OABI 10-Q
OmniAb, Inc. (OABI)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
For the transition period from ______________ to ______________
Commission File Number
(Exact name of registrant as specified in its charter) |
| ||
(State or other jurisdiction of incorporation or organization) |
| (IRS Employer Identification No.) |
(Address of principal executive offices and zip code) |
( |
(Registrant’s telephone number, including area code) |
Avista Public Acquisition Corp. II 65 East 55th Street, 18th Floor New York, NY 10022 |
(Former name, former address and former fiscal year, if changed since last report) |
Securities registered pursuant to Section 12(b) of the Act:
Title of each class |
| Trading Symbol(s) |
| Name of each exchange on |
|
| |||
|
|
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer ☐ | Accelerated filer ☐ |
Smaller reporting company | |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of November 1, 2022, there were shares of the registrant’s Common Stock, par value $0.0001 per share, and no shares of the registrant’s Preferred Stock, par value $0.0001 per share, issued and outstanding.
Explanatory Note
On November 1, 2022, subsequent to the fiscal quarter to which this Quarterly Report on Form 10-Q (this “Quarterly Report”) relates, OmniAb, Inc. (formerly known as Avista Public Acquisition Corp. II (“APAC”), prior to its domestication as a corporation incorporated in the state of Delaware) (“OmniAb”) consummated the previously announced business combination (the “Business Combination”) with OmniAb Operations, Inc., a Delaware corporation (formerly known as OmniAb, Inc.) (“Legacy OmniAb”). Prior to the Business Combination, Legacy OmniAb was a subsidiary of Ligand Pharmaceuticals Incorporated, a Delaware corporation, and following the consummation of the Business Combination, Legacy OmniAb became a subsidiary of OmniAb.
Unless stated otherwise, this Quarterly Report contains information about APAC before the Business Combination. References to the “Company,” “our,” “us” or “we” in this Quarterly Report refer to APAC before the consummation of the Business Combination and to OmniAb after the Business Combination, unless stated otherwise or the context otherwise requires.
For more information regarding the Business Combination, see OmniAb’s Current Report on Form 8-K filed on November 7, 2022.
Except as otherwise expressly provided herein, the information in this Quarterly Report does not reflect the consummation of the Business Combination, which occurred subsequent to the period covered by this Quarterly Report.
AVISTA PUBLIC ACQUISITION CORP. II
TABLE OF CONTENTS
Page | ||
1 | ||
2 | ||
3 | ||
4 | ||
Notes to Unaudited Condensed Consolidated Financial Statements | 5 | |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS | 25 | |
33 | ||
33 | ||
34 | ||
34 | ||
34 | ||
34 | ||
34 | ||
34 | ||
35 | ||
36 | ||
PART 1 – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AVISTA PUBLIC ACQUISITION CORP. II
CONDENSED CONSOLIDATED BALANCE SHEETS
| September 30, 2022 |
| December 31, 2021 | |||
(Unaudited) | ||||||
ASSETS | ||||||
Current assets: | ||||||
Cash | $ | | $ | | ||
Prepaid expenses |
| | | |||
Total current assets | | | ||||
Investments held in Trust Account | | | ||||
TOTAL ASSETS | $ | | $ | | ||
|
|
|
| |||
LIABILITIES AND SHAREHOLDERS’ DEFICIT |
|
|
|
| ||
Current liabilities: | ||||||
Accounts payable | $ | | $ | | ||
Accrued expenses | | | ||||
Accrued offering costs | | | ||||
Convertible promissory note |
| |
| — | ||
Due to related party |
| | | |||
Derivative - Forward Purchase and Backstop Securities | | — | ||||
Total current liabilities | | | ||||
Deferred underwriting fee payable | | | ||||
TOTAL LIABILITIES |
| |
| | ||
|
|
|
| |||
Commitments and Contingencies (see Note 6) |
|
|
|
| ||
Class A ordinary shares, $ | | | ||||
|
|
|
| |||
Shareholders’ Deficit |
|
|
|
| ||
Preference shares, $ |
|
| ||||
Class A ordinary shares, $ |
| — |
| — | ||
Class B ordinary shares, $ |
| |
| | ||
Additional paid-in capital |
| — |
| — | ||
Accumulated deficit |
| ( |
| ( | ||
Total Shareholders’ Deficit |
| ( |
| ( | ||
TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT | $ | | $ | | ||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
1
AVISTA PUBLIC ACQUISITION CORP. II
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Period | ||||||||||||
from February 5, | ||||||||||||
2021 (inception) | ||||||||||||
Three Months Ended | Three Months Ended | Nine Months Ended | through | |||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||
| 2022 |
| 2021 |
| 2022 |
| 2021 | |||||
Formation and operating costs | $ | | $ | | $ | | $ | | ||||
Loss from operations | ( | ( | ( | ( | ||||||||
Gain on investments held in Trust Account | | — | | — | ||||||||
Change in fair value of Forward Purchase and Backstop Securities | ( | — | ( | — | ||||||||
Net loss | $ | ( | $ | ( | $ | ( | $ | ( | ||||
Deemed dividend - Forward Purchase and Backstop Securities | — | — | ( | — | ||||||||
Net loss attributable to ordinary shareholders | $ | ( | $ | ( | $ | ( | $ | ( | ||||
|
|
|
|
|
|
|
| |||||
Basic and diluted weighted average shares outstanding, Class A ordinary shares | | | | | ||||||||
Basic and diluted net loss per share, Class A ordinary shares | ( | ( | ( | ( | ||||||||
Basic and diluted weighted average shares outstanding, Class B ordinary shares | | | | | ||||||||
Basic and diluted net loss per share, Class B ordinary shares | ( | ( | ( | ( | ||||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
2
AVISTA PUBLIC ACQUISITION CORP. II
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY (DEFICIT)
(UNAUDITED)
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022
Class A | Class B | Additional | Total | ||||||||||||||||
Ordinary Shares | Ordinary Shares | Paid-in | Accumulated | Shareholders’ | |||||||||||||||
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Deficit |
| Deficit | ||||||
Balance at January 1, 2022 | | $ | | | $ | | $ | | $ | ( | $ | ( | |||||||
Reclassification of Forward Purchase Agreement |
| — |
| — | — | — |
| — |
| ( |
| ( | |||||||
Deemed dividend - Forward Purchase and Backstop Securities | — | — | — | — | — | ( | ( | ||||||||||||
Net loss | — | — | — | — | — | ( | ( | ||||||||||||
Balance at March 31, 2022 | — | — | | | — | ( | ( | ||||||||||||
Remeasurement of Class A ordinary shares to redemption amount | — | — | — | — | — | ( | ( | ||||||||||||
Net loss | — | — | — | — | — | ( | ( | ||||||||||||
Balance at June 30, 2022 | — | — | | | — | ( | ( | ||||||||||||
Remeasurement of Class A ordinary shares to redemption amount | — | — | — | — | — | ( | ( | ||||||||||||
Waiver of deferred underwriting commissions by underwriter (see Note 6) | — | — | — | — | — | | | ||||||||||||
Net loss | — | — | — | — | — | ( | ( | ||||||||||||
Balance at September 30, 2022 |
| — | $ | — | | $ | | $ | — | $ | ( | $ | ( | ||||||
THREE MONTHS ENDED SEPTEMBER 30, 2021 AND FOR THE PERIOD FROM FEBRUARY 5, 2021 (INCEPTION) THROUGH SEPTEMBER 30, 2021
Total | |||||||||||||||||||
Class A Ordinary Shares | Class B Ordinary Shares | Additional Paid- | Accumulated | Shareholder’s | |||||||||||||||
| Shares |
| Amount |
| Shares |
| Amount |
| in Capital |
| Deficit |
| Equity (Deficit) | ||||||
Balance at February 5, 2021 (inception) | | $ | | | $ | | $ | | $ | | $ | | |||||||
Issuance of Class B ordinary shares to Sponsor | — | — | | | | | |||||||||||||
Net loss |
| — |
| — | — | — |
|
| ( |
| ( | ||||||||
Balance at March 31, 2021 | — | — | | | | ( | | ||||||||||||
Net loss | — | — | — | — | | ( | ( | ||||||||||||
Balance at June 30, 2021 | — | — | | | | ( | | ||||||||||||
Proceeds from Initial Public Offering Costs allocated to Public Warrants (net of offering costs) | — | — | — | — | | | | ||||||||||||
Proceeds from sale of Private Placement Warrants to the Sponsor (net of offering costs) | — | — | — | — | | | | ||||||||||||
Accretion of Class A ordinary shares to redemption value | — | — | — | — | ( | ( | ( | ||||||||||||
Net loss | — | — | — | — | ( | ( | |||||||||||||
Balance at September 30, 2021 | — | $ | — | | $ | $ | | $ | ( | $ | ( | ||||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
3
AVISTA PUBLIC ACQUISITION CORP. II
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| For the Period | |||||
from February | ||||||
5, 2021 | ||||||
Nine Months | (inception) through | |||||
Ended September 30, | September 30, | |||||
| 2022 |
| 2021 | |||
Cash Flows from Operating Activities: | ||||||
Net loss | $ | ( | $ | ( | ||
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
| |||
Gain on investments held in Trust Account | ( | — | ||||
Change in fair value of Forward Purchase and Backstop Securities | | — | ||||
Changes in operating assets and liabilities: | ||||||
Prepaid expenses | | ( | ||||
Accounts payable | | | ||||
Due to related party | | — | ||||
Accrued expenses - related party | — | | ||||
Accrued expenses | | | ||||
Net cash used in operating activities |
| ( | ( | |||
Cash Flows from Investing Activities: | ||||||
Investment of cash into Trust Account | — | ( | ||||
Net cash used in investing activities | — | ( | ||||
Cash Flows from Financing Activities: | ||||||
Proceeds from promissory note - related party | — | | ||||
Proceeds from initial public offering, net of underwriter’s discount paid | — | | ||||
Proceeds from sale of Private Placement Warrants | — | | ||||
Payment of offering costs | — | ( | ||||
Repayment of promissory note - related party | — | ( | ||||
Proceeds from convertible promissory note |
| |
| — | ||
Net cash provided by financing activities |
| | | |||
|
| |||||
Net Change in Cash |
| ( |
| | ||
Cash - Beginning of period |
| |
| | ||
Cash - End of period | $ | | $ | | ||
|
|
|
| |||
Supplemental disclosure of noncash investing and financing activities: |
|
|
|
| ||
Remeasurement of Class A ordinary shares subject to redemption to redemption amount | $ | | $ | | ||
Initial classification of the Forward Purchase and Backstop Securities | $ | | $ | — | ||
Waiver of deferred underwriting commissions by underwriter (see Note 6) | $ | | $ | — | ||
Deferred underwriting fee payable | $ | — | $ | | ||
Offering costs paid by Sponsor and included in promissory note - related party | $ | — | $ | | ||
Offering costs included in accrued offering costs | $ | — | $ | | ||
Offering costs paid by Sponsor in exchange for issuance of Class B ordinary shares | $ | — | $ | | ||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
4
AVISTA PUBLIC ACQUISITION CORP. II
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
NOTE 1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS, LIQUIDITY, AND GOING CONCERN CONSIDERATION
Avista Public Acquisition Corp. II was a blank check company incorporated in the Cayman Islands on February 5, 2021. As used herein, the references to the “Company” are to Avista Public Acquisition Corp. II, prior to its domestication as a corporation incorporated in the state of Delaware and change of name to OmniAb, Inc., and its then wholly-owned and controlled subsidiary, Orwell Merger Sub Inc. (“Merger Sub”), unless the context indicates otherwise. The Company was formed for the purpose of entering into a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with
As of September 30, 2022, the Company had not commenced any operations. All activity for the period from February 5, 2021 (inception) through September 30, 2022 related to the Company’s formation and the initial public offering (“Initial Public Offering”), and since the closing of the Initial Public Offering, the search for a prospective initial Business Combination, which is described below. The Company generated non-operating income in the form of interest and dividend income or gains on investments on the cash and investments held in the Trust Account (as defined below) from the proceeds derived from the Initial Public Offering. The Company had selected December 31 as its fiscal year end.
