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)
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(State or other jurisdiction of | (IRS Employer |
(Address of principal executive offices and zip code)
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(Registrant’s telephone number, including area code)
N/A
(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 which registered |
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| The |
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 17, 2023, there were
PRIVETERRA ACQUISITION CORP. II
(FORMERLY KNOWN AS TASTEMAKER ACQUISITION CORP.)
TABLE OF CONTENTS
PRIVETERRA ACQUISITION CORP. II
(FORMERLY KNOWN AS TASTEMAKER ACQUISITION CORP.)
CONDENSED BALANCE SHEETS
September 30, | December 31, | |||||
| 2023 |
| 2022 | |||
(Unaudited) | ||||||
Assets: |
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Current assets: |
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Cash | $ | | $ | | ||
Prepaid expenses and other |
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Total current assets |
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Cash and investments held in Trust Account |
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Total Assets | $ | $ | | |||
Liabilities and Stockholders’ Deficit: |
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Current liabilities: |
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Accounts payable | $ | | $ | | ||
Income tax payable | | | ||||
Franchise tax payable | | | ||||
Excise tax payable | | — | ||||
Accrued expenses | | | ||||
Deferred tax liability | — | | ||||
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Total current liabilities |
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Deferred underwriting fee payable |
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Warrant liabilities |
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Total Liabilities |
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Commitments and Contingencies (Note 6) |
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Class A common stock, $ |
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Stockholders’ Deficit: |
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Preferred stock, $ |
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Class A common stock, $ |
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Class B common stock, $ |
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Additional paid-in capital |
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Accumulated deficit | ( | ( | ||||
Total Stockholders’ Deficit | ( | ( | ||||
Total Liabilities and Stockholders’ Deficit | $ | | $ | |
The accompanying notes are an integral part of these unaudited condensed financial statements.
1
PRIVETERRA ACQUISITION CORP. II
(FORMERLY KNOWN AS TASTEMAKER ACQUISITION CORP.)
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Three Months Ended | For the Nine Months Ended | |||||||||||
September 30, | September 30, | |||||||||||
| 2023 |
| 2022 |
| 2023 |
| 2022 | |||||
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Operating and formation costs | $ | | $ | | $ | | $ | | ||||
Franchise tax expense | | | | | ||||||||
Loss from operations |
| ( | ( | ( | ( | |||||||
Other income (expense): |
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Interest expense | — | — | ( | — | ||||||||
Interest expense on promissory note | ( | — | ( | — | ||||||||
Interest income on Trust Account | | | | | ||||||||
Interest income on operating account | | | | | ||||||||
Forgiveness of debt | — | — | | — | ||||||||
Gain on change in fair value of warrant liabilities |
| ( | ( | | | |||||||
Gain on change in fair value of convertible promissory note – related party |
| — | | | | |||||||
Total other income, net | ( | | | | ||||||||
(Loss) Income before income taxes | ( | ( | | | ||||||||
Income tax expense | ( | ( | ( | ( | ||||||||
Net (loss) income | $ | ( | $ | ( | $ | | $ | | ||||
Basic and diluted weighted average shares outstanding, Class A Common Stock subject to possible redemption | | | | | ||||||||
Basic and diluted net (loss) income per share, Class A Common Stock subject to possible redemption | $ | ( | $ | ( | $ | | $ | | ||||
Basic and diluted weighted average shares outstanding, Class A Common Stock | | — | | — | ||||||||
Basic and diluted net (loss) income per share, Class A Common Stock | $ | ( | $ | — | $ | | $ | — | ||||
Basic and diluted weighted average shares outstanding, Class B Common Stock | | | | | ||||||||
Basic and diluted net (loss) income per share, Class B Common Stock | $ | ( | $ | ( | $ | | $ | |
The accompanying notes are an integral part of these unaudited condensed financial statements.
2
PRIVETERRA ACQUISITION CORP. II
(FORMERLY KNOWN AS TASTEMAKER ACQUISITION CORP.)
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
(UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2023
Common Stock | Additional | Total | |||||||||||||||||
Class A | Class B | Paid-in | Accumulated | Stockholders’ | |||||||||||||||
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Deficit |
| Deficit | ||||||
Balance – January 1, 2023 |
| — | $ | — |
| | $ | | $ | — | $ | ( | $ | ( | |||||
Remeasurement of Class A common stock to redemption amount |
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Net loss |
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Balance – March 31, 2023 |
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Remeasurement of Class A common stock to redemption amount | — | — | — | — | — | ( | ( | ||||||||||||
Net income |
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Balance- June 30, 2023 |
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Remeasurement of Class A common stock to redemption amount |
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Excise tax liability accrued for common stock redemptions |
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Capital Contribution | — | — | — | — | — | | | ||||||||||||
Conversion of Class B common stock to Class A common stock | | | ( | ( | — | — | — | ||||||||||||
Net loss | — | — | — | — | — | ( | ( | ||||||||||||
Balance – September 30, 2023 | | $ | | — | $ | — | $ | — | $ | ( | $ | ( |
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022
Common Stock | Additional | Total | |||||||||||||||||
Class A | Class B | Paid-in | Accumulated | Stockholders’ | |||||||||||||||
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Deficit |
| Deficit | ||||||
Balance – January 1, 2022 |
| — | $ | — | | $ | | $ | — | $ | ( | $ | ( | ||||||
Proceeds received in excess of initial fair value of convertible promissory note – related party |
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Net income |
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Balance – March 31, 2022 |
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Net income |
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Balance – June 30, 2022 |
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Proceeds received in excess of initial fair value of convertible promissory note – related party |
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Net (loss) | — | — | — | — | — | ( | ( | ||||||||||||
Remeasurement of Class A common stock to redemption amount | — | — | — | — | ( | ( | ( | ||||||||||||
Balance – September 30, 2022 | — | $ | — | | $ | | $ | — | $ | ( | $ | ( |
The accompanying notes are an integral part of these unaudited condensed financial statements
3
PRIVETERRA ACQUISITION CORP. II
(FORMERLY KNOWN AS TASTEMAKER ACQUISITION CORP.)
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Nine Months Ended | ||||||
September 30, | ||||||
| 2023 |
| 2022 | |||
Cash Flows from Operating Activities: | ||||||
Net income | $ | | $ | | ||
Adjustments to reconcile net income to net cash used in operating activities: | ||||||
Gain on change in fair value of convertible promissory note – related party |
| ( | ( | |||
Interest income on Trust Account |
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Interest expense on promissory note | | — | ||||
Gain on change in fair value of warrant liabilities |
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Changes in operating assets and liabilities: |
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Prepaid expenses and other |
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Accounts payable |
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Income tax payable |
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Franchise tax payable |
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Accrued expenses |
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Deferred tax liability | ( | — | ||||
Net cash used in operating activities |
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Cash Flows from Investing Activities: |
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Cash deposited in Trust Account for extension contribution |
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Proceeds from Trust Account for payment of franchise and income taxes |
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Cash withdrawn from Trust Account in connection with redemption | | — | ||||
Net cash provided by investing activities |
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Cash Flows from Financing Activities: |
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Proceeds from convertible promissory note - related party |
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Proceeds from promissory note |
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Repayment of promissory note | — | — | ||||
Redemption of common stock | ( | — | ||||
Net cash (used in) provided by financing activities |
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Net change in cash |
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Cash - beginning of period |
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Cash - end of period |
| $ | | $ | | |
Supplemental disclosure of noncash investing and financing activities: |
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Remeasurement of Class A common stock subject to redemption value | $ | | $ | | ||
Excess of cash received over fair value of convertible promissory note - related party | $ | — | $ | | ||
Supplemental cash flow information | ||||||
Cash paid for franchise taxes | $ | | $ | — | ||
Cash paid for interest | $ | | $ | — | ||
Cash paid for income taxes | $ | | $ | — | ||
Excise tax liability accrued for Class A common stock redemptions | $ | | — | |||
Sponsor contribution forgiveness of debt | $ | | — |
The accompanying notes are an integral part of these unaudited condensed financial statements
4
PRIVETERRA ACQUISITION CORP. II
(FORMERLY KNOWN AS TASTEMAKER ACQUISITION CORP.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
NOTE 1. DESCRIPTION OF ORGANIZATION, BUSINESS OPERATIONS AND LIQUIDITY
Priveterra Acquisition Corp. II (the “Company”) is a blank check company incorporated in Delaware on August 10, 2020 with the name “Tastemaker Acquisition Corp.” The Company changed its name on July 6, 2023 to Priveterra Acquisition Corp. II. The Company was 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 (an “Initial Business Combination”).
The Company is not limited to a particular industry or geographic region for purposes of consummating an Initial Business Combination. The Company is an early stage and emerging growth company and, as such, the Company is subject to all of the risks associated with early stage and emerging growth companies.
