References in this report (the "Quarterly Report") to "we," "us" or the
"Company" refer to Medicus Sciences Acquisition Corp. References to our
"management" or our "management team" refer to our officers and directors, and
references to the "Sponsor" refer to Medicus Sciences Holdings LLC. The
following discussion and analysis of the Company's financial condition and
results of operations should be read in conjunction with the financial
statements and the notes thereto contained elsewhere in this Quarterly Report.
Certain information contained in the discussion and analysis set forth below
includes forward-looking statements that involve risks and uncertainties.
This Management's Discussion and Analysis of Financial Condition and Results of
Operations has been amended and restated to give effect to the restatement of
our financial statements as of March 31, 2021, June 30, 2021, and September 31,
2021. Management identified errors made in its historical financial statements
where, at the closing of our IPO, we incorrectly valued our Class A ordinary
shares subject to possible redemption. We previously determined the Class A
ordinary shares subject to possible redemption to be equal to the redemption
value of $10.00 per Class A ordinary share while also taking into consideration
a redemption cannot result in net tangible assets being less than $5,000,001.
Management determined that the Class A ordinary shares issued during the IPO can
be redeemed or become redeemable subject to the occurrence of future events
considered outside of the Company's control. Therefore, management concluded
that the redemption value should include all Class A ordinary shares subject to
possible redemption, resulting in the Class A ordinary shares subject to
possible redemption being equal to their redemption value. As a result,
management has noted a reclassification error related to temporary equity and
permanent equity. This resulted in a restatement to the initial carrying value
of the Class A ordinary shares subject to possible redemption with the offset
recorded to additional paid-in capital (to the extent available), accumulated
deficit and Class A ordinary shares.
Special Note Regarding Forward-Looking Statements
This Quarterly Report includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended (the "Securities Act")
and Section 21E of the Exchange Act that are not historical facts, and involve
risks and uncertainties that could cause actual results to differ materially
from those expected and projected. All statements, other than statements of
historical fact included in this Quarterly Report including, without limitation,
statements in this "Management's Discussion and Analysis of Financial Condition
and Results of Operations" regarding the Company's financial position, business
strategy and the plans and objectives of management for future operations, are
forward-looking statements. Words such as "expect," "believe," "anticipate,"
"intend," "estimate," "seek" and variations and similar words and expressions
are intended to identify such forward-looking statements. Such forward-looking
statements relate to future events or future performance, but reflect
management's current beliefs, based on information currently available. A number
of factors could cause actual events, performance or results to differ
materially from the events, performance and results discussed in the
forward-looking statements. For information identifying important factors that
could cause actual results to differ materially from those anticipated in the
forward-looking statements, please refer to the Risk Factors section of the
Company's final prospectus for its IPO 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 are a blank check company formed under the laws of the Cayman Islands in
November 26, 2020 for the purpose of effecting a merger, capital stock exchange,
asset acquisition, stock purchase, reorganization or other similar business
combination with one or more businesses. We intend to effectuate our business
combination using cash from the proceeds of the initial public offering and the
sale of the private placement warrants, our capital stock, debt or a combination
of cash, stock and debt.
All activity through September 30, 2021 relates to our formation, initial public
offering, and search for a prospective initial business combination target.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date.
Our only activities from inception through September 30, 2021 were
organizational activities and those necessary to prepare for the initial public
offering, described below and after our initial public offering, identify a
target company for a business combination. We do not expect to generate any
operating revenues until after
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the completion of our business combination. We expect to generate non-operating
income in the form of interest income on marketable securities held after the
initial public offering. We incur expenses as a result of being a public company
(for legal, financial reporting, accounting and auditing compliance), as well as
for due diligence expenses.
For the three months ended September 30, 2021, we had a net income of $2,259,376
which consisted of non-cash gain of $2,426,517 related to changes in the fair
value of the warrants and FPA, formation costs and costs related to our initial
public offering and search for a prospective initial business combination target
of $168,309, and interest earned on the investments held in the Trust Account of
$1,168.
For the nine months ended September 30, 2021, we had a net income of $2,162,713
which consisted of non-cash gain of $2,831,668 related to changes in the fair
value of the warrants and FPA, loss from offering cost expenses allocated to
warrants of $205,898, formation costs and costs related to our initial public
offering and search for a prospective initial business combination target of
$470,104, and interest earned on the investments held in the Trust Account of
$7,046.
