References to the "Company," "Frazier Lifesciences Acquisition Corporation,"
"our," "us" or "we" refer to Frazier Lifesciences Acquisition Corporation. The
following discussion and analysis of the Company's financial condition and
results of operations should be read in conjunction with the condensed financial
statements and the notes thereto contained elsewhere in this report. Certain
information contained in the discussion and analysis set forth below includes
forward-looking statements that involve risks and uncertainties.
Cautionary Note Regarding Forward-Looking Statements
This 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 Securities Exchange Act of 1934, as amended (the "Exchange Act"). We have
based these forward-looking statements on our current expectations and
projections about future events. These forward-looking statements are subject to
known and unknown risks, uncertainties and assumptions about us that may cause
our actual results, levels of activity, performance or achievements to be
materially different from any future results, levels of activity, performance or
achievements expressed or implied by such forward-looking statements. In some
cases, you can identify forward-looking statements by terminology such as "may,"
"should," "could," "would," "expect," "plan," "anticipate," "believe,"
"estimate," "continue," or the negative of such terms or other similar
expressions. Factors that might cause or contribute to such a discrepancy
include, but are not limited to, those described in our other U.S. Securities
and Exchange Commission (the "SEC") filings.
Overview
We are a blank check company incorporated on October 7, 2020, as a Cayman
Islands exempted company for the purpose of effecting a merger, share exchange,
asset acquisition, share purchase, reorganization or similar business
combination with one or more businesses or entities, which we refer to
throughout this Quarterly Report on Form 10-Q as our initial business
combination. We have generated no operating revenues to date and we do not
expect that we will generate operating revenues until we consummate our initial
business combination. Our sponsor is Frazier Lifesciences Sponsor LLC, a Cayman
Islands exempted limited company.
The registration statement for our initial public offering was declared
effective on December 8, 2020 (the "Initial Public Offering"). On December 11,
2020, we consummated the Initial Public Offering of 13,800,000 units at $10.00
per unit, generating gross proceeds of $138 million, and incurring offering
costs of approximately $8.11 million, inclusive of approximately $4.83 million
in deferred underwriting commissions. Each unit consists of one Class A ordinary
share and one-third of one redeemable warrant. Each whole public warrant
entitles the holder to purchase one Class A ordinary share at a price of $11.50
per share, subject to adjustment.
Simultaneously with the closing of the Initial Public Offering, we consummated
the private placement of 501,000 private placement units at a price of $10.00
per private placement unit to the sponsor, generating gross proceeds of
approximately $5.01 million. Each private placement unit is identical to the
public units sold in the Initial Public Offering, subject to certain limited
exceptions.
Upon the closing of the Initial Public Offering and private placement,
$138 million of the net proceeds of the Initial Public Offering and certain of
the proceeds of the private placement were placed in a trust account, located in
the United States at J.P. Morgan Chase Bank, N.A., with Continental Stock
Transfer & Trust Company acting as trustee, and will only be invested in U.S.
government securities, within the meaning set forth in Section 2(a)(16) of the
Investment Company Act, with a maturity of 180 days or less or in any open-ended
investment company that holds itself out as a money market fund selected by us
meeting the conditions of paragraphs (d)(2), (d)(3) and (d)(4) of Rule 2a-7 of
the Investment Company Act, as determined by us, until the earlier of: (i) the
completion of a business combination and (ii) the distribution of the assets
held in the trust account. Our management has broad discretion with respect to
the specific application of the net proceeds of the Initial Public Offering and
the private placement, although substantially all of the net proceeds are
intended to be applied toward consummating a business combination. If we are
unable to complete a business combination within 24 months from the closing of
the Initial Public Offering, or December 11, 2022, we will (i) cease all
operations except for the purpose of winding up, (ii) as promptly as reasonably
possible but not more than ten business days thereafter, redeem the public
shares, at a per-share price, payable in cash, equal to the aggregate amount
then on deposit in the trust account including interest earned on the
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funds held in the trust account and not previously released to us to pay for our
income taxes (less up to $100,000 of interest to pay dissolution expenses),
divided by the number of then outstanding public shares, which redemption will
completely extinguish public shareholders' rights as shareholders (including the
right to receive further liquidating distributions, if any), subject to
applicable law, and (iii) as promptly as reasonably possible following such
redemption, subject to the approval of our remaining shareholders and our board
of directors, proceed to commence a voluntary liquidation and thereby a formal
dissolution of our company, subject in each case to our obligations under Cayman
Islands law to provide for claims of creditors and the requirements of other
applicable law.