The registration statement for the Company’s Initial Public Offering was declared effective on August 9, 2021. On August 12, 2021, the Company consummated the Initial Public Offering of
Simultaneously with the closing of the Initial Public Offering, the Company consummated the sale of
As of September 30, 2022, cash of $
Upon closing of the Initial Public Offering and the sale of the Private Placement Warrants, a total of $
5
AVISTA PUBLIC ACQUISITION CORP. II
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
The Company provided its holders of the outstanding Public Shares (the “Public Shareholders”) with the opportunity to redeem all or a portion of their Public Shares upon the completion of a Business Combination either (i) in connection with a shareholder meeting called to approve the Business Combination or (ii) by means of a tender offer. The decision was made by the Company to seek shareholder approval of a Business Combination. The Public Shareholders were entitled to redeem their Public Shares for a pro rata portion of the amount then in the Trust Account ($
The Company proceeded with the Business Combination as the Company had net tangible assets of at least $
The Sponsor agreed to waive (i) redemption rights with respect to its Founder Shares and Public Shares held by it in connection with the completion of the Business Combination, (ii) redemption rights with respect to any Founder Shares and Public Shares held by it in connection with the shareholder vote to amend the Amended and Restated Memorandum and Articles of Association to modify the substance or timing of the Company’s obligation to allow redemption in connection with an initial Business Combination or to redeem
The Company had until
The underwriters have agreed to waive their rights to a portion of their deferred underwriting commission (see Note 6) held in the Trust Account in the event the Company did not complete a Business Combination within the Combination Period and, in such event, such amounts would have been included with the other funds held in the Trust Account that would have been available to fund the redemption of the Public Shares.
6
AVISTA PUBLIC ACQUISITION CORP. II
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
OmniAb Business Combination
On March 23, 2022, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”), by and among the Company, Ligand Pharmaceuticals Incorporated, a Delaware corporation (“Ligand”), OmniAb, Inc., a Delaware corporation and then wholly-owned subsidiary of Ligand (“Legacy OmniAb”), and Orwell Merger Sub Inc. (“Merger Sub”), pursuant to which the Company combined with Legacy OmniAb, Ligand’s antibody discovery business (the “OmniAb Business”), in a Reverse Morris Trust transaction. Also on March 23, 2022, and in connection with the execution of the Merger Agreement, (a) the Company, Ligand, Legacy OmniAb and Merger Sub entered into that certain Employee Matters Agreement, as amended by that certain Amended and Restated Employee Matters Agreement, dated as of August 18, 2022 (the “Employee Matters Agreement”), (b) Legacy OmniAb and the Sponsor entered into that certain Sponsor Insider Letter Agreement (the “Sponsor Insider Agreement”) with the Company and certain insiders of the Company (the “Insiders”) and (c) the Company amended and restated that certain previously disclosed Forward Purchase Agreement, dated August 9, 2021, by entering into the Amended and Restated Forward Purchase Agreement (the “A&R FPA”), by and among the Company, the Sponsor and Legacy OmniAb pursuant to which they consummated the OmniAb Business Combination.
Pursuant to a Separation and Distribution Agreement, dated as of March 23, 2022, among the Company, Ligand and Legacy OmniAb (the “Separation Agreement”), Ligand transferred the OmniAb Business, including certain related subsidiaries of Ligand, to Legacy OmniAb and, in connection therewith, distributed (the “Distribution”) to Ligand stockholders
Immediately following the Distribution, in accordance with and subject to the terms and conditions of the Merger Agreement, Merger Sub merged with and into Legacy OmniAb (the “Merger”), with Legacy OmniAb continuing as the surviving company in the Merger and as a wholly-owned subsidiary of the Company.
The Merger Agreement, along with the Separation Agreement and the other transaction documents entered into in connection therewith, provided for, among other things, the consummation of the following transactions (collectively, the “OmniAb Business Combination”): (i) the Company redomiciled by way of continuation from the Cayman Islands to Delaware and domesticate as a Delaware corporation in accordance with Section 388 of the Delaware General Corporation Law and with Section 206 of the Cayman Islands Companies Act (As Revised) (the “Domestication”), (ii) Ligand transferred the OmniAb Business (the “Separation”) to its wholly-owned subsidiary, Legacy OmniAb, and contributed $
On April 28, 2022, the Company filed a registration statement on Form S-4 (File No. 333-264525) (the “Form S-4”, as amended on June 13, 2022, July 26, 2022, August 22, 2022, September 13, 2022 and September 27, 2022) with the SEC, which includes the proxy statement/prospectus/information statement distributed to holders of the Company’s ordinary shares in connection with the Company’s solicitation for proxies for the vote by the Company’s shareholders in connection with the OmniAb Business Combination and other matters as described in the Form S-4. The Form S-4 was declared effective by the SEC on September 30, 2022, and the definitive proxy statement/prospectus/information statement was mailed to the Company’s shareholders of record on the record date for voting on the OmniAb Business Combination. The OmniAb Business Combination closed on November 1, 2022. Upon consummation of the OmniAb Business Combination, and after the Domestication, the Company has one class of common stock, par value $
The Business Combination was accounted for as a reverse recapitalization in accordance with GAAP, whereby the Company is treated as the acquired company and Legacy OmniAb is treated as the acquirer. Accordingly, for accounting purposes, the Business Combination was treated as the equivalent of Legacy OmniAb issuing stock for the net assets of the Company, accompanied by a recapitalization. The net assets of the Company were stated at historical cost, with no goodwill or other intangible assets recorded. Subsequent presentations of the results of operations presented for the period prior to the Business Combination will be for those of Legacy OmniAb.
Legacy OmniAb has been determined to be the accounting acquirer in the Business Combination based on the following predominate factors:
| ● | Legacy OmniAb’s existing stockholders have the greatest voting interest in the combined entity; |
7
AVISTA PUBLIC ACQUISITION CORP. II
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
| ● | Legacy OmniAb has the ability to nominate a majority of the initial members of the OmniAb Board; |
| ● | Legacy OmniAb’s senior management is the senior management of the combined entity; |
| ● | Legacy OmniAb is the larger entity based on historical operating activity and has the larger employee base; and |
| ● | The post-combination company has assumed a Legacy OmniAb branded name: “OmniAb, Inc.” |
Agreement and Plan of Merger
At the closing of the OmniAb Business Combination, each share of Legacy OmniAb’s common stock outstanding prior to the effective time of the OmniAb Business Combination was converted on a
In addition, at the closing of the OmniAb Business Combination, holders of Legacy OmniAb Common Stock and equity awards received shares of OmniAb Common Stock subject to certain price-based earnout triggers (“Earnout Shares”), with
In connection with the OmniAb Business Combination, upon the re-domestication of the Company to Delaware (i) all issued and outstanding Class A ordinary shares and Class B ordinary shares converted automatically, on a
Separation and Distribution Agreement
On March 23, 2022, in connection with the execution of the Merger Agreement, the Company entered into the Seperation Agreement, pursuant to which the Separation and Distribution were effected.
