have occurred prior thereto (the “First Extension Amendment Proposal”). In connection with the initial three-month extension from the Original Termination Date to the Previous Articles Extension Date, the Sponsor made an initial deposit into the
Trust Account of $420,000, in exchange for the Second Convertible Promissory Note. In connection with any subsequent optional monthly extensions following the Previous Articles Extension Date, the Sponsor made deposits of $140,000 per month into
the Trust Account.
As contemplated by the Company’s amended and restated memorandum and articles of association, the holders of Public Shares were able to elect to redeem all or a portion of their Public Shares in exchange for their
pro rata portion of the funds held in the Trust Account in connection with the First Extension Amendment Proposal. On February 28, 2023, the First Extension Amendment Proposal was adopted and 11,259,169 Public Shares were redeemed. Following the
adoption of the First Extension Amendment Proposal, the Company had 4,189,831 Class A ordinary shares, including 3,690,831 Public Shares and 499,000 private placement shares, and 3,737,500 Class B ordinary shares issued and outstanding.
In connection with the adoption of the First Extension Amendment Proposal, the Company issued a non-interest bearing, unsecured convertible note (as amended, the “Second Convertible Promissory Note”) to the Sponsor,
pursuant to which the Company may borrow up to $1,680,000 from the Sponsor for general corporate purposes and the funding of the deposits that the Company is required to make pursuant to its amended and restated memorandum and articles of
association and following the request of the Sponsor in connection with an optional monthly extension of the time period during which the Company may consummate a Business Combination. The Second Convertible Promissory Note was amended on February
13, 2024 in order to increase the maximum principal amount that may be converted into Working Capital Shares to $1,680,000. The maturity date of the Second Convertible Promissory Note may be accelerated upon the occurrence of an Event of Default
(as defined under the Second Convertible Promissory Note). As of the date of this Report, $1,585,000 were drawn under the Second Convertible Promissory Note. See “Item 5. Market for Registrant’s Common Equity,
Related Shareholder Matters and Issuer Purchases of Equity Securities—Recent Sales of Unregistered Securities; Use of Proceeds from Registered Offerings” for additional information on the Second Convertible Promissory Note.
On September 27, 2023, the Company issued an unsecured promissory note (as amended and restated, the “Third Promissory Note”) to the Sponsor, pursuant to which the Company may borrow $900,000 from the Sponsor for
general corporate purposes and to fund the monthly deposits required to be made into the Trust Account in in order to extend the time period it has consummate a Business Combination. The Third Promissory Note was amended and restated on February
13, 2024 in order to make the principal amount outstanding under the Third Promissory Note convertible into Working Capital Shares, similarly to the conversion features of the Second Convertible Promissory Note. The Third Working Capital Loan will
not bear any interest. In the event that the Company does not consummate a Business Combination, the Third Promissory Note will be repaid from funds held outside of the Trust Account or will be forfeited, eliminated or otherwise forgiven. The
maturity date of the Third Working Capital Loan may be accelerated upon the occurrence of an Event of Default (as defined under the Third Promissory Note). As of the date of this Report, $900,000 were draw under the Third Promissory Note. See “Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities—Recent Sales of Unregistered Securities; Use of Proceeds from Registered Offerings” for
additional information on the Third Promissory Note.
Adoption of Second Extension Amendment Proposal
On February 8, 2024, the Company issued an unsecured convertible promissory note (the “Fourth Convertible Promissory Note”) to the Sponsor, pursuant to which the Company may borrow $1,000,000 from the Sponsor for
general corporate purposes and to fund the monthly deposits required to be made into the Trust Account in order to extend the time period it has to consummate a Business Combination. The outstanding aggregate principal amount loaned under the
Fourth Convertible Promissory Note may, at the Sponsor’s discretion, be converted into Working Capital Shares, at a conversion price equal to $10.00 per Working Capital Share. The Fourth Working Capital Loan will not bear any interest. In the event
that the Company does not consummate a Business Combination, the Fourth Convertible Promissory Note will be repaid from funds held outside of the Trust Account or will be forfeited, eliminated or otherwise forgiven. Any Fourth Working Capital Loan
will not bear any interest, and will be repayable by the Company to the Sponsor to the extent the Company has funds available outside of the Trust Account and if not converted or repaid on the effective date of a Business Combination. The maturity
date of the Fourth Working Capital Loan may be accelerated upon the occurrence of an Event of Default (as defined under the Fourth Convertible Promissory Note). As of the date of this Report, $836,000 were draw under the Fourth Convertible
Promissory Note. See “Item 5. Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of Equity Securities—Recent Sales of Unregistered Securities; Use of Proceeds from Registered
Offerings” for additional information on the Fourth Convertible Promissory Note.
On February 27, 2024, the Company held a second extraordinary general meeting of shareholders in view of approving an amendment to its amended and restated memorandum and articles of association to extend the
Termination Date from March 2, 2024 (the “Previous Termination Date”) to April 2, 2024 (the “Articles Extension Date”) and to allow the Company, without another shareholder vote, to elect to extend the Termination Date to consummate a Business
Combination on a monthly basis for up to eleven times by an additional one month each time after the Articles Extension Date, by resolution of the Board, if requested by the Sponsor, and upon five days’ advance notice prior to the applicable
Termination Date, until March 2, 2025 or a total of up to forty-eight months from the closing of the Initial Public Offering, unless the closing of a Business Combination shall have occurred prior thereto (the “Second Extension Amendment
Proposal”). In connection with the initial one-month extension from the Previous Termination Date to the Articles Extension Date, the Company made a deposit into the Trust Account of $111,000 and drew down on the Fourth Convertible Promissory Note
to finance this deposit. In connection with any subsequent optional monthly extensions following the Articles Extension Date, the Sponsor is expected to make deposits of $111,000 per month into the Trust Account and borrow the necessary funds from
the Sponsor in the form of convertible notes, as provided for in the amendment to the amended and restated memorandum and articles of association that was adopted on February 27, 2024. The aggregate principal amount loaned under the Fourth
Convertible Promissory Note will be convertible at the option of the Sponsor into Working Capital Shares. The maturity date of the Fourth Convertible Promissory Note may be accelerated upon the occurrence of an Event of Default (as defined under
the Fourth Convertible Promissory Note).
As contemplated by the Company’s amended and restated memorandum and articles of association, the holders of Public Shares were able to elect to redeem all or a portion of their Public Shares in exchange for their
pro rata portion of the funds held in the Trust Account in connection with the Second Extension Amendment Proposal. On February 27, 2024, the Second Extension Amendment Proposal was adopted and 390,815 Public Shares were redeemed. Following the
adoption of the Second Extension Amendment Proposal, the Company had 3,799,016 Class A ordinary shares, including 3,300,016 Public Shares and 499,000 private placement shares, and 3,737,500 Class B ordinary shares issued and outstanding. Following
the approval of the Second Extension Amendment Proposal, the ordinary shares held by the initial shareholders represented 56.2% of the issued and outstanding ordinary shares (including Private Placement Shares).
On April 2, 2024, the Company approved the first one-month extension of the time period during which it may consummate an initial Business Combination. In connection with this extension of the Business Combination
Period to May 2, 2024, the Company drew an aggregate of $111,000 from the Fourth Convertible Promissory Note. As provided for in the Company’s amended and restated memorandum and articles of association, the Company will deposit the extension funds
into the Trust Account.
On May 2, 2024, the Company approved the second one-month extension of the time period during which it may consummate an initial Business Combination. In connection with this extension of the Business Combination
Period to June 2, 2024, the Company drew an aggregate of $111,000 from the Fourth Convertible Promissory Note. As provided for in the Company’s amended and restated memorandum and articles of association, the Company will deposit the extension
funds into the Trust Account. The Company also drew $74,000 under the Fourth Convertible Promissory Note for general working capital purposes.
Non-Redemption Subscription Agreements
In connection with the execution of the Business Combination Agreement, ListCo and the Company entered into Non-redemption Subscription Agreements (the
“Non-redemption Subscription Agreements”) with certain other investors (the “Non-Redeeming Subscribed Investors”) pursuant to which the Non-Redeeming Subscribed Investors committed financing valued at approximately $2,000,000, which includes ListCo
is seeking commitments from interested investors to purchase in a private placement, contingent upon, and substantially concurrently with the closing of the Transaction, (i) shares (the “Shares”) of ListCo’s common stock, par value $0.0001 per
share (the “Common Stock”) , (ii) warrants, each representing the right to purchase shares of Common Stock and to be represented by a warrant and (iii) the Investor and its affiliates agree (a) not to sell or transfer any of the Non-Redeeming
Subscribed Investors”) the company’s Shares prior to the closing of the Transaction and (b) not to redeem any Investor Company Shares prior to or in connection with the Transaction. On the Closing Date, Non-Redeeming Subscribed Investors shall
deliver evidence reasonably satisfactory to ListCo that Investor continues to hold the Investor Company Shares and has not tendered such shares for redemption.
The Company has concluded that the New Adagio Common Stock and Warrants (“Non-Redeeming Shares and Warrants”) issued under certain Non-redemption
Subscription Agreements qualify as equity under ASC 815-40 (“Derivatives and Hedging–Contracts in Entity’s Own Equity”). Consequently, the Company will recognize these Non-Redeeming Shares and Warrants by recording an entry to additional paid-in
capital (APIC) in shareholders’ equity in its balance sheet. According to ASC 815-40-30-1, the Non-Redeeming Shares and Warrants will be recorded and measured at fair value, usually represented by the proceeds received for equity-linked
instruments. When estimating the fair value of these instruments, the Company follows the guidance in ASC 820, Fair Value Measurement.
Regarding the Non-Redeeming Subscribed Investors' commitment to irrevocably subscribe and purchase the number of Non-Redeeming Shares and Warrants
listed in the Non-redemption Subscription Agreements, the Company agrees to the terms and conditions set forth in the agreements, including not redeeming the Class A ordinary shares purchased in the open market before closing. The Company will
record an amount equal to the full fair value of the Non-Redeeming Shares and Warrants to be issued to the Non-Redeeming Subscribed Investor at the closing.
Approval of Business Combination Agreement
On July 26, 2024, the Company held an annual general meeting of shareholders (the “Meeting”) to consider and vote upon the Business Combination Proposal, the ARYA Merger Proposal, the Director Election Proposal and
the Adjournment Proposal, each as more fully described in the definitive proxy statement/prospectus that the Company filed with the U.S. Securities and Exchange Commission (the “SEC”) on July 12, 2024 (the “Proxy Statement”). The shareholders of
the Company approved the Business Combination Proposal, the ARYA Merger Proposal and the Director Election Proposal. As there were sufficient votes to approve the Business Combination Proposal, the ARYA Merger Proposal and the Director Election
Proposal, the Adjournment Proposal was not presented to shareholders.
Consummation of Business Combination
On July 31, 2024, Adagio announced the closing of its previously announced Business Combination with the Company and ListCo. Upon the closing of the merger, ListCo changed its name to “Adagio Medical Holdings, Inc.”
The common stock of New Adagio began trading on August 1, 2024, under the symbols ADGM on the Nasdaq Capital Market. Upon the consummation of the Business Combination, Adagio and the Company became the direct wholly-owned subsidiaries of Adagio
Medical Holding, Inc.
In conversion of the Adagio’s certain liabilities and equity outstanding prior to the closing of the merger:
| a. |
each common stock warrant of Adagio (other than the pre-funded warrants for Series E Preferred Stocks) were terminated in accordance with the terms of the applicable warrant agreement;
|
| b. |
all issued and outstanding October 2022 Convertible Notes including any accrued and unpaid interest thereon, are automatically and fully converted into shares of Adagio common stock in accordance with the terms of such October 2022
Convertible Notes, and October 2022 Convertible Notes are cancelled, satisfied, extinguished, discharged and retired in connection with such conversion;
|
| c. |
all issued and outstanding April 2023 Convertible Notes, November 2023 Convertible Notes, May 2024 Convertible Notes, June 2024 Convertible Notes, and July 2024 Convertible Notes including any accrued and unpaid interest thereon, are
exchanged for New Adagio common stock and warrants exercisable for shares of New Adagio common stock, subject to adjustment, based on the terms and subject to the conditions set forth in the applicable bridge notes agreement and applicable
subscription agreements;
|
| d. |
each share of preferred stock, par value $0.001 per share, of Adagio that is issued and outstanding are automatically converted into shares of Adagio common stock, and each such share of Adagio preferred stock are cancelled;
|
| e. |
all issued and outstanding shares of Adagio common stock (other than treasury shares and shares with respect to which appraisal rights under the Delaware General Corporation Law are properly exercised and not withdrawn). Each pre-funded
warrants for Series E Preferred Stocks that had been issued and outstanding immediately prior to the Adagio Merger Effective Time are automatically cancelled and extinguished and converted into the right to receive shares of New Adagio
common stock based on the exchange ratio set forth in the Business Combination Agreement;
|
| f. |
each issued, outstanding and unexercised option to purchase Adagio common stock had been vested prior to the closing of merger with an aggregate value that exceeds the aggregate exercise price of such Adagio option (each an
“In-the-Money Adagio Option”) are cancelled and extinguished in exchange for options to purchase shares of New Adagio common stock, and each issued and outstanding Adagio equity award (other than an In-the-Money Adagio Option) are
automatically cancelled and extinguished for no consideration, and each holder thereof will cease to have any rights with respect thereto;
|
| g. |
outstanding SVB Term Loan is paid off by Adagio prior to the Closing; and
|
| h. |
$7,000,000 of February 2024 Convertible Notes is converted into New Adagio convertible notes and convert warrants.
|
In connection with the Business Combination, the combined company raised financing valued at approximately $84.2 million, which consisted of funds held in the Company’s trust account, a concurrent equity and warrant
private placement (including $29.5 million of bridge financing used by Adagio prior to closing and funds from the Company’s trust account not redeemed) led by, among others, Perceptive PIPE Investor, RA Capital Management and RTW Investments, and a
concurrent convertible security financing (including $7.0 million of bridge financing used by Adagio prior to closing) led by, among others, an institutional investor and Perceptive PIPE Investor.
The Business Combination is expected to be accounted for as a forward-merger in accordance with U.S. GAAP. Under this method of accounting, ListCo is treated as the “accounting acquirer” and Adagio as the “accounting
acquiree” for financial reporting purposes. Accordingly, the Business Combination is expected to be accounted for using the acquisition method of accounting. The acquisition method of accounting is based on FASB ASC 805 and uses the fair value
concepts defined in ASC 820. As of the date the condensed consolidated financial statements are available to be issued, the Company is still in the process of analyzing the accounting impact of the Business Combination.
Results of Operations
Our entire activity since inception up to June 30, 2024 was in preparation for our formation and the Initial Public Offering, and since the Initial Public Offering, the search for a prospective Business Combination.
We will not be generating any operating revenues until the closing and completion of our Business Combination.
For the three months ended June 30, 2024, we had net income of $1,822,591 , which consisted of $486,027 in dividends and interest held in Trust
Account, a gain on extinguishment of legal expenses of $2,302,557 partially offset by $713,794 subscription agreement expense and $183,658 general and administrative expenses.
For the three months ended June 30, 2023, we had net income of approximately $382,000, which consisted of approximately $460,000 in interest income on dividends and interest held in Trust Account, which were
partially offset by approximately $79,000 general and administrative expenses.
For the six months ended June 30, 2024, we had net loss of $1,576,544 , which
consisted of $997,778 in dividends and interest held in Trust Account, a gain on extinguishment of legal expenses of $3,577,104 which were partially offset by subscription agreement expense of $ 2,134,199 and $795,398 general and administrative expenses.
For the six months ended June 30, 2023, we had net income of approximately $542,000, which consisted of approximately $1.6 million in interest income on dividends and interest held in Trust Account, which were
partially offset by approximately $1.0 million general and administrative expenses.
Going Concern
As of June 30, 2024, the Company had $26,058 in its operating bank accounts and a working capital deficit of $10,287,324
As of June 30, 2024 , there was $120,000 of borrowings outstanding under the First Convertible Promissory Note. As of June 30, 2024 and December 31, 2023, $1,585,000 was drawn under the Second Convertible Promissory
Note. As of June 30, 2024 and December 31, 2023, $900,000 and $470,000, was drawn under the Third Promissory Note, respectively. As of June 30, 2024 and December 31, 2023, $540,000 and $0, was drawn under the Fourth Convertible Promissory Note,
respectively.
On July 31, 2024, Adagio announced the closing of its previously announced Business Combination with the Company and ListCo (the “Closing”) (see Note
1). As of July 31, 2024, substantial doubt about our ability to continue as a going concern was alleviated due to the closing of a business combination.
Risks and Uncertainties
Results of operations and the Company’s ability to complete a 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 its control. The Company’s business of pursuing and consummating a Business Combination could be impacted by, among other things, downturns in the financial markets or in economic conditions, export controls, tariffs, trade wars,
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 or the conflict in Israel and Palestine. The Company 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
materially impact the Company’s business and its ability to complete a Business Combination.
Contractual Obligations
Administrative Support Agreement
Commencing on the date that the Company’s registration statement relating to its Initial Public Offering was declared effective through the earlier of consummation of the initial Business Combination and the
Company’s liquidation, the Company agreed to reimburse the Sponsor for office space, secretarial and administrative services provided to the Company in the amount of $10,000 per month. The Company incurred approximately $0 and $30,000 in general
and administrative expenses in the accompanying unaudited condensed statements of operations for the three months ended June 30, 2024 and 2023, respectively. The Company incurred approximately $30,000 and $60,000 in general and administrative
expenses in the accompanying unaudited condensed statements of operations for the six months ended June 30, 2024 and 2023, respectively. As of June 30, 2024 and December 31, 2023, the Company had $0 and $210,000, respectively, included in due to
related party on the condensed balance sheets.
Registration Rights
The holders of Founder Shares and Private Placement Shares, including Working Capital Shares that may be issued upon conversion of Working Capital Loans are entitled to registration rights pursuant to that certain
Registration and Shareholder Rights Agreement, dated March 2, 2021, by and among the Company, the Sponsor and the other parties thereto (the “Registration and Shareholder Rights Agreement”). The holders of these securities are 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 our completion of a Business
Combination. However, the Registration and Shareholder Rights Agreement provides that we will not permit any registration statement filed under the Securities Act to become effective until termination of the applicable lock-up period, which occurs
(i) in the case of the Founder Shares, in accordance with the Letter Agreement our initial shareholders entered into and (ii) in the case of the Private Placement Shares, 30 days after the completion of our Business Combination. We will bear the
expenses incurred in connection with the filing of any such registration statements. As discussed under “—Proposed Adagio Business Combination,” the Registration and Shareholder Rights Agreement will be
terminated and replaced by the Investor Rights Agreement in connection with the Closing.
Underwriting Agreement
We granted the underwriters in our Initial Public Offering a 45-day option from the date of the final prospectus relating to the Initial Public Offering to purchase up to 1,950,000 additional Public Shares to cover
over-allotments at the Initial Public Offering price less the underwriting discounts and commissions. On March 2, 2021, the underwriters fully exercised the over-allotment option.
The underwriters were paid an underwriting discount of $0.20 per Public Share, or approximately $3.0 million in the aggregate, paid upon the closing of
the Initial Public Offering. In addition, $0.35 per Public Share, or approximately $5.2 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. On August 8, 2022, the Company received the Waiver pursuant to which one of its underwriters
waived all rights to its 50% share of the deferred underwriting commissions payable upon completion of a Business Combination. In connection with the Waiver, the underwriter also agreed that (i) the Waiver is not intended to allocate its 50%
portion of the deferred underwriting commissions to the other underwriter that has not waived its right to receive its share of the deferred underwriting commissions and (ii) the waived portion of the deferred underwriting commissions can, at the
discretion of the Company, be paid to one or more parties or otherwise be used in connection with a Business Combination. The Waiver resulted in a credit to shareholders’ deficit of the deferred underwriting commissions of approximately $2.6 mil
lion.
Upon the closing of the Business Combination on July 31, 2024, as discussed below, the Company was granted the option to issue shares in lieu of a cash
payment for transaction expenses and deferred fees incurred by its underwriter, within 60 days of the closing, as of the filing, the Company has not effectuated this option. At Closing the Company incurred an additional transaction closing fee of
$1,268,875. The Company’s total costs due to the underwriter fee was $3,885,125 at closing.