Liquidity and Capital Resources
Until the consummation of the initial public offering, our only source of
liquidity was an initial purchase of Class B ordinary shares by the Sponsor and
loans from our Sponsor.
For the nine months ended September 30, 2021, we had a net income of $2,162,712
that was affected by the non-cash gain on the change in fair value of the
Warrants of $2,831,668, loss from offering cost expenses allocated to warrants
of $205,898, interest earned on investments held in the Trust Account of $7,046
and changes in operating assets and liabilities which used $177,189 of cash from
operating activities.
As of September 30, 2021, we had cash of $1,584,979 held outside the Trust
Account.
As of September 30, 2021, we had cash and U.S. money market funds of $92,007,046
held in the Trust Account. We intend to use substantially all of the funds held
in the Trust Account, including any amounts representing interest earned on the
Trust Account (less taxes paid and deferred underwriting commissions) to
complete our initial Business Combination.
On February 18, 2021, we consummated the initial public offering of 9,200,000
units, which included the full exercise of the underwriter's option to purchase
up to an additional 1,200,000 units at the initial public offering price to
cover over-allotments, at a price of $10.00 per unit, generating gross proceeds
of $92,000,000.
Simultaneously with the closing of our initial public offering ("IPO") and the
over-allotment option, the Company consummated the sale of 5,022,222 Private
Placement Warrants (the "Private Placement Warrants") to the Sponsor and Maxim
Partners LLC (3,642,222 Private Placement Warrants to the Sponsor and 1,380,000
to Maxim Partners LLC) at a price of $0.90 per Private Placement Warrant,
generating total gross proceeds of $4,520,000.
Also, simultaneously with the closing of the IPO, the Company issued to
designees of Maxim Partners LLC 92,000 shares of Class A ordinary shares (the
"representative shares"). The Company estimated the fair value of the stock to
be $920 based upon the price of the founder shares issued to the Sponsor. The
representative shares were treated as underwriters' compensation and charged
directly to shareholders' equity.
Following the initial public offering and the private placement, a total of
$92,000,000 was placed in the trust account. We incurred $4,632,181 in
transaction costs, including $1,840,000 of underwriting discount, $2,300,000 of
deferred underwriting discount, the fair value of the representative shares of
$920 and $537,181 of other cash offering costs.
We intend to use substantially all of the funds held in the trust account,
including any amounts representing interest earned on the trust account to
complete our business combination. We may withdraw interest to pay taxes. To the
extent that our capital stock or debt is used, in whole or in part, as
consideration to complete our business combination, the remaining proceeds held
in the trust account will be used as working capital to finance the operations
of the target business or businesses, make other acquisitions and pursue our
growth strategies.
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We intend to use the funds held outside the trust account primarily to identify
and evaluate target businesses, perform business due diligence on prospective
target businesses, travel to and from the offices, plants or similar locations
of prospective target businesses or their representatives or owners, review
corporate documents and material agreements of prospective target businesses,
and structure, negotiate and complete a business combination.
In order to fund working capital deficiencies or finance transaction costs in
connection with a business combination, our Sponsor or an affiliate of our
Sponsor or certain of our officers and directors may, but are not obligated to,
loan us funds as may be required. If we complete a business combination, we may
repay such loaned amounts out of the proceeds of the trust account released to
us. In the event that a business combination does not close, we may use a
portion of the working capital held outside the trust account to repay such
loaned amounts, but no proceeds from our trust account would be used for such
repayment. Up to $2,000,000 of such loans may be convertible into warrants, at a
price of $.90 per warrant, at the option of the lender.
We do not believe we will need to raise additional funds in order to meet the
expenditures required for operating our business. However, if our estimate of
the costs of identifying a target business, undertaking in-depth due diligence
and negotiating a business combination are less than the actual amount necessary
to do so, we may have insufficient funds available to operate our business prior
to our business combination. Moreover, we may need to obtain additional
financing either to complete our business combination or because we become
obligated to redeem a significant number of our public shares upon consummation
of our business combination, in which case we may issue additional securities or
incur debt in connection with such business combination. Subject to compliance
with applicable securities laws, we would only complete such financing
simultaneously with the completion of our business combination. If we are unable
to complete our business combination because we do not have sufficient funds
available to us, we will be forced to cease operations and liquidate the trust
account. In addition, following our business combination, if cash on hand is
insufficient, we may need to obtain additional financing in order to meet our
obligations.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of September 30, 2021.