As of September 30, 2023, the Company has not commenced any operations. All activity from August 10, 2020 (inception) through September 30, 2023 relates to the Company’s formation, the initial public offering (“Initial Public Offering”) as described below, and since the closing of the Initial Public Offering, the search for and consummation of a prospective Initial Business Combination. The Company will not generate any operating revenues until after the completion of its Initial Business Combination, at the earliest. The Company will generate non-operating income in the form of interest income or gains on investments on the cash and investments held in a Trust Account (as defined below) from the proceeds derived from the Initial Public Offering, and potential gains from changes in the fair value of warrant liability and convertible promissory notes.
The Company’s sponsor is Priveterra Sponsor LLC II, a Delaware corporation, which changed its name from Tastemaker Sponsor LLC on July 6, 2023 (the “Sponsor”).
The registration statement for the Company’s Initial Public Offering was declared effective on January 7, 2021. On January 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
Following the closing of the Initial Public Offering on January 12, 2021, an amount of $
Transaction costs related to the issuances described above amounted to $
5
PRIVETERRA ACQUISITION CORP. II
(FORMERLY KNOWN AS TASTEMAKER ACQUISITION CORP.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
The Company’s management has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering and the sale of the Private Placement Warrants, although substantially all of the net proceeds are intended to be applied generally toward consummating an Initial Business Combination. The Company must complete an Initial Business Combination with one or more target businesses that together have an aggregate fair market value of at least
The Company will provide its holders of the outstanding Public Shares (the “public stockholders”) with the opportunity to redeem all or a portion of their Public Shares upon the completion of an Initial Business Combination either (i) in connection with a stockholder meeting called to approve the Initial Business Combination or (ii) by means of a tender offer. The decision as to whether the Company will seek stockholder approval of an Initial Business Combination or conduct a tender offer will be made by the Company, solely in its discretion. The public stockholders will be entitled to redeem their Public Shares for a pro rata portion of the amount then in the Trust Account (initially anticipated to be $
The Company will proceed with the Initial Business Combination only if, if the Company seeks stockholder approval, a majority of the shares voted are voted in favor of the Initial Business Combination. If a stockholder vote is not required by law and the Company does not decide to hold a stockholder vote for business or other reasons, the Company will, pursuant to its Amended and Restated Certificate of Incorporation, including any amendments thereto (the “Certificate of Incorporation”), conduct the redemptions pursuant to the tender offer rules of the U.S. Securities and Exchange Commission (“SEC”) and file tender offer documents with the SEC prior to completing an Initial Business Combination. If, however, stockholder approval of the Initial Business Combination is required by law, or the Company decides to obtain stockholder approval for business or other reasons, the Company will offer to redeem shares in conjunction with a proxy solicitation pursuant to the proxy rules and not pursuant to the tender offer rules. If the Company seeks stockholder approval in connection with an Initial Business Combination, the Sponsor has agreed to vote its Founder Shares (as defined in Note 5) and any Public Shares purchased during or after the Initial Public Offering in favor of approving an Initial Business Combination. Additionally, each public stockholder may elect to redeem their Public Shares irrespective of whether they vote for or against the proposed Initial Business Combination or do not vote at all.
Notwithstanding the above, if the Company seeks stockholder approval of an Initial Business Combination and it does not conduct redemptions pursuant to the tender offer rules, the Certificate of Incorporation provides that a public stockholder, together with any affiliate of such stockholder or any other person with whom such stockholder is acting in concert or as a “group” (as defined under Section 13 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), will be restricted from redeeming its shares with respect to more than an aggregate of
The Sponsor has agreed to waive (i) redemption rights with respect to any Founder Shares and Public Shares held in connection with the completion of an Initial Business Combination, (ii) redemption rights with respect to any Founder Shares and Public Shares held in connection with a stockholder vote to approve an amendment to the Certificate of Incorporation to modify the substance or timing of our obligation to allow redemption in connection with an Initial Business Combination or to redeem
6
PRIVETERRA ACQUISITION CORP. II
(FORMERLY KNOWN AS TASTEMAKER ACQUISITION CORP.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
The Company previously had until January 12, 2023 to complete an Initial Business Combination. On December 12, 2022, the Company filed the Extension Amendment (as defined below) to the Certificate of Incorporation with the Secretary of State of the State of Delaware. The Extension Amendment extended the date by which the Company must consummate its Initial Business Combination from January 12, 2023 to July 12, 2023 on a month-by-month basis (the “Combination Period”). The Company deposited $
On July 11, 2023, the Company filed the Second Extension and Redemption Limitation Amendment (as defined below) to the Certificate of Incorporation with the Secretary of State of the State of Delaware. The Second Extension and Redemption Limitation Amendment extends the Combination Period from July 12, 2023 to January 12, 2024.
If the Company is unable to complete an Initial Business Combination within the Combination Period, the Company will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account including interest earned on the funds held in the Trust Account and not previously released to the Company to pay its tax obligations (less up to $
Termination of Quality Gold Business Combination Agreement
On October 20, 2022, the Company, Quality Gold Holdings, Inc. (“New Parent”),
7
PRIVETERRA ACQUISITION CORP. II
(FORMERLY KNOWN AS TASTEMAKER ACQUISITION CORP.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
On June 21, 2023, the Business Combination Agreement was terminated, effective as of June 21, 2023 (the “Termination”). The Termination also terminates and makes void the Support Agreement (as defined in the Quality Gold Business Combination Agreement) and the Sponsor Letter Agreement (as defined in the Quality Gold Business Combination Agreement), which were executed concurrently with the Business Combination Agreement. As a result, there was no financial impact due to the termination.
Amendments to Certificate of Incorporation
On December 12, 2022, the Company convened a special meeting of stockholders (the “Extension Meeting”). At the close of business on the record date of the Extension Meeting, there were
Stockholders holding
On December 12, 2022, the Company filed an amendment (the “Extension Amendment”) to the Company’s Certificate of Incorporation with the Secretary of State of the State of Delaware. The Extension Amendment extends the date by which the Company must consummate its Initial Business Combination from January 12, 2023 on a monthly basis to July 12, 2023.
On July 10, 2023, the Company convened a special meeting of stockholders (the “Second Extension Meeting”). The only proposal submitted for a vote of the stockholders at the Second Extension Meeting was the approval of the adjournment of such meeting. The reconvened Special Meeting (the “Reconvened Meeting”) was held on July 11, 2023. At the close of business on the record date of the Second Extension Meeting and the Reconvened Meeting, there were
Stockholders holding
On July 11, 2023, the Company filed an amendment (the “Second Extension and Redemption Limitation Amendment”) to the Company’s Certificate of Incorporation with the Secretary of State of the State of Delaware. The Second Extension and Redemption Limitation Amendment extends the date by which the Company must consummate its Initial Business Combination from July 12, 2023 to January 12, 2024 and eliminates the limitation that the Company may not redeem public shares to the extent that such redemption would result in the Company having net tangible assets (as determined in accordance with Rule 3a51-1(g)(1) of the Securities Exchange Act of 1934, as amended (or any successor rule) of less than $
8
PRIVETERRA ACQUISITION CORP. II
(FORMERLY KNOWN AS TASTEMAKER ACQUISITION CORP.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
Following the Reconvened Special Meeting, the Sponsor, as the sole holder of shares of Class B common stock, converted all of its shares of Class B common stock to shares of Class A common stock, on a one-for-one basis (collectively, the “Class B Conversion”). Notwithstanding the Class B Conversion, the Sponsor, as well as the Company’s officers and directors, will be not entitled to receive any funds held in the trust account with respect to any shares of Class A common stock issued to such holders as a result of the Class B Conversion and no additional amounts will be deposited into the trust account in respect of shares of Class A common stock held by the Sponsor.
Director and Officer Resignations and Appointments
Effective July 3, 2023, (i) David Pace and Andrew Pforzheimer resigned as Co-Chief Executive Officers of the Company, and as members of the board of directors of the Company (the “Board”), (ii) Gregory Golkin resigned as President of the Company and as a member of the Board, (iii) Christopher Bradley resigned as Chief Financial Officer and Secretary of the Company, and (iv) Daniel Fleischmann resigned as Chief Strategy Officer of the Company. The Company appointed Oleg Grodnensky as Chief Executive Officer and Chairman of the Board. Additionally, effective July 3, 2023, the Company’s independent directors, Harold Rosser, Rick Federico, Starlette Johnson and Andrew Heyer, resigned as members of the Board and from all committees thereof on which he or she served. There were no disagreements between the Company and any of these individuals.
Effective July 5, 2023, the Company elected Bill Carpou, Dimitri Azar and Cameron Piron to serve as independent members of the Board. Each of Messrs. Carpou, Azar and Piron is serves on the Audit Committee and Compensation Committee of the Company.