Liquidity and Going Concern
As of September 30, 2022, we had approximately $0.4 million in cash and working
capital deficit of approximately $3.4 million.
Our liquidity needs up to September 30, 2022 had been satisfied through a
contribution of $25,000 from our sponsor to cover for certain expenses on behalf
of us in exchange for the issuance of the founder shares, the loan of
approximately $83,000 pursuant to the note issued to our sponsor, and the
proceeds from the consummation of the private placement not held in the trust
account. We fully repaid the note to our sponsor on December 14, 2020. In
addition, in order to 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, provide us working capital
loans. To date, there were no amounts outstanding under any working capital
loan. On December 30, 2021, upon termination of the term sheet, the Company
received a break-up fee of $1 million.
Based on the foregoing, our management has determined that we do not have
sufficient liquidity to meet its anticipated obligations for at least twelve
months after the financial statements are available to be issued, as such, the
events and circumstances raise substantial doubt about our ability to continue
as a going concern. Therefore, we will include a going concern disclosure in its
financial statements.
In connection with our assessment of going concern considerations in accordance
with the ASC 205-40, we have until December 11, 2022 to consummate a Business
Combination. It is uncertain that we will be able to consummate a Business
Combination by this time. If a Business Combination is not consummated by this
date, there will be a liquidity condition, mandatory liquidation, and subsequent
dissolution of the Company. Our management has determined that the liquidity
condition and mandatory liquidation, should a Business Combination not occur,
and potential subsequent dissolution raises substantial doubt about our ability
to continue as a going concern.
Management continues to evaluate the impact of the COVID-19 pandemic and has
concluded that the specific impact is not readily determinable as of the date of
the unaudited condensed financial statements. The unaudited condensed financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Results of Operations
Our entire activity has been the preparation for our formation and Initial
Public Offering, and since our Initial Public Offering, our activity has been
limited to the search for a prospective initial Business Combination. We will
not be generating any operating revenues until the closing and completion of our
initial Business Combination at the earliest.
For the three months ended September 30, 2022, we had net loss of approximately
$4.8 million, which consisted of approximately $3.2 million in change in fair
value of derivative warrant liabilities, $2.3 million in general and
administrative expenses, and $30,000 in administrative expenses-related party,
partially offset by approximately $0.7 million in interest income from
investments held in trust account.
For the three months ended September 30, 2021, we had a net income of
approximately $1.7 million, which consisted of approximately $2.1 million in
change in fair value of derivative warrant liabilities, approximately $2,000 in
interest income from investments held in trust account, offset by approximately
$339,000 in general and administrative expenses, and $30,000 in administrative
expenses-related party.
For the nine months ended September 30, 2022, we had net loss of approximately
$4.6 million, which consisted of approximately $0.8 million in change in fair
value of derivative warrant liabilities, $4.5 million in general and
administrative expenses, and $90,000 in administrative expenses-related party,
partially offset by approximately $0.8 million in interest income from
investments held in trust account.
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For the nine months ended September 30, 2021, we had a net income of
approximately $3.2 million, which consisted of approximately $4.1 million in
change in fair value of derivative warrant liabilities, approximately $13,000 in
interest income from investments held in trust account, offset by approximately
$822,000 in general and administrative expenses, and $90,000 in administrative
expenses-related party.
Contractual Obligations
Registration and Shareholder Rights
The holders of founder shares, private placement units and warrants that may be
issued upon conversion of working capital loans, if any, will be entitled to
registration rights (in the case of the founder shares, only after conversion of
such shares into Class A ordinary shares) pursuant to a registration and
shareholder rights agreement entered into upon consummation of the Initial
Public Offering. These holders will be entitled to certain demand and
"piggyback" registration and shareholder rights. However, the registration and
shareholder rights agreement provides that we will not permit any registration
statement filed under the Securities Act to become effective until the
termination of the applicable lock-up period for the securities to be
registered. We will bear the expenses incurred in connection with the filing of
any such registration statements.