Related Party Loans
On November 7, 2022, the Company issued the First Convertible Promissory Note to the Sponsor, pursuant to which the Company borrowed $120,000 from the Sponsor for general corporate purposes. Such First Convertible
Working Capital Loan may, at the Sponsor’s discretion, be converted into Working Capital Shares at a conversion price equal to $10.00 per Working Capital Share. The terms of the Working Capital Shares will be identical to those of the Private
Placement Shares that were issued to the Sponsor in connection with the Initial Public Offering. The First Convertible Working Capital Loan will not bear any interest and will be repayable by the Company to the Sponsor, if not converted or repaid
on the effective date of an initial merger, share exchange, asset acquisition, share purchase, reorganization or similar Business Combination involving the Company and one or more businesses. The maturity date of the First Convertible Working
Capital Loan may be accelerated upon the occurrence of an Event of Default (as defined under the First Convertible Promissory Note). The Company granted customary registration rights to the Sponsor with respect to any Working Capital Shares, which
shall constitute “Registrable Securities” pursuant to the Registration and Shareholder Rights Agreement. Further, each newly issued Working Capital Share shall bear the same transfer restrictions that apply to the Private Placement Shares, as
contemplated by the Letter Agreement. As discussed under “—Proposed Adagio Business Combination,” the Registration and Shareholder Rights Agreement will be terminated and replaced by the Investor Rights
Agreement in connection with the Closing and the lock up provisions included in the Letter Agreement will be replaced by certain provisions in the Investor Rights Agreement in connection with the Closing. Any Working Capital Shares issuable upon
conversion of the First Convertible Promissory Note will not be registered under the Securities Act and will be issued in reliance on the exemption from registration requirements thereof provided by Section 4(a)(2) of the Securities Act.
On February 28, 2023, the Company issued the Second Convertible Promissory Note to the Sponsor in connection with the adoption of the First Extension Amendment Proposal and pursuant to which the Company may borrow up
to $1,680,000 from the Sponsor for general corporate purposes and the funding of the deposits that the Company is required to make pursuant to its amended and restated memorandum and articles of association and following the request of the Sponsor
in connection with an optional monthly extension of the time period during which the Company may consummate a Business Combination. The Second Convertible Promissory Note was amended on February 13, 2024 in order to increase the maximum principal
amount that may be converted into Working Capital Shares to $1,680,000. The Second Working Capital Loan will not bear any interest, and will be repayable by the Company to our sponsor to the extent the Company has funds available outside of the
Trust Account and if not converted or repaid on the effective date of a Business Combination. The maturity date of the Second Convertible Working Capital Loan may be accelerated upon the occurrence of an Event of Default (as defined under the
Second Convertible Promissory Note). The Company granted customary registration rights to the Sponsor with respect to any Working Capital Shares issued pursuant to the Second Convertible Promissory Note, which shall constitute “Registrable
Securities” pursuant to the Registration and Shareholder Rights Agreement. Further, each newly issued Working Capital Share shall bear the same transfer restrictions that apply to the Private Placement Shares, as contemplated by the Letter
Agreement. As discussed under “—Proposed Adagio Business Combination,” the Registration and Shareholder Rights Agreement will be terminated and replaced by the Investor Rights Agreement in connection with
the Closing and the lock up provisions included in the Letter Agreement will be replaced by certain provisions in the Investor Rights Agreement in connection with the Closing. As of the date of this Report, $1,585,000 was drawn under the Second
Convertible Promissory Note. Any Working Capital Shares issuable upon conversion of the Second Convertible Promissory Note will not be registered under the Securities Act and will be issued in reliance on the exemption from registration
requirements thereof provided by Section 4(a)(2) of the Securities Act.
On September 27, 2023, the Company issued the Third Promissory Note to the Sponsor, pursuant to which the Company may borrow $900,000 from the Sponsor for general corporate purposes and to fund the monthly deposits
required to be made into the Trust Account in in order to extend the time period it has consummate a Business Combination. On February 13, 2024, the Third Promissory Note was amended and restated in order to make any principal amount outstanding
under such note convertible, at the option of the Sponsor, into Working Capital Shares at $10.00 per share. The Third Working Capital Loan will not bear any interest. In the event that the Company does not consummate a Business Combination, the
Third Promissory Note will be repaid from funds held outside of the Trust Account or will be forfeited, eliminated or otherwise forgiven. Any Third Working Capital Loan will not bear any interest, and will be repayable by the Company to the Sponsor
to the extent the Company has funds available outside of the Trust Account and if not converted or repaid on the effective date of a Business Combination. The maturity date of the Third Working Capital Loan may be accelerated upon the occurrence of
an Event of Default (as defined under the Third Promissory Note). The Company granted customary registration rights to the Sponsor with respect to any Working Capital Shares issued pursuant to the Third Promissory Note, which shall constitute
“Registrable Securities” pursuant to the Registration and Shareholder Rights Agreement. Further, each newly issued Working Capital Share shall bear the same transfer restrictions that apply to the Private Placement Shares, as contemplated by the
Letter Agreement. As discussed under “—Proposed Adagio Business Combination,” the Registration and Shareholder Rights Agreement will be terminated and replaced by the Investor Rights Agreement in connection
with the Closing and the lock up provisions included in the Letter Agreement will be replaced by certain provisions in the Investor Rights Agreement in connection with the Closing. As of the date of this Report, $900,000 were drawn under the Third
Promissory Note. Any Working Capital Shares issuable upon conversion of the Third Promissory Note will not be registered under the Securities Act and will be issued in reliance on the exemption from registration requirements thereof provided by
Section 4(a)(2) of the Securities Act.
On February 8, 2024, the Company issued the Fourth Convertible Promissory Note to the Sponsor, pursuant to which the Company may borrow $1,000,000 from the Sponsor for general corporate purposes and to fund the
monthly deposits required to be made into the Trust Account in order to extend the time period it has to consummate a Business Combination. The outstanding aggregate principal amount loaned under the Fourth Convertible Promissory Note may, at the
Sponsor’s discretion, be converted into Working Capital Shares, at a conversion price equal to $10.00 per Working Capital Share. The Fourth Working Capital Loan will not bear any interest. In the event that the Company does not consummate a
Business Combination, the Fourth Convertible Promissory Note will be repaid from funds held outside of the Trust Account or will be forfeited, eliminated or otherwise forgiven. The Fourth Working Capital Loan will not bear any interest, and will be
repayable by the Company to the Sponsor to the extent the Company has funds available outside of the Trust Account and if not converted or repaid on the effective date of a Business Combination. The maturity date of the Fourth Working Capital Loan
may be accelerated upon the occurrence of an Event of Default (as defined under the Fourth Convertible Promissory Note). The Company granted customary registration rights to the Sponsor with respect to any Working Capital Shares issued pursuant to
the Fourth Convertible Promissory Note, which shall constitute “Registrable Securities” pursuant to the Registration and Shareholder Rights Agreement. Further, each newly issued Working Capital Share shall bear the same transfer restrictions that
apply to the Private Placement Shares, as contemplated by the Letter Agreement. As discussed under “—Proposed Adagio Business Combination,” the Registration and Shareholder Rights Agreement will be
terminated and replaced by the Investor Rights Agreement in connection with the Closing and the lock up provisions included in the Letter Agreement will be replaced by certain provisions in the Investor Rights Agreement in connection with the
Closing. As of the date of this Report, $540,000 were drawn under the Fourth Convertible Promissory Note. Any Working Capital Shares issuable upon conversion of the Fourth Convertible Promissory Note will not be registered under the Securities Act
and will be issued in reliance on the exemption from registration requirements thereof provided by Section 4(a)(2) of the Securities Act.
On February 13, 2024, the Company and the Sponsor entered into an amendment to the Second Convertible Promissory Note, pursuant to which the total principal amount up to $1,680,000 of the amounts loaned under the
Second Convertible Promissory Note will be convertible at the option of the Sponsor into Working Capital Shares.
On February 13, 2024, the Company and the Sponsor amended and restated the Third Promissory Note to provide that the total principal amount loaned under the Third Promissory Note will be convertible at the option of
the Sponsor into Working Capital Shares.
On June 28, 2024,the Company issued an unsecured convertible promissory note (the “Fifth Convertible Promissory Note”) to the Sponsor, pursuant to which the Company may borrow $150,000 (the “Working Capital Loan”)
from the Sponsor for general corporate purposes and the funding of the deposits required to be made into the Company’s trust account in connection with the monthly extensions of the time period during which the Company may consummate a Business
Combination (as defined below) in accordance with the Company’s amended and restated memorandum and articles of association, as amended from time to time. Such loan may, at the Sponsor’s discretion, be converted into the Company’s Class A ordinary
shares, par value $0.0001 per share (the “Working Capital Shares”), at a conversion price equal to $10.00 per Working Capital Share.
Upon the closing of the Business Combination on July 31, 2024 (see Note 5), all issued and outstanding First, Second, Third, Fourth and Fifth
Convertible Promissory notes (discussed above and collectively referred to as the “Convertible Notes”), including any accrued and unpaid interest thereon, were fully converted into shares of New Adagio common stock and, or, Warrants in accordance
with the terms of each Convertible Note, subject to adjustment, based on the terms and subject to the conditions set forth in the applicable bridge notes agreement and applicable subscription agreements.
Critical Accounting Estimates
The preparation of unaudited consolidated condensed financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America (“GAAP”) 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 unaudited consolidated condensed financial statements, and the reported
amounts of income and expenses during the period reported. Actual results could materially differ from those estimates.
Critical Accounting Policies
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 FASB ASC Topic 480, “Distinguishing Liabilities from Equity.” 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 (deficit). 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, as of June 30, 2024 and December 31, 2023, 3,300,016 and 3,690,831 Class A
ordinary shares subject to possible redemption are presented at redemption value as temporary equity, outside of the shareholders’ deficit section of our consolidated condensed balance sheets, respectively.
The Company recognizes changes in redemption value immediately as they occur and adjusts the carrying value of the Class A ordinary shares subject to possible redemption to equal the redemption value at the end of
each reporting period. This method would view the end of the reporting period as if it were also the redemption date for the security. Immediately upon the closing of the Initial Public Offering, 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.
Off-Balance Sheet Arrangements
As of June 30, 2024, we did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.
JOBS Act
The Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”) contains provisions that, among other things, relax certain reporting requirements for qualifying public companies. We qualify as an “emerging growth
company” and under the JOBS Act are allowed to comply with new or revised accounting pronouncements based on the effective date for private (not publicly traded) companies. We are electing to delay the adoption of new or revised accounting
standards, and as a result, we may not comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. As a result, the unaudited consolidated condensed
financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
Additionally, we are in the process of evaluating the benefits of relying on the other reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, if, as an
“emerging growth company,” we choose to rely on such exemptions we may not be required to, among other things, (i) provide an auditor’s attestation report on our system of internal control over financial reporting pursuant to Section 404 of the
Sarbanes-Oxley Act of 2002, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may
be adopted by the PCAOB regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the unaudited consolidated condensed financial statements (auditor discussion and analysis)
and (iv) disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the executive compensation to median employee compensation. These exemptions will apply for a
period of five years following the completion of our Initial Public Offering or until we are no longer an “emerging growth company,” whichever is earlier.
Exhibit 99.5
INDEX TO FINANCIAL STATEMENTS
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Financial Statements:
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|
|
Balance Sheet
|
F-2
|
|
Statement of Operations
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F-2
|
|
Statement of Changes in Stockholder’s Deficit
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F-2
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|
Statement of Cash Flows
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F-3
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Notes to Financial Statements
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F-4
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AJA HOLDCO, INC.
BALANCE SHEETS
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June 30,
2024
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December 31,
2023
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|||||||
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(Unaudited)
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||||||||
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Total Assets
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$
|
—
|
$
|
—
|
||||
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Liabilities and Stockholder’s Deficit
|
||||||||
|
Liabilities
|
||||||||
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Accrued expenses
|
$
|
5,000
|
$
|
5,000
|
||||
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Total Liabilities
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5,000
|
5,000
|
||||||
|
Stockholder’s Deficit:
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||||||||
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Additional paid in capital
|
2,134,199
|
—
|
||||||
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1 share of Common Stock, $0.0001 par value; 1,000 shares authorized; 1 share issued and outstanding as of June 30, 2024 and December 31, 2023
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—
|
—
|
||||||
|
Accumulated deficit
|
(2,139,199
|
)
|
(5,000
|
)
|
||||
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Total stockholder’s deficit
|
(5,000
|
)
|
(5,000
|
)
|
||||
|
Total Liabilities and Stockholder’s Deficit
|
$
|
—
|
$
|
—
|
||||
The accompanying notes are an integral part of these financial statements.
AJA HOLDCO, INC.
STATEMENT OF OPERATIONS
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For the Three
Months Ended
June 30, 2024
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For the Six Months
Ended
June 30, 2024
|
|||||||
|
General and administrative expenses
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$
|
—
|
$
|
—
|
||||
|
Loss from operations
|
—
|
—
|
||||||
|
Subscription Agreement expense
|
(713,794
|
)
|
(2,134,199
|
)
|
||||
|
Net loss
|
$
|
(713,794
|
)
|
$
|
(2,134,199
|
)
|
||
|
Weighted-Average shares outstanding, basic and diluted
|
1
|
1
|
||||||
|
Net loss per common stock, basic and diluted
|
$
|
(713,794
|
) |
(2,134,199
|
)
|
|||
The accompanying notes are an integral part of these financial statements.
AJA HOLDCO, INC.
STATEMENT OF CHANGES IN STOCKHOLDER’S DEFICIT
FOR THE SIX MONTHS ENDED JUNE 30,2024
|
Stock
|
Additional Paid
In Capital
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Accumulated
Deficit
|
Stockholder’s
Deficit
|
|||||||||||||||||
|
Shares
|
Amount
|
|||||||||||||||||||
|
Balance – December 31, 2023
|
1
|
$
|
—
|
$
|
—
|
$
|
(5,000
|
)
|
$
|
(5,000
|
)
|
|||||||||
|
Subscription Agreement expense
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—
|
—
|
1,420,405
|
—
|
1,420,405
|
|||||||||||||||
|
Net loss
|
—
|
—
|
—
|
(1,420,405
|
)
|
(1,420,405
|
)
|
|||||||||||||
|
Balance – March 31, 2024
|
1
|
$
|
—
|
$
|
1,420,405
|
$
|
(1,425,405
|
)
|
$
|
(5,000
|
)
|
|||||||||
|
Subscription Agreement expense
|
—
|
—
|
713,794
|
—
|
713,794
|
|||||||||||||||
|
Net loss
|
—
|
—
|
—
|
(713,794
|
)
|
(713,794
|
)
|
|||||||||||||
|
Balance – June 30, 2024
|
1
|
$
|
—
|
$
|
2,134,199
|
$
|
(2,139,199
|
)
|
$
|
(5,000
|
)
|
|||||||||
The accompanying notes are an integral part of these financial statements.
F-2
AJA HOLDCO, INC.
STATEMENT OF CASH FLOWS
|
For the Six
Months Ended
June 30, 2024
|
||||
|
Cash flow from operating activities:
|
||||
|
Net Loss
|
$
|
(2,134,199
|
)
|
|
|
Adjustment to reconcile net loss to net cash used in operating activities:
|
||||
|
Non-Redemption Subscription Agreement expense
|
(2,134,199
|
) |
||
|
Net cash used in operating activities
|
$
|
—
|
||
|
Net change in cash
|
—
|
|||
|
Cash - beginning of the year
|
—
|
|||
|
Cash - end of the year
|
$
|
—
|
||
The accompanying notes are an integral part of these financial statements.
F-3
AJA HOLDCO, INC.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2024
Note 1 - Description of Organization and Business Operations
Aja HoldCo, Inc. (the “Company” or “ListCo”) is a Delaware corporation, formed by Arya Sciences Acquisition Corp IV (the “Parent”) on December 19, 2023
(inception). The Company has adopted a fiscal year-end of December 31.
The Company has no prior operating activities.
On July 31, 2024, Adagio announced the closing of its previously announced Business Combination with the Parent and the Company. Upon the closing of
the merger, the Company changed its name to “Adagio Medical Holdings, Inc.” (see Note 3).
Going Concern
On July 31, 2024, the Company announced the closing of its previously announced Business Combination with the Company and Adagio Medical Inc. (see Note
3). As of July 31, 2024, substantial doubt about the Company’s ability to continue as a going concern was alleviated due to the closing of a business combination.
Note 2 - Summary of Significant Accounting Policies
Basis of Presentation
The financial statements are presented in U.S. dollars in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and pursuant to the rules and regulations of the SEC.
Emerging Growth Company
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain
exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm
attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, 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 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 financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using
the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets, liabilities and expenses and
disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates.
F-4
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 and Disclosures,” approximates the carrying amounts represented in
the 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 include:
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.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.
As of June 30, 2024 and December 31, 2023, the carrying values of accounts payable due to related party approximate their fair values due to the short-term nature of the instruments.
Income Taxes
The Company complies with the accounting and reporting requirements of ASC 740, “Income Taxes,” (“ASC 740”) which requires an asset and liability approach to financial accounting and reporting for income taxes.
Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable
to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. ASC 740 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. There were no unrecognized tax benefits as of June 30, 2024. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. No amounts were accrued for the
payment of interest and immaterial amounts were accrued for the payment of penalties for the years ended June 30, 2024. The Company is currently not aware of any issues under review that could result in significant payments, accruals, or material
deviation from its position. The Company is subject to income tax examinations by major taxing authorities since inception.
Net Income (Loss) Per Common Stock
Net income (loss) per common share is computed by dividing net income by the weighted average number of common shares outstanding for the period.
Recent Accounting Standards
The Company’s management does not believe there are any recently issued, but not yet effective, accounting pronouncement if currently adopted would have a material effect on the Company’s financial statements.
Note 2 – Stockholder’s Deficit
Common Stock - The Company is authorized to issue 1,000 shares of common stock, par value of $0.0001 per share (the
“Common Stock”). As of June 30, 2024 and December 31, 2023, there was 1 share of Common Stock issued and outstanding.
Note 3 – Commitments and Contingencies
Business Combination Agreement
On February 13, 2024, the Parent, the Company, Aja Merger Sub 1, a Cayman Islands exempted company (“ARYA Merger Sub”), Aja Merger Sub 2, Inc., a Delaware corporation (“Adagio Merger Sub”), and Adagio Medical, Inc.
(“Adagio”) entered into a business combination agreement (the “Business Combination Agreement”), in connection with a proposed business combination (the “Proposed Adagio Business Combination”), which contains certain customary representations,
warranties, and covenants by the parties thereto. As further described in the Business Combination Agreement, the closing of the Proposed Adagio Business Combination (the “Closing” and the date on which the Closing occurs, the “Closing Date”) is
subject to certain customary conditions and risks. “New Adagio” refers to the Company after giving effect to the Business Combination.