Indemnity
In order to protect the amounts held in the Trust Account, the Sponsor has agreed to 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, or a prospective target business with which the Company has discussed entering into a transaction agreement, reduce the amount of funds in the Trust Account to below (1) $
Liquidity and Going Concern Consideration
As of September 30, 2023, the Company had $
The Company’s liquidity needs prior to the consummation of the Initial Public Offering were satisfied through the proceeds of $
9
PRIVETERRA ACQUISITION CORP. II
(FORMERLY KNOWN AS TASTEMAKER ACQUISITION CORP.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
The Company has incurred and expects to continue to incur significant costs in pursuit of its acquisition plans. The Company anticipates that the cash held outside of the Trust Account as of September 30, 2023, will not be sufficient to allow the Company to operate until January 12, 2024, the date at which the Company must complete an Initial Business Combination, which is less than one year from the issuance of the condensed financial statements. Management plans to address this uncertainty through the Initial Business Combination as discussed above. There is no assurance that the Company’s plans to consummate an Initial Business Combination will be successful or successful within the Combination Period. The condensed financial statements do not include any adjustments that might result from the outcome of this uncertainty. If an Initial Business Combination is not consummated by January 12, 2024, there will be a mandatory liquidation and subsequent dissolution of the Company. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.
Risks and Uncertainties
The United States and global markets are experiencing volatility and disruption following the escalation of geopolitical tensions and the recent invasion of Ukraine by Russia in February 2022. In response to such invasion, the North Atlantic Treaty Organization (“NATO”) deployed additional military forces to eastern Europe, and the United States, the United Kingdom, the European Union and other countries have announced various sanctions and restrictive actions against Russia, Belarus and related individuals and entities, including the removal of certain financial institutions from the Society for Worldwide Interbank Financial Telecommunication (SWIFT) payment system. Certain countries, including the United States, have also provided and may continue to provide military aid or other assistance to Ukraine during the ongoing military conflict, increasing geopolitical tensions with Russia. The invasion of Ukraine by Russia and the resulting measures that have been taken, and could be taken in the future, by NATO, the United States, the United Kingdom, the European Union and other countries have created global security concerns that could have a lasting impact on regional and global economies. Although the length and impact of the ongoing military conflict in Ukraine is highly unpredictable, the conflict could lead to market disruptions, including significant volatility in commodity prices, credit and capital markets, as well as supply chain interruptions. Additionally, Russian military actions and the resulting sanctions could adversely affect the global economy and financial markets and lead to instability and lack of liquidity in capital markets. In addition, the recent invasion of Ukraine by Russia, and the impact of sanctions against Russia and the potential for retaliatory acts from Russia, could result in increased cyber-attacks against U.S. companies.
Any of the above mentioned factors, or any other negative impact on the global economy, capital markets or other geopolitical conditions resulting from the Russian invasion of Ukraine and subsequent sanctions, could adversely affect the Company’s search for an Initial Business Combination and any target business with which the Company may ultimately consummate an Initial Business Combination. The extent and duration of the Russian invasion of Ukraine, resulting sanctions and any related market disruptions are impossible to predict, but could be substantial, particularly if current or new sanctions continue for an extended period of time or if geopolitical tensions result in expanded military operations on a global scale. Any such disruptions may also have the effect of heightening many of the other risks described in the “Risk Factors” section of the Company’s Annual Report on Form 10-K. If these disruptions or other matters of global concern continue for an extensive period of time, the Company’s ability to consummate an Initial Business Combination, or the operations of a target business with which the Company may ultimately consummate an Initial Business Combination, may be materially adversely affected.
10
PRIVETERRA ACQUISITION CORP. II
(FORMERLY KNOWN AS TASTEMAKER ACQUISITION CORP.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
On August 16, 2022, the Inflation Reduction Act of 2022 (the “IR Act”) was signed into federal law, which, among other things, imposes a 1% excise tax on the fair market value of stock repurchased by a domestic corporation beginning in 2023, with certain exceptions (the “Excise Tax”). Because the Company is a Delaware corporation, it will be a “covered corporation” within the meaning of the IR Act, and while not free from doubt, it is possible that, unless an exemption is available, the Company (or any post-combination company) will be subject to the Excise Tax as a result of any redemptions by the Company of its common stock that occurs after December 31, 2022, including redemptions in connection with an Initial Business Combination. Whether and to what extent the Company would be subject to the Excise Tax in connection with an Initial Business Combination would depend on a number of factors, including (i) the fair market value of the redemptions and repurchases in connection with the Initial Business Combination, (ii) the structure of the Initial Business Combination, (iii) the nature and amount of any “PIPE” or other equity issuances in connection with the Initial Business Combination (or otherwise issued not in connection with the Initial Business Combination but issued within the same taxable year of the Initial Business Combination) and (iv) the content of regulations and other guidance from the U.S. Treasury. In addition, because the Excise Tax would be payable by the Company, and not by the redeeming stockholder, the mechanics of any required payment of the Excise Tax have not been determined. The foregoing could cause a reduction in the per-share amount that the public stockholder would otherwise be entitled to receive or reduce the cash available on hand to complete an Initial Business Combination.
In October 2023, the military conflict between Israel and militant groups led by Hamas has also caused uncertainty in the global markets. The full impact of the war between Israel and Hamas and related global economic disruptions on our financial condition and results of operations, as well as the Company's ability to consummate an Initial Business Combination, also remains uncertain. The Company's management will continuously evaluate the effect of the conflict on the Company. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying condensed financial statements of the Company are presented in conformity with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to 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 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 financial statements should be read in conjunction with the Company’s Form 10-K as filed with the SEC on March 30, 2023. The interim results for the three and nine months ended September 30, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023 or for any future periods.
Emerging Growth Company
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
11
PRIVETERRA ACQUISITION CORP. II
(FORMERLY KNOWN AS TASTEMAKER ACQUISITION CORP.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
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 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 financial statements in conformity with GAAP requires 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 financial statements and the reported amounts of income and expenses during the reporting period. More significant accounting estimates included in the condensed financial statements include the determination of the fair value of warrant liabilities, and the fair value of the Company’s related party loans, both of which are described below.
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 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 significantly from those estimates. The initial valuation of the Public Warrants (as defined in Note 3), the recurring valuation of the Private Placement Warrants (as defined in Note 4), and the valuations for the Sponsor Working Capital Loans (as defined in Note 5) require management to exercise significant judgement in its estimates.
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
Cash and Investments Held in Trust Account
At September 30, 2023, the assets held in the Trust Account of $
Convertible Promissory Note - Related Party
The Company accounts for the convertible promissory notes in connection with the Sponsor Working Capital Loans (as defined in Note 5) under ASC Topic 815, Derivatives and Hedging (“ASC 815”). The Company has made the election under ASC 815-15-25 to account for the notes under the fair value option. Using the fair value option, the convertible promissory notes are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. Differences between the face value of the note and fair value at issuance are recognized as either an expense in the condensed statements of operations (if issued at a premium) or as a capital contribution (if issued at a discount). Any material changes in the estimated fair value of the notes are recognized as non-cash gains or losses in the condensed statements of operations.
12
PRIVETERRA ACQUISITION CORP. II
(FORMERLY KNOWN AS TASTEMAKER ACQUISITION CORP.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
Class A Common Stock Subject to Possible Redemption
The Public Shares contain a redemption feature which allows for the redemption of such Public Shares in connection with the Company’s liquidation, if there is a stockholder vote or tender offer in connection with an Initial Business Combination and in connection with certain amendments to the Company’s 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 common stock subject to redemption to be classified outside of permanent equity. Therefore, all Class A common stock has been classified outside of permanent equity.
The Company recognizes changes in redemption value immediately as they occur and adjusts the carrying value of redeemable common stock to equal the redemption value at the end of each reporting period. Increases or decreases in the carrying amount of redeemable common stock are affected by charges against additional paid-in capital and accumulated deficit.
As of September 30, 2023 and December 31, 2022, the Class A common stock subject to possible redemption reflected in the condensed balance sheets are reconciled in the following table:
Class A common stock subject to possible redemption as of December 31, 2022 | $ | | |
Less: | |||
Redemption of common stock | ( | ||
Add: | |||
Remeasurement of carrying value to redemption value | | ||
Class A common stock subject to possible redemption as of September 30, 2023 | $ | |
Offering Costs associated with the Initial Public Offering
The Company complies with the requirements of ASC Topic 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 $
Warrant Liabilities
The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480 and ASC 815. The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common stock, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding. For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance.
13
PRIVETERRA ACQUISITION CORP. II
(FORMERLY KNOWN AS TASTEMAKER ACQUISITION CORP.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the condensed statements of operations. The initial fair value of the Public Warrants was estimated using a Monte Carlo simulation approach and the initial fair value of the Private Placement Warrants was estimated using a Black-Scholes Option Pricing Model. The subsequent measurement of the fair value of the Public Warrants was measured using quoted market prices and the subsequent measurement of the fair value of the Private Placement Warrants was measured using an observable market quote for a similar asset in an active market (see Note 9).
Income Taxes
The Company complies with the accounting and reporting requirements of ASC Topic 740, Income Taxes (“ASC 740”), which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits, if any, as income tax expense. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position. The Company is subject to income tax examinations by major taxing authorities since inception.