Underwriting Agreement
We granted the underwriters a 45-day option from the date of the final
prospectus relating to the Initial Public Offering to purchase up to 1,800,000
additional units to cover over-allotments, if any, at $10.00 per unit, less
underwriting discounts and commissions. The underwriters exercised this option
in full on December 11, 2020.
The underwriters were entitled to underwriting discounts of $0.20 per unit, or
approximately $2.76 million in the aggregate, paid upon the closing of the
Initial Public Offering. An additional fee of $0.35 per unit, or approximately
$4.83 million in the aggregate will be payable to the underwriters for deferred
underwriting commissions. The deferred underwriting commissions will become
payable to the underwriters from the amounts held in the trust account solely in
the event that we complete a business combination, subject to the terms of the
underwriting agreement.
Risks and Uncertainties
Management continues to evaluate the impact of the COVID-19 pandemic, including
new variant strains of the underlying virus, current or anticipated military
conflict, including between Russia and Ukraine, terrorism, sanctions or other
geopolitical events as well as adverse developments in the economy and capital
markets, including rising energy costs, inflation and interest rates, in the
United States and globally, on the industry and has concluded that while it is
reasonably possible that these events could have a negative effect on our
financial position, results of its operations and/or search for a target
company, the specific impact is not readily determinable as of the date of the
unaudited condensed financial statements. The unaudited condensed financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
Critical Accounting Policies
The preparation of unaudited condensed financial statements and related
disclosures in conformity with accounting principles generally accepted in the
United States requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities, disclosure of contingent assets
and liabilities at the date of the unaudited condensed financial statements, and
income and expenses during the periods reported. Actual results could materially
differ from those estimates. We have identified the following as our critical
accounting policies:
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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" ("ASC Topic 480"). Shares of
Class A ordinary shares subject to mandatory redemption (if any) are classified
as liability instruments and are measured at fair value. Shares of conditionally
redeemable Class A ordinary shares (including Class A ordinary shares that
feature redemption rights that are either within the control of the holder or
subject to redemption upon the occurrence of uncertain events not solely within
our control) are classified as temporary equity. At all other times, shares of
Class A ordinary shares are classified as shareholders' equity. As part of the
private placement, we issued 501,000 Class A ordinary shares to the Sponsor
("Private Placement Shares"). These Private Placement Shares will not be
transferable, assignable or salable until 30 days after the completion of our
initial business combination, as such are considered non-redeemable and
presented as permanent equity in our balance sheet. Our Class A ordinary shares
features certain redemption rights that are considered to be outside of our
control and subject to the occurrence of uncertain future events. Accordingly,
at September 30, 2022 and December 31, 2021, 13,800,000 Class A ordinary shares
subject to possible redemption are presented as temporary equity, outside of the
shareholders' deficit section of the accompanying balance sheets.
Under ASC 480-10-S99, we have elected to recognize changes in the redemption
value immediately as they occur and adjust the carrying value of the security to
equal the redemption value at the end of the reporting period. This method would
view the end of the reporting period as if it were also the redemption date of
the security. Effective with the closing of the Initial Public Offering, we
recognized the accretion from initial book value to redemption amount, which
resulted in charges against additional paid-in capital (to the extent available)
and accumulated deficit.
Derivative Warrant liabilities
We do not use derivative instruments to hedge exposures to cash flow, market, or
foreign currency risks. We evaluate all of our financial instruments, including
issued stock purchase warrants, to determine if such instruments are derivatives
or contain features that qualify as embedded derivatives, pursuant to ASC Topic
480 and ASC Subtopic 815-15 "Derivatives and Hedging-Embedded Derivatives" ("ASC
Subtopic 815-15"). The classification of derivative instruments, including
whether such instruments should be recorded as liabilities or as equity, is
re-assessed at the end of each reporting period.