F-5
The Business Combination Agreement provides, among other things, for the consummation of the following transactions:
| 1. |
ARYA Merger Sub will merge with and into the Parent (the “ARYA Merger”) and Adagio Merger Sub will merge with and into Adagio (the “Adagio Merger” and, together with the ARYA Merger, the “Mergers”), with the
Parent and Adagio surviving the Mergers and, after giving effect to such Mergers, each of the Parent and Adagio becoming a wholly owned subsidiary of the Company, on the terms and subject to the conditions in the Business Combination
Agreement;
|
| 2. |
(i) each issued and outstanding Class A ordinary share, par value $0.0001 per share, of the Parent (the “Class A ordinary shares”) will be automatically cancelled, extinguished and converted into the right to
receive one share of common stock, par value $0.0001 per share, of New Adagio (the “New Adagio Common Stock”) and (ii) each issued and outstanding Class B ordinary share, par value $0.0001 per share, of the Parent (the “Class B ordinary
shares”) will be automatically cancelled, extinguished and converted into the right to receive one share of New Adagio Common Stock, other than 1,000,000 Class B ordinary shares that will be forfeited by the Sponsor and issued to PIPE
Investors (as defined below), including Perceptive Life Sciences Master Fund, Ltd, a Cayman Islands exempted company (the “Perceptive PIPE Investor”). 1,147,500 shares of New Adagio Common Stock issuable to the Sponsor will be subject to
share trigger price vesting and will vest if, prior to the tenth anniversary of the Closing, the post-closing share price of New Adagio equals or exceeds $24.00 per share for any 20 trading days within any 30 trading day period (the “Share
Trigger Price Vesting”);
|
| 3. |
(i) each warrant of Adagio will be either (x) terminated, or (y) “net” exercised in exchange for shares of common stock, par value $0.01 per share, of Adagio (“Adagio Common Stock”); (ii) all issued and outstanding unsecured convertible
promissory notes of Adagio (excluding the Bridge Financing Notes (as defined below) and the 2024 Bridge Financing Notes (as defined below)) (the “Adagio Convertible Notes”), including any accrued and unpaid interest thereon, will be
automatically and fully converted into shares of Adagio Common Stock in accordance with the terms of such Adagio Convertible Notes and such Adagio Convertible Notes will be cancelled, satisfied, extinguished, discharged and retired in
connection with such conversion (the “Adagio Convertible Notes Conversion”); (iii) each share of preferred stock, par value $0.001 per share, of Adagio (the “Adagio Preferred Stock”) that is issued and outstanding will be automatically
converted into shares of Adagio Common Stock and each such share of Adagio Preferred Stock will be cancelled; (iv) all issued and outstanding shares of Adagio Common Stock (other than treasury shares and shares with respect to which
appraisal rights under the Delaware General Corporation Law, as amended, are properly exercised and not withdrawn) will be automatically cancelled, extinguished and converted into the right to receive shares of New Adagio Common Stock based
on the exchange ratio set forth in the Business Combination Agreement; (v) each issued, outstanding and unexercised option to purchase Adagio Common Stock (“Adagio Option”) that is vested as of such time or will vest in connection with, or
after taking into account the effect of, the consummation of the transactions contemplated by the Business Combination Agreement with an aggregate value that exceeds the aggregate exercise price of such Adagio Option (each an “In-the-Money
Adagio Option”) will be cancelled and extinguished in exchange for options to purchase shares of New Adagio Common Stock, and each issued and outstanding Adagio equity award (other than an In-the-Money Adagio Option) will automatically be
canceled and extinguished for no consideration and each holder thereof will cease to have any rights with respect thereto.
|
Amendment to the Business Combination Agreement
On June 25, 2024, the Company and Adagio entered into a Consent and Amendment No. 1 to the Business Combination Agreement (the “Amendment No. 1”), pursuant to
which, among other things: (i) the Company consented to Adagio entering an exchange agreement (the “Exchange Agreement”) and the transactions contemplated thereunder with RA Capital Healthcare Fund, L.P., a
Delaware limited partnership (“RA Capital”), pursuant to which, RA Capital would exchange a certain number of its existing Company Series E Preferred Shares (as defined in the Business Combination Agreement)
for pre-funded warrants (each, a “Pre-Funded Warrant for Series E Preferred Shares”) to purchase Company Series E Preferred Shares, with each Pre-Funded Warrant for
Series E Preferred Shares issued and outstanding as of immediately prior to the Company Merger Effective Time (as defined in the Business Combination Agreement) being automatically canceled and extinguished and converted into the right to receive a
number of HoldCo Shares (as defined in the Business Combination Agreement) equal to the Exchange Ratio (as defined in the Business Combination Agreement); (ii) the definition of the term “Fully Diluted HoldCo Closing Capitalization” as provided in
the Business Combination Agreement was expanded to include the number of pre-funded warrants outstanding immediately after the Company Merger Effective Time that each represented the right to purchase HoldCo Shares; (iii) (a) the aggregate share
reserve under the Key Employee Incentive Plan (as defined in the Business Combination Agreement) should be up to the Key Employee Incentive Plan Maximum Amount, which was the aggregate number of HoldCo Shares equal to the product obtained by
multiplying (A) the quotient of (x) fifteen percent (15%) divided by (y) thirty-five percent (35%) by (B) the Aggregate Incentive Equity Pool, which was the aggregate number of HoldCo Shares equal to (x) the Aggregate HoldCo Share Reserve (as
defined hereunder) minus (y) the Fully Diluted HoldCo Closing Capitalization, and (b) the aggregate share reserve under the HoldCo Incentive Equity Plan (as defined in the Business Combination Agreement) should be equal to the Incentive Equity Plan
Maximum Amount plus an increase as provided in the Business Combination Agreement, which Incentive Equity Plan Maximum Amount was the aggregate number of HoldCo Shares equal to the product obtained by multiplying (A) the quotient of (x) twenty
percent (20%) divided by (y) thirty-five percent (35%) by (B) the Aggregate Incentive Equity Pool; and (iv) following the Closing, ListCo’s name would be changed to ‘‘Adagio Medical Holdings, Inc.” (or such other name mutually agreed to by ARYA and
Adagio). As defined in the Amendment No. 1, “Aggregate HoldCo Share Reserve” meant the aggregate number of HoldCo Shares equal to the quotient obtained by dividing (i) the Fully Diluted HoldCo Closing Capitalization by (ii) sixty-five percent
(65%).
PIPE Financing (Private Placement)
In connection with the execution of the Business Combination Agreement, ListCo and the Company entered into Subscription Agreements (the “Subscription Agreements”) with the Perceptive PIPE Investor and certain other
investors (the “Other PIPE Investors,” and, together with the Perceptive PIPE Investor, the “PIPE Investors”), pursuant to which the PIPE Investors committed financing valued at approximately $45,000,000, which includes (i) commitments by certain
investors to subscribe for and purchase Class A ordinary shares in the open market and not to redeem such shares prior to the date the Closing occurs (the “Closing Date”), (ii) non-redemption commitments by certain investors that are shareholders
of the Company, (iii) agreements to subscribe for and purchase shares of New Adagio Common Stock, (iv) the contribution of $23,000,000 of 2023 Bridge Financing Notes to ListCo pursuant to the terms of the Subscription Agreement executed by the
Perceptive PIPE Investor, and (v) an additional cash investment by the Perceptive PIPE Investor of approximately $8.1 million (which amount may be reduced by up to approximately $1,070,575 subject to Additional Financing being raised prior to
Closing), as described in more detail below (together, the “PIPE Financing”). In connection with the PIPE Financing, the PIPE Investors will also subscribe for (i) warrants to purchase shares of New Adagio Common Stock at $10.00 per share, subject
to adjustment (the “Base Warrants”) or (ii) a combination of Base Warrants and pre-funded warrants, each exercisable for one share of New Adagio Common Stock at $0.01 per share (the “Pre-Funded Warrants,” and together with the Base Warrants, the
“PIPE Warrants”). As provided for in the Subscription Agreements, the number of shares of New Adagio Common Stock and Base Warrants issuable to the PIPE Investors will depend on the redemption value of the Class A ordinary shares at Closing, the
average per share price of the Class A ordinary shares purchased by certain PIPE Investors in the open market and the amount of interest on the 2023 Bridge Financing Notes that will have accrued and be unpaid at Closing and be contributed to ListCo
in exchange for shares of New Adagio Common Stock. The shares of New Adagio Common Stock and PIPE Warrants to be issued pursuant to the Subscription Agreements have not been registered under the Securities Act and will be issued in reliance upon
the exemption provided in Section 4(a)(2) of the Securities Act. ListCo will grant the PIPE Investors certain registration rights in connection with the PIPE Financing. The PIPE Financing is contingent upon, among other things, the substantially
concurrent Closing.
F-6
The Company has concluded that the New Adagio Common Stock and PIPE Warrants to be issued under certain of the Subscription Agreements (the “Open Market Subscription Agreements”) that include an open market purchase
and non-redemption obligation for subscribing investors (the “Open Market Investors”) qualify as equity under ASC 815-40 (“Derivatives and Hedging–Contracts in Entity’s Own Equity”); therefore, the Company will recognize the New Adagio Common Stock
and PIPE Warrants to be issued under such Open Market Subscription Agreements (such securities, the “Open Market PIPE Securities”) by recording an entry to additional paid-in capital (APIC) in shareholders’ equity in its balance sheet. In
accordance with ASC 815-40-30-1, the New Adagio Common Stock and PIPE Warrants will be recorded and measured at fair value (i.e., most often representative of proceeds received for equity-linked instruments; however, when estimating the fair value
of the New Adagio Common Stock and PIPE Warrants, the Company has followed the guidance in ASC 820 Fair Value Measurement. In connection with Open Market Investor’s commitment to irrevocably subscribe for and agree to purchase from ListCo the
number of Open Market PIPE Securities set forth on the signature page of the applicable Open Market Subscription Agreements, on the terms and subject to the conditions set forth in such Open Market Subscription Agreements, which include, without
limitation, the agreement not to redeem the Class A ordinary shares purchased in the open market prior to Closing, the Company will record an amount equal to the full fair value of the New Adagio Common Stock and PIPE Warrants to be issued to the
Open Market PIPE Investor in connection with the Closing.
On July 23, 2024, the Perceptive Life Sciences Master Fund, Ltd., a Cayman Islands exempted company (the “Perceptive PIPE Investor”) indicated an interest to increase its investment in the PIPE Financing by such
amount that is necessary for the minimum unrestricted cash condition of the Contingent Investor to be met. Such additional subscription would be on the same terms as provided in the Subscription Agreement that the Perceptive PIPE Investor executed
on February 13, 2024 and amended on June 24, 2024. Assuming the Closing occurs on July 29, 2024, New Adagio would be required to have approximately $32,129,000 of available unrestricted cash for the Contingent Investor to fund its $7,500,000
commitment under the Convertible Security Subscription Agreement. Assuming that a maximum redemption scenario occurs, that no Additional Financing is raised prior to Closing and that transaction expenses payable at Closing are approximately $14.3
million (current estimate subject to change), the Perceptive PIPE Investor may, pursuant to such indication of interest, increase its new money commitment under the PIPE Financing by approximately $9 million, resulting in the issuance of
approximately 1,080,000 additional shares of New Adagio Common Stock at Closing to the Perceptive PIPE Investor. Assuming such issuance of additional shares of New Adagio Common Stock to the Perceptive PIPE Investor in the maximum redemption
scenario, the post-Closing ownership of the Perceptive PIPE Investor and the initial shareholders (as defined in the Proxy Statement/Prospectus) may increase by approximately 2.6%.
Convertible Security Financing (Private Placement)
In connection with the execution of the Business Combination Agreement, certain investors, including the Perceptive PIPE Investor (the “Convert Investors”), executed a securities purchase agreement, dated February
13, 2024, with the Company (such agreement and any assignment agreement thereunder in connection with any Additional Financing, the “Convertible Security Subscription Agreement”), pursuant to which the Company will issue on the Closing Date to the
Convert Investors $20,000,000 aggregate principal amount of 13% senior secured convertible notes (the “New Adagio Convertible Notes”), which will be convertible into shares of New Adagio Common Stock at a conversion price of $10.00 per share,
subject to adjustment (the “Conversion Shares”), and 1,500,000 warrants (the “Convert Warrants”), which will be exercisable on a cashless basis or for cash at a price of $24.00 per share, subject to adjustment (the “Base Convert Financing”), and
will expire on the seventh anniversary of the Closing. Such $20,000,000 investment in New Adagio Convertible Notes includes the Perceptive Convertible Note Commitment (as defined below) and includes the conversion of the 2024 Bridge Financing Notes
(as defined below) into New Adagio Convertible Notes at Closing, subject in each case to Additional Financing being raised prior to Closing, as further described below. The New Adagio Convertible Notes will have a maturity of 3 years and nine
months after Closing and interest will be payable in cash or compound as additional principal outstanding. As described above, in connection with the execution of the Convertible Security Subscription Agreement, the Perceptive PIPE Investor also
purchased a $7,000,000 convertible promissory note of Adagio (the “2024 Bridge Financing Notes”) pursuant to a note purchase agreement, dated February 13, 2024, by and among the Perceptive PIPE Investor, Adagio and the Company (the “2024 Bridge
Financing Notes Subscription Agreement”).
On the Closing Date, pursuant to the terms of the 2024 Bridge Financing Notes and the 2024 Bridge Financing Note Subscription Agreement, the 2024 Bridge Financing Notes will convert into $7,000,000 of New Adagio
Convertible Notes and 525,000 Convert Warrants, and the Perceptive PIPE Investor will subscribe for an additional $3,000,000 aggregate principal amount of New Adagio Convertible Notes and 225,000 Convert Warrants, on the same terms as the other
Convert Investors executing the Convertible Security Subscription Agreement (such additional investment by the Perceptive PIPE Investor, the “Perceptive Convertible Note Commitment,” and together with the Base Convert Financing, the “Convertible
Security Financing”). Subject to the Parent and New Adagio receiving any new financing or commitment for financing (any such financing, an “Additional Financing”), whether in the form of equity, debt or convertible debt, before the Closing Date,
the Perceptive PIPE Investor may request that, on the Closing Date, the 2024 Bridge Financing Note is repaid, the Perceptive Convertible Note Commitment is reduced or a combination of both. The New Adagio Convertible Notes and the Convert Warrants
issuable in connection with the Convertible Security Financing have not been registered under the Securities Act and will be issued in reliance upon the exemption provided in Section 4(a)(2) of the Securities Act. The Company will grant the Convert
Investors certain registration rights in connection with the Convertible Security Financing. The Convertible Security Financing is contingent upon, among other things, the substantially concurrent Closing. As set forth in the Convertible security
Subscription Agreement, the closing of $7,500,000 of financing by a Convert Investor is conditioned on New Adagio having a certain amount of available cash on the Closing Date.
Pursuant to the terms of the Convertible Security Subscription Agreement, on the Closing Date, the Company, certain of its subsidiaries (other than Adagio Medical GmbH, a company organized under the laws of Germany
and an excluded subsidiary thereunder) (the “Subsidiaries”) and Allegro Management LLC, as the collateral agent (the “Collateral Agent”) on behalf of the Convert Investors, will enter into a security and pledge agreement (the “Convert Security
Document”), pursuant to which the Company and the Subsidiaries will (i) pledge the equity interests in the Subsidiaries to the Collateral Agent, (ii) pledge all of their respective promissory notes, securities and other instruments evidencing
indebtedness to the Collateral Agent, and (iii) grant to the Collateral Agent a security interest in and lien on all of their respective personal property and assets, including, among other items, all of their deposit accounts, chattel paper,
documents, equipment, general intangibles, instruments and inventory, and all proceeds therefrom, in each case subject to customary exceptions, all as set forth in the form of the Convert Security Document. Additionally, pursuant to the terms of
the Convertible Security Subscription Agreement, on the Closing Date, the Subsidiaries will deliver a guaranty (the “Convert Guaranty”) to the Collateral Agent pursuant to which the Subsidiaries will, jointly and severally, guarantee the Company’s
obligation to repay the New Adagio Convertible Notes and all other obligations of the Company under the Convertible Security Subscription Agreement and the New Adagio Convertible Notes and other related transaction documents, as set forth in the
form of the Convert Guaranty. Any additional subsidiaries of the Company formed or acquired after the closing date will be required to join the Convert Guaranty as additional guarantors.
F-7
Non-Redemption Subscription Agreements
In connection with the execution of the Business Combination Agreement, ListCo and the Company entered into Non-redemption Subscription Agreements (the “Non-redemption Subscription Agreements”) with
certain other investors (the “Non-Redeeming Subscribed Investors”) pursuant to which the Non-Redeeming Subscribed Investors committed financing valued at approximately $2,000,000, which includes ListCo is seeking commitments from interested
investors to purchase in a private placement, contingent upon, and substantially concurrently with the closing of the Transaction, (i) shares (the “Shares”) of ListCo’s common stock, par value $0.0001 per share (the “Common Stock”) , (ii) warrants,
each representing the right to purchase shares of Common Stock and to be represented by a warrant and (iii) the Investor and its affiliates agree (a) not to sell or transfer any of the Non-Redeeming Subscribed Investors”) the company’s Shares
prior to the closing of the Transaction and (b) not to redeem any Investor Company Shares prior to or in connection with the Transaction. On the Closing Date, Non-Redeeming Subscribed Investors shall deliver evidence reasonably satisfactory to
ListCo that Investor continues to hold the Investor Company Shares and has not tendered such shares for redemption.
The Company has concluded that the New Adagio Common Stock and Warrants (“Non-Redeeming Shares and Warrants”) issued under certain Non-redemption Subscription Agreements qualify as equity under ASC
815-40 (“Derivatives and Hedging–Contracts in Entity’s Own Equity”). As a result, the Company will recognize any Shares and Warrants issued under the Non-redemption Subscription Agreements within shareholders’ equity. In accordance with ASC 815-40,
any Shares and Warrants issued under the Non-redemption Subscription Agreements will be recorded and measured at fair value, which is typically representative of the proceeds received for equity-linked instruments. When estimating the fair value of
these instruments, the Company follows the guidance in ASC 820, Fair Value Measurement.
As a result of the Non-Redeeming Subscribed Investors' commitment to irrevocably subscribe for and purchase the number of Non-Redeeming Shares and Warrants listed in the Non-redemption Subscription
Agreements, the Company agrees to the terms and conditions set forth in the agreements, including agreeing to not redeem the Class A ordinary shares purchased in the open market by the Non-Redeeming Subscribed Investors' before closing. The Company
will record an amount equal to the full fair value of the Non-Redeeming Shares and Warrants to be issued to the Non-Redeeming Subscribed Investor at the closing as a result of the Non-Redeeming Subscribed Investors' commitment, as described above.
Approval of Business Combination Agreement
On July 26, 2024, the Company held an annual general meeting of shareholders (the “Meeting”) to consider and vote upon the Business Combination Proposal, the ARYA Merger Proposal, the Director Election Proposal and
the Adjournment Proposal, each as more fully described in the definitive proxy statement/prospectus that the Company filed with the U.S. Securities and Exchange Commission (the “SEC”) on July 12, 2024 (the “Proxy Statement”). The shareholders of
the Company approved the Business Combination Proposal, the ARYA Merger Proposal and the Director Election Proposal. As there were sufficient votes to approve the Business Combination Proposal, the ARYA Merger Proposal and the Director Election
Proposal, the Adjournment Proposal was not presented to shareholders.
Consummation of Business Combination
On July 31, 2024, Adagio announced the closing of its previously announced Business Combination with the Parent and the Company. Upon the closing of the merger, the Company changed its name to “Adagio Medical
Holdings, Inc.” The common stock of New Adagio began trading on August 1, 2024, under the symbols ADGM on the Nasdaq Capital Market. Upon the consummation of the Business Combination, Adagio and the Parent became the direct wholly-owned
subsidiaries of Adagio Medical Holding, Inc.
In connection with the Business Combination, the combined company raised financing valued at approximately $84.2 million, which consisted of funds held in the Company’s trust account, a concurrent equity and warrant
private placement (including $29.5 million of bridge financing used by Adagio prior to closing and funds from the Company’s trust account not redeemed) led by, among others, Perceptive PIPE Investor, RA Capital Management and RTW Investments, and a
concurrent convertible security financing (including $7.0 million of bridge financing used by Adagio prior to closing) led by, among others, an institutional investor and Perceptive PIPE Investor.
The Business Combination is expected to be accounted for as a forward-merger in accordance with U.S. GAAP. Under this method of accounting, ListCo is treated as the “accounting acquirer” and Adagio as the “accounting
acquiree” for financial reporting purposes. Accordingly, the Business Combination is expected to be accounted for using the acquisition method of accounting. The acquisition method of accounting is based on FASB ASC 805 and uses the fair value
concepts defined in ASC 820. As of the date the condensed consolidated financial statements are available to be issued, the Company is still in the process of analyzing the accounting impact of the Business Combination.
F-8
Note 4 – Fair Value Measurements
Transfers to/from Levels 1, 2, and 3 are recognized at the end of the reporting period.
During the six months ended June 30, 2024, the Company entered into an Open Market Subscription Agreement and Non-Redemption Subscription Agreement, discussed in Note 5. The Company has concluded that the New Adagio
Common Stock and PIPE Warrants and Non-Redeeming Shares and Warrants to be issued under certain of Open Market Subscription Agreements and Non-Redeeming Subscription Agreements that include an open market purchase and non-redemption obligation for
Open Market Investors and Non-Redeeming Subscribed Investors qualify as equity under ASC 815-40 (“Derivatives and Hedging–Contracts in Entity’s Own Equity”); therefore, the Company will recognize the New Adagio Common Stock and PIPE Warrants to be
issued under such Open Market Subscription Agreements and Non-Redeeming Subscription Agreements (such securities, the “Open Market PIPE Securities” and “Non-Redeeming Shares and Warrants”) by recording an entry to additional paid-in capital (APIC)
in shareholders’ equity in its Consolidated Condensed Balance Sheet and Open Market Subscription Agreement expense on its Consolidated Condensed Statement of Operations. In accordance with ASC 815-40-30-1, the New Adagio Common Stock and PIPE
Warrants and Non-Redeeming Shares and Warrants will be recorded and measured at fair value (i.e., most often representative of proceeds received for equity-linked instruments; however, when estimating the fair value of the New Adagio Common Stock
and PIPE Warrants and Non-Redeeming Shares and Warrants, the Company has followed the guidance in ASC 820 Fair Value Measurement. In connection with Open Market Investor’s commitment to irrevocably subscribe for and agree to purchase from ListCo
the number of Open Market PIPE Securities and Non-Redeeming Shares and Warrants set forth on the signature page of the applicable Open Market Subscription Agreements, on the terms and subject to the conditions set forth in such Open Market
Subscription Agreements, which include, without limitation, the agreement not to redeem the Class A ordinary shares purchased in the open market prior to Closing, the Company will record an amount equal to the full fair value of the New Adagio
Common Stock and PIPE Warrants to be issued to the Open Market PIPE Investor in connection with the Closing. The estimated amount of New Adagio Common Stock shares and PIPE Warrants to be issued on the Close of the Transaction as of the inception
of the Open Market Subscription agreements mentioned above, are 219,877 and 183,493, respectively. The estimated amount Non-Redeeming Shares and Warrants to be issued on the Close of the Transaction as of the inception of the Non-Redeeming
Subscription Agreements mentioned above, are 76,681 and 166,160, respectively.