The Company’s effective tax rate for the three and nine months ended September 30, 2023 was (
Net (Loss) Income Per Share of Common Stock
The Company complies with accounting and disclosure requirements of ASC Topic 260, Earnings Per Share. The Company has two classes of common stock, which are referred to as Class A common stock and Class B common stock. Net (loss) income per share is computed by dividing net (loss) income by the weighted-average number of shares of common stock outstanding during the period. Remeasurement associated with the redeemable shares of Class A common stock is excluded from net (loss) income per share as the redemption value approximates fair value. Therefore, the earnings per share calculation allocates (loss) income shared pro rata between Class A and Class B common stock. As a result, the calculated net (loss) income per share is the same for Class A and Class B shares of common stock. The Company has not considered the effect of the warrants sold in the Initial Public Offering and Private Placement to purchase an aggregate of
14
PRIVETERRA ACQUISITION CORP. II
(FORMERLY KNOWN AS TASTEMAKER ACQUISITION CORP.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
The following table reflects the calculation of basic and diluted net (loss) income per common share (in dollars, except per share amounts):
For the Three Months | For the Nine Months | |||||||||||
Ended September 30, | Ended September 30, | |||||||||||
| 2023 |
| 2022 |
| 2023 |
| 2022 | |||||
Class A Common Stock subject to possible redemption | ||||||||||||
Numerator: Net (loss) income allocable to Class A common stock | $ | ( | $ | ( | $ | | $ | | ||||
Denominator: Weighted Average Class A common stock |
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Basic and diluted weighted average shares outstanding |
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Basic and diluted net income (loss) per share | ( | ( | | | ||||||||
Class A Common Stock |
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Numerator: Net (loss) income allocable to Class A common stock |
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Denominator: |
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Weighted Average Class A common stock - Basic and diluted weighted average shares outstanding |
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Basic and diluted net income (loss) per share | ( | $ | — | | $ | — | ||||||
Class B Common Stock |
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Numerator: Net (loss) income allocable to Class B common stock |
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Denominator: |
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Weighted Average Class B common stock - Basic and diluted weighted average shares outstanding |
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Basic and diluted net income (loss) per share | ( | ( | | |
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentration of credit risk consist of a cash account in a financial institution which, at times may exceed the Federal depository insurance coverage of $250,000. The Company has not experienced losses on this account and management believes the Company is not exposed to significant risks on such account.
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 condensed balance sheets for current assets and current liabilities 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.
15
PRIVETERRA ACQUISITION CORP. II
(FORMERLY KNOWN AS TASTEMAKER ACQUISITION CORP.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
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.
See Note 9 for additional information on assets and liabilities measured at fair value.
Recent Accounting Standards
The Company’s 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 financial statements.
NOTE 3. INITIAL PUBLIC OFFERING
Pursuant to the Initial Public Offering, the Company sold
NOTE 4. PRIVATE PLACEMENT
Simultaneously with the closing of the Initial Public Offering, the Company consummated the sale of
NOTE 5. RELATED PARTY TRANSACTIONS
Founder Shares
On August 10, 2020, the Sponsor paid $
16
PRIVETERRA ACQUISITION CORP. II
(FORMERLY KNOWN AS TASTEMAKER ACQUISITION CORP.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
The Sponsor has agreed that, subject to certain limited exceptions, the Founder Shares will not be transferred, assigned, sold or released from escrow until the earlier of (a) one year after the completion of an Initial Business Combination or (b) the date on which the Company completes a liquidation, merger, capital stock exchange or other similar transaction after an Initial Business Combination that results in all of the Company’s stockholders having the right to exchange their Class A common stock for cash, securities or other property. Notwithstanding the foregoing, if (i) the closing price of the Company’s Class A common stock equals or exceeds $
Related Party Loans
Working Capital Loans
In order to finance transaction costs in connection with an Initial Business Combination, the Sponsor or an affiliate of the Sponsor or certain of the Company’s directors and officers may, but are not obligated to, loan the Company funds as may be required (the “Sponsor Working Capital Loans”). If the Company completes an Initial Business Combination, the Company would repay the Sponsor Working Capital Loans out of the proceeds of the Trust Account released to the Company. Otherwise, the Sponsor Working Capital Loans would be repaid only out of funds held outside the Trust Account. In the event that an Initial Business Combination does not close, the Company may use a portion of proceeds held outside the Trust Account to repay the Sponsor Working Capital Loans, but no proceeds held in the Trust Account would be used to repay the Sponsor Working Capital Loans. Except for the foregoing, the terms of such Sponsor Working Capital Loans, if any, have not been determined and no written agreements exist with respect to such loans. The Sponsor Working Capital Loans would either be repaid upon consummation of an Initial Business Combination, without interest, or, at the lender’s discretion, up to $
On March 22, 2022, the Company entered into a working capital loan with the Sponsor (the “March Sponsor Working Capital Loan”) in the amount of $
On July 21, 2022, the Company entered into a separate working capital loan with the Sponsor (the “July Sponsor Working Capital Loan,” together with the March Sponsor Working Capital Loan, the “Sponsor Working Capital Loans”) in the amount of $
17
PRIVETERRA ACQUISITION CORP. II
(FORMERLY KNOWN AS TASTEMAKER ACQUISITION CORP.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
Promissory Note
On December 9, 2022, the Company issued a promissory note (the “Second Promissory Note”) in the principal amount of up to $
On January 11, 2023, the Company issued a promissory note (the “Third Promissory Note”) in the principal amount of up to $
Note Contribution Letter
On July 3, 2023, the Sponsor, in its capacity as a shareholder of the Company, contributed each of the outstanding promissory notes issued by the Company to the Sponsor, including those dated as of March 22, 2022, July 21, 2022, December 9, 2022 and January 11, 2023, in each case, as amended, restated, or otherwise modified from time to time, as a contribution to the capital of the Company, effective as of July 3, 2023, and as a result, an aggregate amount of $
On July 17, 2023, the Company issued a promissory note (the "Promissory Note") to the Sponsor in the principal amount of up to $
Administrative Support Agreement
The Company entered into an agreement, commencing on the effective date of the Initial Public Offering, to pay the Sponsor a total of $
18
PRIVETERRA ACQUISITION CORP. II
(FORMERLY KNOWN AS TASTEMAKER ACQUISITION CORP.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
In connection with the July 17, 2023, Promissory Note described above, the Promissory Note provides that the Company will pay the Sponsor $
For the three and nine months ended September 30, 2023, $
NOTE 6. COMMITMENTS AND CONTINGENCIES
Registration Rights
The holders of the Founder Shares, Private Placement Warrants and warrants that may be issued upon conversion of Sponsor Working Capital Loans (and any Class A common stock issuable upon the exercise of the Private Placement Warrants) will have registration rights to require the Company to register a sale of any of its securities held by them pursuant to a registration rights agreement. The holders of these securities are entitled to make up to three demands, excluding short form demands, that the Company register such securities. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to the completion of an Initial Business Combination. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
Underwriting Agreement
The Company granted the underwriter a
The underwriter was paid a cash underwriting fee of $
Vendor Agreements
On September 14, 2022, the Company entered into an agreement with the underwriter to perform financial advisory services as needed by the Company in connection with the Initial Business Combination. Pursuant to this agreement, the underwriter amended the terms of the deferred underwriting fees owed in connection with the Initial Public Offering. The underwriter agreed to waive the $
On September 23, 2022, the Company entered into an agreement with a financial advisor (the “First Financial Advisor”) for capital market advisory services in connection with an Initial Business Combination, pursuant to which the Company will pay the First Financial Advisor a fee of $
19
PRIVETERRA ACQUISITION CORP. II
(FORMERLY KNOWN AS TASTEMAKER ACQUISITION CORP.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
was terminated along with the Business Combination Agreement. Based on the vendor agreement, no service was provided under the agreement as of September 30, 2023. As a result, there has been no significant impact on the Financial Statements.
On October 11, 2022, the Company entered into an agreement with a financial advisor (the “Second Financial Advisor”) for capital market advisory services in connection with an Initial Business Combination, pursuant to which the Company will pay the Second Financial Advisor a fee of $
Nasdaq Letter
On June 15, 2023, the Company received a notice from The Nasdaq Stock Market LLC (“Nasdaq”) stating that, based on Nasdaq’s review of the Company’s Market Value of Listed Securities (“MVLS”) for the last
In accordance with Nasdaq Listing Rule 5810(c)(3)(C), the Company had 180 calendar days, or until December 12, 2023, to regain compliance with the MVLS Rule. To regain compliance with the MVLS Rule, the MVLS for the Company’s Class A common stock must be at least $35 million for a minimum of 10 consecutive business days at any time during this 180-day period.
On August 8, 2023, the Company received a notice from Nasdaq that for the last
NOTE 7. REDEEMABLE WARRANTS
Each whole redeemable warrant is exercisable to purchase one share of Class A common stock and only whole warrants are exercisable. The redeemable warrants will become exercisable
Pursuant to the warrant agreement, a warrant holder may exercise its warrants only for a whole number of shares of Class A common stock. This means that only a whole warrant may be exercised at any given time by a warrant holder. No fractional warrants will be issued upon separation of the units and only whole warrants will trade requiring a purchase at least three units to receive or trade a whole warrant. The warrants will expire five years after the completion of the Initial Business Combination, at 5:00 p.m., New York City time, or earlier upon redemption or liquidation.