The Separation Agreement also sets forth other agreements among Ligand and Legacy OmniAb, including provisions concerning the termination and settlement of intercompany accounts and the obtaining of necessary governmental approvals and third-party consents. The Separation Agreement also sets forth agreements that will govern certain aspects of the relationship between Ligand and Legacy OmniAb after the Distribution, including provisions with respect to release of claims, indemnification, access to financial and other information and access to and provision of records.
8
AVISTA PUBLIC ACQUISITION CORP. II
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
Employee Matters Agreement
On March 23, 2022, in connection with the execution of the Merger Agreement, the Company entered into the Employee Matters Agreement, as amended by the Amended and Restated Employee Matters Agreement, dated as of August 18, 2022, which provides for employee-related matters in connection with the transaction, including allocation of benefit plan assets and liabilities between Ligand and Legacy OmniAb, treatment of incentive equity awards in the Distribution and the OmniAb Business Combination and related covenants and commitments of the parties. Each existing Ligand equity award at the time of the Distribution granted prior to March 2, 2022, with certain limited exceptions, was split into (i) a new Ligand equity award and (ii) a new Legacy OmniAb equity award, with any in-the-money value in the original Ligand equity award split between such awards based on the relative values of Ligand and OmniAb at the time of the Distribution. Each existing Ligand equity award at the time of the Distribution granted on or after March 2, 2022 was converted into either an adjusted Ligand equity award, if the holder was a Ligand service provider following the Distribution, or a Legacy OmniAb equity award, if the holder was a Legacy OmniAb service provider following the Distribution.
Sponsor Insider Agreement
On March 23, 2022, in connection with the execution of the Merger Agreement, Legacy OmniAb and the Sponsor entered into the Sponsor Insider Agreement with the Company and the Insiders, pursuant to which, among other things, the Insiders agreed to vote any of our securities held by them to approve the OmniAb Business Combination and the other Company shareholder matters required pursuant to the Merger Agreement, and not to seek redemption of any of their Company securities in connection with the consummation of the OmniAb Business Combination. Pursuant to the Sponsor Insider Agreement, the Sponsor also agreed to subject up to
Amended and Restated Forward Purchase Agreement
On March 23, 2022, in connection with the execution of the Merger Agreement, the Company entered into Amended and Restated Forward Purchase Agreement (the “A&R FPA”) with the Sponsor and Legacy OmniAb. Pursuant to the A&R FPA, the Company agreed to, in connection with the consummation of the OmniAb Business Combination, issue and sell to the Sponsor
9
AVISTA PUBLIC ACQUISITION CORP. II
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
Indemnity
In order to protect the amounts held in the Trust Account, the Sponsor has agreed that it will be liable to the Company if and to the extent any claims by a third party for services rendered or products sold to the Company (other than the Company’s independent registered public accounting firm), or a prospective target business with which the Company has discussed entering into a transaction agreement, reduce the amounts in the Trust Account to below the lesser of (i) $
Liquidity and Going Concern Consideration
As of September 30, 2022, the Company had $
Risks and Uncertainties
Management continues to evaluate the impact of the COVID-19 pandemic on the industry, the geopolitical conditions resulting from the recent invasion of Ukraine by Russia and subsequent sanctions against Russia, Belarus and related individuals and entities and the status of debt and equity markets and has concluded that while it is reasonably possible that any of the foregoing could have a negative effect on the Company’s financial position and results of its operations, the specific impact is not readily determinable as of the date of these condensed consolidated financial statements. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
On August 16, 2022, President Biden signed into law the Inflation Reduction Act of 2022, which, among other things, imposes a 1% excise tax on the fair market value of stock repurchased by publicly traded U.S. corporations and certain U.S. subsidiaries of publicly traded non- U.S. corporations beginning in 2023, with certain exceptions (the “Excise Tax”). Because the Company became a Delaware corporation upon the Domestication and the securities traded on Nasdaq, we would have likely been considered a “covered corporation” within the meaning of the Inflation Reduction Act. While not free from doubt, absent any further guidance from Congress or the U.S. Department of the Treasury, there is significant risk that the Excise Tax would have applied to any redemptions of our common stock after December 31, 2022, including redemptions in connection with an initial Business Combination and any amendment to a certificate of incorporation to extend the time to consummate an initial Business Combination, unless an exemption is available.
10
AVISTA PUBLIC ACQUISITION CORP. II
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying condensed consolidated financial statements of the Company are presented in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and pursuant to the rules and regulations of the SEC. Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying condensed consolidated financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented. The accompanying condensed consolidated financial statements should be read in conjunction with the Company’s Form 10-K as filed with the SEC on March 28, 2022. The interim results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022 or for any future periods.
Principles of Consolidation
The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. 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, 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 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 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 condensed consolidated 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 condensed consolidated 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 and liabilities and disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of expenses during the reporting period.
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the condensed consolidated financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ from those estimates. The valuation of the Forward Purchase and Backstop Securities required management to exercise significant judgement in its estimate.
11
AVISTA PUBLIC ACQUISITION CORP. II
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
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 did not have any cash equivalents as of September 30, 2022 or December 31, 2021. As of September 30, 2022 and December 31, 2021, the Company had operating cash (i.e., cash held outside the Trust Account) of $
Investments Held in Trust Account
At September 30, 2022, substantially all of the assets held in the Trust Account were held in U.S. Treasury bills. The Company’s investments held in the Trust Account are classified as trading securities. Trading securities are presented on the balance sheet at fair value at the end of each reporting period. Gains and losses resulting from the change in fair value of investments held in Trust Account are included in gain on investments held in Trust Account in the accompanying condensed consolidated statements of operations. The estimated fair values of the investments held in the Trust Account are determined using available market information. At December 31, 2021, the assets held in the Trust Account were held in cash.
Class A Ordinary Shares Previously Subject to Possible Redemption
All of the
The Company recognized changes in redemption value immediately as they occurred and adjusted the carrying value of redeemable ordinary shares to equal the redemption value at the end of each reporting period. Increases or decreases in the carrying amount of redeemable ordinary shares were affected by charges against additional paid-in capital and accumulated deficit.
As of September 30, 2022 and December 31, 2021, the Class A ordinary shares subject to possible redemption reflected in the balance sheet are reconciled in the following table:
Gross proceeds |
| $ | |
Less: |
| ||
Proceeds allocated to Public Warrants |
| ( | |
Issuance costs allocated to Class A ordinary shares |
| ( | |
Plus: |
| ||
Remeasurement of Class A ordinary shares to redemption amount |
| | |
Class A ordinary shares subject to possible redemption, December 31, 2021 | | ||
Plus: | |||
Remeasurement of Class A ordinary shares to redemption amount | | ||
Class A ordinary shares subject to possible redemption, September 30, 2022 | $ | |
On November 1, 2022, the parties to the Merger Agreement completed the Business Combination. Holders of
12
AVISTA PUBLIC ACQUISITION CORP. II
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
Offering Costs Associated with the Initial Public Offering
The Company complies with the requirements of ASC 340-10-S99-1 and SEC Staff Accounting Bulletin Topic 5A - Expenses of Offering. Offering costs consist principally of professional and registration fees incurred through the balance sheet date that are related to the Initial Public Offering. Offering costs directly attributable to the issuance of an equity contract to be classified in equity are recorded as a reduction in equity. Offering costs for equity contracts that are classified as assets and liabilities are expensed immediately. The Company incurred offering costs amounting to $
Income Taxes
The Company accounts for income taxes under ASC 740, Income Taxes (“ASC 740”). ASC 740 requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the financial statement and tax basis of assets and liabilities and for the expected future tax benefit to be derived from tax loss and tax credit carry forwards. ASC 740 additionally requires a valuation allowance to be established when it is more likely than not that all or a portion of deferred tax assets will not be realized.
ASC 740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s condensed consolidated financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position 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. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Based on the Company’s evaluation, it has been concluded that there are no significant uncertain tax positions requiring recognition in the Company’s condensed consolidated financial statements.
The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were
Net Loss Per Ordinary Share
Net loss per ordinary share is computed by dividing net loss by the weighted average number of ordinary shares outstanding during the period. The Company has not considered the effect of the warrants sold in the Initial Public Offering and private placement to purchase an aggregate of
13
AVISTA PUBLIC ACQUISITION CORP. II
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
The following table reflects the calculation of basic and diluted net loss per ordinary share (in dollars, except per share amounts):
For the Period from | ||||||||||||||||||||||||
Three Months Ended | Three Months Ended | Nine Months Ended | February 5, 2021 (Inception) Through | |||||||||||||||||||||
September 30, 2022 | September 30, 2021 | September 30, 2022 | September 30, 2022 | |||||||||||||||||||||
| Class A |
| Class B |
| Class A |
| Class B |
| Class A |
| Class B |
| Class A |
| Class B | |||||||||
Basic and diluted net loss per share: |
|
|
|
| ||||||||||||||||||||
Numerator: |
|
|
|
| ||||||||||||||||||||
Net loss | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | $ | ( | ||||||||
Denominator: |
|
|
|
| ||||||||||||||||||||
Basic and diluted weighted average shares outstanding | | | | | | | | | ||||||||||||||||
Basic and diluted net loss per share | ( | ( | ( | ( | ( | ( | ( | ( | ||||||||||||||||
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of a cash account in a financial institution, which, at times, may exceed the Federal Depository Insurance Coverage of $
Derivative Financial Instruments
The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC Topic 815, Derivatives and Hedging. For derivative financial instruments that are accounted for as assets or liabilities, the derivative instrument is initially recorded at its fair value on the grant date and is then re-valued at each reporting date, with changes in the fair value reported in the condensed consolidated statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. The Forward Purchase and Backstop Securities contained within the A&R FPA (see Note 6) are classified as derivatives in the condensed consolidated balance sheet with changes in the fair value recognized in the condensed consolidated statements of operations.