To determine the Fair Value of the New Adagio Common Stock on inception, the Company used the following Level 3 inputs:
|
February 13,
2024
|
||||
|
Base Share Price
|
$
|
10.00
|
||
|
Adjusted per Share (1.2X Purchase Price Ratio)
|
$
|
8.33
|
||
|
Adjusted share price
|
$
|
7.00
|
||
|
Probability of Closing
|
75.00
|
%
|
||
|
Estimated fair value per Share at Closing
|
$
|
5.25
|
||
To determine the Fair Value of the PIPE Warrants on inception, the Company used the following Level 3 inputs:
|
February 13,
2024
|
||||
|
Base Share Price
|
$
|
7.00
|
||
|
Strike price, as defined in Subscription Agreement
|
$
|
10.00
|
||
|
Term (Months)
|
12.00
|
|||
|
Average volatility rate
|
70.00
|
%
|
||
|
Probability of Closing
|
75.00 |
% |
||
|
Estimated expected Warrant price
|
$
|
1.21
|
||
|
Estimated fair value per Warrant at Closing (1.2x Coverage Ratio)
|
$
|
1.45
|
||
To determine the Fair Value of the Non-Redeeming Subscription Agreement Shares on inception, the Company used the following Level 3 inputs:
|
June 21,
2024
|
||||
|
Base Share Price
|
$
|
10.00
|
||
|
Adjusted per Share (1.2X Purchase Price Ratio)
|
$
|
8.33
|
||
|
Adjusted share price
|
$
|
7.08
|
||
| Probability of Closing |
95.00
|
%
|
||
|
Estimated fair value per Share at Closing
|
$
|
6.73
|
||
F-9
To determine the Fair Value of the Non-Redeeming Subscription Agreement Warrants on inception, the Company used the following Level 3 inputs:
|
June 21,
2024
|
||||
|
Base Share Price
|
$
|
10.00
|
||
|
Strike price, as defined in Subscription Agreement
|
$
|
10.00
|
||
|
Term (Months)
|
12.00
|
|||
|
Average volatility rate
|
70.00
|
|||
|
Probability of Closing
|
95.00
|
%
|
||
|
Estimated expected Warrant price
|
$
|
1.25
|
||
|
Estimated fair value per Warrant at Closing (1.2x Coverage Ratio)
|
$
|
1.19
|
||
During the period ended June 30, 2024, the Fair Value of the instruments above were recorded in additional paid-in capital in shareholders’ equity in
its Balance Sheet and Subscription Agreement expense on its Statement of Operations was $2,134,199.
Note 4 - Subsequent Events
The Company evaluated subsequent events and transactions that occurred up to the date the financial statements were issued and has concluded that, other than the events described below, all such events that would
require recognition or disclosure have been recognized or disclosed.
On July 31, 2024, Adagio announced the closing of its previously announced Business Combination with the Parent and the Company. Upon the closing of the merger, the Company changed its name to “Adagio Medical
Holdings, Inc.” The common stock of New Adagio began trading on August 1, 2024, under the symbols ADGM on the Nasdaq Capital Market. Upon the consummation of the Business Combination, Adagio and the Parent became the direct wholly-owned
subsidiaries of Adagio Medical Holding, Inc. (see Note 3).
F-10
Exhibit 99.6
LISTCO’S MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
References in this section of the prospectus to “we,” “us,” or “ListCo” refer to Aja HoldCo, Inc., a Delaware corporation. References to our “management” or our
“management team” refer to our officers and directors. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties. Our actual results may differ materially
from those anticipated in these forward-looking statements as a result of many factors. Please see “Cautionary Note Regarding Forward-Looking Statements” and “Risk Factors” in this proxy statement/prospectus.
Overview
As of June 30, 2024, ListCo is a Delaware corporation, formed by ARYA on December 19, 2023 (inception). ListCo has adopted a fiscal year-end of December 31. ListCo was formed to be
the surviving company in connection with the proposed Business Combination between ARYA and Adagio. ListCo has no prior operating activities.
Proposed Business Combination and Recent Developments
On February 13, 2024, ARYA, ListCo, ARYA Merger Sub, Company Merger Sub, and Adagio entered into the Business Combination Agreement. The Business Combination Agreement contains
certain customary representations, warranties, and covenants by the parties thereto and the Closing is subject to certain customary conditions and risks as further described therein. For additional information, please see “Proposal 1: Business Combination Proposal” and the section entitled “Risk Factors.”
On June 24, 2024, ARYA and ListCo entered into the June Subscription Agreements with the June PIPE Investors. Additionally, on June 24, 2024, ARYA and ListCo entered into an
amendment to the Subscription Agreement with the Perceptive PIPE Investor, pursuant to which the May 2024 Notes, the June 2024 Notes, any Additional Convertible Notes that the Perceptive PIPE Investors elects to subject to its Subscription
Agreement and any interest that has been accruing and will remain unpaid thereon prior to Closing will be contributed to ListCo at Closing. For additional information, please see “Proposal 1: Business Combination
Proposal—Certain Agreements Related to the Business Combination—PIPE Financing.”
On June 25, 2024, ARYA and Adagio entered into the BCA Amendment. The BCA Amendment relates to an adjustment of the pre-Closing ownership of one of the stockholders of Adagio, a change to the
post-Closing name of ListCo and changes to the terms of the Key Employee Incentive Plan and HoldCo Incentive Equity Plan.
On July 31, 2024, Adagio announced the closing of its previously announced Business Combination with the Parent and ListCo (the “Closing”) (see Note 1).
Results of Operations
We had neither engaged in any operations nor generated any revenues through June 30, 2024. Our only activities through June 30, 2024 were organizational activities and completing
the Business Combination. We do not expect to generate any operating revenues until after the completion of the Business Combination.
For the three months ended June 30, 2024 and the period from December 19, 2023 (inception) to December 31, 2023, we had net losses of $713,794 and $5,000, which consist of $713,794
and $0 of expenses related to the Subscription Agreement and $0 and $5,000 of legal expenses, respectively.
For the six months ended June 30, 2024 and the period from December 19, 2023 (inception) to December 31, 2023, we had net losses of $2,134,199 and $5,000, which consist of
$2,134,199 of expenses related to the Subscription Agreement and $5,000 of legal expenses, respectively.
Going Concern
On July 31, 2024, the Company announced the closing of its previously announced Business Combination with
the Company and Adagio Medical Inc. (see Note 3). As of July 31, 2024, substantial doubt about the Company’s ability to continue as a going concern was alleviated due to the closing of a business combination.
Liquidity and Capital Resources
In connection with ListCo’s assessment of going concern considerations in accordance with Financial Accounting Standard Board’s Accounting Standards Codification Subtopic 205-40,
“Presentation of Financial Statements–Going Concern,” the liquidity of ListCo raises substantial doubt about its ability to continue as a going concern through the twelve months following the issuance of the financial statements. If ListCo is
unable to raise additional capital, it may be required to take additional measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing operations and reducing overhead expenses. ListCo cannot provide any
assurance that new financing will be available to it on commercially acceptable terms, if at all.
Contractual Obligations and Commitments
As of June 30, 2024, we have no contractual obligations and commitments outside of the agreements to which we are a party in connection with the Business Combination. Refer to “Proposal 1: Business Combination Proposal—Certain Agreements Related to the Business Combination” for more detail.
Off-Balance Sheet Arrangements
We have no obligations, assets or liabilities which would be considered off-balance sheet arrangements as of June 30, 2024 and December 31, 2023.
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity with U.S. GAAP 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 the reported amounts of income and expenses during the period reported. Actual results could materially differ from those
estimates.
ListCo does not have any critical accounting policies.
Quantitative and Qualitative Disclosures about Market Risk
As of June 30, 2024, we had no material exposure to market risk.
Exhibit 99.7
Defined terms included below have the same meaning as terms defined and included elsewhere in the Current Report on Form 8-K (the “Form 8-K”) filed by Adagio Medical Holdings,
Inc. with the Securities and Exchange Commission (the “SEC”) on August 6, 2024 and, if not defined in the Form 8-K, the Proxy Statement.
The following unaudited pro forma condensed combined financial information presents the combination of the financial information of ListCo, ARYA and Adagio adjusted to give effect to the Business
Combination and related transactions. The following unaudited pro forma condensed combined financial information has been prepared in accordance with Article 11 of Regulation S-X.
The unaudited pro forma condensed combined balance sheet as of June 30, 2024, assumes that the Business Combination occurred on June 30, 2024. The unaudited pro forma condensed combined
statements of operations and comprehensive loss for the six months ended June 30, 2024 and for the year ended December 31, 2023, give pro forma effect to the Business Combination as if it had been completed on January 1, 2023, the beginning of the
earliest period presented.
The unaudited pro forma condensed combined financial information has been derived from and should be read in conjunction with:
| • |
the accompanying notes to the unaudited pro forma condensed combined financial information;
|
| • |
the historical unaudited financial statements of ListCo as of and for the six months ended June 30, 2024, as filed with this Current Report on Form 8-K, and the historical audited financial statements of
ListCo as of December 31, 2023 and for the period from December 19, 2023 (inception) to December 31, 2023 and the related notes, as filed in ListCo’s proxy statement/prospectus on July 11, 2024;
|
| • |
the historical unaudited consolidated condensed financial statements of ARYA as of and for the six months ended June 30, 2024, as filed with this Current Report on Form 8-K, and the historical audited
financial statements of ARYA as of and for the year ended December 31, 2023 and the related notes, as filed in ListCo’s proxy statement/prospectus on July 11, 2024;
|
| • |
the historical unaudited condensed consolidated financial statements of Adagio as of and for the six months ended June 30, 2024, as filed with this Current Report on Form 8-K, and the historical audited
consolidated financial statements of Adagio as of and for the year ended December 31, 2023, and the related notes; and
|
| • |
other information relating to ListCo, ARYA and Adagio, including the Business Combination Agreement and the description of certain terms thereof set forth under ‘‘Proposal 1:
Business Combination Proposal,’’ as well as the disclosures contained in the sections titled ‘‘ARYA’s Management’s Discussion and Analysis of Financial Condition and Results of Operations’’
and ‘‘Adagio’s Management’s Discussion and Analysis of Financial Condition and Results of Operations’’ as filed in ListCo’s proxy statement/prospectus on July 11, 2024.
|
The unaudited pro forma condensed combined financial statements have been presented for illustrative purposes only and do not necessarily reflect what New Adagio’s financial condition or results
of operations would have been had the Business Combination occurred on the dates indicated. Further, the unaudited pro forma condensed combined financial information also may not be useful in predicting the future financial condition and results of
operations of New Adagio. The actual financial position and results of operations may differ significantly from the pro forma amounts reflected herein due to a variety of factors. The unaudited pro forma transaction accounting adjustments represent
management’s estimates based on information available as of the date of these unaudited pro forma condensed combined financial statements and are subject to change as additional information becomes available and analyses are performed.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
As of June 30, 2024
(Dollars in Thousands)
|
Aja HoldCo,
Inc.
(Historical)(1)
|
ARYA Sciences
Acquisition Corp
IV (Historical)(1)
|
Adagio
Medical, Inc.
(Historical)
|
Transaction
Accounting
Adjustments (Note 5)
|
Pro Forma
Combined(1)
|
|||||||||||||||||
|
ASSETS
|
|||||||||||||||||||||
|
Current Assets
|
|||||||||||||||||||||
|
Cash
|
$
|
-
|
$
|
26
|
$
|
2,045
|
$
|
5,423
|
B
|
$
|
34,543
|
||||||||||
|
-
|
-
|
-
|
1,204
|
C
|
-
|
||||||||||||||||
|
-
|
-
|
-
|
(65
|
)
|
D
|
-
|
|||||||||||||||
|
-
|
-
|
-
|
(8,041
|
)
|
E
|
-
|
|||||||||||||||
|
-
|
-
|
-
|
(6,917
|
)
|
F
|
-
|
|||||||||||||||
|
-
|
-
|
-
|
27,876
|
G
|
-
|
||||||||||||||||
|
-
|
-
|
-
|
1,000
|
H
|
-
|
||||||||||||||||
|
-
|
-
|
-
|
(1,008
|
)
|
I
|
-
|
|||||||||||||||
|
-
|
-
|
-
|
13,000
|
J
|
-
|
||||||||||||||||
|
Accounts receivable, net
|
-
|
-
|
167
|
-
|
167
|
||||||||||||||||
|
Inventories, net
|
-
|
-
|
4,062
|
-
|
4,062
|
||||||||||||||||
|
Prepaid expenses
|
-
|
28
|
182
|
-
|
210
|
||||||||||||||||
|
Other current assets
|
-
|
-
|
180
|
-
|
180
|
||||||||||||||||
|
Total Current assets
|
-
|
54
|
6,636
|
32,472
|
39,162
|
||||||||||||||||
|
Property and equipment, net
|
-
|
-
|
1,154
|
-
|
1,154
|
||||||||||||||||
|
Right-of-use asset, net
|
-
|
-
|
260
|
-
|
260
|
||||||||||||||||
|
Intangible assets, net
|
-
|
-
|
-
|
26,200
|
K
|
26,200
|
|||||||||||||||
|
Goodwill
|
-
|
-
|
-
|
42,119
|
L
|
42,119
|
|||||||||||||||
|
Cash and investments held in Trust Account
|
-
|
37,939
|
-
|
(31,312
|
)
|
A
|
-
|
||||||||||||||
|
(5,423
|
)
|
B
|
|||||||||||||||||||
|
-
|
-
|
-
|
(1,204
|
)
|
C
|
-
|
|||||||||||||||
|
Other assets
|
-
|
-
|
19
|
-
|
19
|
||||||||||||||||
|
Total assets
|
$
|
-
|
$
|
37,993
|
$
|
8,069
|
$
|
62,852
|
$
|
108,914
|
|||||||||||
|
LIABILITIES
|
|||||||||||||||||||||
|
Current liabilities
|
|||||||||||||||||||||
|
Accounts payables
|
-
|
157
|
5,580
|
(556
|
)
|
E
|
2,211
|
||||||||||||||
|
-
|
-
|
-
|
(4,369
|
)
|
F
|
-
|
|||||||||||||||
|
-
|
-
|
-
|
1,399
|
M
|
-
|
||||||||||||||||
|
Accrued expenses
|
5
|
6,569
|
3,429
|
(7,485
|
)
|
E
|
5,846
|
||||||||||||||
|
|
-
|
-
|
-
|
3,333
|
M
|
-
|
|||||||||||||||
|
Operating lease liabilities, current
|
-
|
-
|
140
|
-
|
140
|
||||||||||||||||
|
Convertible notes payable, current
|
-
|
-
|
50,955
|
(6,993
|
)
|
J
|
-
|
||||||||||||||
|
|
-
|
-
|
-
|
(29,876
|
)
|
N
|
-
|
||||||||||||||
|
|
-
|
-
|
-
|
(14,086
|
)
|
O
|
-
|
||||||||||||||
|
Warrant liabilities
|
-
|
-
|
417
|
4,442
|
G
|
7,438
|
|||||||||||||||
|
-
|
-
|
-
|
2,996
|
J
|
-
|
||||||||||||||||
|
-
|
-
|
-
|
(417
|
)
|
P
|
-
|
|||||||||||||||
| (1) |
The historical consolidated financial statements of ARYA Sciences Acquisition Corp IV includes the historical results of Aja HoldCo, Inc., as prior to the Closing, Aja HoldCo, Inc. is a wholly owned subsidiary of ARYA Sciences
Acquisition Corp IV. Accordingly, the pro forma combined results do not include the values presented in the column of the historical financial statement of Aja HoldCo, Inc.
|
See accompanying notes to unaudited pro forma condensed combined financial information.
1
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
As of June 30, 2024
(Dollars in Thousands)
|
Aja HoldCo,
Inc.
(Historical)(1)
|
ARYA Sciences
Acquisition Corp
IV (Historical)(1)
|
Adagio
Medical, Inc.
(Historical)
|
Transaction
Accounting
Adjustments (Note 5)
|
Pro Forma
Combined(1)
|
||||||||||||||||||
|
Term loan, current
|
-
|
-
|
990
|
(990
|
)
|
I
|
-
|
|||||||||||||||
|
Accrued transaction costs
|
-
|
-
|
145
|
(2,548
|
)
|
F
|
-
|
|||||||||||||||
|
|
-
|
-
|
-
|
2,403
|
M
|
-
|
||||||||||||||||
|
Other accrued liabilities
|
-
|
-
|
3,000
|
(8
|
)
|
I
|
211
|
|||||||||||||||
|
|
-
|
-
|
-
|
(1,507
|
)
|
N
|
-
|
|||||||||||||||
|
|
-
|
-
|
-
|
(1,274
|
)
|
O
|
-
|
|||||||||||||||
|
Due to related party
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||
|
Convertible promissory note – related party
|
-
|
3,616
|
-
|
(65
|
)
|
D
|
-
|
|||||||||||||||
|
|
-
|
-
|
-
|
(3,551
|
)
|
Q
|
-
|
|||||||||||||||
|
Total Current liabilities
|
5
|
10,342
|
64,656
|
(59,152
|
)
|
15,846
|
||||||||||||||||
|
Operating lease liabilities, long-term
|
-
|
-
|
121
|
-
|
121
|
|||||||||||||||||
|
Deferred underwriting commissions
|
-
|
2,616
|
-
|
-
|
2,616
|
|||||||||||||||||
|
Deferred tax liabilities, net
|
-
|
-
|
-
|
2,800
|
R
|
2,800
|
||||||||||||||||
|
Convertible notes payables, long-term
|
-
|
-
|
-
|
17,004
|
J
|
17,004
|
||||||||||||||||
|
Other long-term liabilities
|
-
|
-
|
6
|
-
|
6
|
|||||||||||||||||
|
Total liabilities
|
$
|
5
|
$
|
12,958
|
$
|
64,783
|
$
|
(39,348
|
)
|
$
|
38,393
|
|||||||||||
|
Commitments and Contingencies
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||
|
Class A ordinary shares subject to possible redemption
|
-
|
37,839
|
-
|
(31,312
|
)
|
A
|
-
|
|||||||||||||||
|
(5,423
|
)
|
B
|
||||||||||||||||||||
|
-
|
-
|
-
|
(1,104
|
)
|
S
|
-
|
||||||||||||||||
|
Convertible preferred stock, $0.001 par value
|
-
|
-
|
86,783
|
(86,783
|
)
|
T
|
-
|
|||||||||||||||
|
Shareholder's (deficit) equity
|
-
|
-
|
-
|
-
|
-
|
|||||||||||||||||
|
New Adagio common stock, $ 0.0001 par value
|
-
|
-
|
-
|
1
|
U
|
1
|
||||||||||||||||
|
ARYA Class A ordinary shares, $0.0001 par value
|
-
|
-
|
-
|
-
|
V
|
-
|
||||||||||||||||
|
ARYA Class B ordinary shares, $0.0001 par value
|
-
|
-
|
-
|
-
|
V
|
-
|
||||||||||||||||
|
Adagio Common stock, $0.001 par value
|
-
|
-
|
1
|
(1
|
)
|
W
|
-
|
|||||||||||||||
|
Additional paid-in capital
|
2,134
|
412
|
6,163
|
78,759
|
X
|
85,334
|
||||||||||||||||
|
Accumulated other comprehensive income
|
-
|
-
|
22
|
(22
|
)
|
W
|
-
|
|||||||||||||||
|
Accumulated deficit
|
(2,139
|
)
|
(13,216
|
)
|
(149,683
|
)
|
(7,135
|
)
|
M
|
(14,814
|
)
|
|||||||||||
|
-
|
-
|
-
|
153,086
|
W
|
-
|
|||||||||||||||||
|
-
|
-
|
-
|
2,134
|
Y
|
-
|
|||||||||||||||||
|
Total Shareholder's (deficit) equity
|
$
|
(5
|
)
|
$
|
(12,804
|
)
|
$
|
(143,497
|
)
|
$
|
226,822
|
$
|
70,521
|
|||||||||
|
Total Liabilities and Shareholders’ Deficit
|
$
|
-
|
$
|
37,993
|
$
|
8,069
|
$
|
62,852
|
$
|
108,914
|
||||||||||||
| (1) |
The historical consolidated financial statements of ARYA Sciences Acquisition Corp IV includes the historical results of Aja HoldCo, Inc., as prior to the Closing, Aja HoldCo, Inc. is a wholly owned subsidiary of ARYA Sciences
Acquisition Corp IV. Accordingly, the pro forma combined results do not include the values presented in the column of the historical financial statement of Aja HoldCo, Inc.
|
See accompanying notes to unaudited pro forma condensed combined financial information.
2
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS
For the Six Months ended June, 2024
(Dollars in Thousands, except per share data)
|
Aja HoldCo,
Inc.
(Historical)(1)
|
ARYA
Sciences
Acquisition
Corp IV
(Historical)(1)
|
Adagio
Medical, Inc.