If the shares issuable upon exercise of the warrants are not registered under the Securities Act within 60 business days following the Initial Business Combination, the Company will be required to permit holders to exercise their warrants on a cashless basis. However, no warrant will be exercisable for cash or on a cashless basis, and the Company will not be obligated to issue any shares to holders seeking to exercise their warrants, unless the issuance of the shares upon such exercise is registered or qualified under the securities laws of the state of the exercising holder, unless an exemption is available. In the event that the conditions in the immediately preceding sentence 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 share of Class A common stock underlying such unit.
20
PRIVETERRA ACQUISITION CORP. II
(FORMERLY KNOWN AS TASTEMAKER ACQUISITION CORP.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
The Company has agreed that as soon as practicable, but in no event later than
business days, after the closing of the Initial Business Combination, the Company will use its reasonable best efforts to file with the SEC a registration statement for the registration, under the Securities Act, of the shares of Class A common stock issuable upon exercise of the warrants. The Company will use its reasonable best efforts to cause the same to become effective within 60 business days following its Initial Business Combination and to maintain the effectiveness of such registration statement, and a current prospectus relating thereto, until the expiration of the warrants in accordance with the provisions of the warrant agreement. Notwithstanding the above, if the Company’s Class A common stock is at the time of any exercise of a warrant not listed on a national securities exchange such that it satisfies the definition of a “covered security” under Section 18(b)(1) of the Securities Act, the Company may, at its option, require holders of public warrants who exercise their warrants to do so on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act and, in the event the Company so elects, the Company will not be required to file or maintain in effect a registration statement, but the Company will be required to use its best efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available.Once the Public Warrants become exercisable, the Company may redeem the Public Warrants for redemption:
● | in whole and not in part; |
● | at a price of $ |
● | upon not less than |
● | if, and only if, the closing price of the common stock equals or exceeds $ |
In addition, if (x) the Company issues additional shares of Class A common stock 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 $
Private Placement Warrants
The Private Placement Warrants are identical to the Public Warrants underlying the Units being sold in the Initial Public Offering, except that the Private Placement Warrants and the Class A common stock issuable upon the exercise of the Private Placement Warrants will not be transferable, assignable or salable until
21
PRIVETERRA ACQUISITION CORP. II
(FORMERLY KNOWN AS TASTEMAKER ACQUISITION CORP.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
If holders of the Private Placement Warrants elect to exercise them on a cashless basis, they would pay the exercise price by surrendering their warrants for that number of shares of Class A common stock equal to the quotient obtained by dividing (x) the product of the number of shares of Class A common stock underlying the warrants, multiplied by the difference between the exercise price of the warrants and the “fair market value” (defined below) by (y) the fair market value. The “fair market value” shall mean the average reported last sale price of the Class A common stock for the
trading days ending on the third trading day prior to the date on which the notice of warrant exercise is sent to the warrant agent. The reason that the Company has agreed that these warrants will be exercisable on a cashless basis so long as they are held by the Sponsor, or its permitted transferees is because it is not known at this time whether they will be affiliated with us following the Initial Business Combination. If they remain affiliated with the Company, their ability to sell the Company’s securities in the open market will be significantly limited. The Company expects to have policies in place that prohibit insiders from selling the Company’s securities except during specific periods of time. Even during such periods of time when insiders will be permitted to sell the Company’s securities, an insider cannot trade in the Company’s securities if he or she is in possession of material non-public information. Accordingly, unlike public stockholders who could sell the shares of Class A common stock issuable upon exercise of the warrants freely in the open market, the insiders could be significantly restricted from doing so. As a result, the Company believes that allowing the holders to exercise such warrants on a cashless basis is appropriate.At September 30, 2023 and December 31, 2022, there were
The accounting treatment of derivative financial instruments required that the Company record the warrants as derivative liabilities at fair value upon the closing of the Initial Public Offering. The Public Warrants were allocated a portion of the proceeds from the issuance of the Units equal to its fair value. The warrant liabilities are subject to re-measurement at each balance sheet date. With each such re-measurement, the warrant liabilities are adjusted to current fair value, with the change in fair value recognized in the Company’s condensed statements of operations. The Company will reassess the classification at each balance sheet date. If the classification changes as a result of events during the period, the warrants will be reclassified as of the date of the event that causes the reclassification.
NOTE 8. STOCKHOLDERS’ DEFICIT
Preferred stock — The Company is authorized to issue
Class A common stock — The Company is authorized to issue up to
Class B common stock — The Company is authorized to issue up to
Holders of Class A common stock and Class B common stock will vote together as a single class on all other matters submitted to a vote of stockholders except as required by law. Prior to an Initial Business Combination, holders of Class B common stock will have the right to elect all of the Company’s directors and may remove members of the board of directors for any reason.
22
PRIVETERRA ACQUISITION CORP. II
(FORMERLY KNOWN AS TASTEMAKER ACQUISITION CORP.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
The Class B common stock will automatically convert into shares of Class A common stock concurrently with or immediately following the consummation of an Initial Business Combination, or earlier at the option of the holder, on a one-for-one basis, subject to adjustment for stock splits, stock dividends, reorganizations, recapitalizations and the like, and subject to further adjustment. In the case that additional shares of Class A common stock or equity-linked securities are issued or deemed issued in connection with an Initial Business Combination, the number of shares of Class A common stock issuable upon conversion of all Founder Shares will equal, in the aggregate, on an as-converted basis,
NOTE 9. FAIR VALUE MEASUREMENTS
The following table presents information about the Company’s financial assets that are measured at fair value on a recurring basis as of September 30, 2023 and December 31, 2022, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:
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September 30, 2023 | ||||||||||||
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Investments held in Trust Account: |
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Money Market investments | $ | | $ | | $ | — | $ | — | ||||
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Warrant liability – Public Warrants | $ | | $ | | $ | — | $ | — | ||||
Warrant liability – Private Placement Warrants | $ | | $ | — | $ | | $ | — |
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Description | Fair Value | Level 1 | Level 2 | Level 3 | ||||||||
December 31, 2022 |
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Money Market investments | $ | | $ | | $ | — | $ | — | ||||
Liabilities | ||||||||||||
Warrant liability – Public Warrants | $ | | $ | | $ | — | $ | — | ||||
Warrant liability – Private Placement Warrants | $ | | $ | — | $ | | $ | — | ||||
Convertible promissory note - related party | $ | $ | — | $ | — | $ |
The Company utilized a Monte Carlo simulation model for the initial valuation of the Public Warrants. The subsequent measurement of the Public Warrants as of September 30, 2023 and December 31, 2022 is classified as Level 1 due to the use of an observable market quote in an active market under the ticker PMGMW. The quoted price of the Public Warrants was $
23
PRIVETERRA ACQUISITION CORP. II
(FORMERLY KNOWN AS TASTEMAKER ACQUISITION CORP.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
The Company utilizes a Modified Black-Scholes model to value the Private Placement Warrants at each reporting period, with changes in fair value recognized in the statement of operations. Inherent in a binomial options pricing model are assumptions related to expected share-price volatility, expected life, risk-free interest rate and dividend yield. The Company estimates the volatility of its common stock based on historical volatility that matches the expected remaining life of the warrants. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected remaining life of the warrants. The expected life of the warrants is assumed to be equivalent to their remaining contractual term. The dividend rate is based on the historical rate, which the Company anticipates to remain at zero. As of September 30, 2023 and December 31, 2022, the Private Placement Warrants are classified as Level 2 due to the use of an observable market quote for a similar asset in an active market. The fair value of the Private Placement Warrants was $
The aforementioned warrant liabilities are not subject to qualified hedge accounting.