Fair Value of Financial Instruments
The Company applies ASC Topic 820, Fair Value Measurement (“ASC 820”), which establishes a framework for measuring fair value and clarifies the definition of fair value within that framework. ASC 820 defines fair value as an exit price, which is the price that would be received for an asset or paid to transfer a liability in the Company’s principal or most advantageous market in an orderly transaction between market participants on the measurement date. The fair value hierarchy established in ASC 820 generally requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. Observable inputs reflect the assumptions that market participants would use in pricing the asset or liability and are developed based on market data obtained from sources independent of the reporting entity. Unobservable inputs reflect the entity’s own assumptions based on market data and the entity’s judgments about the assumptions that market participants would use in pricing the asset or liability and are to be developed based on the best information available in the circumstances.
The carrying amounts reflected in the balance sheet for cash, deferred offering costs, accrued offering costs, promissory note - related party, and advance from anchor investor approximate fair value due to their short-term nature.
Level 1 — Assets and liabilities with unadjusted, quoted prices listed on active market exchanges. Inputs to the fair value measurement are observable inputs, such as quoted prices in active markets for identical assets or liabilities.
14
AVISTA PUBLIC ACQUISITION CORP. II
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
Level 2 — Inputs to the fair value measurement are determined using prices for recently traded assets and liabilities with similar underlying terms, as well as direct or indirect observable inputs, such as interest rates and yield curves that are observable at commonly quoted intervals.
Level 3 — Inputs to the fair value measurement are unobservable inputs, such as estimates, assumptions, and valuation techniques when little or no market data exists for the assets or liabilities.
Recent Accounting Pronouncements
Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s condensed consolidated financial statements.
NOTE 3. INITIAL PUBLIC OFFERING
The registration statement for the Company’s Initial Public Offering was declared effective on August 9, 2021. On August 12, 2021, the Company completed its Initial Public Offering of
NOTE 4. PRIVATE PLACEMENT
Simultaneously with the closing of the Initial Public Offering, the Sponsor purchased an aggregate of
NOTE 5. RELATED PARTY TRANSACTIONS
Founder Shares
On February 12, 2021, the Sponsor paid an aggregate of $
The Sponsor has agreed that, subject to certain limited exceptions, the Founder Shares will not be transferred, assigned, or sold until the earlier of (i)
15
AVISTA PUBLIC ACQUISITION CORP. II
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
Promissory Note — Related Party
On February 12, 2021, the Company issued an unsecured promissory note to the Sponsor (the “Promissory Note”), pursuant to which the Company could borrow up to an aggregate of $
Administrative Support Agreement
The Company entered into an agreement, commencing on August 9, 2021, to pay an affiliate of the Sponsor a total of $
Due to Related Party
Due to related party consists of payments made by the Sponsor and/or an affiliate of the Sponsor on behalf of the Company for formation and operating costs, along with the administrative support monthly fee and are payable on demand.
Convertible Promissory Note
In order to finance transaction costs in connection with an intended initial Business Combination, the Sponsor or an affiliate of the Sponsor or certain of the Company’s officers and directors may, but are not obligated to, loan the Company funds as may be required (the “working capital loans”). If the Company completed the initial Business Combination, it could repay such loaned amounts out of the proceeds of the Trust Account released to us. Otherwise, such loans could be repaid only out of funds held outside the Trust Account. In the event that the initial Business Combination did not close, the Company could use a portion of the working capital held outside the Trust Account to repay such loaned amounts but no proceeds from the Company’s Trust Account would be used to repay such loaned amounts. Up to $
On March 14, 2022, the Company entered into a convertible promissory note pursuant to the Working Capital Loans terms with the Sponsor (the “Sponsor Working Capital Loan”) to which the Company could borrow up to an aggregate of $
16
AVISTA PUBLIC ACQUISITION CORP. II
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
Audit Committee Compensation
On August 24, 2022, the board of directors elected Charles Harwood to serve as a director of the Company and appointed Mr. Harwood to serve as a member of the audit committee. The board of directors has determined that Mr. Harwood satisfies all applicable independence requirements to serve on the board of directors and the audit committee, including without limitation the applicable independence requirements of the Nasdaq Capital Market and the Exchange Act, as amended. In connection with Mr. Harwood’s appointment to the audit committee, Lâle White has stepped down from the audit committee, which currently consists of Wendel Barr, Charles Harwood and William Klitgaard. The changes to the audit committee’s composition relate to the Company’s communications with the staff of Nasdaq on August 22, 2022, regarding whether the Company was in compliance with Nasdaq Listing Rule 5605(c)(2) following the phase-in period provided under Nasdaq Listing Rule 5615(b)(1) because the Audit Committee was not comprised of at least three independent directors. The Company is in compliance with the applicable rules following the board of directors and audit committee changes described herein.
Upon consummation of the OmniAb Business Combination, the Company paid Mr. Harwood a $
NOTE 6. COMMITMENTS AND CONTINGENCIES
Registration and Shareholder Rights Agreement
Pursuant to a registration rights agreement entered into on August 9, 2021, the holders of the Founder Shares, Private Placement Warrants and warrants that may be issued upon conversion of Working Capital Loans (and any Class A ordinary shares issuable upon the exercise of the Private Placement Warrants and warrants issued upon conversion of the Working Capital Loans) had registration and shareholder rights to require the Company to register a sale of any of its securities held by them pursuant to a registration and shareholder rights agreement to be signed prior to or on the effective date of the Initial Public Offering. The holders of these securities were entitled to make up to
Underwriting Agreement
The underwriters purchased Units at a purchase price of $
Forward Purchase Agreement
In connection with the consummation of the Initial Public Offering, the Company entered into a forward purchase agreement with the Sponsor which provides for the purchase of an aggregate of
The forward purchase securities were issued in connection with the closing of the initial Business Combination. The proceeds from the sale of forward purchase securities were used as part of the consideration to the sellers in the Company’s initial Business Combination, expenses in connection with the initial Business Combination or for working capital in the post-transaction company.
17
AVISTA PUBLIC ACQUISITION CORP. II
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
On March 23, 2022, in connection with the execution of the Merger Agreement, the Company entered into the A&R FPA with the Sponsor and Legacy OmniAb. Pursuant to the A&R FPA, the Company agreed that, in connection with the consummation of the OmniAb Business Combination, they would issue and sell to the Sponsor
As a result of the A&R FPA, the Company evaluated the modification of the equity contract, which resulted in a reclassification between equity and a liability, in which the difference between the fair value at issuance of the original forward purchase agreement and the fair value at issuance of the A&R FPA (the modification date) was treated as a deemed dividend. An amount of $
NOTE 7. SHAREHOLDERS’ EQUITY (DEFICIT)
Preference shares — The Company is authorized to issue
Class A ordinary shares — The Company is authorized to issue
Class B ordinary shares — The Company is authorized to issue
18
AVISTA PUBLIC ACQUISITION CORP. II
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
Ordinary shareholders of record are entitled to
Redeemable Warrants — Each whole warrant entitles the registered holder to purchase
The Company will not be obligated to deliver any Class A ordinary shares pursuant to the exercise of a warrant and will have no obligation to settle such warrant exercise unless a registration statement under the Securities Act with respect to the Class A ordinary shares underlying the warrants is then effective and a prospectus relating thereto is current, subject to the Company’s satisfying of the obligations described below with respect to registration, or a valid exemption from registration is available. No warrant will be exercisable and the Company will not be obligated to issue a Class A ordinary share upon exercise of a warrant unless the Class A ordinary share issuable upon such warrant exercise has been registered, qualified or deemed to be exempt under the securities laws of the state of residence of the registered holder of the warrants. In the event that the conditions in the two immediately preceding sentences are not satisfied with respect to a warrant, the holder of such warrant will not be entitled to exercise such warrant and such warrant may have no value and expire worthless. In no event will the Company be required to net cash settle any warrant. In the event that a registration statement is not effective for the exercised warrants, the purchaser of a unit containing such warrant will have paid the full purchase price for the unit solely for the Class A ordinary share underlying such unit.
19
AVISTA PUBLIC ACQUISITION CORP. II
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
The Company has agreed that as soon as practicable, but in no event later than
Redemption of warrants
Once the warrants become exercisable, the Company may redeem the outstanding warrants (except as described herein with respect to the Private Placement Warrants):
| ● | in whole and not in part; |
| ● | at a price of $ |
| ● | upon not less than |
| ● | if, and only if, the closing price of the Class A ordinary shares equals or exceeds $ |
The Company will not redeem the warrants as described above unless a registration statement under the Securities Act covering the issuance of the Class A ordinary shares issuable upon exercise of the warrants is then effective and a current prospectus relating to those Class A ordinary shares is available throughout the
The Company has established the last of the redemption criterion discussed above to prevent a redemption call unless there is at the time of the call a significant premium to the warrant exercise price. If the foregoing conditions are satisfied and the Company issues a notice of redemption of the warrants, each warrant holder will be entitled to exercise his, her or its warrant prior to the scheduled redemption date. However, the price of the Class A ordinary shares may fall below the $
20
AVISTA PUBLIC ACQUISITION CORP. II
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
No fractional Class A ordinary shares will be issued upon exercise. If, upon exercise, a holder would be entitled to receive a fractional interest in a share, the Company will round down to the nearest whole number of the number of Class A ordinary shares to be issued to the holder. If, at the time of redemption, the warrants are exercisable for a security other than the Class A ordinary shares pursuant to the warrant agreement (for instance, if the Company is not the surviving company in the Company’s initial Business Combination), the warrants may be exercised for such security. At such time as the warrants become exercisable for a security other than the Class A ordinary shares, the Company (or surviving company) will use its commercially reasonable efforts to register under the Securities Act the security issuable upon the exercise of the warrants.