(Historical)
|
Transaction
Accounting
Adjustments
(Note 5)
|
Pro Forma
Combined(1)
|
|||||||||||||||||
|
Revenue
|
$
|
-
|
$
|
-
|
$
|
280
|
$
|
-
|
$
|
280
|
|||||||||||
|
Cost of revenue and operating expenses
|
|||||||||||||||||||||
|
Cost of revenue
|
-
|
-
|
1,224
|
-
|
1,224
|
||||||||||||||||
|
Research and development
|
-
|
-
|
6,334
|
-
|
6,334
|
||||||||||||||||
|
General and administrative expenses
|
-
|
864
|
8,196
|
410
|
BB
|
9,470
|
|||||||||||||||
|
Total cost of revenue and operating expenses
|
-
|
864
|
15,754
|
410
|
17,028
|
||||||||||||||||
|
Loss from Operations
|
-
|
(864
|
)
|
(15,474
|
)
|
(410
|
)
|
(16,748
|
)
|
||||||||||||
|
Other Income (Expense)
|
|||||||||||||||||||||
|
Convertible notes fair value adjustment
|
-
|
-
|
2,531
|
(2,531
|
)
|
CC
|
-
|
||||||||||||||
|
Warrant liabilities fair value adjustment
|
-
|
-
|
14
|
(14
|
)
|
DD
|
-
|
||||||||||||||
|
Interest expense
|
-
|
-
|
(1,514
|
)
|
1,226
|
CC
|
(1,300
|
)
|
|||||||||||||
|
-
|
-
|
-
|
78
|
EE
|
-
|
||||||||||||||||
|
-
|
-
|
-
|
(1,090
|
)
|
FF
|
-
|
|||||||||||||||
|
Gain on extinguishment of accrued legal expenses
|
-
|
3,577
|
-
|
-
|
3,577
|
||||||||||||||||
|
Subscription Agreement expense
|
(2,134
|
)
|
(2,134
|
)
|
-
|
2,134
|
GG
|
-
|
|||||||||||||
|
Interest earned on cash and investments held in Trust Account
|
-
|
998
|
-
|
(998
|
)
|
HH
|
-
|
||||||||||||||
|
Interest income
|
-
|
-
|
3
|
-
|
3
|
||||||||||||||||
|
Other (expense) income, net
|
-
|
-
|
(38
|
)
|
-
|
(38
|
)
|
||||||||||||||
|
Total Other Income (Expense)
|
(2,134
|
)
|
2,441
|
996
|
(1,195
|
)
|
2,242
|
||||||||||||||
|
Net income (loss)
|
$
|
(2,134
|
)
|
$
|
1,577
|
$
|
(14,478
|
)
|
$
|
(1,605
|
)
|
$
|
(14,506
|
)
|
|||||||
|
Basic and diluted weighted average shares outstanding of Class A ordinary shares
|
-
|
3,922,090
|
-
|
-
|
-
|
||||||||||||||||
|
Basic and diluted net loss per share, Class A ordinary share
|
-
|
$
|
0.21
|
-
|
-
|
-
|
|||||||||||||||
|
Basic and diluted weighted average shares outstanding of Class B ordinary shares
|
-
|
3,737,500
|
-
|
-
|
-
|
||||||||||||||||
|
Basic and diluted net loss per share, Class B ordinary share
|
-
|
$
|
0.21
|
-
|
-
|
-
|
|||||||||||||||
|
Basic and diluted weighted average shares outstanding
|
1
|
-
|
779,908
|
-
|
13,387,636
|
||||||||||||||||
|
Basic and diluted net loss per common share
|
$
|
(2,134,199
|
)
|
-
|
$
|
(18.56
|
)
|
-
|
$
|
(1.08
|
)
|
||||||||||
| (1) |
The historical consolidated financial statements of ARYA Sciences Acquisition Corp IV includes the historical results of Aja HoldCo, Inc., as prior to the Closing, Aja HoldCo, Inc. is a wholly owned subsidiary of ARYA Sciences
Acquisition Corp IV. Accordingly, the pro forma combined results do not include the values presented in the column of the historical financial statement of Aja HoldCo, Inc.
|
See accompanying notes to unaudited pro forma condensed combined financial information.
3
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS
For the Year ended December 31, 2023
(Dollars in Thousands, except per share data)
|
Aja HoldCo,
Inc.
(Historical)(1)
|
ARYA
Sciences
Acquisition
Corp IV
(Historical)(1)
|
Adagio
Medical, Inc.
(Historical)
|
Transaction
Accounting
Adjustments
(Note 5)
|
Pro Forma
Combined(1)
|
|||||||||||||||||
|
Revenue
|
$
|
-
|
$
|
-
|
$
|
300
|
$
|
-
|
$
|
300
|
|||||||||||
|
Cost of revenue and operating expenses
|
|||||||||||||||||||||
|
Cost of revenue
|
-
|
-
|
1,306
|
-
|
1,306
|
||||||||||||||||
|
Research and development
|
-
|
-
|
15,399
|
-
|
15,399
|
||||||||||||||||
|
General and administrative expenses
|
5
|
4,752
|
11,537
|
3,732
|
AA
|
20,841
|
|||||||||||||||
|
-
|
-
|
-
|
820
|
BB
|
-
|
||||||||||||||||
|
Total cost of revenue and operating expenses
|
5
|
4,752
|
28,242
|
4,552
|
37,546
|
||||||||||||||||
|
Loss from Operations
|
(5
|
)
|
(4,752
|
)
|
(27,942
|
)
|
(4,552
|
)
|
(37,246
|
)
|
|||||||||||
|
Other Income (Expense)
|
|||||||||||||||||||||
|
Convertible notes fair value adjustment
|
-
|
-
|
(8,486
|
)
|
8,486
|
CC
|
-
|
||||||||||||||
|
Warrant liabilities fair value adjustment
|
-
|
-
|
(42
|
)
|
42
|
DD
|
-
|
||||||||||||||
|
Interest expense
|
-
|
-
|
(1,659
|
)
|
1,419
|
CC
|
(2,600
|
)
|
|||||||||||||
|
-
|
-
|
-
|
240
|
EE
|
-
|
||||||||||||||||
|
-
|
-
|
-
|
(2,600
|
)
|
FF
|
-
|
|||||||||||||||
|
Interest earned on cash and investments held in Trust Account
|
-
|
2,619
|
-
|
(2,619
|
)
|
HH
|
-
|
||||||||||||||
|
Interest income
|
-
|
-
|
3
|
-
|
3
|
||||||||||||||||
|
Other (expense) income, net
|
-
|
-
|
(20
|
)
|
-
|
(20
|
)
|
||||||||||||||
|
Total Other Income (Expense)
|
-
|
2,619
|
(10,204
|
)
|
4,968
|
(2,617
|
)
|
||||||||||||||
|
Net income (loss)
|
$
|
(5
|
)
|
$
|
(2,133
|
)
|
$
|
(38,146
|
)
|
$
|
416
|
$
|
(39,863
|
)
|
|||||||
|
Basic and diluted weighted average shares outstanding of Class A ordinary shares
|
-
|
6,071,500
|
-
|
-
|
-
|
||||||||||||||||
|
Basic and diluted net loss per share, Class A ordinary share
|
-
|
$
|
(0.22
|
)
|
-
|
-
|
-
|
||||||||||||||
|
Basic and diluted weighted average shares outstanding of Class B ordinary shares
|
-
|
3,737,500
|
-
|
-
|
-
|
||||||||||||||||
|
Basic and diluted net loss per share, Class B ordinary share
|
-
|
$
|
(0.22
|
)
|
-
|
-
|
-
|
||||||||||||||
|
Basic and diluted weighted average shares outstanding
|
1
|
-
|
759,814
|
-
|
13,387,636
|
||||||||||||||||
|
Basic and diluted net loss per common share
|
$
|
(5,000
|
)
|
-
|
$
|
(50.20
|
)
|
-
|
$
|
(2.98
|
)
|
||||||||||
| (1) |
The historical consolidated financial statements of ARYA Sciences Acquisition Corp IV includes the historical results of Aja HoldCo, Inc., as prior to the Closing, Aja HoldCo, Inc. is a wholly owned subsidiary of ARYA Sciences
Acquisition Corp IV. Accordingly, the pro forma combined results do not include the values presented in the column of the historical financial statement of Aja HoldCo, Inc.
|
See accompanying notes to unaudited pro forma condensed combined financial information.
4
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
On July 31, 2024 (the “Closing Date”), ARYA Sciences Acquisition Corp IV, a Cayman Islands exempted company (“ARYA”),
Aja Holdco, Inc., a Delaware corporation and wholly-owned subsidiary of ARYA (“ListCo”), Aja Merger Sub 1, a Cayman Islands exempted company and wholly-owned subsidiary of ListCo (“ARYA Merger Sub”), Aja Merger Sub 2, Inc., a Delaware corporation and wholly-owned subsidiary of ListCo (“Company Merger Sub”), and Adagio Medical, Inc., a Delaware corporation (“Adagio”), consummated the previously announced business combination (the “Business Combination”) pursuant to the terms of the Business Combination Agreement, dated February
13, 2024, by and among the foregoing parties, as amended by the Consent and Amendment No. 1 to Business Combination Agreement, dated as of June 25, 2024, by and between ARYA and Adagio (the “Business Combination
Agreement”).
Pursuant to the Business Combination Agreement, on the Closing Date, (i) ARYA Merger Sub merged with and into ARYA (the “ARYA Merger”) and Company Merger
Sub merged with and into Adagio (the “Adagio Merger” and, together with the ARYA Merger, the “Mergers”), with ARYA and Adagio surviving the Mergers and, after giving
effect to such Mergers, each of ARYA and Adagio becoming a wholly owned subsidiary of ListCo (the time that the ARYA Merger becomes effective being referred to as the “ARYA Merger Effective Time,” the time
that the Adagio Merger becomes effective being referred to as the “Adagio Merger Effective Time,” the time after which both Mergers become effective being referred to as the “Closing,”
and the date on which the Closing occurs being referred to as the “Closing Date”), (ii) ListCo filed with the Secretary of State of the State of Delaware an amended and restated certificate of incorporation
of ListCo, and the board of directors of ListCo approved and adopt amended and restated bylaws of ListCo, and (iii) ListCo changed its name to “Adagio Medical Holdings, Inc.” (ListCo following the Closing, “New
Adagio”).
On July 26, 2024, ARYA held its annual general meeting (the “General Meeting”) at which the ARYA shareholders considered and adopted, among other matters, the Business Combination Agreement. On
July 31, 2024, the parties to the Business Combination Agreement consummated the Transactions.
Prior to the General Meeting, holders of 2,707,555 shares of ARYA’s Class A ordinary shares exercised their right to redeem such shares for cash at a price of approximately $11.56 per share for
aggregate payments of approximately $31.3 million.
In conversion of the ARYA’s equity outstanding prior to the Closing:
(A) each issued and outstanding Class A ordinary share of ARYA, par value $0.0001 per share, are automatically cancelled, extinguished and converted into the right to receive
one share of common stock, par value $0.0001 per share, of New Adagio (the “New Adagio Common Stock”); and
(B) each issued and outstanding Class B ordinary share of ARYA, par value $0.0001 per share, are automatically cancelled, extinguished and converted into the right to receive
one share of New Adagio Common Stock, other than (i) 1,000,000 Class B ordinary shares that are forfeited by the Sponsor, and issued to the PIPE Investors, including the Perceptive PIPE Investor; (ii) 1,147,500 shares of New Adagio Common Stock
issuable to the Sponsor are subject to share trigger price vesting and will vest if, prior to the tenth anniversary of the Closing, the post-closing share price of New Adagio equals or exceeds $24.00 per share for any 20 trading days within any 30
trading day period (the “Share Trigger Price Vesting”).
In conversion of the Adagio’s certain liabilities and equity outstanding prior to the Closing:
(A) each warrant of Adagio (other than the Pre-Funded Warrants for Series E Preferred Shares) were terminated in accordance with the terms of the
applicable warrant agreement;
(B) all issued and outstanding unsecured convertible promissory notes of Adagio (excluding the Bridge Financing Notes and the 2024 Bridge Financing Notes, as defined below)
(the “Adagio Convertible Notes”), including any accrued and unpaid interest thereon, are automatically and fully converted into shares of Adagio Common Stock in accordance with the terms of such Adagio
Convertible Notes, and such Adagio Convertible Notes are cancelled, satisfied, extinguished, discharged and retired in connection with such conversion;
5
(C) each share of preferred stock, par value $0.001 per share, of Adagio (the “Adagio Preferred Stock”) that is issued and outstanding
are automatically converted into shares of Adagio Common Stock, and each such share of Adagio Preferred Stock are cancelled;
(D) all issued and outstanding shares of Adagio Common Stock (other than treasury shares and shares with respect to which appraisal rights under the Delaware General
Corporation Law are properly exercised and not withdrawn). Each Pre-Funded Warrants for Series E Preferred Shares that had been issued and outstanding immediately prior to the Adagio Merger Effective Time are automatically cancelled and
extinguished and converted into the right to receive shares of New Adagio Common Stock based on the exchange ratio set forth in the Business Combination Agreement;
(E) each issued, outstanding and unexercised option to purchase Adagio Common Stock (“Adagio Option”) had been vested prior to the
Closing with an aggregate value that exceeds the aggregate exercise price of such Adagio Option (each an “In-the-Money Adagio Option”) are cancelled and extinguished in exchange for options to purchase shares
of New Adagio Common Stock, and each issued and outstanding Adagio equity award (other than an In-the-Money Adagio Option) are automatically cancelled and extinguished for no consideration, and each holder thereof will cease to have any rights with
respect thereto;
(F) outstanding SVB Term Loan is paid off by Adagio prior to the Closing; and
(G) $7,000,000 of 2024 Bridge Financing Notes is converted into New Adagio Convertible Notes and Convert Warrants, as
defined below.
In connection with the execution of the Business Combination Agreement, ListCo and ARYA entered into Subscription Agreements (as may be amended, supplemented or otherwise modified
from time to time, the “Initial Subscription Agreements”), with the Perceptive PIPE Investor and certain other investors (the “Initial Other PIPE Investors”, and together with the Perceptive PIPE Investor, the “Initial
PIPE Investors”). In June 2024, ListCo and ARYA entered into additional Subscription Agreements (as may be amended, supplemented or otherwise modified from time to time, the “June Subscription Agreements” and, together with the Initial Subscription Agreements, the “Subscription
Agreements”) with certain additional investors, (the “June PIPE Investors”, and together with the
Initial Other PIPE Investors, the “Other PIPE Investors”, and the Other PIPE Investors, together with the Perceptive PIPE Investor, the “PIPE Investors”). Pursuant to the Subscription Agreements, the PIPE Investors have committed financing valued at $64.5 million (the “PIPE Financing”). The
PIPE Financing is comprised of: (i) commitments by certain investors to subscribe for and purchase Class A ordinary shares in the open market for $2,500,000 and not to redeem such shares prior to the Closing Date (valued as of the redemption
deadline, at $2,558,589 based on an approximate redemption value of $11.56 per Class A ordinary share), which resulted in the issuance of 355,457 shares of New Adagio Common Stock and 299,902 Base Warrants (including the Class A ordinary
shares purchased by such Other PIPE Investors and that such Other PIPE Investors agreed not to redeem and that converted into shares of New Adagio Common Stock at Closing in connection with the Business Combination); (ii) commitments by certain investors that are shareholders of ARYA not to redeem 247,700 Class A ordinary shares (valued as of the redemption deadline, at $2,864,580 based on an approximate redemption value of $11.56 per Class A ordinary
share), which resulted in the issuance of 405,772 shares of New Adagio Common Stock and 343,756 Base Warrants (including the Class A ordinary shares that such Other PIPE Investors agreed not to redeem and that converted into shares of New
Adagio Common Stock at Closing in connection with the Business Combination); (iii) agreements to subscribe for and purchase at Closing 1,036,666 shares of New Adagio Common Stock, 1,440,000 Base Warrants and
670,000 Pre-Funded Warrants for an aggregate purchase price of $12,000,000; (iv) the contribution of $29,500,000 of Bridge Financing Notes to ListCo and interest that has been accruing and remained unpaid thereon amounting to $1,695,452, prior to
Closing pursuant to the terms of the Subscription Agreement executed by the Perceptive PIPE Investor; and (v) an additional cash investment by the Perceptive PIPE Investor of $15,875,568. In respect of its Subscription Agreement described
in (iv) and (v) in the foregoing, the Perceptive PIPE Investor is issued 6,622,959 shares of New Adagio Common Stock and 5,445,069 Base Warrants. The shares of New Adagio Common Stock and PIPE Warrants to be
issued pursuant to the Subscription Agreements have not been registered under the Securities Act of 1933, as amended (the “Securities Act”), and will be issued in reliance upon the exemption provided in Section 4(a)(2) of the Securities Act.
ListCo will grant the PIPE Investors certain registration rights in connection with the PIPE Financing.
The following table and notes summarize the components of the $64.5 million PIPE Financing.
6
|
(in thousands)
|
Amounts
|
|||
|
Contribution from Bridge Financing Notes including accrued and unpaid interest (1)
|
$
|
31,195
|
||
|
Additional cash from Perceptive PIPE Investor (1)
|
15,876
|
|||
|
Commitments by certain shareholders of ARYA (2)
|
12,000
|
|||
|
Non-redemption commitments by certain Other PIPE Investors (3)
|
5,423
|
|||
|
Total
|
$
|
64,494
|
||
| (1) |
On the Closing Date, immediately prior to the Adagio Merger Effective Time and in accordance with the terms and subject to the conditions of the Business Combination Agreement, the Bridge Financing Notes and
the Subscription Agreement executed by the Perceptive PIPE Investor, the Perceptive PIPE Investor contributed (i) the $15,000,000 convertible promissory notes of Adagio, which it purchased from Adagio pursuant to that certain Note Purchase
Agreement, dated as of April 4, 2023 (the ‘‘April 2023 Notes’’), (ii) the $8,000,000 convertible promissory notes of Adagio (or such lower amount as is loaned under such notes at the Closing), which
it purchased from Adagio pursuant to that certain Note Purchase Agreement, dated as of November 28, 2023 (the ‘‘November 2023 Notes’’), (iii) the $3,000,000 convertible promissory notes of Adagio,
which is purchased from Adagio pursuant to that certain Note Purchase Agreement, dated as of May 21, 2024 (the “May 2024 Notes”), (iv) the $2,500,000 convertible promissory notes of Adagio, which is
purchased from Adagio pursuant to that certain Note Purchase Agreement, dated as of June 25, 2024 (the “June 2024 Notes”) (v) the $1,000,000 convertible promissory notes of Adagio, which is purchased
from Adagio pursuant to that certain Note Purchase Agreement, dated as of July 24, 2024 (the “July 2024 Notes” and, together with the April 2023 Notes, the November 2023 Notes, the May 2024 Notes and
the June 2024 Notes, the ‘‘Bridge Financing Notes’’), (vi) any interest that has been accruing and remained unpaid through the Closing on the Bridge Financing Notes of $1,695,452, and (vii) an
additional cash investment of $15,875,568 to ListCo in exchange for shares of New Adagio Common Stock and/or PIPE Warrants, based on the purchase price in the PIPE Financing, in each case, on the terms and subject to the conditions set
forth in the applicable Bridge Financing Note and the applicable Subscription Agreement. A total of 4,372,607 shares of New Adagio Common Stock and 3,540,000 units of PIPE Warrants are issued to settle the Bridge Financing Notes and the
accrued and unpaid interests (refer to Note 5(H) and note 5(N)). A total of 2,250,352 shares of New Adagio Common Stock and 1,905,069 units of PIPE Warrants are issued in connection with the Additional Financing of $15,875,568 (refer to
Note 5(G)).
|
| (2) |
In accordance with the terms in the Subscription Agreement, certain Other PIPE Investors subscribed for 1,036,666 shares of New Adagio Common Stock,1,440,000 Base Warrants and 670,000 Pre-Funded Warrants for
an aggregate purchase price of $12.0 million. Refer to Note 5(G).
|
| (3) |
468,941 Public Shares are subject to non-redemption agreements by certain Other PIPE Investors. Such 468,941 Public Shares includes (i) 133,500 Public Shares
that were purchased in the open market at an average price of $11.23 per share and 87,741 Public Shares that were purchased at $11.40 per share in the open market, pursuant to open market purchase commitments made by certain Other PIPE
Investors for a total of $2.5 million (ii) 247,700 Public Shares that were currently held by certain Other PIPE Investors prior to the Closing valued at $2.9 million. A total of 761,229 shares of New Adagio Common Stock and 643,658 units
of PIPE Warrants are issued in connection with the conversion of the Public Shares subject to non-redemption agreements by certain Other PIPE Investors (refer to Note 5(B)).
|
Further, in connection with the execution of the Business Combination Agreement, certain investors (“Convert Investors”) executed a securities purchase agreement, dated February 13, 2024, with ListCo (such agreement and any assignment agreement thereunder in connection with any Additional Financing (as defined below), the “Convertible Security Subscription Agreement”), pursuant to which ListCo issued on the Closing Date to the Convert Investors $20,000,000 of 13% senior
secured convertible notes (the “New Adagio Convertible Notes”), which will be convertible into shares of New Adagio Common Stock at a
conversion price of $10.00 per share, subject to adjustment, and 1,500,000 warrants (the “Convert Warrants”), each Convert Warrant being
exercisable on a cashless basis or for cash at a price of $24.00 per share, subject to adjustment (the “Base Convert Financing”). Such
$20,000,000 of financing in the form of New Adagio Convertible Notes includes the conversion of the 2024 Bridge Financing Notes into New Adagio Convertible Notes and Convert Warrants at Closing, subject to Additional Financing being raised prior
to Closing, as further described below. The New Adagio Convertible Notes will have a maturity of three years and nine months after the Closing and interest will be payable in cash or compound as additional principal outstanding. Concurrently with
the execution of the Convertible Security Subscription Agreement, the Perceptive PIPE Investor also purchased a $7,000,000 convertible promissory note of Adagio (the “2024 Bridge
Financing Note”) pursuant to a note purchase agreement, dated February 13, 2024, by and among the Perceptive PIPE Investor, Adagio and ListCo (the “2024 Bridge Financing Note Subscription Agreement”). On the Closing Date, pursuant to the terms of the 2024 Bridge Financing Note and the 2024 Bridge Financing Note Subscription Agreement, the 2024
Bridge Financing Note converted into $7,000,000 of New Adagio Convertible Notes and 525,000 Convert Warrants on the same terms as the other Convert Investors executing the Convertible Security Subscription Agreement (the conversion of the 2024
Bridge Financing Note held by the Perceptive PIPE Investor into New Adagio Convertible Notes and Convert Warrants and the purchase of New Adagio Convertible Notes and Convert Warrants by the other Convert Investors in the Base Convert Financing,
the “Convertible Security Financing”). Subject to ARYA and New Adagio receiving any new financing or commitment for financing, whether in the
form of equity, debt or convertible debt, before the Closing Date (any such financing, an “Additional Financing”), the Perceptive PIPE Investor
may request that on the Closing Date the 2024 Bridge Financing Note is repaid with the funds raised in connection with such Additional Financing instead of such 2024 Bridge Financing Note converting into New Adagio Convertible Notes and
Convert Warrants. The New Adagio Convertible Notes and the Convert Warrants issuable in connection with the Convertible Security Financing have not been registered under the Securities Act and will be issued in
reliance upon the exemption provided in Section 4(a)(2) of the Securities Act. ListCo will grant the Convert Investors certain registration rights in connection with the Convertible Security Financing.