Contractual Obligations
We do not have any long-term debt, capital lease obligations, operating lease
obligations or long-term liabilities, other than described below.
Maxim Group LLC agreed to defer $2,300,000 in underwriting commission until the
completion of the Company's initial business combination, if any, which deferred
commission would be paid out of the trust account. Such funds will be released
only upon consummation of an initial business combination. If the business
combination is not consummated, such deferred commission will be forfeited. None
of the underwriters will be entitled to any interest accrued on the deferred
commission. Up to 40% of such 2.5%, or 1.0% of the gross proceeds of our IPO,
may be re-allocated to other FINRA members that provide services to us in
identifying or consummating our initial business combination, in the sole
discretion of our Sponsor. In no event will more than an aggregate of 30% of
such 1.0%, or 0.3% of the gross proceeds (or 1.8% of the gross proceeds in the
aggregate) be paid to, received by, or directed to, Maxim Group LLC or any other
underwriter(s) participating in this offering (including any associated persons
or affiliates of Maxim Group LLC and any participating underwriter(s)), for
their services rendered in connection with our IPO.
Critical Accounting Policies
The preparation of condensed financial statements and related disclosures in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and income and expenses
during the period reported. Actual results could materially differ from those
estimates. We have identified the following critical accounting policies:
Warrant Liabilities and Derivative Assets - Forward Purchase Agreement
We account for the Warrants and the Forward Purchase Agreement ("FPA") as
derivative instruments based on an assessment of the specific terms of the
Warrants and FPA. These instruments are required to be recorded at their initial
fair value on the date of issuance, and each balance sheet date thereafter.
Changes in the estimated fair value of these derivative instruments are
recognized as a non-cash gain or loss on the statements of operations.
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Class A Ordinary Shares Subject to Possible Redemption
We account for our Class A ordinary shares subject to possible redemption in
accordance with the guidance in Accounting Standards Codification ("ASC") Topic
480 "Distinguishing Liabilities from Equity." Class A ordinary shares subject to
mandatory redemption (if any) is classified as a liability instrument and is
measured at fair value. Conditionally redeemable Class A ordinary shares
(including Class A ordinary shares that feature redemption rights that are
either within the control of the holder or subject to redemption upon the
occurrence of uncertain events not solely within our control) is classified as
temporary equity. At all other times, Class A ordinary shares is classified as
shareholders' equity. Our Class A ordinary shares feature certain redemption
rights that is considered to be outside of our control and subject to the
occurrence of uncertain future events. Accordingly, 9,200,000 Class A ordinary
shares subject to possible redemption were presented as temporary equity,
outside of the shareholders' equity section of our unaudited condensed balance
sheet.
Net Income (Loss) Per Ordinary Share
Net income per ordinary share is computed by dividing net income by the weighted
average number of ordinary shares outstanding with income allocated pro-rata
between the classes. The calculation of diluted income per ordinary share
excludes the effect of the warrants issued in connection with the Class A
ordinary shares since they are contingently exercisable. Accretion associated
with the redeemable shares of Class A ordinary share is excluded from earnings
per share as the redemption value approximates fair value.
Recent Accounting Standards
In August 2020, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update ("ASU") 2020-06, Debt - Debt with Conversion and
Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in
Entity's Own Equity (Subtopic 815-40) ("ASU 2020-06") to simplify accounting for
certain financial instruments. ASU 2020-06 eliminates the current models that
require separation of beneficial conversion and cash conversion features from
convertible instruments and simplifies the derivative scope exception guidance
pertaining to equity classification of contracts in an entity's own equity. The
new standard also introduces additional disclosures for convertible debt and
freestanding instruments that are indexed to and settled in an entity's own
equity. ASU 2020-06 amends the diluted earnings per share guidance, including
the requirement to use the if-converted method for all convertible instruments.
ASU 2020-06 is effective January 1, 2022 and should be applied on a full or
modified retrospective basis, with early adoption permitted beginning on January
1, 2021. The Company is currently assessing the impact, if any, that ASU 2020-06
would have on its financial position, results of operations or cash flows.
Management does not believe that any recently issued, but not yet effective,
accounting standards, if currently adopted, would have a material effect on our
condensed financial statements.
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