Transfers to/from Levels 1, 2 and 3 are recognized at the end of the reporting period. The estimated fair value of the Public Warrants transferred from a Level 3 measurement to a Level 1 fair value measurement in March 2021 when the Public Warrants were separately listed and traded. The estimated fair value of the Private Placement Warrants transferred from a Level 3 measurement to a Level 2 fair value measurement in March 31, 2021 due to the use of an observable market quote for a similar asset in an active market. There were
The following table provides the significant inputs to the Monte Carlo Simulation for the initial fair value of the Public Warrants:
| At January 12, 2021 |
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(Initial Measurement) |
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Stock price |
| $ | | |
Strike price |
| $ | | |
Probability of completing an Initial Business Combination |
| | % | |
Expected life of the option to convert (in years) |
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Volatility |
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Risk-free rate |
| | % | |
Fair value of warrants |
| $ | |
The following table provides the significant inputs to the Modified Black-Scholes model for the fair value of the Private Placement Warrants:
| As of September 30, |
| As of December 31, |
| At January 12, 2021 |
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2023 | 2022 | (Initial Measurement) |
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Stock price |
| $ | | $ | | $ | | |||
Strike price |
| $ | | $ | | $ | | |||
Probability of completing an Initial Business |
| | % | | % | | % | |||
Dividend yield |
| — | % | — | % | — | % | |||
Remaining term (in years) |
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Volatility |
| | % | | % | | % | |||
Risk-free rate |
| | % | | % | | % | |||
Fair value of warrants | $ | | $ | | $ | |
24
PRIVETERRA ACQUISITION CORP. II
(FORMERLY KNOWN AS TASTEMAKER ACQUISITION CORP.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
The convertible promissory notes - related party were valued using a combination of Black-Scholes and Discounted Cash Flows methods, which is considered to be a Level 3 fair value measurement. The estimated fair values of the convertible promissory notes - related party were based on the following significant inputs:
| As of December |
| As of July 21, 2022 |
| As of March 25, 2022 | As of March 2, 2022 |
| ||||||
31, 2022 | (Initial Measurement) | (Initial Measurement) | (Initial Measurement) |
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Warrant price | $ | | $ | | $ | | $ | | |||||
Conversion price | $ | | $ | | $ | | $ | | |||||
Expected term | | | | | |||||||||
Warrant volatility | | % | | % | | % | | % | |||||
Risk free rate | | % | | % | | % | | % | |||||
Discount rate | | % | | % | | % | | % | |||||
Probability of completing an Initial Business Combination | | % | | % | | % | | % | |||||
Fair value convertible promissory note - related party | $ | | $ | | $ | | $ | |
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 at January 1, 2022 |
| $ | — |
Initial measurement of draw on convertible promissory note - related party on March 2, 2022 | | ||
Initial measurement of draw on convertible promissory note - related party on March 25, 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 July 21, 2022 (Initial Measurement) | | ||
Change in fair value | | ||
Fair value as of September 30, 2022 | $ | | |
Fair value as of January 1, 2023 | $ | | |
Change in fair value | | ||
Fair value as of March 31, 2023 | | ||
Change in fair value | ( | ||
Fair value as of June 30, 2023 | $ | ||
Change in fair value | ( | ||
Fair value as of September 30, 2023 | $ | — |
25
PRIVETERRA ACQUISITION CORP. II
(FORMERLY KNOWN AS TASTEMAKER ACQUISITION CORP.)
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2023
(UNAUDITED)
The Company recognized a loss in connection with changes in the fair value of warrant liabilities of $
NOTE 10. SUBSEQUENT EVENTS
The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the unaudited condensed financial statements were issued. Based upon this review, the Company did not identify any other subsequent events that would have required adjustment or disclosure in the unaudited condensed financial statements.
26
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 Priveterra Acquisition Corp. II. References to our “management” or our “management team” refer to our officers and directors, and references to the “Sponsor” refer to Priveterra Sponsor LLC II.
Cautionary Note Regarding Forward-Looking Statements
All statements other than statements of historical fact included in this Quarterly Report including, without limitation, statements under this “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding our financial position, business strategy and the plans and objectives of management for future operations, are forward- looking statements. When used in this Quarterly Report, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend” and similar expressions, as they relate to us or our management, identify forward-looking statements. Such forward-looking statements are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors detailed in our filings with the U.S. Securities and Exchange Commission (the “SEC”). All subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are qualified in their entirety by this paragraph.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed financial statements and the notes thereto included in this Quarterly Report under “Item 1. Financial Statements.” Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Overview
We are a blank check company incorporated on August 10, 2020 as a Delaware corporation 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 (an “Initial Business Combination”). We intend to effectuate our Initial Business Combination using cash from the proceeds of the initial public offering and the private placement of the private placement warrants, the proceeds of the sale of our shares in connection with our Initial Business Combination (pursuant to forward purchase agreements or backstop agreements we may enter into following the consummation of the initial public offering or otherwise), shares issued to the owners of the target, debt issued to bank or other lenders or the owners of the target, or a combination of the foregoing.
Termination of Quality Gold Business Combination
On October 20, 2022, we entered into a Business Combination Agreement (“Quality Gold Business Combination Agreement”) with Quality Gold Holdings, Inc. (“New Parent”), five newly incorporated subsidiaries of New Parent: Tastemaker Merger Sub, Inc., a Delaware Corporation, QGM Merger Sub, Inc., an Ohio corporation, J&M Merger Sub, Inc., a Delaware corporation, L&L Merger Sub, Inc., an Ohio corporation, and Quality Gold Merger Sub, Inc., an Ohio corporation (the five newly incorporated subsidiaries are referred as the “Merger Subs” collectively), and four operating companies affiliated with each other and New Parent: Quality Gold, Inc., an Ohio corporation, QGM, LLC, an Ohio limited liability company, J & M Group Holdings Inc., a Delaware corporation, and L & L Group Holdings, LLC, an Ohio limited liability company (the four operating companies affiliated with each other and New Parent are referred as the “Quality Gold Companies,” collectively), pursuant to which the Company and the Quality Gold Companies would enter into a Business Combination. The consideration payable under the Quality Gold Business Combination Agreement to the equityholders of the Quality Gold Companies consists of a combination of cash and shares of New Parent and our stockholders and warrant holders would receive shares and warrants of New Parent.
For a more detailed description of the Quality Gold Business Combination Agreement and the transactions contemplated therein, please see the Registration Statement on Form S-4 filed by Quality Gold Holdings Inc. with the SEC on December 23, 2022 (File No. 333-268971), as amended.
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On June 21, 2023, the Business Combination Agreement was terminated, effective as of June 21, 2023 (the “Termination”). The Termination also terminates and makes void the Support Agreement (as defined in the Business Combination Agreement) and the Sponsor Letter Agreement (as defined in the Business Combination Agreement), which were executed concurrently with the Business Combination Agreement. Based on the vendor agreement, no service was provided under the agreement as of September 30, 2023. As the result, there has been no significant impact on the Financial Statements.
Extension of our Combination Period
We originally had up to 24 months from the closing of our initial public offering, or until January 12, 2023, to consummate an Initial Business Combination. However, at our 2022 special meeting of stockholders held on December 12, 2022 (the “Extension Meeting”), our stockholders approved the amendment to our Amended and Restated Certificate of Incorporation, including any amendments thereto (the “Certificate of Incorporation”), to extend the date by which we have to consummate an Initial Business Combination from January 12, 2023 on a month-to-month basis to July 12, 2023. In connection with the Extension Meeting, stockholders holding 24,673,073 public shares exercised their right to redeem their shares for a pro rata portion of the funds in our trust account (the “Trust Account”). As a result, approximately $251.6 million (approximately $10.20 per share) was removed from the Trust Account and paid to such holders and approximately $29.8 million (approximately $10.20 per share) remained in the Trust Account.
On July 11, 2023, following the conclusion of the special meeting of stockholders of the Company (the “Second Extension Meeting”), the Company filed an amendment (the “Second Extension and Redemption Limitation Amendment”) to the Certificate of Incorporation with the Secretary of State of the State of Delaware. The Company’s stockholders approved the 1) proposal to amend the Certificate of Incorporation to extend the date by which it has to consummate a business combination from July 12, 2023 (the date which is 30 months from the closing date of the Company’s initial public offering of the units) to January 12, 2024 (the date which is 36 months from the closing date of the Company’s initial public offering of the units) and 2) proposal to amend the Company’s Amended and Restated Certificate of Incorporation to eliminate the limitation that the Company may not redeem public shares to the extent that such redemption would result in the Company having net tangible assets (as determined in accordance with Rule 3a51-1(g)(1) of the Securities Exchange Act of 1934, as amended (or any successor rule)) of less than $5,000,001 in order to allow the Company to redeem public shares irrespective of whether such redemption would exceed such limitation. In connection with the Second Extension Meeting, stockholders holding 1,004,971 public shares exercised their right to redeem such shares for a pro rata portion of the funds in the Trust Account. As a result, approximately $10.8 million (approximately $10.73 per share) was removed from the Trust Account and paid to such holders and approximately $20.6 million (approximately $10.73 per share) remained in the Trust Account. Following the redemptions, as of September 30, 2023, we had 1,921,956 public shares outstanding.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date. Our only activities for the period from August 10, 2020 (inception) through September 30, 2023 were formation and operational activities, and since the closing of the initial public offering, those related to identifying a target company for a Business Combination. We do not expect to generate any operating revenues until after the completion of our Initial Business Combination. We generate non-operating income in the form of interest income on cash and cash equivalents 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, 2023, we had net loss of $1,807,182 which primarily resulted from a loss on the change in fair value of warrant liability of $727,372, interest expense on promissory note of $10,381, operating costs of $1,278,527, income tax expense of $55,575, franchise tax expense of $26,600, offset by interest income on the Trust Account and operating account of $291,273.