7
Further, in connection with the Business Combination, all fees and expenses incurred in connection with the Business Combination Agreement, the ancillary documents and the transactions, including
the fees and disbursements of counsel, financial advisors and accountants, are paid by the party incurring such fees or expenses.
The Business Combination has been accounted for as a forward-merger in accordance with U.S. GAAP. Under this method of accounting, ListCo has been treated as the ‘‘accounting acquirer’’ and
Adagio as the ‘‘accounting acquiree’’ for financial reporting purposes. Accordingly, for accounting purposes, the Business Combination has been accounted for using the acquisition method of accounting. The acquisition method of accounting is based
on FASB ASC 805 and uses the fair value concepts defined in ASC 820. ASC 805 requires, among other things, that assets acquired, and liabilities assumed be recognized at their fair values as of the acquisition date, with limited exceptions per ASC
805-20-30-12 through 30-23. As such, under the acquisition method of accounting, ListCo’s assets and liabilities retain their carrying amounts, and the assets and liabilities of Adagio, including any intangible assets recognized in connection with
the Business Combination, are recorded at their fair values, except as otherwise required, which are measured as of the acquisition date. The excess of the purchase price over the estimated fair values of net assets acquired is recorded as
goodwill.
ListCo has been treated as the accounting acquirer based on evaluation of the following facts and circumstances:
| • |
Adagio is an early-stage business and there are significant risks and uncertainties surrounding Adagio proceeding to the next stage of development and commercialization. Therefore, upon consummation of the
Business Combination, there is uncertainty whether Adagio’s equity at risk will be sufficient to finance Adagio’s activities and ongoing development without additional subordinated financial support. Therefore, Adagio is considered a
Variable Interest Entity (‘‘VIE’’) and the primary beneficiary of Adagio will be treated as the accounting acquirer.
|
| • |
ListCo will be the primary beneficiary of Adagio. ListCo will hold 100% of the voting rights of Adagio and will control the Board of Directors of Adagio. Therefore, ListCo will have the sole power to control
the significant activities that will significantly impact Adagio’s economic performance.
|
| • |
ListCo’s equity interest in Adagio will result in the right to receive benefits and the obligation to absorb the losses of Adagio that could be significant to ListCo.
|
The unaudited pro forma condensed combined financial statements do not include the adjustment related to Sponsor Earn-Out Shares (as defined below). The Sponsor Earn-Out Shares, which is
classified as equity, are subject to the Share Trigger Price Vesting. At any time during the period following the ARYA Merger and expiring on the 10th anniversary of the Closing Date, if the stock price of a share of New
Adagio Common Stock equals or exceeds $24.00 per share for any 20 trading days with any 30-trading day period after the Closing Date, the Sponsor Earn-Out Shares shall automatically vest. The adjustment related to Sponsor Earn-Out Shares is not
reflected, as the trigger of vesting is deemed not probable of occurring after the Closing of the Business Combination.
Additionally, the unaudited pro forma condensed combined financial statements do not include the settlement of the Jefferies Fees including $2.6 million of Jefferies Deferred Fees and $1.3
million of Jefferies Transaction Fees. The Jefferies Fees will be paid in shares of New Adagio Common Stock, as elected by ARYA, no earlier than 60 days of Closing, at a price equal to the 10-day volume weighted average price as of the date prior
to issuance pursuant to the agreement with Jefferies.
8
| (A) |
The following table summarizes the pro forma ownership of shares of New Adagio Common Stock outstanding, on a non-dilutive basis following the Business Combination:
|
|
Share Ownership and Voting Power
|
||||||||||||||||||||||||
|
Pre-Combination
|
Pre-Combination
|
Post-Combination
|
||||||||||||||||||||||
|
ARYA
|
Adagio
|
New Adagio
|
||||||||||||||||||||||
|
Number of
Shares
|
Percentage
of Outstan-
ding Shares
|
Number of
Shares
|
Percentage
of Outstan-
ding Shares
|
Number of
Shares
|
Percentage
of Outstan-
ding Shares
|
|||||||||||||||||||
|
Adagio’s other shareholders (1)(6)
|
-
|
-
|
7,673,800
|
54
|
%
|
1,280,020
|
10
|
%
|
||||||||||||||||
|
ARYA Public Shareholders (2)
|
2,831,075
|
38
|
%
|
-
|
-
|
123,520
|
1
|
%
|
||||||||||||||||
|
Sponsor and Related Parties (3)
|
4,236,500
|
56
|
%
|
-
|
-
|
2,444,100
|
17
|
%
|
||||||||||||||||
|
Perceptive PIPE Investor (4)(6)
|
-
|
-
|
3,221,874
|
22
|
%
|
7,160,397
|
54
|
%
|
||||||||||||||||
|
Other PIPE Investors (5)(6)
|
468,941
|
6
|
%
|
3,487,244
|
24
|
%
|
2,379,599
|
18
|
%
|
|||||||||||||||
|
Pro Forma common stock on June 30, 2024
|
7,536,516
|
100
|
%
|
14,382,918
|
100
|
%
|
13,387,636
|
100
|
%
|
|||||||||||||||
| (1) |
Adagio’s other shareholders excludes Perceptive PIPE Investor and certain Other PIPE Investors. The shares reflect:
|
| (i) |
the conversion of 3,701,556 shares of Adagio Preferred Stock into shares of Adagio Common Stock on a one-to-one basis prior to Adagio Merger Effective Time, and
then converted into 617,443 shares of New Adagio Common Stock (Note 2(A)(6)).
|
| (ii) |
the conversion of Adagio Convertible Notes into 3,191,257 shares of Adagio Common Stock prior to Adagio Merger Effective Time, then converted into 532,331 shares of New Adagio Common Stock (Note 2(A)(6)).
|
| (iii) |
the conversion of 780,987 shares of Adagio Common Stock into 130,246 shares of New Adagio Common Stock (Note 5(U)(vii)).
|
The conversion from Adagio Common Stock to New Adagio Common Stock is based on the exchange ratio set forth in the Business Combination Agreement.
| (2) |
Represents the conversion of the remaining 123,520 Public Shares into 123,520 shares of New Adagio Common Stock on a one-to-one basis (Note 5(U)(iii)), after (i) the redemption of 2,707,555 Public Shares by
investors on July 26, 2024 and (ii) the conversion of 468,941 Public Shares that are subject to non-redemption agreements by certain Other PIPE Investors. Such deduction of 468,941 Public Shares includes:
|
| (i) |
133,500 Public Shares that were purchased in the open market at an average price of $11.23 per share and 87,741 Public Shares that were purchased in the open market at an average price of $11.40 per share,
pursuant to open market purchase commitments made by certain Other PIPE Investors for a total of $2.5 million.
|
| (ii) |
247,700 Public Shares that were currently held by certain Other PIPE Investors prior to the Closing valued at $2.9 million.
|
| (3) |
The shares reflect:
|
| (i) |
the cancellation, extinguishment, and conversion of each issued and outstanding Class A ordinary shares into 499,000 shares of New Adagio Common Stock to the Sponsor on a one-to-one basis (Note 5(U)(ii)).
|
| (ii) |
the cancellation, extinguishment, and conversion of each issued and outstanding Class B ordinary shares into 1,590,000 shares of New Adagio Common Stock on a one-to-one basis, other than (a) the forfeiture of
1,000,000 shares of Class B ordinary shares, and (b) 1,147,500 shares of New Adagio Common Stock issuable to the Sponsor, which is subject to Share Trigger Price Vesting as defined above (Note 5(U)(ii)).
|
| (iii) |
the conversion of ARYA’s related party convertible promissory notes into 355,100 shares of ARYA Class A ordinary shares at a conversion price of $10.00 per Class A ordinary share; then converted into 355,100
shares of New Adagio Common Stock on a one-to-one basis (Note 5(U)(v))
|
| (4) |
Perceptive PIPE Investor is one of Adagio’s shareholders prior to the Closing. The shares reflect:
|
9
| (ii) |
the conversion of $3.0 million Adagio Convertible Notes invested by Perceptive PIPE Investor along with the accrued interest, into 2,735,364 shares of Adagio Common Stock, and then converted into
456,284 shares of New Adagio Common Stock based on the exchange ratio set forth in the Business Combination Agreement (Note 2(A)(6)).
|
| (iii) |
6,622,959 shares of New Adagio Common Stock issued to Perceptive PIPE Investor under the PIPE Subscription Agreement, dated February 13, 2024, in connection with (a) the conversion of the outstanding
principal of $29.5 million and $1.7 million accrued interest of Bridge Financing Notes invested by Perceptive PIPE Investor into 4,372,607 shares of New Adagio Common Stock, including 663,062 shares resulted from the allocation of sponsor
promote allocation shares and (b) an additional cash investment by the Perceptive PIPE Investor of $15,875,568 which is converted to receive 2,250,352 shares of New Adagio Common Stock, including 345,282 shares resulted from the allocation
of sponsor promote allocation shares (Note 2(A)(7)).
|
| (5) |
Certain Other PIPE Investors are Adagio’s shareholder prior to the Closing. The shares reflect:
|
| (i) |
the conversion of 543,978 shares of Adagio Preferred Stock invested by certain Other PIPE Investor, into 90,470 shares of New Adagio Common Stock based on the exchange ratio set forth in the Business
Combination Agreement (Note 2(A)(6)).
|
| (ii) |
the conversion of 207,902 Pre-Funded Warrants for Series E Preferred Stock invested by certain Other PIPE Investor, into 34,680 shares of New Adagio Common Stock based on the exchange ratio set forth in the
Business Combination Agreement. (Note 5(U)(viii))
|
| (iii) |
the conversion of $3.0 million Adagio Convertible Notes invested by certain Other PIPE Investor along with the accrued interest, into 2,735,364 shares of Adagio Common Stock, and then converted into 456,284
shares of New Adagio Common Stock based on the exchange ratio set forth in the Business Combination Agreement (Note 2(A)(6)).
|
| (iv) |
761,229 shares of New Adagio Common Stock issued to certain Other PIPE Investors in connection with the (i) commitments by certain investors to subscribe for and purchase Public Shares in the open market for
$2.5 million and not to redeem such 221,241 Public Shares prior to the Closing Date which resulted in the issuance of 355,457 shares of New Adagio Common Stock; (ii) commitments of $2.9 million by certain investors that are shareholders of
ARYA not to redeem 247,700 Public Shares which resulted in the issuance of 405,772 shares of New Adagio Common Stock (Note 2(A)(7)).
|
| (v) |
1,036,666 shares of New Adagio Common Stock issued to certain Other PIPE Investors in connection with the PIPE Subscription Agreement for an aggregate purchase price of $12.0 million (Note 2(A)(7)).
|
| (6) |
The following table summarizes the conversion of Adagio Preferred Stock. Adagio Preferred Stock are converted into shares of Adagio Common Stock on a one-to-one basis prior to Adagio Merger Effective Time,
and then converted into New Adagio Common Stock based on the exchange ratio set forth in the Business Combination Agreement (Note 5(U)(iv)).
|
|
Pre-Business
Combination
|
Post-Business
Combination
|
|||||||
|
Number of Shares
|
Number of Shares
|
|||||||
|
Adagio’s other shareholders (Note 2(A)(1)(i))
|
3,701,556
|
617,443
|
||||||
|
Perceptive PIPE Investor (Note 2(A)(4)(i))
|
486,510
|
81,154
|
||||||
|
Certain Other PIPE Investors (Note 2(A)(5)(i))
|
543,978
|
90,740
|
||||||
|
Total (Note 5(U)(iv))
|
4,732,044
|
789,337
|
||||||
The following table summarizes the conversion of Adagio Convertible Notes. Adagio Convertible Notes are converted into Adagio Common Stock prior to Adagio Merger Effective
Time, then converted into New Adagio Common Stock based on the exchange ratio set forth in the Business Combination Agreement (Note 5(U)(vi)).
|
Pre-Business
Combination
|
Post-Business
Combination
|
|||||||
|
Number of Shares
|
Number of Shares
|
|||||||
|
Adagio’s other shareholders (Note 2(A)(1)( ii))
|
3,191,257
|
532,331
|
||||||
|
Perceptive PIPE Investor (Note 2(A)(4)(ii))
|
2,735,364
|
456,284
|
||||||
|
Certain Other PIPE Investors (Note 2(A)(5)(iii))
|
2,735,364
|
456,284
|
||||||
|
Total (Note 5(U)(vi))
|
8,661,985
|
1,444,899
|
||||||
10
| (7) |
The following table summarizes the issuance of PIPE Financing and its various components (Note 5(U)(i)):
|
|
(in thousands, except share data)
|
Amount
|
PIPE
Shares
|
||||||
|
Conversion of Bridge Financing Notes (Note 2(A)(4)(iii)(a))
|
$
|
31,195
|
4,372,607
|
|||||
|
Additional Cash from Perceptive PIPE Investor (Note 2(A)(4)(iii)(b))
|
15,876
|
2,250,352
|
||||||
|
Commitments by certain shareholders of ARYA (Note 2(A)(5)(v))
|
12,000
|
1,036,666
|
||||||
|
Non-redemption commitments by certain Other PIPE Investors (I) (Note 2(A)(5)(iv))
|
5,423
|
761,229
|
||||||
|
Total
|
$
|
64,494
|
8,420,854
|
|||||
| (I) |
Includes 468,941 Public Shares held by certain Other PIPE Investors converted into 468,941 shares of New Adagio Common Stock on a one-to-one basis pursuant to the Subscription Agreements with certain Other
PIPE Investors.
|
| (B) |
The following table summarizes the pro forma ownership of shares of New Adagio Common Stock outstanding, on a fully diluted basis following the Business Combination:
|
|
Share Ownership and Voting Power
|
||||||||||||||||||||||||
|
Pre-Combination
|
Pre-Combination
|
Post-Combination
|
||||||||||||||||||||||
|
ARYA
|
Adagio
|
New Adagio
|
||||||||||||||||||||||
|
Number of
Shares
|
Percentage
of Outstan-
ding Shares
|
Number of
Shares
|
Percentage
of Outstan-
ding Shares
|
Number of
Shares
|
Percentage
of Outstan-
ding Shares
|
|||||||||||||||||||
|
Adagio’s other shareholders (1)
|
-
|
-
|
7,673,800
|
54
|
%
|
1,287,607
|
4
|
%
|
||||||||||||||||
|
ARYA Public Shareholders (2)
|
2,831,075
|
38
|
%
|
-
|
-
|
123,520
|
0
|
%
|
||||||||||||||||
|
Sponsor and Related Parties (3)
|
4,236,500
|
56
|
%
|
-
|
-
|
3,591,600
|
10
|
%
|
||||||||||||||||
|
Perceptive PIPE Investor (4)
|
-
|
-
|
3,221,874
|
22
|
%
|
13,830,466
|
40
|
%
|
||||||||||||||||
|
Other PIPE Investors (5)
|
468,941
|
6
|
%
|
3,487,244
|
24
|
%
|
6,008,257
|
17
|
%
|
|||||||||||||||
|
Convert Investors, excluding Perceptive PIPE Investor (6)
|
-
|
-
|
-
|
-
|
1,400,000
|
5
|
%
|
|||||||||||||||||
|
Additional Dilution Sources
|
||||||||||||||||||||||||
|
2024 Equity Incentive Plan (7)
|
-
|
-
|
-
|
-
|
4,472,593
|
13
|
%
|
|||||||||||||||||
|
2024 Key Employee Plan (8)
|
-
|
-
|
-
|
-
|
3,354,445
|
10
|
%
|
|||||||||||||||||
|
ESPP (9)
|
-
|
-
|
-
|
-
|
441,293
|
1
|
%
|
|||||||||||||||||
|
Pro Forma common stock on June 30, 2024
|
7,536,516
|
100
|
%
|
14,382,918
|
100
|
%
|
34,509,781
|
100
|
%
|
|||||||||||||||
| (1) |
Adagio’s other shareholders excludes Perceptive PIPE Investor and certain Other PIPE Investors. The shares reflect:
|
| (i) |
the conversion of 3,701,556 shares of Adagio Preferred Stock into shares of Adagio Common Stock on a one-to-one basis prior to Adagio Merger Effective Time, and
then converted into 617,443 shares of New Adagio Common Stock.
|
| (ii) |
the conversion of Adagio Convertible Notes into 3,191,257 shares of Adagio Common Stock prior to Adagio Merger Effective Time, then converted into 532,331 shares of New Adagio Common Stock.
|
| (iii) |
the conversion of 780,987 shares of Adagio Common Stock into 130,246 shares of New Adagio Common Stock.
|
| (iv) |
the cancellation, extinguishment, and conversion of 45,544 in-the-money Adagio options into 7,587 in-the-money New Adagio stock options, which is then exercised to receive 7,587 shares of New Adagio Common
Stock on a one-to-one basis.
|
The conversion from Adagio Common Stock to New Adagio Common Stock is based on the exchange ratio set forth in the Business Combination Agreement.
| (2) |
Represents the conversion of the remaining 123,520 Public Shares into 123,520 shares of New Adagio Common Stock on a one-to-one basis (Note 5(U)(iii)), after (i) the redemption of 2,707,555 Public Shares by
investors on July 26, 2024 and (ii) the conversion of 468,941 Public Shares that are subject to non-redemption agreements by certain Other PIPE Investors. Such deduction of 468,941 Public Shares includes:
|
| (i) |
133,500 Public Shares that were purchased in the open market at an average price of $11.23 per share and 87,741 Public Shares that were purchased in the open market at an average price of $11.40 per share,
pursuant to open market purchase commitments made by certain Other PIPE Investors for a total of $2.5 million.
|
| (ii) |
247,700 Public Shares that were currently held by certain Other PIPE Investors prior to the Closing valued at $2.9 million.
|
11
| (3) |
The shares reflect:
|
| (i) |
the cancellation, extinguishment, and conversion of each issued and outstanding Class A ordinary shares into 499,000 shares of New Adagio Common Stock to the Sponsor on a one-to-one basis.
|
| (ii) |
the cancellation, extinguishment, and conversion of each issued and outstanding Class B ordinary shares into New Adagio Common Stock on a one-to-one basis, other than the forfeiture of 1,000,000 shares of
Class B ordinary shares. A total of 2,737,500 shares of Class B ordinary shares issued to the Sponsor and ARYA’s independent directors is converted into New Adagio Common Stock on a one-to-one basis, including 1,147,500 shares of New Adagio
Common Stock issued to the Sponsor, which is subject to Share Trigger Price Vesting as defined above.
