References in this report (the "Quarterly Report") to "we," "us" or the
"Company" refer to Eucrates Biomedical Acquisition Corp. References to our
"management" or our "management team" refer to our officers and directors, and
references to the "Sponsor" refer to Eucrates LLC. The following discussion and
analysis of the Company's financial condition and results of operations should
be read in conjunction with the financial statements and the notes thereto
contained elsewhere in this Quarterly Report. Certain information contained in
the discussion and analysis set forth below includes forward-looking statements
that involve risks and uncertainties.
Special Note Regarding Forward-Looking Statements
This Quarterly Report includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended (the "Securities Act")
and Section 21E of the Exchange Act that are not historical facts and involve
risks and uncertainties that could cause actual results to differ materially
from those expected and projected. All statements, other than statements of
historical fact included in this Form 10-Q including, without limitation,
statements in this "Management's Discussion and Analysis of Financial Condition
and Results of Operations" regarding the Company's financial position, business
strategy and the plans and objectives of management for future operations, are
forward-looking statements. Words such as "expect," "believe," "anticipate,"
"intend," "estimate," "seek" and variations and similar words and expressions
are intended to identify such forward-looking statements. Such forward-looking
statements relate to future events or future performance, but reflect
management's current beliefs, based on information currently available. A number
of factors could cause actual events, performance or results to differ
materially from the events, performance and results discussed in the
forward-looking statements. For information identifying important factors that
could cause actual results to differ materially from those anticipated in the
forward-looking statements, please refer to the Risk Factors section of the
Company's Annual Report on Form 10-K filed with the U.S. Securities and Exchange
Commission (the "SEC"). The Company's securities filings can be accessed on the
EDGAR section of the SEC's website at www.sec.gov. Except as expressly required
by applicable securities law, the Company disclaims any intention or obligation
to update or revise any forward-looking statements whether as a result of new
information, future events or otherwise.
This Management's Discussion and Analysis of Financial Condition and Results of
Operations has been amended and restated to give effect to the restatement of
our financial statements as of September 30, 2021. Management identified errors
made in its historical financial statements where, at the closing of our Initial
Public Offering, we improperly valued our ordinary shares subject to possible
redemption. We previously determined the ordinary shares subject to possible
redemption to be equal to the redemption value of $10.00 per share of ordinary
share while also taking into consideration a redemption cannot result in net
tangible assets being less than $5,000,001. Management determined that the
ordinary shares issued during the Initial Public Offering can be redeemed or
become redeemable subject to the occurrence of future events considered outside
of the Company's control. Therefore, management concluded that the redemption
value should include all ordinary shares subject to possible redemption,
resulting in the ordinary shares subject to possible redemption being equal to
their redemption value. As a result, management has noted a reclassification
error related to temporary equity and permanent equity. This resulted in a
restatement to the initial carrying value of the ordinary shares subject to
possible redemption with the offset recorded to additional paid-in capital (to
the extent available), accumulated deficit and ordinary shares.
Overview
We are a blank check company incorporated in the British Virgin Islands on
August 21, 2020 formed for the purpose of effecting a merger, amalgamation,
share exchange, asset acquisition, share purchase, reorganization or other
similar Business Combination with one or more businesses. We intend to
effectuate our Business Combination using cash derived from the proceeds of the
Initial Public Offering and the sale of the Private Units, our shares, debt or a
combination of cash, shares and debt.
We expect to continue to incur significant costs in the pursuit of our
acquisition plans. We cannot assure you that our plans to complete a Business
Combination will be successful.
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Recent Developments
On October 24, 2022, we held a special meeting to vote on an amendment to the
Amended and Restated Memorandum and Articles of Association to extend the date
by which we must consummate a business combination from October 27, 2022 to
April 27, 2023 (the "Extension Proposal"). In connection with the Extension
Proposal, shareholders elected to redeem 9,253,065 Ordinary Shares, which
represents approximately 88% of the shares that were part of the units that were
sold in our initial public offering. After giving effect to such redemptions,
approximately $12,353,117 remained in the trust account and 4,206,059 Ordinary
Shares remained issued and outstanding.
In order to finance transaction costs in connection with a Business Combination,
we entered into a loan agreement with Eucrates LLC (the "Sponsor") on January
20, 2022, that provided for borrowings of up to $600,000 (the "Promissory
Note"). As previously disclosed, we immediately made a draw on the Promissory
Note of $250,000. On November 7, 2022, we made a second draw on the Promissory
Note of $350,000.