If the number of outstanding Class A ordinary shares is increased by a capitalization or share dividend payable in Class A ordinary shares, or by a sub-division of ordinary shares or other similar event, then, on the effective date of such capitalization or share dividend, sub-division or similar event, the number of Class A ordinary shares issuable on exercise of each warrant will be increased in proportion to such increase in the outstanding ordinary shares. A rights offering made to all or substantially all holders of ordinary shares entitling holders to purchase Class A ordinary shares at a price less than the “historical fair market value” (as defined below) will be deemed a share dividend of a number of Class A ordinary shares equal to the product of (i) the number of Class A ordinary shares actually sold in such rights offering (or issuable under any other equity securities sold in such rights offering that are convertible into or exercisable for Class A ordinary shares) and (ii) one minus the quotient of (x) the price per Class A ordinary share paid in such rights offering and (y) the historical fair market value. For these purposes, (i) if the rights offering is for securities convertible into or exercisable for Class A ordinary shares, in determining the price payable for Class A ordinary shares, there will be taken into account any consideration received for such rights, as well as any additional amount payable upon exercise or conversion and (ii) “historical fair market value” means the volume weighted average price of Class A ordinary shares as reported during the
In addition, if the Company, at any time while the warrants are outstanding and unexpired, pays a dividend or makes a distribution in cash, securities or other assets to all or substantially all of the holders of the Class A ordinary shares on account of such Class A ordinary shares (or other securities into which the warrants are convertible), other than (a) as described above, (b) any cash dividends or cash distributions which, when combined on a per share basis with all other cash dividends and cash distributions paid on the Class A ordinary shares during the
Whenever the number of Class A ordinary shares purchasable upon the exercise of the warrants is adjusted, as described above, the warrant exercise price will be adjusted by multiplying the warrant exercise price immediately prior to such adjustment by a fraction (x) the numerator of which will be the number of Class A ordinary shares purchasable upon the exercise of the warrants immediately prior to such adjustment and (y) the denominator of which will be the number of Class A ordinary shares so purchasable immediately thereafter.
21
AVISTA PUBLIC ACQUISITION CORP. II
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
In addition, if (x) the Company issues additional Class A ordinary shares or equity-linked securities for capital raising purposes in connection with the closing of the initial Business Combination at an issue price or effective issue price of less than $
No fractional warrants will be issued upon separation of the units and only whole warrants will trade. If, upon exercise of the warrants, a holder would be entitled to receive a fractional interest in a share, the Company will, upon exercise, round down to the nearest whole number the number of Class A ordinary shares to be issued to the warrant holder.
The Private Placement Warrants have terms and provisions that are identical to those of the warrants being sold as part of the units in the Company’s Initial Public Offering except that the Private Placement Warrants (including the Class A ordinary shares issuable upon exercise of the Private Placement Warrants) will not be transferable, assignable or salable until
The Company accounts for the
NOTE 8. FAIR VALUE MEASUREMENTS
The following tables present information about the Company’s financial assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2022, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:
Amount at | ||||||||||||
Description |
| Fair Value |
| Level 1 |
| Level 2 |
| Level 3 | ||||
September 30, 2022 |
|
|
|
|
|
|
|
| ||||
Assets |
|
|
|
|
|
|
|
| ||||
Investments held in Trust Account | $ | | $ | | $ | — | $ | — | ||||
Liabilities | ||||||||||||
Derivative liability - Forward Purchase and Backstop Securities | $ | | $ | — | $ | — | $ | | ||||
The Forward Purchase and Backstop Securities were fair valued based on the difference between the current fair values of each of the underlying components of the agreement (i.e. the Class A ordinary shares and the warrants) and the present value of the contractual forward prices. As the Backstop Securities only apply in the event of and to the extent that the funds in the Company’s Trust Account falls below $
22
AVISTA PUBLIC ACQUISITION CORP. II
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
As of September 30, 2022, the derivative liability for the Forward Purchase and Backstop Securities is classified as Level 3 due to the use of unobservable inputs.
The following table provides the significant inputs to the valuation for the Forward Purchase and Backstop Securities liability as of March 23, 2022 (initial measurement):
| As of March 23, 2022 (Initial |
| ||
Measurement) |
| |||
Fair value of Forward Purchase and Backstop Securities | $ | | ||
Present value of Forward Purchase and Backstop Securities | $ | | ||
Time to Business Combination (years) |
| | ||
Risk-free rate |
| | % | |
Discount factor | | % | ||
Expected redemption rate | | % | ||
Probability of completing an initial Business Combination | | % | ||
Fair value of Forward Purchase and Backstop Securities | $ | | ||
The following table provides the significant inputs to the valuation for the Forward Purchase and Backstop Securities liability as of September 30, 2022:
| At September 30, 2022 |
| ||
Fair value of Forward Purchase and Backstop Securities | $ | | ||
Present value of Forward Purchase and Backstop Securities | $ | | ||
Time to Business Combination (years) |
| | ||
Risk-free rate |
| | % | |
Discount factor |
| | % | |
Expected redemption rate |
| | % | |
Probability of completing an initial Business Combination | | % | ||
Fair value of Forward Purchase and Backstop Securities | $ | | ||
The following table presents the changes in the fair value of the Company’s Level 3 financial instruments that are measured at fair value:
Fair value as of December 31, 2021 |
| $ | |
Initial measurement as of March 23, 2022 |
| | |
Change in fair value | | ||
Fair value as of March 31, 2022 | | ||
Change in fair value |
| ( | |
Fair value as of June 30,2022 | | ||
Change in fair value | | ||
Fair value as of September 30, 2022 | $ | |
The Company recognized a loss in connection with changes in the fair value of the Forward Purchase and Backstop Securities of $
As of December 31, 2021, the Company had no financial assets or liabilities measured at fair value on a recurring basis.
23
AVISTA PUBLIC ACQUISITION CORP. II
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
NOTE 9. SUBSEQUENT EVENTS
The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the unaudited condensed consolidated financial statements were issued. Based upon this review, other than as mentioned below, the Company did not identify any subsequent events that would have required adjustment or disclosure in the unaudited condensed consolidated financial statements.
On November 1, 2022, the parties to the Merger Agreement completed the Business Combination. Holders of
24
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
References in this report (the “Quarterly Report”) to “we,” “us” or the “Company” refer to Avista Public Acquisition Corp. II, prior to its domestication as a corporation incorporated in the state of Delaware and change of name to OmniAb, Inc. References to our “management” or our “management team” refer to our officers and directors, and references to our “Sponsor” refer to Avista Acquisition LP II. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto contained elsewhere in this Quarterly Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Special Note Regarding Forward-Looking Statements
This Quarterly Report includes “forward-looking statements” that are not historical facts and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Quarterly Report including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, including with respect to our business combination with OmniAB Business, are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of the Company’s Annual Report on Form 10-K for the year ended December 31, 2021 filed with the U.S. Securities and Exchange Commission (the “SEC”). The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.
Overview
We were incorporated on February 5, 2021 as a Cayman Island exempted company and formed for the purpose of effectuating a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses, which we refer to throughout this Quarterly Report as our “initial business combination”. We intended to effectuate our initial business combination using cash from the proceeds of our initial public offering (the “Initial Public Offering”) and the private placement of the Private Placement Warrants (as defined below), the proceeds of the sale of our shares in connection with our initial business combination (pursuant to forward purchase agreements or backstop agreements entered into following the consummation of the Initial Public Offering), shares issued to the owners of the target, and debt issued to bank or other lenders or the owners of the target. Upon closing of the Initial Public Offering and the sale of the Private Placement Warrants, a total of $235,750,000 ($10.25 per Public Share (as defined below)) was placed in a trust account (the “Trust Account”) and invested in only in U.S. government treasury obligations with maturities of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act which invest only in direct U.S. government treasury obligations.
OmniAb Business Combination
On March 23, 2022, we entered into an Agreement and Plan of Merger (the “Merger Agreement”), by and among the Company, Ligand Pharmaceuticals Incorporated, a Delaware corporation (“Ligand”), OmniAb, Inc., a Delaware corporation and wholly-owned subsidiary of Ligand (“Legacy OmniAb”), and Orwell Merger Sub Inc., a Delaware corporation and a wholly-owned subsidiary of the Company (“Merger Sub”), pursuant to which we combined with Legacy OmniAb, Ligand’s antibody discovery business (the “OmniAb Business”), in a Reverse Morris Trust transaction. Also on March 23, 2022, and in connection with the execution of the Merger Agreement, (a) the Company, Ligand, Legacy OmniAb and Merger Sub entered into that certain Employee Matters Agreement, as amended by that certain Amended and Restated Employee Matters Agreement, dated as of August 18, 2022 (the “Employee Matters Agreement”), (b) Legacy OmniAb and our Sponsor entered into that certain Sponsor Insider Letter Agreement (the “Sponsor Insider Agreement”) with the Company and certain insiders of the Company (the “Insiders”) and (c) we amended and restated that certain Forward Purchase Agreement, dated August 9, 2021, by entering into the Amended and Restated Forward Purchase Agreement (the “A&R FPA”), by and among the Company, our Sponsor and Legacy OmniAb.
25
Immediately prior to the Merger (as defined below) and pursuant to a Separation and Distribution Agreement, dated as of March 23, 2022, among the Company, Ligand and Legacy OmniAb (the “Separation Agreement”), Ligand transferred the OmniAb Business, including certain related subsidiaries of Ligand, to Legacy OmniAb and, in connection therewith, distributed (the “Distribution”) to Ligand stockholders 100% of the common stock of Legacy OmniAb, par value $0.001 (the “Legacy OmniAb Common Stock”).