For the three months ended September 30, 2022, we had net loss of $769,128, which resulted primarily from a loss on change in fair value of warrant liabilities for $450,000, income tax expense of $286,673, and a loss from operations for $1,465,015, offset by a gain on investments held in Trust Account of $1,415,358, interest income of $2, and a change in fair value of convertible promissory note - related party of $17,200.
For the nine months ended September 30, 2023, we had net income of $2,387,797 which primarily resulted from a gain on the change in fair value of warrant liability of $2,186,732, a gain on the change in fair value of the convertible promissory note to a related party of $6,965, forgiveness of debt of $2,336,366 and interest income on the Trust Account and operating account of $914,758, partially offset by operating costs of $2,770,417, income tax expense of $171,626, franchise tax expense of $97,400, interest expense of $7,200 and interest expense on promissory note of $10,381.
28
For the nine months ended September 30, 2022, we had net income of $8,480,988, which primarily resulted from a gain in the change in fair value of warrant liabilities of $9,000,000, a gain on investments held in the trust account for $1,833,426, a gain in the change in fair value of the convertible promissory note to a related party for $33,400, and interest income of $3, partially offset by a loss from operations for $2,078,120 and income tax expense of $307,721.
Liquidity, Capital Resources, and Going Concern
On January 12, 2021, we consummated our initial public offering of 27,600,000 units, including 3,600,000 units issued pursuant to the exercise of the underwriter’s over-allotment option in full, generating gross proceeds of $276,000,000. Simultaneously with the consummation of the initial public offering, we completed the private sale of 8,700,000 private placement warrants to the Sponsor at a purchase price of $1.00 per warrant, generating gross proceeds of $8,700,000.
For the nine months ended September 30, 2023, net cash used in operating activities was $1,350,281. Net income of $2,387,797 was affected by a non-cash gain on change for the change in fair value of warrant liability of $2,186,732, non-cash gain on change for the change in fair value of convertible promissory note - related party of $6,965, interest expense on promissory note of $10,381 and interest income on the Trust Account of $914,725. Changes in operating assets and liabilities used $640,037 of cash for operating activities.
For the nine months ended September 30, 2022, net cash used in operating activities was $610,156, which was primarily due to change in fair value of warrant liabilities of $9,000,000, and a gain on investments held in the Trust Account of $1,833,426, offset by net income of $8,480,988, changes in operating assets and liabilities of $1,775,682, and a change in fair value of convertible promissory note - related party of $33,400.
As of September 30, 2023 and December 31, 2022, we had cash of $37,174 and $40,801, respectively, held outside the Trust Account. We intend to use the funds held outside the Trust Account primarily to complete an Initial Business Combination.
In order to fund working capital deficiencies or finance transaction costs in connection with an intended Initial 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 on a non-interest basis (the “Sponsor Working Capital Loans”). If we complete our Initial Business Combination, we would repay such loaned amounts. In the event that our Initial 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 the Trust Account would be used for such repayment. Up to $1,500,000 of such loans may be convertible into warrants of the post Business Combination entity at a price of $1.00 per warrant at the option of the lender. The warrants would be identical to the private placement warrants. The terms of such loans, if any, have not been determined and no written agreements exist with respect to such loans. Prior to the completion of our Initial Business Combination, we do not expect to seek loans from parties other than our Sponsor or an affiliate of our Sponsor as we do not believe third parties will be willing to loan such funds and provide a waiver against any and all rights to seek access to funds in the Trust Account.
We anticipate that the cash held outside of the Trust Account as of September 30, 2023 will not be sufficient to allow us to operate for at least the next 12 months from the issuance of the condensed financial statements, assuming that an Initial Business Combination is not consummated during that time. We have incurred and expect to continue to incur significant costs in pursuit of our acquisition plans. These conditions raise substantial doubt about our ability to continue as a going concern from the date that the condensed financial statements are released to January 12, 2024, the date at which we must complete an Initial Business Combination, which is less than one year from the issuance of the condensed financial statements. If an Initial Business Combination is not consummated by January 12, 2024 and unless such date is extended, there will be a mandatory liquidation and subsequent dissolution of the Company. There is no assurance that our plans to consummate the Initial Business Combination will be successful or successful by the required date. The condensed financial statements and the notes thereto contained elsewhere in this Report do not include any adjustments that might result from the outcome of this uncertainty.
29
Contractual Obligations
Registration Rights
The holders of the founder shares, private placement warrants and warrants that may be issued upon conversion of the Sponsor Working Capital Loans (and any Class A common stock issuable upon the exercise of the private placement warrants) have registration rights to require us to register a sale of any of its securities held by them pursuant to a registration rights agreement. The holders of these securities are entitled to make up to three demands, excluding short form demands, that we register such securities. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to the completion of a Business Combination. We will bear the expenses incurred in connection with the filing of any such registration statements.
Administrative Support Agreement
We entered into an agreement, commencing on the effective date of the initial public offering, to pay the Sponsor a total of $10,000 per month for secretarial and administrative support and on July 3, 2023 in connection with the Promissory Note entered into with Priveterra Sponsor LLC II, we will pay $25,000 per month for certain office space, utilities, secretarial support and administrative services as may be reasonably requested by maker. The original administrative support agreement is no longer in effect. During the three and nine months ended September 30, 2023, we incurred expenses of $75,000 and $135,000 under this agreement, respectively. During the three and nine months ended September 30, 2022, we incurred expenses of $30,000 and $90,000 under this agreement, respectively.
Underwriting Agreement
We granted the underwriter of our initial public offering a 45-day option to purchase up to 3,600,000 additional units to cover over-allotments at the initial public offering price, less the underwriting discounts and commissions. On January 12, 2021, the underwriter exercised the over-allotment option in full and purchased 3,600,000 units at an offering price of $10.00 per unit, generating additional gross proceeds for us of $36,000,000.
The underwriter was paid a cash underwriting fee of $0.20 per unit, or $5,520,000 in the aggregate. In addition, $0.375 per unit, or $10,350,000 in the aggregate will be payable to the underwriter for deferred underwriting commissions. The deferred fee will become payable to the underwriter from the amounts held in the Trust Account solely in the event that we complete an Initial Business Combination, subject to the terms of the underwriting agreement.
On September 14, 2022, the Company entered into an agreement with the underwriter to perform financial advisory services as needed by the Company in connection with the Initial Business Combination. Pursuant to this agreement, the underwriter amended the terms of the deferred underwriting fees owed in connection with the initial public offering. The underwriter agreed to waive the $10,350,000 deferred underwriting commission payable by the Company pursuant to the underwriting agreement dated January 7, 2021, while the Company agreed to pay the underwriter for its services as a financial advisor a cash acquisition fee of $4,000,000 plus a $4,000,000 subordinated note (payable in cash or common stock New Parent) to be issued by New Parent. As a result of the amended terms, the aggregate fees payable to the underwriter that are contingent on the completion of the Initial Business Combination are approximately $8.0 million. Additionally, the waiver of the $10,350,000 of deferred underwriting commission payable is contingent on the completion of the Initial Business Combination. Effective June 12, 2023, the underwriter agreed to waive the fees payable to the underwriter that were contingent on the completion of the Initial Business Combination as well as the deferred underwriting commission.
Vendor Agreements
On September 23, 2022, the Company entered into an agreement with a financial advisor (the “First Financial Advisor”) for capital market advisory services in connection with an Initial Business Combination, pursuant to which the Company will pay the First Financial Advisor a fee of $700,000 contingent upon the successful consummation of the Initial Business Combination. On June 21, 2023, the agreement was terminated along with the Business Combination Agreement.
On October 11, 2022, the Company entered into an agreement with a financial advisor (the “Second Financial Advisor”) for capital market advisory services in connection with an Initial Business Combination, pursuant to which the Company will pay the Second Financial Advisor a fee of $1,000,000 contingent upon the successful consummation of the Initial Business Combination. On June 21, 2023, the agreement was terminated along with the Business Combination Agreement.
30
Related Party Loans
On March 22, 2022, we entered into a working capital loan with the Sponsor (the “March Sponsor Working Capital Loan”) with the Sponsor in the amount of $150,000, pursuant to which we received proceeds of $150,000. The March 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 our winding up is effective. The unpaid principal balance on the March Sponsor Working Capital Loan may be convertible into warrants at the option of the Sponsor at a price of $1.00 per warrant. The warrants would be identical to the private placement warrants. As of September 30, 2023, the total amount drawn on the March Sponsor Working Capital Loan was $150,000, which was no longer outstanding (see below).
On July 21, 2022, we entered into a separate working capital loan with the Sponsor (the “July Sponsor Working Capital Loan”) in the amount of $375,000. The July Sponsor Working Capital Loan matures on the earliest to occur of (i) the date on which we consummate our Initial Business Combination and (ii) the date that our winding up is effective. The promissory note in connection with the July Sponsor Working Capital Loan is convertible into warrants at $1.00 per warrant on terms identical to those of the private placement warrants. On July 21, 2022, the Company drew $370,000 from the promissory note, which was no longer outstanding (see below) as of September 30, 2023.