|
| (iii) |
the conversion of ARYA’s related party convertible promissory notes into 355,100 shares of ARYA Class A ordinary shares at a conversion price of $10.00 per Class A ordinary share; then converted into 355,100
shares of New Adagio Common Stock on a one-to-one basis.
|
| (4) |
Perceptive PIPE Investor is one of Adagio’s shareholders prior to the Closing. The shares reflect:
|
| (i) |
the conversion of 486,510 shares of Adagio Preferred Stock invested by Perceptive PIPE Investor, into 81,154 shares of New Adagio Common Stock based on the exchange ratio set forth in the Business Combination
Agreement.
|
| (ii) |
the conversion of $3.0 million Adagio Convertible Notes invested by Perceptive PIPE Investor along with the accrued interest, into 2,735,364 shares of Adagio Common Stock, and then converted into
456,284 shares of New Adagio Common Stock based on the exchange ratio set forth in the Business Combination Agreement.
|
| (iii) |
6,622,959 shares of New Adagio Common Stock issued to Perceptive PIPE Investor, in connection with (a) the conversion of the outstanding principal of $29.5 million and $1.7 million accrued interest of Bridge
Financing Notes invested by Perceptive PIPE Investor into 4,372,607 shares of New Adagio Common Stock, including 663,062 shares resulted from the allocation of sponsor promote allocation shares and (b) an additional cash investment by the
Perceptive PIPE Investor of $15,875,568 which is converted to receive 2,250,352 shares of New Adagio Common Stock, including 345,282 shares resulted from the allocation of sponsor promote allocation shares.
|
| (iv) |
the exercise and conversion of a total of 5,445,069 PIPE Warrants held by Perceptive PIPE Investor into New Adagio Common Stock on a one-to-one basis, including (a) 3,540,000 PIPE Warrants issued in
connection of the conversion of the outstanding principal of $29.5 million of the Bridge Financing Notes, and (b) 1,905,069 PIPE Warrants in connection of the additional cash investment by the Perceptive PIPE Investor of $15,875,568.
|
| (v) |
the conversion of $7.0 million New Adagio Convertible Notes invested by Perceptive PIPE Investor at a conversion price of $10.00 per share into 700,000 shares of New Adagio Common Stock.
|
| (vi) |
the exercise and conversion of 525,000 Convert Warrants held by Perceptive PIPE Investor into New Adagio Common Stock on a one-to-one basis.
|
| (5) |
Certain Other PIPE Investors are Adagio’s shareholder prior to the Closing. The shares reflect:
|
| (i) |
the conversion of 543,978 shares of Adagio Preferred Stock invested by certain Other PIPE Investor, into 90,740 shares of New Adagio Common Stock based on the exchange ratio set forth in the Business
Combination Agreement.
|
| (ii) |
the conversion of 207,902 Pre-Funded Warrants for Series E Preferred Stock invested by certain Other PIPE Investor, into 34,680 shares of New Adagio Common Stock based on the exchange ratio set forth in the
Business Combination Agreement.
|
| (iii) |
the conversion of $3.0 million Adagio Convertible Notes invested by certain Other PIPE Investor along with the accrued interest, into 2,735,364 shares of Adagio Common Stock, and then converted into 456,284
shares of New Adagio Common Stock based on the exchange ratio set forth in the Business Combination Agreement.
|
| (iv) |
The conversion of the commitments by certain investors to subscribe for and purchase Public Shares in the open market for $2.5 million and not to redeem such 221,241 Public Shares prior to the Closing
Date The conversion resulted in the issuance of 355,457 shares of New Adagio Common Stock, and 299,902 Base Warrants which is exercised to receive New Adagio Common Stock on a one-to-one basis.
|
| (v) |
The conversion of the commitments of $2.9 million by certain investors that are shareholders of ARYA not to redeem 247,700 Public Shares. The conversion resulted in the issuance of 405,772 shares of New
Adagio Common Stock and 343,756 Base Warrants which is exercised to receive New Adagio Common Stock on a one-to-one basis.
|
| (vi) |
1,036,666 shares of New Adagio Common Stock, 1,440,000 Base Warrants and 670,000 Pre-Funded Warrants issued to certain Other PIPE Investors in connection with the PIPE Subscription Agreement for an aggregate
purchase price of $12.0 million. The 1,440,000 Base Warrants and 670,000 Pre-Funded Warrants are exercised to receive New Adagio Common Stock on a one-to-one basis.
|
| (vii) |
The conversion of $5.0 million New Adagio Convertible Notes invested by certain Other PIPE Investor at a conversion price of $10.00 per share into 500,000 shares of New Adagio Common Stock.
|
| (viii) |
The exercise and conversion of 375,000 Convert Warrants held by certain Other PIPE Investor into New Adagio Common Stock on a one-to-one basis.
|
12
| (6) |
The shares issued to Convert Investors reflect:
|
| (i) |
the conversion of $8.0 million New Adagio Convertible Notes invested by the Convert Investors, excluding Perceptive PIPE Investor at a conversion price of $10.00 per share into 800,000 shares of New Adagio
Common Stock.
|
| (ii) |
the exercise and conversion of 600,000 Convert Warrants held by the Convert Investors, excluding Perceptive PIPE Investor into New Adagio Common Stock on a one-to-one basis.
|
| (7) |
Reflects the issuance of all shares of New Adagio Common Stock reserved for issuance under the 2024 Equity Incentive Plan, which equals the Incentive Equity Plan Maximum Amount (as defined in the Business
Combination Agreement).
|
| (8) |
Reflects the issuance of all shares of New Adagio Common Stock reserved for issuance under the 2024 Key Employee Plan, which equals the Key Employee Incentive Plan Maximum Amount (as defined in the Business
Combination Agreement).
|
| (9) |
Reflects the issuance of all shares of New Adagio Common Stock reserved for issuance under the ESPP, which equals 2% of the Fully-Diluted HoldCo Closing Capitalization (as defined in the Business Combination
Agreement).
|
| (10) |
The total dilution will increase when the Jefferies Fees are paid in shares of New Adagio Common Stock, as elected by ARYA, no earlier than 60 days of Closing,
at a price equal to the 10-day volume weighted average price as of the date prior to issuance pursuant to the agreement with Jefferies.
|
| (11) |
The following table summarizes the conversion of Adagio Preferred Stock. Adagio Preferred Stock are converted into shares of Adagio Common Stock on a one-to-one basis prior to Adagio Merger Effective Time,
and then converted into New Adagio Common Stock based on the exchange ratio set forth in the Business Combination Agreement.
|
|
Pre-Business
Combination
|
Post-Business
Combination
|
|||||||
|
Number of Shares
|
Number of Shares
|
|||||||
|
Adagio’s other shareholders (Note 2(B)(1)(i))
|
3,701,556
|
617,443
|
||||||
|
Perceptive PIPE Investor (Note 2(B)(4)(i))
|
486,510
|
81,154
|
||||||
|
Certain Other PIPE Investors (Note 2(B)(5)(i))
|
543,978
|
90,740
|
||||||
|
Total
|
4,732,044
|
789,337
|
||||||
The following table summarizes the conversion of Adagio Convertible Notes. Adagio Convertible Notes are converted into Adagio Common Stock prior to Adagio Merger Effective
Time, then converted into New Adagio Common Stock based on the exchange ratio set forth in the Business Combination Agreement.
|
Pre-Business
Combination
|
Post-Business
Combination
|
|||||||
|
Number of Shares
|
Number of Shares
|
|||||||
|
Adagio’s other shareholders (Note 2(B)(1)(ii))
|
3,191,257
|
532,331
|
||||||
|
Perceptive PIPE Investor (Note 2(B)(4)(ii))
|
2,735,364
|
456,284
|
||||||
|
Certain Other PIPE Investors (Note 2(B)(5)(iii))
|
2,735,364
|
456,284
|
||||||
|
Total
|
8,661,985
|
1,444,899
|
||||||
| (12) |
The following table summarizes the issuance of PIPE Financing and its various components:
|
|
(in thousands, except share data)
|
Amount
|
PIPE
Shares
|
PIPE
Warrants
|
|||||||||
|
Conversion of Bridge Financing Notes (Note 2(B)(4)(iii)(a) and Note 2(B)(4)(iv)(a))
|
$
|
31,195
|
4,372,607
|
3,540,000
|
||||||||
|
Additional Cash from Perceptive PIPE Investor (Note 2(B)(4)(iii)(b) and Note 2(B)(4)(iv)(b))
|
15,876
|
2,250,352
|
1,905,069
|
|||||||||
|
Commitments by certain shareholders of ARYA (Note 2(B)(5)(vi))
|
12,000
|
1,036,666
|
2,110,000
|
|||||||||
|
Non-redemption commitments by certain Other PIPE Investors (I) (Note 2(B)(5)(iv) and Note 2(B)(5)(v))
|
5,423
|
761,229
|
643,658
|
|||||||||
|
Total
|
$
|
64,494
|
8,420,854
|
8,198,727
|
||||||||
| (I) |
Includes 468,941 Public Shares held by certain Other PIPE Investors converted into 468,941 shares of New Adagio Common Stock on a one-to-one basis pursuant to the Subscription Agreements with certain Other
PIPE Investors.
|
There were no existing contractual relationships between ListCo and Adagio during the periods for which the unaudited pro forma condensed combined financials statements are presented.
13
The unaudited pro forma condensed financial information does not give effect to any anticipated synergies, operating efficiencies, tax savings or cost savings that may be associated with the
Business Combination and related transactions. The pro forma adjustments reflecting the consummation of the Business Combination are based on certain currently available information and certain assumptions and methodologies that management believe
represent current best estimates and are subject to changes, which may be material. The unaudited condensed pro forma adjustments, which are described in the accompanying notes, may be revised as additional information becomes available and is
evaluated. Therefore, it is likely that the actual adjustments will differ from the pro forma adjustments, and it is possible the difference may be material. Management believes that the assumptions and methodologies provide a reasonable basis for
presenting all of the significant effects of the Business Combination based on information available to management at this time and that the pro forma adjustments give appropriate effect to those assumptions and are properly applied in the
unaudited pro forma condensed combined financial information.
Upon consummation of the Business Combination, management performed a comprehensive review of the two entities’ accounting policies. As a result of the review, management did not identify
differences between the accounting policies of the two entities which, when conformed, could have a material impact on the financial statements of New Adagio. Based on its initial analysis, management did not identify any differences that would
have a material impact on the unaudited pro forma condensed combined financial information. As a result, the unaudited pro forma condensed combined financial information does not assume any differences in accounting policies.
The total purchase consideration for the Business Combination has been allocated to the assets acquired, and liabilities assumed for purposes of the unaudited pro forma condensed combined
financial information based on their estimated relative fair values. The allocation of the purchase consideration herein is preliminary. The final allocation of the purchase consideration for the Business Combination will be determined after the
completion of a thorough analysis to determine the fair value of all assets acquired and liabilities assumed but in no event later than one year following the completion of the Business Combination.
Accordingly, the final acquisition accounting adjustments could differ materially from the preliminary amounts presented in these unaudited pro forma condensed combined financial statements.
Any increase or decrease in the fair value of the assets acquired and liabilities assumed, as compared to the information shown herein, could also change the portion of the purchase consideration
allocable to goodwill and could impact the operating results of New Adagio following the Business Combination due to differences in the allocation of the purchase consideration, depreciation and amortization related to some of these assets and
liabilities.
The table below represents the total estimated preliminary purchase consideration (in thousands, except share data):
|
Number of New Adagio Common Stock to be issued (1)
|
6,771,769
|
|||
|
Number of replacement New Adagio stock options granted to Adagio option holders
|
7,587
|
|||
|
Total shares
|
6,779,356
|
|||
|
Multiplied by the HoldCo Share Value at the Closing
|
$
|
6.64
|
||
|
Total
|
$
|
45,015
|
||
|
Number of PIPE Warrants issued in lieu of settling Bridge Financing Notes
|
3,540,000
|
|||
|
Multiplied by estimated value of PIPE Warrants
|
$
|
2.41
|
||
|
Estimated fair value of PIPE Warrants issued in lieu of settling Bridge Financing Notes
|
$
|
8,531
|
||
|
Estimated Purchase Price
|
$
|
53,546
|
(1) Number of New Adagio Common Stock to be issued includes the following:
| (i) |
2,399,162 shares converted from 14,382,918 shares held by Adagio shareholders prior to the combination based on exchange ratio. The total of 14,382,918 shares is presented in the share ownership and voting
power table in Note 2.
|
| (ii) |
4,372,607 shares of New Adagio Common Stock to settle and convert the Bridge Financing Notes invested by Perceptive PIPE Investor. The 4,372,607 shares have been disclosed in Note 2(A)(7). Refer to Note 5(H)
and 5(N).
|
14
For purposes of this pro forma analysis, the above estimated purchase price has been allocated based on the relative fair value of the preliminary estimate of the fair value of assets and
liabilities to be acquired (in thousands):
|
Purchase Price
Allocation
|
||||
|
ASSETS:
|
||||
|
Accounts receivable, net
|
$
|
167
|
||
|
Inventories, net
|
4,062
|
|||
|
Prepaid expenses
|
182
|
|||
|
Other current assets
|
180
|
|||
|
Property and equipment, net
|
1,154
|
|||
|
Intangible assets, net
|
26,200
|
|||
|
Right-of-use-asset, net
|
260
|
|||
|
Deferred tax assets
|
5,543
|
|||
|
Other assets
|
19
|
|||
|
LIABILITIES:
|
||||
|
Accounts payable
|
$
|
6,580
|
||
|
Accrued expenses
|
3,940
|
|||
|
Operating lease liabilities, current
|
140
|
|||
|
Warrant liabilities
|
1,049
|
|||
|
Other accrued liabilities
|
210
|
|||
|
Operating lease liabilities, long-term
|
121
|
|||
|
Deferred tax liabilities
|
8,343
|
|||
|
Convertible notes payable, long-term
|
5,951
|
|||
|
Other long-term liabilities
|
6
|
|||
|
Net assets acquired
|
$
|
11,427
|
||
|
Consideration transferred
|
$
|
53,546
|
||
|
Goodwill
|
$
|
42,119
|
||
The purchase price allocation for the proposed business combination is preliminary and subject to revision as additional information about the fair value of the assets to be acquired and
liabilities to be assumed becomes available. Adagio has engaged third-party valuation companies to assist it in completing the valuation of certain assets to be acquired and liabilities to be assumed. However, Adagio has not completed a full,
detailed valuation analysis. The valuation is based on available financial statement information as of June 30, 2024 prepared by Adagio. Except for identifiable intangible assets, the convertible notes payable and the warrant liabilities, the
preliminarily estimated fair value of assets to be acquired and liabilities to be assumed is not materially different from the carrying value. Fair valuation methodology for convertible notes, warrant liabilities and intangible assets is discussed
below. Accordingly, the unaudited pro forma condensed combined financial information includes a preliminary allocation of the purchase price based on assumptions that represent current best estimates, and are subject to changes, which may be
material. Adagio will continue to refine its identification and valuation of assets to be acquired and liabilities to be assumed as further information becomes available.
The convertible notes are issued to Perceptive PIPE Investor in settling the 2024 Bridge Financing Notes, which is considered as an assumed liability on the purchase price allocation. The
preliminary valuation of $17.0 million for the notes is based on a binomial lattice model considering the contractual terms with assumptions including (i) the New Adagio Common Stock price at $6.64 per share; (ii) a risk-free rate at 4.01%; (iii)
zero dividend yield; (iv) volatility at 60% and (v) a debt discount rate at 25.8%.
The warrant liabilities pertain to Convert Warrants that are issued to Perceptive PIPE Investor in settling the 2024 Bridge Financing Notes, which is considered as an assumed liability on the
purchase price allocation. The preliminary valuation of $3.0 million for the Convert Warrants is based on the Black-Scholes Merton Option model, and the assumptions including (i) the New Adagio Common Stock that the Convert Warrants are exercisable
to, is at $6.64 per share; (ii) a risk-free rate at 3.96%; (iii) zero dividend yield; and (iv) volatility at 55%.
The estimate of the fair value of the convertible notes and the Convert Warrants is preliminary and based on the current available information.
15
Preliminary identifiable intangible assets in the unaudited pro forma condensed combined financial information consist of developed technology and in-process research and development (IPR&D),
which were valued using the cost approach. This approach considers an asset’s replacement cost (direct and indirect) adjusted, where applicable, for obsolescence to estimate the replacement cost of the asset’s current service potential (i.e.,
remaining useful life and cash-flow generating capacity). Obsolescence for an acquired intangible asset may include functional (technological) obsolescence and economic (external) obsolescence. The amortization related to the developed technology
is reflected as unaudited pro forma adjustments to the unaudited pro forma condensed combined income statements using the straight-line method of amortization. Management has determined the estimated useful life of 5 years for developed technology
based on consideration of the economic benefit of the asset.
|
Intangible assets:
|
Purchase Price
Allocation
|
|||
|
Developed Technology – iCLAS
|
$
|
4,100
|
||
|
IPR&D – vCLAS
|
13,100
|
|||
|
IPR&D – Cryopulse
|
9,000
|
|||
|
Total
|
$
|
26,200
|
||
The amount that will ultimately be allocated to these identified intangible assets and the related amount of amortization, may differ materially from this preliminary allocation.
Goodwill represents the excess of the total purchase consideration over the fair value of the underlying net assets and captures the value attributable to future economic benefits arising from
future technology development beyond the existing pipeline of identified IPR&D projects.
As the determination of the purchase price is subject to change upon finalization of the fair value analyses, the following table depicts the sensitivity of the purchase price and resulting
goodwill to changes in net asset value. A 10% change in net asset value would cause a corresponding increase or decrease in the balance of goodwill as follows:
|
Purchase Price
Allocation
|
Goodwill
|
|||||||
|
As presented in the pro forma combined results
|
$
|
11,427
|
$
|
42,119
|
||||
|
10% increase in net asset value
|
$
|
12,570
|
$
|
40,976
|
||||
|
10% decrease in net asset value
|
$
|
10,284
|
$
|
43,262
|
||||
Note 5. Adjustments to Unaudited Pro Forma Condensed Combined Financial Information
The adjustments included in the unaudited pro forma condensed combined balance sheet as of June 30, 2024, are as follows:
| (A) |
Represents the redemption of 2,707,555 shares of ARYA Class A ordinary shares for aggregate redemption payments of $31.3 million using a redemption price of $11.56 per share.
|
| (B) |
Represents the conversion of 468,941 Public Shares subject to non-redemption agreements by certain Other PIPE Investors into 761,229 shares of New Adagio Common Stock and 643,658 units of Base Warrants. In connection with the
non-redemption agreements and respective PIPE Subscription Agreements, $5.4 million cash proceeds is released from the Trust Account as a part of the PIPE Financing (refer to Note 1).
|
It is preliminarily determined that the Base Warrants associated with the PIPE Financing are indexed to New Adagio Common Stock under ASC 815 – Derivatives and
Hedging and are accounted for as equity, which is measured at fair value. The cash proceeds are allocated to the Base Warrants and to New Adagio Common Stock at their relative fair values, with the
total adjustment to APIC for $5.4 million (refer to Note 5(X)).
The exercise price of Base Warrants is $10.00 per unit. The fair value of the Base Warrants is preliminarily estimated at $2.41 per unit, using Black-Scholes Merton Option model, based on the
assumptions including (i) the value of the New Adagio Common Stock (for which the Base Warrants are exercisable) is $6.64 per share; (ii) a risk-free rate at 3.93%; (iii) zero dividend yield; (iv) the common stock volatility at 84.0% and a
volatility haircut of 10%.
Refer to Note 5(Y) for the reversal of the contingent equity investment recorded in ARYA’s historical financial statements related to the New Adagio Common Stock and PIPE Warrants in connection
with the open market purchase and the non-redemption obligation.
16
| (C) |
Represents the reclassification of the remaining $1.2 million of cash and investments held in the Trust Account to cash and cash equivalents.
|
| (D) |
Subsequent to June 30, 2024 and prior to the Closing, ARYA received additional principal amount of $0.2 million from the Sponsor pursuant to the ARYA Convertible Notes Agreement. Under the agreement, ARYA shall reimburse the Sponsor for
$0.3 million in cash prior to the Closing. The adjustment represents the net payment of $0.1 million to the Sponsor prior to the Closing.
|
| (E) |
Represents the settlement of ARYA’s accrued transaction expenses of $8.0 million, incurred by ARYA in connection with the Business Combination, such as advisory, banking, printing, legal, accounting fees and other professional fees that
are a direct and incremental part of the transaction. Such transaction costs are expensed as incurred.
|
| (F) |
Represents the settlement of Adagio’s accrued transaction expenses of $6.9 million, incurred by Adagio in connection with the Business Combination, such as advisory, banking, printing, legal, accounting fees and other professional fees
that are a direct and incremental part of the transaction. Such transaction costs are expensed as incurred.
|
| (G) |
Represents the receipt of cash proceeds of $27.9 million in PIPE Financing in exchange of 3,287,018 shares of New Adagio Common Stock, 3,345,069 Base Warrants and 670,000 Pre-Funded Warrants. The $27.9 million cash proceeds including the
additional cash investment from Perceptive PIPE Investor of $15.9 million, and the commitments of $12.0 million from certain Other PIPE Investors (refer to Note 1).
|
It is preliminarily determined that the Base Warrants associated with the PIPE Financing are indexed to New Adagio Common Stock under ASC 815 - Derivatives and
Hedging and are accounted for as equity, which is measured at fair value on the date of issuance and not subsequently remeasured.