Immediately following the Distribution, in accordance with and subject to the terms and conditions of the Merger Agreement, Merger Sub merged with and into Legacy OmniAb (the “Merger”), with Legacy OmniAb continuing as the surviving company in the Merger and as a wholly-owned subsidiary of the Company.
The Merger Agreement, along with the Separation Agreement and the other transaction documents to be entered into in connection therewith, provided for, among other things, the consummation of the following transactions (collectively, the “OmniAb Business Combination”): (i) redomiciling by way of continuation from the Cayman Islands to Delaware and domesticating as a Delaware corporation in accordance with Section 388 of the Delaware General Corporation Law and with Section 206 of the Cayman Islands Companies Act (As Revised) at least one business day prior to the closing of the OmniAb Business Combination (the “Domestication”), (ii) Ligand transferred the OmniAb Business (the “Separation”) to its wholly-owned subsidiary Legacy OmniAb, and contributed $15 million in capital thereto (less certain reimbursable transaction and other expenses), and (iii) following the Separation, Ligand distributed 100% of the shares of Legacy OmniAb Common Stock to Ligand stockholders by way of the Distribution. Following the completion of the foregoing transactions and subject to the satisfaction or waiver of certain other conditions set forth in the Merger Agreement, the parties consummated the Merger. The Distribution and Merger are intended to qualify as “tax-free” transactions.
On April 28, 2022, the Company filed a registration statement on Form S-4 (File No. 333-264525) (as amended, the “Form S-4”) with the SEC, which includes the proxy statement/prospectus/information statement that was distributed to holders of the Company’s ordinary shares in connection with the Company’s solicitation for proxies for the vote by the Company’s shareholders in connection with the OmniAb Business Combination and other matters as described in the Form S-4. The Form S-4 has been amended five times, as filed with the SEC on June 13, 2022, July 26, 2022, August 22, 2022, September 13, 2022 and September 27, 2022. The Form S-4 was declared effective by the SEC on September 30, 2022, and the definitive proxy statement/prospectus/information statement was mailed to the Company’s shareholders of record as of the record date for voting on the OmniAb Business Combination. The OmniAb Business Combination closed on November 1, 2022. Upon consummation of the OmniAb Business Combination, and after the Domestication, we have one class of common stock, par value $0.0001 per share, which is listed on Nasdaq under the ticker symbol “OABI”. Our then-outstanding warrants are listed on Nasdaq under the ticker symbol “OABIW”.
The Business Combination was accounted for as a reverse recapitalization in accordance with GAAP, whereby the Company is treated as the acquired company and Legacy OmniAb is treated as the acquirer. Accordingly, for accounting purposes, the Business Combination was treated as the equivalent of Legacy OmniAb issuing stock for the net assets of the Company, accompanied by a recapitalization. The net assets of the Company were stated at historical cost, with no goodwill or other intangible assets recorded. Subsequent presentations of the results of operations presented for the period prior to the Business Combination will be for those of Legacy OmniAb.
Legacy OmniAb has been determined to be the accounting acquirer in the Business Combination based on the following predominate factors:
| ● | Legacy OmniAb’s existing stockholders have the greatest voting interest in the combined entity; |
| ● | Legacy OmniAb has the ability to nominate a majority of the initial members of the OmniAb Board; |
| ● | Legacy OmniAb’s senior management is the senior management of the combined entity; |
| ● | Legacy OmniAb is the larger entity based on historical operating activity and has the larger employee base; and |
| ● | The post-combination company has assumed a Legacy OmniAb branded name: “OmniAb, Inc.” |
26
Agreement and Plan of Merger
At the time the OmniAb Business Combination was effected (the “Closing”), each share of Legacy OmniAb Common Stock outstanding after the Distribution and immediately prior to the effective time of the Merger was converted into a number of shares of common stock in the newly formed company (“OmniAb Common Stock”) on a one-for-one basis into shares in the newly formed company. Holders of Legacy OmniAb options, restricted stock units and performance stock units (determined after the Distribution and the division of Ligand equity awards into Ligand equity awards and OmniAb equity awards pursuant to the Employee Matters Agreement) will have their awards converted into equity awards of the Company and adjusted pursuant to the exchange ratio.
In addition, at the Closing, holders of Legacy OmniAb Common Stock and equity awards also received shares of OmniAb Common Stock subject to certain price-based earnout triggers (“Earnout Shares”), with 50% of such earnout shares vesting upon the combined company’s achievement of a post-transaction volume-weighted average price (“VWAP”) of $12.50 per share of OmniAb Common Stock for any 20 trading days over a consecutive 30 trading-day period, and the remainder vesting upon achievement of a post-transaction VWAP of $15 per share of OmniAb Common Stock for any 20 trading days over a consecutive 30 trading-day period, in each case provided such vesting occurs during the five-year period following the Closing.
In connection with the OmniAb Business Combination, upon the Domestication (i) all issued and outstanding Class A ordinary shares and Class B ordinary shares converted automatically, on a one-for-one basis, into shares of OmniAb Common Stock, (ii) all issued and outstanding warrants converted automatically into warrants to acquire shares of OmniAb Common Stock and (iii) all issued and outstanding Units separated and converted automatically into one share of OmniAb Common Stock and one-third of one warrant to purchase OmniAb Common Stock.
Separation and Distribution Agreement
On March 23, 2022, in connection with the execution of the Merger Agreement, we entered into the Separation Agreement with Legacy OmniAb and Ligand, pursuant to which, among other things, (i) Ligand undertook a series of internal reorganization and restructuring transactions to effect the transfer of its (direct or indirect) ownership of the OmniAb Business to Legacy OmniAb in the Separation and (ii) immediately prior to the Merger and after the Separation, Ligand distributed 100% of the outstanding shares of Legacy OmniAb Common Stock to Ligand’s stockholders in the Distribution.
The Separation Agreement also sets forth other agreements among Ligand and OmniAb related to the Separation, including provisions concerning the termination and settlement of intercompany accounts and the obtaining of necessary governmental approvals and third-party consents. The Separation Agreement also sets forth agreements that will govern certain aspects of the relationship between Ligand and Legacy OmniAb after the Distribution, including provisions with respect to release of claims, indemnification, access to financial and other information and access to and provision of records.
Employee Matters Agreement
On March 23, 2022, in connection with the execution of the Merger Agreement, the Company, Ligand, OmniAb and Merger Sub entered into the Employee Matters Agreement, as amended by that certain Amended and Restated Employee Matter Agreement, dated as of August 18, 2022, which provides for employee-related matters in connection with the transaction, including allocation of benefit plan assets and liabilities between Ligand and Legacy OmniAb, treatment of incentive equity awards in the Distribution and the OmniAb Business Combination and related covenants and commitments of the parties. Each existing Ligand equity award at the time of the Distribution granted prior to March 2, 2022, with certain exceptions, was split into (i) a new Ligand equity award and (ii) a new Legacy OmniAb equity award, with any in-the-money value in the original Ligand equity award split between such awards based on the relative values of Ligand and Legacy OmniAb at the time of the Distribution. Each existing Ligand equity award at the time of the Distribution granted on or after March 2, 2022 was converted into either an adjusted Ligand equity award, if the holder was a Ligand service provider following the Distribution, or a Legacy OmniAb equity award, if the holder was Legacy OmniAb service provider following the Distribution.
27
Sponsor Insider Agreement
On March 23, 2022, in connection with the execution of the Merger Agreement, Legacy OmniAb and our Sponsor entered into the Sponsor Insider Agreement with the Company and the Insiders, pursuant to which, among other things, the Insiders agreed to vote any of our securities held by them to approve the OmniAb Business Combination and the other Company shareholder matters required pursuant to the Merger Agreement, and not to seek redemption of any of their Company securities in connection with the consummation of the OmniAb Business Combination. Pursuant to the Sponsor Insider Agreement, our Sponsor also agreed to subject up to 1,916,667 Earnout Founder Shares (as defined in the Sponsor Insider Agreement), to the same price-based vesting conditions as the OmniAb Earnout Shares.
Amended and Restated Forward Purchase Agreement
On March 23, 2022, in connection with the execution of the Merger Agreement, we entered into the A&R FPA with our Sponsor and Legacy OmniAb. Pursuant to the A&R FPA, we agreed that, in connection with the consummation of the OmniAb Business Combination, we would issue and sell to our Sponsor 1,500,000 shares of OmniAb Common Stock (the “Forward Purchase Shares”) and warrants to acquire 1,666,667 shares of OmniAb Common Stock (the “Forward Purchase Warrants”) for an aggregate purchase price of $15.0 million with such purchases to be consummated immediately following the Domestication and prior to the OmniAb Business Combination. In addition, our Sponsor has agreed to purchase up to an additional 10,000,000 shares of OmniAb Common Stock (the “Backstop Shares”) and up to an additional 1,666,667 warrants, (The “Backstop Warrants” and, together with the Forward Purchase Shares, Forward Purchase Warrants and Backstop Shares, the “Forward Purchase and Backstop Securities”) for an aggregate additional purchase price of up to $100.0 million, in order to backstop shareholder redemptions to the extent such redemptions would result in the cash proceeds to be received by OmniAb stockholders from the Trust Account to be less than $100.0 million. Pursuant to the A&R FPA, in connection with the Business Combination, the Sponsor purchased 8,672,934 Backstop Shares and 1,445,489 Backstop Warrants for an aggregate purchase price of $86,729,340.