The fair value option was elected (see Note 9 of the condensed financial statements and the notes thereto contained elsewhere in this Report) and, as such, the fair value of both of the sponsor working capital loans is shown on the condensed balance sheets as $0 and $77,900 as of September 30, 2023 and December 31, 2022, respectively.
On December 9, 2022, the Company issued a promissory note (the “Second Promissory Note”) in the principal amount of up to $1,000,000 to the Sponsor. The Second Promissory Note was issued in connection with advances the Sponsor has made, and may make in the future, to the Company for working capital expenses. The loan is non-interest bearing and payable upon the earlier of (i) completion of the Initial Business Combination or (ii) the date the winding up of the Company is effective. On December 9, 2022, January 23, 2023, February 3, 2023, February 16, 2023, March 1, 2023, April 12, 2023, April 20, 2023, and May 3, 2023, the Company drew $86,100, $32,445, $34,505, $61,750, $30,900, $136,500, $2,000 and $100,000, respectively, from the Second Promissory Note, which was no longer outstanding (see below) as of September 30, 2023. As of September 30, 2023, the total amount drawn on the Second Promissory Note was $484,200.
On January 11, 2023, the Company, issued a promissory note (the “Third Promissory Note”) in the principal amount of up to $878,078 to the Sponsor, pursuant to which the Sponsor agreed to loan the Company up to $878,078 in connection with the extension of the Company’s time to consummate an Initial Business Combination from January 12, 2023 to July 12, 2023 on a month-by-month basis. The Third Promissory Note bears no interest and is repayable in full upon the earlier of (a) the date of the consummation of the Company’s Initial Business Combination, or (b) the date of the liquidation of the Company. On January 20, 2023, February 15, 2023, March 28, 2023, April 11, 2023, May 11, 2023 and June 13, 2023 we deposited $146,346 each month, totaling $878,078 or $0.05 per Public Share that was not redeemed in connection with the Extension Meeting, into the Trust Account to extend the Combination Period to July 12, 2023. Such amounts will be distributed either to: (i) holders of shares of Class A common stock upon the Company’s liquidation or (ii) holders of shares of Class A common stock who elect to have their shares redeemed in connection with the consummation of the Company’s Initial Business Combination. On July 11, 2023, we extended the Combination Period from July 12, 2023 to January 12, 2024.
On July 3, 2023, the Sponsor, in its capacity as a shareholder of the Company, contributed each of the outstanding promissory notes issued by the Company to the Sponsor, including those dated as of March 22, 2022, July 21, 2022, December 9, 2022 and January 11, 2023, in each case, as amended, restated, or otherwise modified from time to time, as a contribution to the capital of the Company, effective as of July 3, 2023, and as a result, an aggregate amount of $1,362,278 accounted for as promissory note - related party and $70,935 accounted for as convertible promissory note - related party are no longer outstanding.
On July 17, 2023, the Company issued a promissory note (the “Promissory Note”) to the Sponsor in the principal amount of up to $2,000,000. The Promissory Note was issued in connection with advances the Sponsor has made, and may make in the future, to the Company for working capital expenses. The loan bears interest at a rate of 16.00% and is payable on the date on which the Company consummates its initial business combination. In the event that the Company fails to consummate an initial business combination, the loan will be payable within fifteen (15) days of such failure to consummate. In addition, the Promissory Note provides that the Company will pay the Sponsor $25,000 per month for certain office space, utilities, secretarial support and administrative services as may be reasonably requested by the Company. As of September 30, 2023, the total amount drawn on the Promissory Note was $614,878 and
31
the outstanding balance was $625,259. For the three and nine months ended September 30, 2023, the Company had approximately $10,000 in interest expense on the Note.
Critical Accounting Policies
The preparation of condensed financial statements and related disclosures in conformity with the 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 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:
Convertible Promissory Note - Related Party
We account for the convertible promissory notes in connection with the Sponsor Working Capital Loans under ASC Topic 815, “Derivatives and Hedging” (“ASC 815”). We have made the election under ASC 815-15-25 to account for the notes under the fair value option. Using the fair value option, the convertible promissory notes are required to be recorded at their initial fair value on the date of issuance, and each balance sheet thereafter. Differences between the face value of the note and fair value at issuance are recognized as either an expense in the condensed statements of operations (if issued at a premium) or as a capital contribution (if issued at a discount). Any material changes in the estimated fair value of the notes are recognized as non-cash gains or losses in the condensed statements of operations.
Warrant Liabilities
We account for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC Topic 480, “Distinguishing Liabilities from Equity” (“ASC 480”) and ASC 815. The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to our own common stock, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding. For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance.
For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the condensed statements of operations. The accounting treatment of derivative financial instruments required that we record the warrants as derivative liabilities at fair value upon the closing of the initial public offering. As of September 30, 2023 and December 31, 2022, we estimated the fair value of the warrant derivative liabilities to be $1,188,268 and 3,375,000, respectively.
Class A Common Stock Subject to Possible Redemption
All of the 27,600,000 shares of Class A common stock sold as part of the units in the initial public offering contain a redemption feature which allows for the redemption of such public shares in connection with our liquidation, if there is a stockholder vote or tender offer in connection with the Initial Business Combination and in connection with certain amendments to the Certificate of Incorporation. In accordance with the SEC and its staff’s guidance on redeemable equity instruments, which has been codified in ASC 480-10-S99, redemption provisions not solely within our control require common stock subject to redemption to be classified outside of permanent equity. Therefore, all Class A common stock has been classified outside of permanent equity.
Net (Loss) Income Per Share of Common Stock
Net (loss) income per share is computed by dividing net (loss) income by the weighted-average number of shares of common stock outstanding during the period. Remeasurement associated with the redeemable shares of Class A common stock is excluded from net (loss) income per share as the redemption value approximates fair value. Therefore, the earnings per share calculation allocates (loss) income shared pro rata between Class A and Class B common stock.
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As a result, the calculated net (loss) income per share is the same for Class A and Class B shares of common stock. We have not considered the effect of the warrants sold in the initial public offering and private placement to purchase an aggregate of 22,500,000 shares in the calculation of diluted (loss) income per share, since the exercise of the warrants are contingent upon the occurrence of future events.
Recent Accounting Standards
Our management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the condensed financial statements and the notes thereto contained elsewhere in this Report.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
This item is not applicable as we are a smaller reporting company.
ITEM 4. CONTROLS AND PROCEDURES.
Disclosure controls and procedures are controls and other procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the 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 management, including our Chief Executive Officer (the “Certifying Officer”), or persons performing similar functions, as appropriate, 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 Certifying Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon his evaluation, the Certifying Officer concluded that, due to the Company’s restatement of its January 12, 2021, March 31, 2021, June 30, 2021, and September 30, 2022 condensed financial statements relating to the accounting for complex financial instruments, and the inaccurate reporting of period end accruals on the Company’s June 30, 2022 condensed financial statements, 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, 2023.
Management concluded that material weaknesses in internal control over financial reporting existed relating to the accounting treatment for complex financial instruments and the recording of accruals. 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.
We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
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Changes in Internal Control Over Financial Reporting
Other than as described above, there were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Management has implemented remediation steps to address the material weaknesses as described below and to improve our internal control over financial reporting. Specifically, we enhanced the supervisory review of accounting procedures in the financial reporting area described below and expanded and improved our review process for complex securities and related accounting standards and period end review and reporting of accruals. As of September 30, 2023, the material weaknesses had not been remediated.
In light of the restatement of our financial statements as described above, we have enhanced 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 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.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 1A. RISK FACTORS
As of the date of this Report, there have been no material changes with respect to those risk factors previously disclosed in our (i) Annual Report on Form 10-K for the year ended December 31, 2022 filed with the SEC on March 30, 2023, and (ii) Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2023, as filed with the SEC on May 15, 2023. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risks could arise that may also affect our business or ability to consummate an Initial Business Combination. We may disclose changes to such risk factors or disclose additional risk factors from time to time in our future filings with the SEC.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
For a description of the use of proceeds generated in our initial public offering and private placement, see the Company’s Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC on March 25, 2022. There has been no material change in the planned use of proceeds from the Company’s initial public offering and private placement as described in the registration statement of our initial public offering.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
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ITEM 6. EXHIBITS
The following exhibits are filed as part of, or incorporated by reference into, this Report.
No. |
| Description of Exhibit |
3.1 | ||
3.2 | ||
3.3 | ||
3.4 | ||
3.5 | ||
10.1 | ||
31.1 | ||
32.1 | ||
101.INS | Inline XBRL Instance Document.* | |
101.SCH | Inline XBRL Taxonomy Extension Schema Document.* | |
101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document.* | |
101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document.* | |
101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document.* | |
101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document.* | |
104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).* |
* | Filed herewith. |
** | Furnished herewith. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Priveterra Acquisition Corp. II | ||
Date: November 17, 2023 | By: | /s/ Oleg Grodnensky |
Name: Oleg Grodnensky | ||
Title: Chief Executive Officer (Principal Executive Officer) |
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