Results of Operations
We have neither engaged in any operations (other than searching for a Business
Combination after our Initial Public Offering) nor generated any operating
revenues to date. Our only activities from inception through September 30, 2022
were organizational activities, those necessary to prepare for the Initial
Public Offering, described below, and, subsequent to the Initial Public
Offering, 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 expect to generate non-operating income in the
form of interest income on marketable securities held after the Initial Public
Offering and changes in fair value of our warrants and promissory note. We
expect that we will incur increased expenses as a result of being a public
company (for legal, financial reporting, accounting and auditing compliance), as
well as for due diligence expenses in connection with searching for, and
completing, a Business Combination.
For the three months ended September 30, 2022, we had net income of $521,337,
which consisted of change in fair value of warrant liabilities of $99,859 and
interest earned on marketable securities held in Trust Account of $222,440,
change in fair value of convertible promissory note - related party of $124,030
and unrealized gain on marketable securities held in Trust Account of $241,880,
partially offset by formation and operational costs of $166,872.
For the nine months ended September 30, 2022, we had net income of $2,277,851,
which consisted of change in fair value of warrant liabilities of $1,949,838 and
interest earned on marketable securities held in Trust Account of $412,035,
change in fair value of convertible promissory note - related party of $187,130
and unrealized gain on marketable securities held in Trust Account of $164,234,
partially offset by formation and operational costs of $435,386.
For the three months ended September 30, 2021, we had a net income of $950,222,
which consisted of change in fair value of derivative liability of $1,193,513
and interest earned on marketable securities held in Trust Account of $7,205 and
unrealized gain on marketable securities held in Trust Account of $9,363,
partially offset by formation and operational costs of $259,859.
For the nine months ended September 30, 2021, we had a net income of $3,574,952,
which consisted of change in fair value of derivative liability of $4,057,430
and interest earned on marketable securities held in Trust Account of $28,110,
partially offset by formation and operational costs of $509,632 and unrealized
loss on marketable securities held in Trust Account of $956.
Liquidity and Capital Resources
Until the consummation of the Initial Public Offering, our only source of
liquidity was an initial purchase of ordinary shares by the Sponsor and loans
from our Sponsor.
On October 27, 2020, we consummated the Initial Public Offering of 10,000,000
units at a price of $10.00 per Unit, generating gross proceeds of $100,000,000.
Simultaneously with the closing of the Initial Public Offering, we consummated
the sale of 350,000 Private Units to the Sponsor at a price of $10.00 per
Private Unit generating gross proceeds of $3,500,000.
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On November 24, 2020, the Company sold an additional 479,626 Units for total
gross proceeds of $4,796,260 in connection with the underwriters' partial
exercise of their over-allotment option. Simultaneously with the partial closing
of the over-allotment option, we also consummated the sale of an additional
9,592 Private Units at $10.00 per Private Unit, generating total proceeds of
$95,925.
Following the Initial Public Offering, the partial exercise of the
over-allotment option, and the sale of the Private Units, a total of
$104,796,260 was placed in the Trust Account. We incurred $6,168,976 in
transaction costs, including $2,095,925 of underwriting fees, $3,667,869 of
deferred underwriting fees and $405,182 of other costs.
For the nine months ended September 30, 2022, net cash used in operating
activities was $239,112. Net income of $2,277,851 was impacted by interest
earned on marketable securities held in Trust Account of $412,035, unrealized
gain on marketable securities held in Trust Account of $164,234, change in fair
value of warrant liabilities of $1,949,838 and change in fair value of
convertible promissory note - related party of $187,130. Changes in operating
assets and liabilities provided $196,274 of cash from operating activities.
For the nine months ended September 30, 2021, net cash used in operating
activities was $345,045. Net income of $3,574,952 was impacted by interest
earned on marketable securities held in Trust Account of $28,110 and change in
fair value of derivative liability of $4,057,430, offset by unrealized loss on
marketable securities held in Trust Account of $956. Changes in operating assets
and liabilities provided $164,587 of cash from operating activities.
At September 30, 2022, we had investments held in the Trust Account of
$105,419,089. We intend to use substantially all of the funds held in the Trust
Account, including any amounts representing interest earned on the Trust
Account, which interest shall be net of taxes payable and excluding deferred
underwriting commissions, to complete our Business Combination. We may withdraw
interest from the Trust Account to pay taxes, if any. To the extent that our
share capital or debt is used, in whole or in part, as consideration to complete
a Business Combination, the remaining proceeds held in the Trust Account will be
used as working capital to finance the operations of the target business or
businesses, make other acquisitions and pursue our growth strategies.
At September 30, 2022, we held $60,044 of cash outside of the Trust Account. We
intend to use the funds held outside the Trust Account primarily to identify and
evaluate target businesses, perform business due diligence on prospective target
businesses, travel to and from the offices, plants or similar locations of
prospective target businesses or their representatives or owners, review
corporate documents and material agreements of prospective target businesses,
structure, negotiate and complete a Business Combination.