Certain Other Transaction Documents
Certain additional agreements were entered into in connection with the transactions contemplated by the Merger Agreement, the Separation Agreement and the other agreements described above, including, among others:
| ● | a Tax Matters Agreement by and among Ligand, Legacy OmniAb and the Company, which governs, among other things, Ligand’s, Legacy OmniAb’s and the Company’s respective rights, responsibilities and obligations with respect to taxes, tax attributes and the preparation and filing of tax returns and responsibility for and preservation of the expected tax-free status of the transactions contemplated by the Separation Agreement and the Merger Agreement, and certain other tax matters; |
| ● | an Amended and Restated Registration and Stockholder Rights Agreement by and among the Company, our Sponsor and the other parties signatory thereto, pursuant to which the Registration Rights Agreement, dated August 9, 2021, among the Company, our Sponsor and certain other security holders named therein will be amended and restated in order to, among other things, provide certain equityholders of Legacy OmniAb as of immediately prior to the Closing of the OmniAb Business Combination with customary registration rights; |
| ● | a Transition Services Agreement by and between Ligand and Legacy OmniAb, pursuant to which Ligand will, on a transitional basis, provide Legacy OmniAb with certain non-scientific and non-technical support services and other assistance after the Closing; and |
| ● | a Transition Services Agreement by and between Ligand and Legacy OmniAb, pursuant to which Legacy OmniAb will, on a transitional basis, provide Ligand with certain support services and other assistance after the Closing. |
Results of Operations
We have neither engaged in any operations nor generated any operating revenues to date. Our only activities for the period from February 5, 2021 (inception) through September 30, 2022 were organizational activities, those necessary to prepare for the Initial Public Offering, described below, and since the closing of the Initial Public Offering, the search for a prospective initial Business Combination, which is described below. The Company generates non-operating income in the form of interest and dividend income or gains on investments on the cash and investments held in the Trust Account from the proceeds derived from the Initial Public Offering. The Company has selected December 31 as its fiscal year end.
28
For the three months ended September 30, 2022, we had a net loss of $2,466,430, which resulted from formation and operating costs of $2,344,863 and the change in fair value of Forward Purchase and Backstop Securities of $1,212,110, partially offset by the gain on investments held in the Trust Account of $1,090,543.
For the three months ended September 30, 2021, we had net loss of $170,579, which resulted entirely from formation and operating costs.
For the nine months ended September 30, 2022, we had a net loss attributable to ordinary shareholders of $8,677,586, which resulted from formation and operating costs of $8,744,341, the change in fair value of Forward Purchase and Backstop Securities of $1,147,120, and a deemed dividend relating to the forward purchase and backstop securities of $225,000, partially offset by the gain on investments held in the Trust Account of $1,438,875.
For the period from February 5, 2021 (inception) through September 30, 2021, we had a net loss of $180,550, which resulted entirely from formation and operating costs.
Liquidity and Capital Resources
For the nine months ended September 30, 2022 net cash used in operating activities was $920,124, which was due to our net loss of $8,452,586, gain on investments held in Trust Account of $1,438,875, partially offset by a change in fair value of Forward Purchase and Backstop Securities of $1,147,120, and a change in operating assets and liabilities of $7,824,217.
For the period from February 5, 2021 (inception) through September 30, 2021, net cash used in operating activities was $966,382, which was due to our net loss of $180,550 and a change in operating assets and liabilities of $785,832.
There were no cash flows from investing activities for the nine months ended September 30, 2022.
For the period from February 5, 2021 (inception) through September 30, 2021, net cash used in investing activities was $235,750,000, which was due to the investment of cash into the Trust Account.
For the nine months ended September 30, 2022, net cash provided by financing activities was $750,000 from the proceeds of the convertible promissory note from our Sponsor.
For the period from February 5, 2021 (inception) through September 30, 2021, net cash provided by financing activities was $237,078,585, which was due to proceeds from initial public offering, net of underwriter’s discounts paid of $225,400,000, proceeds from sale of private placement warrants of $12,350,000, and proceeds from sponsor note of $119,275, partially offset by the repayment of sponsor note of $175,000, and payment of offering costs of $615,690.
On August 12, 2021, we consummated the Initial Public Offering of 23,000,000 units, including 3,000,000 Units that were issued pursuant to the underwriter’s exercise of its over-allotment option in full, at $10.00 per unit, generating gross proceeds of $230,000,000. Each unit consisted of one Class A ordinary share (the “Public Shares”), $0.0001 par value, and one-third of one redeemable warrant (the “Public Warrants”). Each Public Warrant entitles the holder to purchase one Class A ordinary share at an exercise price of $11.50 per whole share.
Simultaneously with the closing of the Initial Public Offering, our Sponsor purchased an aggregate of 8,233,333 warrants (the “Private Placement Warrants” and, together with the Public Warrants, the “Warrants”), including 900,000 Private Placement Warrants that were issued pursuant to the underwriter’s exercise of its over-allotment option in full, at a price of $1.50 per unit ($12,350,000 in the aggregate). Each Private Placement Warrant is exercisable to purchase one Class A ordinary share at a price of $11.50 per share. The proceeds from the sale of the Private Placement Warrants were added to the net proceeds from the Initial Public Offering held in the Trust Account. If we do not complete our initial business combination within 18 months from the closing of the Initial Public Offering, the proceeds from the sale of the Private Placement Warrants will be used to fund the redemption of the Public Shares (subject to the requirements of applicable law) and the Private Placement Warrants will expire worthless.
29
We intended to use substantially all of the funds held in the Trust Account, including any amounts representing interest earned on the Trust Account (less taxes payable and deferred underwriting commissions), to complete our initial business combination. We may have withdrawn interest income (if any) to pay income taxes, if any. Our annual income tax obligations would have depended on the amount of interest and other income earned on the amounts held in the Trust Account. We expected the interest income earned on the amount in the Trust Account (if any) would have been sufficient to pay our franchise and income taxes. After the consummation of the Business Combination, the remaining proceeds held in the Trust Account will be used as working capital to finance the operations of Legacy OmniAb, make other acquisitions and pursue growth strategies.
As of September 30, 2022, the Company had $19,847 in cash held outside of the Trust Account and a working capital deficit of $9,843,540. The Company incurred significant costs in pursuit of its acquisition plans. In connection with the Company’s assessment of going concern considerations in accordance with FASB’s ASC Subtopic 205-40, Presentation of Financial Statements - Going Concern, management has determined those conditions raised substantial doubt about the Company’s ability to continue as a going concern within the earlier of the Combination Period, which will end on February 12, 2023, or one year after the date that the condensed consolidated financial statements are issued. Moreover, the Company needed to obtain additional financing to complete the Business Combination and to redeem 21,713,864 public shares upon completion of the Business Combination, in which case the Company issued additional securities in connection with the Business Combination. Of the total proceeds from the Initial Public Offering and sale of the Private Placement Warrants, an amount of approximately $2 million was deposited in an operating account for the Company’s working capital needs. In addition, the Company entered into a convertible promissory note pursuant to the Working Capital Loans terms as outlined in Note 5 with the Sponsor (the “Sponsor Working Capital Loan”) to which the Company could borrow up to an aggregate of $750,000. As of September 30, 2022, the Company has borrowed $750,000 under the Sponsor Working Capital Loan. The amounts held in the operating account were not expected to provide the Company with sufficient funds to meet its operational and liquidity obligations over the remainder of the Combination Period. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of September 30, 2022 or December 31, 2021.
Contractual Obligations
Promissory Note - Related Party
On February 12, 2021, the Company issued an unsecured promissory note to our Sponsor (the “Promissory Note”), pursuant to which the Company could borrow up to an aggregate of $300,000 to cover expenses related to the Initial Public Offering. The Promissory Note was non-interest bearing and was payable on the earlier of (i) December 31, 2021 or (ii) the consummation of the Initial Public Offering. The Company’s Sponsor paid certain offering costs totaling $55,725, which was included in the outstanding balance of the Promissory Note as of March 22, 2021, and the Company borrowed $119,275 on June 23, 2021. On August 12, 2021, the Company repaid the outstanding balance under the Promissory Note of $175,000. The Promissory Note is no longer available to the Company.
On March 14, 2022, the Company entered into a convertible promissory note pursuant to the Working Capital Loans terms with our Sponsor (the “Sponsor Working Capital Loan”) to which the Company could borrow up to an aggregate of $750,000. The Sponsor Working Capital Loan is non-interest bearing and payable upon the earlier of (i) completion of the initial Business Combination or (ii) the date that the winding up of the Company is effective. The unpaid principal balance on the Sponsor Working Capital Loan may be convertible into warrants at the option of our Sponsor at a price of $1.50 per warrant. The warrants would be identical to the Private Placement Warrants. As of September 30, 2022, the outstanding balance on the convertible promissory note is $750,000.
Administrative Support Agreement
The Company entered into an agreement, commencing on August 9, 2021, to pay an affiliate of our Sponsor a total of $10,000 per month for administrative, financial and support services. Upon the completion of the OmniAb Business Combination, the Company ceased paying these monthly fees. For the three months and nine months ended September 30, 2022 the Company incurred expenses of $30,000 and $90,000, respectively, under the agreement. For the three months ended September 30, 2021 and for the period from February 5, 2021 (inception) through September 30, 2021 the Company incurred expenses of $20,000 under the agreement.