The exercise price of Base Warrants is $10.00 per unit. The fair value of the Base Warrants is preliminarily estimated at $2.41 per unit, using Black-Scholes Merton Option model, based on the
assumptions including (i) the value of the New Adagio Common Stock (for which the Base Warrants are exercisable) is $6.64 per share; (ii) a risk-free rate at 3.93%; (iii) zero dividend yield; (iv) the common stock volatility at 84.0% and a
volatility haircut of 10%.
As set forth in the agreement of the Pre-Funded Warrants associated with the PIPE Financing, the Pre-Funded Warrants are exercisable on a cashless basis or on a gross basis for one share of New
Adagio Common Stock at $0.01 per share, subject to adjustments as set forth in the agreement. New Adagio may be required to cash settle the Pre-Funded Warrants when it fails to timely deliver shares to the holder who exercises the Pre-Funded
Warrants or upon the occurrence of a fundamental transaction. It is determined that the Pre-Funded Warrants associated with the PIPE Financing do not meet the equity classification requirements under ASC 815 -
Derivatives and Hedging as the Pre-Funded Warrants may require cash settlement outside of New Adagio’s control upon a failure of timely delivery of shares or a fundamental transaction, and therefore the Pre-Funded Warrants are accounted
for as derivative liabilities, and measured at fair value both initially and subsequently with changes in fair value recognized through earnings.
The exercise price of Pre-Funded Warrants is $0.01 per unit. The fair value of the Pre-Funded Warrants is preliminarily estimated at $6.63 per unit, based on the value of the New Adagio Common
Stock (for which the Pre-Funded Warrants are exercisable) is $6.64 per share.
The cash proceeds are first allocated to Pre-Funded Warrants at their fair value of $4.4 million, and the remaining cash proceeds are allocated to the Base Warrants and New Adagio Common Stock
at their relative fair values, with the total adjustment to APIC for $23.4 million (refer to Note 5(X)).
| (H) |
Represents the receipt and the conversion of the July 2024 Notes with a principal amount of $1.0 million and accrued but not paid interest of $1.3 thousand issued to the Perceptive PIPE Investor in exchange of 142,354 shares of New
Adagio Common Stock and 120,000 Base Warrants, as a part of the PIPE Financing (refer to Note 1). The principal of $1 million was received by Adagio in July 2024, prior to the Closing. At the Closing, the July 2024 Notes are settled with
142,354 shares of New Adagio Common Stock at $6.64 per share and 120,000 Base Warrants at $2.41 per unit as a part of the purchase consideration (refer to Note 4).
|
17
It is preliminarily determined that the Base Warrants associated with the PIPE Financing are indexed to New Adagio Common Stock under ASC 815 - Derivatives and
Hedging and are accounted for as equity, which is measured at fair value.
The exercise price of Base Warrants is $10.00 per unit. The fair value of the Base Warrants is preliminarily estimated at $2.41 per unit, using Black-Scholes Merton Option model, based on the
assumptions including (i) the value of the New Adagio Common Stock (for which the Base Warrants are exercisable) is $6.64 per share; (ii) a risk-free rate at 3.93%; (iii) zero dividend yield; (iv) the common stock volatility at 84.0% and a
volatility haircut of 10%.
| (I) |
Represents the settlement of the existing SVB Term Loan of Adagio with a net balance of $1.0 million, including $1.0 million of principal payment due within 12 months with an unamortized debt discount of $9.7 thousand. In addition, the
accrued interest payable of $8.3 thousand is settled prior to the Closing.
|
| (J) |
Represents (i) the conversion of the 2024 Bridge Financing Note with a balance of $7.0 million as of June 30, 2024 into $7.0 million of New Adagio Convertible Notes and 525,000 Convert Warrants; (ii) the issuance of an additional $5.0
million of New Adagio Convertible Notes and 375,000 Convert Warrants to certain Other PIPE Investor; (iii) the issuance of an additional $0.5 million of New Adagio Convertible Notes and 37,500 Convert Warrants to certain Convert Investor;
and (iv) the issuance of $7.5 million principal of New Adagio Convertible Notes and 562,500 Convert Warrant to the Contingent Investor at the Closing in connection with the New Adagio Convertible Notes. The fair value of the New Adagio
Convertible Notes and the 1,500,000 Convert Warrants is $17.0 million and $3.0 million respectively.
|
As set forth in the agreement of the New Adagio Convertible Notes, the Convert Warrants are exercisable on a cashless basis or on a gross basis for one share of New Adagio Common Stock at $24.00
per share, subject to adjustments as set forth in the agreement. New Adagio may be required to cash settle the Convert Warrants when it fails to timely deliver shares to the holder who exercises the Convert Warrants or upon the occurrence of a
fundamental transaction. It is determined that the Convert Warrants associated with the New Adagio Convertible Notes do not meet the equity classification requirements under ASC 815 - Derivatives and Hedging
as the Covert Warrants may require cash settlement outside of New Adagio’s control upon a failure of timely delivery of shares or a fundamental transaction, and therefore the Convert Warrants are accounted for as derivative liabilities, and
measured at fair value both initially and subsequently with changes in fair value recognized through earnings.
Further, as permitted under ASC 825 - Financial Instruments, it is preliminary determined to elect the fair value option to account for the New Adagio Convertible Notes.
The valuation of the New Adagio Convertible Notes is based on a binomial lattice model considering the contractual terms with assumptions including (i) the New Adagio Common Stock price at $6.64
per share; (ii) a risk-free rate at 4.01%; (iii) zero dividend yield; (iv) volatility at 60% and (v) a discount rate at 25.8%. The valuation of the Convert Warrants is based on the Black-Scholes Merton Option model, and the assumptions including
(i) the New Adagio Common Stock that the Convert Warrants are exercisable to, is at $6.64 per share; (ii) a risk-free rate at 3.96%; (iii) zero dividend yield; (iv) volatility at 55%. The estimate of the fair value of the New Adagio Convertible
Notes and the Convert Warrants is preliminary and based on the current available information. Adagio has engaged third party specialists to assist it in completing the calculation of value of the New Adagio Convertible Notes and the Convert
Warrants. As this full valuation analysis is undergoing and not yet completed, the estimated fair values will be updated based upon further available information, as well as market conditions at the time of the Closing.
| (K) |
Represents an adjustment to intangible assets, net to reflect the acquired identifiable intangible assets consisting of developed technology and IPR&D at the estimated fair value of $26.2 million, which as noted above is and subject
to change once the proposed business combination is completed. The fair value of the developed technology and IPR&D is estimated based on cost approach. It is estimated a useful life of 5 years for developed technology based on
consideration of the economic benefit of the asset. See Note 4 for additional details.
|
18
| (L) |
Represents an adjustment to reflect estimated goodwill of $42.1 million recognized from the proposed business combination in accordance with ASC 805-30-30 based on the preliminary purchase price allocation in Note 4. Goodwill represents
the excess of the total purchase consideration over the fair value of the underlying net assets and captures the value attributable to future economic benefits arising from future technology development beyond the existing pipeline of
identified IPR&D projects.
|
| (M) |
Reflects the direct and incremental transaction costs incurred prior to or concurrent with the Business Combination of $7.1 million. Transaction costs include legal, accounting, financial advisory and other professional fees related to
the Business Combination. Of the total estimated transaction costs of $7.1 million, $3.4 million are to be incurred by Adagio and charged to accumulated deficit of Adagio prior to the Closing, and $3.7 million are to be incurred by ARYA and
charged to expenses through accumulated deficit.
|
| (N) |
Represents the settlement of the outstanding $28.5 million principal in Bridge Financing Notes excluding the July 2024 Notes, issued to the Perceptive PIPE Investor, which has an estimated fair value of $29.9 million, along with the
settlement of the accrued but not paid interest of $1.7 million as of June 30, 2024, in exchange of 4,230,253 shares of New Adagio Common Stock and 3,420,000 Base Warrants in connection with the PIPE Financing (refer to Note 1). The
4,230,253 shares of Adagio Common Stock at $6.64 per share and the 3,420,000 Base Warrants at $2.41 per unit issued to settle the convertible promissory notes is considered as a part of the purchase consideration (refer to Note 4).
|
It is preliminarily determined that the Base Warrants associated with the PIPE Financing are indexed to New Adagio Common Stock under ASC 815 - Derivatives and
Hedging and are accounted for as equity, which is measured at fair value.
The exercise price of Base Warrants is $10.00 per unit. The fair value of the Base Warrants is preliminarily estimated at $2.41 per unit, using Black-Scholes Merton Option model, based on the
assumptions including (i) the value of the New Adagio Common Stock (for which the Base Warrants are exercisable) is $6.64 per share; (ii) a risk-free rate at 3.93%; (iii) zero dividend yield; (iv) the common stock volatility at 84.0% and a
volatility haircut of 10%.
| (O) |
Represents the conversion of $14.1 million of Adagio Convertible Notes and $1.3 million of related accrued unpaid interest to New Adagio Common Stock and additional paid-in capital.
|
| (P) |
Represents i) the termination of Adagio Warrants prior to the Closing from liability to equity in conjunction with the Business Combination, as the fair market value of Adagio Common Stock is lower than the warrant exercise price prior
to the Closing and ii) the conversion of 207,902 Pre-Funded Warrants for Series E Preferred Stock issued by Adagio prior to the Closing into 34,680 shares of New Adagio Common Stock and additional paid-in capital.
|
| (Q) |
Represents the conversion of $3.6 million of ARYA Convertible Promissory Notes to New Adagio Common Stock and additional paid-in capital. See Note 5(C) for the net principal repaid in cash prior to closing.
|
| (R) |
Reflects the estimated gross deferred tax asset of $34.9 million netting with valuation allowance of $29.4 million, and then with gross deferred tax liability of $8.3 million resulting in net deferred tax liability position of $2.8
million. The basis difference primarily results Adagio’s net operating losses and from the Business Combination where New Adagio receives intangible assets for financial accounting purposes. Tax-related adjustments are based upon an
estimated state tax rate of 8.8% and an estimated federal tax rate of 21.0%. The effective tax rate of the combined company could be significantly different than what is presented in the pro forma financial information depending on
post-acquisition activities, the geographical mix of taxable income, and changes in tax laws and regulations.
|
19
| (S) |
Represents the conversion of 123,520 shares of Class A ordinary shares subject to redemption, with a par value of $0.0001, into 123,520 shares of the New Adagio Common Stock, resulting in an increase in New Adagio Common Stock with a par
value of $0.0001 and an increase of additional paid-in capital.
|
| (T) |
Represents the conversion of all outstanding Adagio Preferred Stock to 789,337 shares of New Adagio Common Stock and additional paid-in capital upon the Closing of the Business Combination.
|
| (U) |
Represents pro forma adjustments recorded to New Adagio Common Stock:
|
|
Number of
shares
|
|||||
|
(i)
|
Contribution from PIPE Financing (Note 2(A)(7)) (Note 5B, 5G, 5H and 5N)
|
8,420,854
|
|||
|
(ii)
|
Conversion of ARYA Class A ordinary shares and Class B ordinary shares (Note 5V)
|
2,089,000
|
|||
|
(iii)
|
Reclassification of Class A ordinary shares subject to redemption (Note 5S)
|
123,520
|
|||
|
(iv)
|
Conversion of Adagio Preferred Stock to New Adagio Common Stock (Note 2(A)(6)) (Note 5T)
|
789,337
|
|||
|
(v)
|
Conversion of ARYA Convertible Promissory Notes (Note 5Q)
|
355,100
|
|||
|
(vi)
|
Conversion of Adagio Convertible Notes (Note 2(A)(6)) (Note 5O)
|
1,444,899
|
|||
|
(vii)
|
Elimination of Adagio’s historical equity (Note 5W)
|
130,246
|
|||
|
(viii)
|
Conversion of Adagio’s Pre-Funded Warrants for Series E Preferred Shares (Note 5P)
|
34,680
|
|||
|
|
Total Shares of Common Stock |
13,387,636
|
|||
| Par value of New Adagio common stock |
$
|
0.0001
|
|||
|
|
Total value of common stock (1) |
$
|
1,339
|
||
| (1) |
The amounts are presented as $1.0 thousand on the unaudited pro forma condensed combined balance sheet due to rounding under the no further redemption and the maximum redemption scenarios respectively.
|
| (V) |
Represents the conversion of the existing Class A ordinary shares and Class B ordinary shares to New Adagio Common Stock and additional paid-in capital.
|
| (W) |
Represents the elimination of Adagio’s historical shareholder’s equity, including (1) Adagio’s outstanding common stock, par value $0.001; (2) accumulated deficit of $153.1 million, including $3.4 million estimated transaction costs to
be incurred by Adagio prior to the Closing; (3) additional paid-in capital of $6.2 million; and (4) $22.0 thousand of accumulated other comprehensive income.
|
| (X) |
Represents pro forma adjustments recorded to additional paid-in capital:
|
|
Adjusted Paid-In
Capital
|
||||
|
APIC on business combination with Adagio (Note 4) (1)
|
53,545
|
|||
|
Reclassification of Class A ordinary shares subject to redemption (Note 5S)
|
1,104
|
|||
|
Conversion of ARYA Class A ordinary shares and Class B ordinary shares (Note 5V)(2)
|
-
|
|||
|
Conversion of ARYA Convertible Promissory Notes (Note 5Q)
|
3,551
|
|||
|
Issuance of equity to PIPE Investors pertaining to cash proceeds from PIPE Financing (Note 5G)
|
23,433
|
|||
|
Issuance of equity to PIPE Investors pertaining to non-redemption agreements (Note 5B)
|
5,423
|
|||
|
Reversal of ARYA’s historical APIC recorded in connection with contingent equity investment (Note 5Y)
|
(2,134
|
)
|
||
|
ARYA’s historical APIC
|
412
|
|||
|
Total Adjusted APIC
|
$
|
85,334
|
||
|
Less: Adagio's Historical APIC
|
(6,163
|
)
|
||
|
Less: ARYA’s Historical APIC
|
(412
|
)
|
||
|
Transaction Accounting Adjustment to APIC
|
$
|
78,759
|
||
| (1) |
Represents APIC on the issuance of 6,771,769 shares of New Adagio Common Stock; 7,587 replacement New Adagio stock options to Adagio option holders and 3,540,000 Base Warrants, with the assumption that the
New Adagio Common Stock share price is $6.64 per share.
|
| (2) |
The balance is shown as zero as it is rounded in thousands.
|
20
| (Y) |
Represents the reversal of the contingent equity investment of $2.1 million in APIC (refer to Note 5(X)) and accumulated deficit recorded in ARYA’s historical financial statements, in connection with the New Adagio Common Stock and the
PIPE Warrants to be issued under certain subscription agreements that include an open market purchase and non-redemption obligation for certain Other PIPE Investors. The value of the contingent equity investment resulted from the open
market purchase was estimated and recorded as of February 13, 2024 assuming a 75% probability of the Business Combination being closed; the value of the contingent equity investment resulted from the non-redemption obligation was estimated
and recorded as of June 21, 2024 assuming a 95% probability of the Business Combination being closed. Such contingent equity investment is eliminated in the proforma financial information as the unaudited proforma condensed combined balance
sheet assumes the Business Combination occurred on June 30, 2024. Accordingly, the New Adagio Common Stock and PIPE Warrants in connection with the open market purchase and the non-redemption obligation is included in Note 5(A).
|
Refer to Note 5(GG) for the reversal adjustment related to the corresponding expense on the unaudited pro forma condensed combined statement of operations and comprehensive loss.
The pro forma adjustments included in the unaudited pro forma condensed combined statements of operations and comprehensive loss for the six months ended June 30, 2024 and for the year ended
December 31, 2023, are as follows:
|
(AA)
|
Reflects ARYA’s estimated transactions costs of $3.7 million as if incurred on January 1, 2023, the date the Business Combination occurred for the purposes of the unaudited pro forma condensed combined
statements of operations. The amount presented is comprised of transaction costs that were not yet recognized in the historical statement of operations as part of the Business Combination. These costs are non-recurring.
|
|
(BB)
|
Adjustment to reflect amortization expense, on a straight-line basis, based on the preliminary fair value of the intangible assets and the estimated useful lives. See below table for the calculation (in
thousands):
|
|
|
Value at
Closing
|
Useful Life
|
Pro forma
Amortization
for the six
months
ended June
30, 2024
|
Pro forma
Amortization
for the year
ended
December 31,
2023
|
|||||||||||
|
Technology
|
$
|
4,100
|
5 years
|
$
|
410
|
820
|
|||||||||
|
IPR&D
|
22,100
|
N/A
|
-
|
-
|
|||||||||||
|
Total
|
$
|
26,200
|
$
|
410
|
820
|
||||||||||
|
Historical amortization expense
|
|
$
|
-
|
-
|
|||||||||||
|
Pro forma adjustment
|
|
$
|
410
|
820
|
|||||||||||
|
(CC)
|
Represents the reversal of interest expense on Adagio’s convertible notes payable and elimination of fair value changes due to the conversion of Adagio’s convertible notes payable as referenced in
adjustment 5(J), 5(N) and 5(O) above into shares of New Adagio Common Stock.
|
|
(DD)
|
Represents the reversal of fair value changes in warrant liability due to the reclassification of warrants from liability to equity in conjunction with the Business Combination.
|
|
(EE)
|
Represents the removal of interest expense of $78.0 thousand and $0.2 million on the SVB Term Loan on account of settlement of the SVB Term Loan for the six months ended June 30, 2024 and year ended
December 31, 2023, respectively.
|
|
(FF)
|
Represents the accrued interest expense of $1.1 million and $2.6 million at an interest rate of 13% per annum in connection with the New Adagio Convertible Notes for the six months ended June 30, 2024 and
year ended December 31, 2023, respectively. The accrued interest expense of $1.1 million for the six months ended June 30, 2024 excludes interest expense of $0.2 million accrued by Adagio on the 2024 Bridge Financing Notes prior to the
Closing.
|
|
(GG)
|
Represents the reversal of the subscription agreement expense of $2.1 million, recorded in ARYA’s historical financial statements, in connection with the reversal of the contingent equity investment (refer
to Note 5(Y)).
|
|
(HH)
|
Represents the elimination of interest income on the investments held in Trust Account.
|
21
Note 6. Net Loss per Share
Represents the net loss per share calculated using the historical weighted average shares outstanding, and the issuance of additional shares in connection with the Business Combination, assuming
the shares were outstanding since January 1, 2023. As the Business Combination is being reflected as if it had occurred at the beginning of the earliest period presented, the calculation of weighted average shares outstanding for basic and diluted
net loss per share assumes that the shares issuable relating to the Business Combination have been outstanding for the entirety of the periods presented. When assuming the maximum redemption scenario described above, this calculation is adjusted to
eliminate such shares for the entirety of the periods presented.
The following has been prepared to present the net loss per share with respect to the redemptions of Class A Common Stock by ARYA Stockholders at the time of the Business Combination for the six
months ended June 30, 2024 and for the year ended December 31, 2023:
|
(In thousands, except share and per share data)
|
Six months ended June
30, 2024
|
Year Ended December
31, 2023
|
||||||
|
Pro forma net loss
|
$
|
(14,506
|
)
|
$
|
(39,863
|
)
|
||
|
Basic and diluted weighted average shares outstanding
|
13,387,636
|
13,387,636
|
||||||
|
Basic and diluted net loss per share
|
$
|
(1.08
|
)
|
$
|
(2.98
|
)
|
||
|
Excluded securities:(1)
|
||||||||
|
Sponsor Earn-out Shares
|
1,147,500
|
1,147,500
|
||||||
|
PIPE Warrants
|
8,198,727
|
8,198,727
|
||||||
|
New Adagio Convertible Notes
|
2,000,000
|
2,000,000
|
||||||
|
Convert Warrants
|
1,500,000
|
1,500,000
|
||||||
|
New Adagio Options converted from Adagio Options
|
7,587
|
7,587
|
||||||
|
2024 Equity Incentive Plan
|
4,472,593
|
4,472,593
|
||||||
|
2024 Key Employee Plan
|
3,354,445
|
3,354,445
|
||||||
|
ESPP
|
441,293
|
441,293
|
||||||
| (1) |
Pro forma net loss per share includes the related pro forma adjustments as referred to within the section “Adjustments to Unaudited Pro Forma Condensed Consolidated Combined Financial Information.”
|
22