The 4,600,000 warrants issued in connection with the Initial Public Offering
(the "Public Warrants") and the 167,000 private placement warrants are
recognized as derivative liabilities in accordance with Derivatives and
Hedging-Contracts in Entity's Own Equity ("ASC Subtopic 815-40"). Accordingly,
we recognize the warrant instruments as liabilities at fair value and adjusts
the instruments to fair value at each reporting period. The liabilities are
subject to re-measurement at each balance sheet date until exercised, and any
change in fair value is recognized in our statement of operations. The fair
value of the Public Warrants issued in connection with the Public Offering and
private placement warrants were initially measured at fair value using a Monte
Carlo simulation model and subsequently, have been measured based on the listed
market price of such warrants.
Net Income (Loss) per Ordinary Shares
We comply with accounting and disclosure requirements of the Financial
Accounting Standards Board's ("FASB") ASC Topic 260, "Earnings Per Share." We
have two classes of shares, which are referred to as Class A ordinary shares and
Class B ordinary shares. Income and losses are shared pro rata between the two
classes of shares. This presentation assumes a business combination as the most
likely outcome. Net income per ordinary share is calculated by dividing the net
income by the weighted average shares of ordinary shares outstanding for the
respective period.
The calculation of diluted net income does not consider the effect of the
warrants underlying the units sold in the Initial Public Offering (including the
consummation of the over-allotment) and the private placement warrants to
purchase an aggregate of 4,767,000 shares of Class A ordinary shares in the
calculation of diluted income (loss) per share, because their exercise is
contingent upon future events. As a result, diluted net income per ordinary
share is the same as basic net income per ordinary share for the three and nine
months ended September 30, 2022 and 2021. Accretion associated with the
redeemable Class A ordinary shares is excluded from earnings per share as the
redemption value approximates fair value.
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Recent Issued Accounting Standards
In June 2022, the FASB issued ASU 2022-03, ASC Subtopic 820 "Fair Value
Measurement of Equity Securities Subject to Contractual Sale Restrictions". The
ASU amends ASC 820 to clarify that a contractual sales restriction is not
considered in measuring an equity security at fair value and to introduce new
disclosure requirements for equity securities subject to contractual sale
restrictions that are measured at fair value. The ASU applies to both holders
and issuers of equity and equity-linked securities measured at fair value. The
amendments in this ASU are effective for the Company in fiscal years beginning
after December 15, 2023, and interim periods within those fiscal years. Early
adoption is permitted for both interim and annual financial statements that have
not yet been issued or made available for issuance. The Company is still
evaluating the impact of this pronouncement on the condensed financial
statements.
Our management does not believe that any other recently issued, but not yet
effective, accounting standards updates, if currently adopted, would have a
material effect on the accompanying financial statement.
JOBS Act
The Jumpstart Our Business Startups Act of 2012 (the "JOBS Act") contains
provisions that, among other things, relax certain reporting requirements for
qualifying public companies. We qualify as an "emerging growth company" and
under the JOBS Act are allowed to comply with new or revised accounting
pronouncements based on the effective date for private (not publicly traded)
companies. We are electing to delay the adoption of new or revised accounting
standards, and as a result, we may not comply with new or revised accounting
standards on the relevant dates on which adoption of such standards is required
for non-emerging growth companies. As a result, the condensed financial
statements may not be comparable to companies that comply with new or revised
accounting pronouncements as of public company effective dates.
Additionally, we are in the process of evaluating the benefits of relying on the
other reduced reporting requirements provided by the JOBS Act. Subject to
certain conditions set forth in the JOBS Act, if, as an "emerging growth
company," we choose to rely on such exemptions we may not be required to, among
other things, (i) provide an auditor's attestation report on our system of
internal controls over financial reporting pursuant to Section 404, (ii) provide
all of the compensation disclosure that may be required of non-emerging growth
public companies under the Dodd-Frank Wall Street Reform and Consumer Protection
Act, (iii) comply with any requirement that may be adopted by the Public Company
Accounting Oversight Board (the "PCAOB") regarding mandatory audit firm rotation
or a supplement to the auditor's report providing additional information about
the audit and the financial statements (auditor discussion and analysis) and
(iv) disclose certain executive compensation related items such as the
correlation between executive compensation and performance and comparisons of
the Chief Executive Officer's compensation to median employee compensation.
These exemptions will apply for a period of five years following the completion
of our Initial Public Offering or until we are no longer an "emerging growth
company," whichever is earlier.
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