30
Underwriting Agreement
The underwriters purchased Units at a purchase price of $9.80 per unit (i.e., at a cash underwriting discount of $0.20 per Unit, or $4,600,000 in the aggregate) upon the closing of the Initial Public Offering and the exercise of the over-allotment in full on August 12, 2021. In addition, the Company agreed to pay the underwriters a deferred underwriting fee of up to $0.35 per unit, or $8,050,000 in the aggregate, which would be payable to the underwriters upon the consummation of an initial Business Combination, except that the Company’s management team would be permitted, in its sole discretion, to allocate up to 50% of the deferred underwriting fee, or $4,025,000 in the aggregate, to third parties that assist in identifying and consummating an initial Business Combination. On August 17, 2022, Credit Suisse waived its right to 50%, or $4,025,000 in the aggregate, of the deferred underwriting fee, and the Company has determined not to pay the 50% to any other advisors.
Forward Purchase Agreement
In connection with the consummation of the Initial Public Offering, the Company entered into a forward purchase agreement with our Sponsor which provides for the purchase of an aggregate of 10,000,000 Class A ordinary shares plus an aggregate of 3,333,333 redeemable warrants to purchase Class A ordinary shares at $11.50 per share, for an aggregate purchase price of $100,000,000, in the private placement. The obligations under the forward purchase agreement do not depend on whether any Class A ordinary shares are redeemed by the Company’s public shareholders.
The forward purchase securities were issued in connection with the closing of the initial Business Combination. The proceeds from the sale of forward purchase securities were used as part of the consideration to the sellers in the Company’s initial Business Combination, expenses in connection with the initial Business Combination or for working capital in the post-transaction company.
On March 23, 2022, in connection with the execution of the Merger Agreement, the Company entered into the A&R FPA with our Sponsor and Legacy OmniAb. Pursuant to the A&R FPA, the Company has agreed that, in connection with the consummation of the OmniAb Business Combination, they will issue and sell to our Sponsor 1,500,000 shares of OmniAb Common Stock and warrants to acquire 1,666,667 shares of OmniAb Common Stock for an aggregate purchase price of $15.0 million with such purchases consummated immediately following the re-domestication to Delaware and prior to the OmniAb Business Combination. In addition, our Sponsor has agreed to purchase up to an additional 10,000,000 shares of OmniAb Common Stock and up to an additional 1,666,667 warrants, for an aggregate additional purchase price of up to $100.0 million, in order to backstop shareholder redemptions to the extent such redemptions would result in the cash proceeds to be received by OmniAb stockholders from the Trust Account to be less than $100.0 million.
As a result of the A&R FPA, the Company evaluated the modification of the equity contract, which resulted in a reclassification between equity and a liability, in which the difference between the fair value at issuance of the original forward purchase agreement and the fair value at issuance of the A&R FPA (the modification date) was treated as a deemed dividend. An amount of $225,000 was recorded to accumulated deficit as a deemed dividend upon modification of the forward purchase agreement on March 23, 2022.
Audit Committee Compensation
On August 24, 2022, the board of directors elected Charles Harwood to serve as a director of the Company and appointed Mr. Harwood to serve as a member of the audit committee. The board of directors has determined that Mr. Harwood satisfies all applicable independence requirements to serve on the board of directors and the audit committee, including without limitation the applicable independence requirements of the Nasdaq Capital Market and the Exchange Act, as amended. In connection with Mr. Harwood’s appointment to the audit committee, Lâle White has stepped down from the audit committee, which currently consists of Wendel Barr, Charles Harwood and William Klitgaard. The changes to the audit committee’s composition relate to the Company’s communications with the staff of Nasdaq on August 22, 2022, regarding whether the Company was in compliance with Nasdaq Listing Rule 5605(c)(2) following the phase-in period provided under Nasdaq Listing Rule 5615(b)(1) because the Audit Committee was not comprised of at least three independent directors. The Company is in compliance with the applicable rules following the board of directors and audit committee changes described herein.
Upon consummation of the OmniAb Business Combination, the Company paid Mr. Harwood a $10,000 fee for his services as a director and member of the audit committee. This fee has been accrued as of September 30, 2022 as part of accrued expenses on the balance sheet. In connection with Mr. Harwood’s appointment, he and the Company entered into an indemnification agreement and a letter agreement, the terms of which were described in, and the forms of which were filed as exhibits to, the Company’s registration statement relating to the Company’s Initial Public Offering.
31
Critical Accounting Policies
The preparation of condensed consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the condensed consolidated financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following critical accounting policies:
Derivative Financial Instruments
The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC Topic 815, Derivatives and Hedging. For derivative financial instruments that are accounted for as assets or liabilities, the derivative instrument is initially recorded at its fair value on the grant date and is then re-valued at each reporting date, with changes in the fair value reported in the condensed consolidated statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. The Forward Purchase and Backstop Securities contained within the A&R FPA are classified as derivatives in the condensed consolidated balance sheet with changes in the fair value recognized in the condensed consolidated statements of operations.
Class A Ordinary Shares Previously Subject to Possible Redemption
All of the 23,000,000 shares of Class A ordinary shares sold as part of the Units in the Initial Public Offering contained a redemption feature which allowed for the redemption of such Public Shares in connection with the Company’s liquidation, if there was a shareholder vote or tender offer in connection with the Business Combination and in connection with certain amendments to the Company’s amended and restated certificate of incorporation. In accordance with SEC and its staff’s guidance on redeemable equity instruments, which has been codified in ASC 480-10-S99, redemption provisions not solely within the control of the Company require ordinary shares subject to redemption to be classified outside of permanent equity. Therefore, all Class A ordinary shares have been classified outside of permanent equity.
The Company recognized changes in redemption value immediately as they occurred and adjusted the carrying value of redeemable ordinary shares to equal the redemption value at the end of each reporting period. Increases or decreases in the carrying amount of redeemable ordinary shares were affected by charges against additional paid-in capital and accumulated deficit.
Warrants
We evaluated the Warrants in accordance with ASC 815-40, “Derivatives and Hedging — Contracts in Entity’s Own Equity,” and concluded that there were no indexation or tender offer provisions in the Warrant Agreement that precluded the Warrants from being accounted for as components of equity, and the Warrants meet the criteria in ASC 815-40-25 to be classified in shareholders’ equity. Fair value of the Public and Private Placement Warrants was determined by an independent valuation expert as of August 12, 2021 using a Monte Carlo Model. Proceeds from the IPO and subsequent partial exercise of the over-allotment option allocated to the Public Warrants was an aggregate $9,813,334 ($9,232,604, net of offering costs) and is recorded in additional paid-in capital. Proceeds from the issuance of the Private Placement Warrants were $12,350,000 ($12,298,375, net of offering costs) and is recorded in additional paid-in capital.
Net Loss Per Ordinary Share
Net loss per ordinary share is computed by dividing net loss by the weighted average number of ordinary shares outstanding during the period. The Company has not considered the effect of the warrants sold in the Initial Public Offering and private placement to purchase an aggregate of 15,900,000 shares in the calculation of diluted income per share, since the exercise of the warrants are contingent upon the occurrence of future events and the inclusion of such warrants would be anti-dilutive.
Recent Accounting Pronouncements
Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s condensed consolidated financial statements.
32
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As of September 30, 2022 and December 31, 2021, we were not subject to any market or interest rate risk.
Item 4. Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under Securities Exchange Act of 1934, as amended (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Evaluation of Disclosure Controls and Procedures
As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2022. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that a material weakness in our internal control over financial reporting exists related to the Company’s accounting for complex financial instruments. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. As such, the Company’s disclosure controls and procedures (as defined in Rules 13a-15 (e) and 15d-15 (e) under the Exchange Act) were not effective as of September 30, 2022 based on the material weakness disclosed in the Company’s Annual Report on Form 10-K filed with the SEC on March 28, 2022 and in the Company’s Quarterly Reports on Form 10-Q filed with the SEC on May 20, 2022 and August 12, 2022.
Changes in Internal Control Over Financial Reporting
During the most recently completed fiscal quarter, there has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. In light of the Company’s material weakness identified in its Annual Report on Form 10-K filed with the SEC on March 28, 2022 and in the Company’s Quarterly Reports on Form 10-Q filed with the SEC on May 20, 2022 and August 12, 2022, we plan to enhance our processes to identify and appropriately apply applicable accounting requirements to better evaluate and understand the nuances of the complex accounting standards that apply to our condensed consolidated financial statements. Our plans at this time include providing enhanced access to accounting literature, research materials and documents and increased communication among our personnel and third-party professionals with whom we consult regarding complex accounting applications. The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects.
33
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 1A. RISK FACTORS
Factors that could cause our actual results to differ materially from those in this Quarterly Report are any of the risks described in our Annual Report on Form 10-K filed with the SEC on March 28, 2022 and our Quarterly Report on Form 10-Q filed with the SEC on May 20, 2022 and August 12, 2022. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. As of the date of this Quarterly Report, there have been no material changes to the risk factors relating to APAC prior to the business combination disclosed in our Annual Report on Form 10-K filed with the SEC on March 28, 2022 and our Quarterly Report on Form 10-Q filed with the SEC on May 20, 2022 and August 12, 2022.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
34
ITEM 6. EXHIBITS
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
Exhibit No. |
| Description |
2.1† | ||
2.2 | ||
10.1† | ||
31.1* | ||
31.2* | ||
32.1** | ||
32.2** | ||
101.INS* | XBRL Instance Document | |
101.CAL* | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.SCH* | XBRL Taxonomy Extension Schema Document | |
101.DEF* | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB* | XBRL Taxonomy Extension Labels Linkbase Document | |
101.PRE* | XBRL Taxonomy Extension Presentation Linkbase Document | |
104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) |
* | Filed herewith. |
** | Furnished. |
† | Schedules and exhibits omitted pursuant to Item 601(b)(2) of Regulation S-K. The Company agrees to furnish supplementally a copy of any omitted schedule to the SEC upon request. |
35