In order to fund working capital deficiencies or finance transaction costs in
connection with a Business Combination, our Sponsor or an affiliate of our
Sponsor or certain of our officers and directors may, but are not obligated to,
loan us funds as may be required. If we complete a Business Combination, we may
repay such loaned amounts out of the proceeds of the Trust Account released to
us. In the event that a Business Combination does not close, we may use a
portion of the working capital held outside the Trust Account to repay such
loaned amounts, but no proceeds from our Trust Account would be used for such
repayment. Up to $1,500,000 of such loans may be convertible into additional
Private Units, at a price of $10.00 per Unit, at the option of the lender.
On January 20, 2022, we issued an unsecured promissory note (the "Promissory
Note") to Eucrates LLC (the "Sponsor"). The Promissory Note provides that we may
borrow up to an aggregate maximum amount of $600,000 from the Sponsor. On
January 24, 2022, we made an initial draw on the Promissory Note of $250,000.
Amounts up to the aggregate maximum amount may and are expected to be drawn down
from time to time by us pursuant to the Promissory Note to fund its working
capital requirements and for general corporate purposes. The Promissory Note
does not bear any interest. If we complete an initial business combination, we
would repay outstanding loaned amounts under the Promissory Note. In the event
that we are unable to complete an initial business combination, we may use a
portion of the working capital held outside its trust account to repay such
loaned amounts but no proceeds from its trust account would be used for such
repayment. The loans are convertible into units of the Company, at a price of
$10.00 per unit, at the option of the Sponsor. The units would be identical to
those units that were issued to the Sponsor in a private placement concurrent
with our initial public offering.
Going Concern
We have until April 27, 2023, to consummate a Business Combination. It is
uncertain that we will be able to consummate a Business Combination by this
time. If a Business Combination is not consummated by this date, there will be a
mandatory liquidation and subsequent dissolution. We have $22,560 of working
capital deficit as of September 30, 2022 and may require additional capital to
complete a Business Combination, which is available to us through our Promissory
Note. Management has determined that the liquidity
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condition and mandatory liquidation, should a Business Combination not occur,
and potential subsequent dissolution raises substantial doubt about our ability
to continue as a going concern. No adjustments have been made to the carrying
amounts of assets or liabilities should we be required to liquidate after April
27, 2023.
Off-Balance Sheet Financing Arrangements
We have no obligations, assets or liabilities, which would be considered
off-balance sheet arrangements as of September 30, 2022. We do not participate
in transactions that create relationships with unconsolidated entities or
financial partnerships, often referred to as variable interest entities, which
would have been established for the purpose of facilitating off-balance sheet
arrangements. We have not entered into any off-balance sheet financing
arrangements, established any special purpose entities, guaranteed any debt or
commitments of other entities, or purchased any non-financial assets.
Contractual Obligations
We do not have any long-term debt, capital lease obligations, operating lease
obligations or long-term liabilities, other than described below.
The underwriter is entitled to a deferred fee of $0.35 per Unit, or $3,667,869
in the aggregate. The deferred fee will become payable to the underwriters from
the amounts held in the Trust Account solely in the event that we complete a
Business Combination, subject to the terms of the underwriting agreement.
Critical Accounting Policies
The preparation of condensed financial statements and related disclosures in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the 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.
Warrant Liabilities
We account for the Warrants in accordance with the guidance contained in ASC
815-40 under which the Warrants do not meet the criteria for equity treatment
and must be recorded as liabilities. Accordingly, we classify the Warrants as
liabilities at their fair value and adjust the Warrants to fair value at each
reporting period. This liability is subject to re-measurement at each balance
sheet date until exercised, and any change in fair value is recognized in our
statements of operations. The Private Placement Warrants and the Public Warrants
for periods where no observable traded price was available are valued using a
binomial lattice model. For periods subsequent to the detachment of the Public
Warrants from the Units, the Public Warrant quoted market price was used as the
fair value as of each relevant date, except for December 31, 2020 when the
Public Warrants price was derived as the difference between the price of the
Units and the price of the ordinary shares due to a lack of quoted prices for
the public warrants.
Ordinary Shares Subject to Possible Redemption
We account for our ordinary shares subject to possible redemption in accordance
with the guidance in Accounting Standards Codification ("ASC") Topic 480
"Distinguishing Liabilities from Equity." Ordinary shares subject to mandatory
redemption is classified as a liability instrument and is measured at fair
value. Conditionally redeemable ordinary shares (including ordinary shares that
features redemption rights that is either within the control of the holder or
subject to redemption upon the occurrence of uncertain events not solely within
our control) are classified as temporary equity. At all other times, ordinary
shares are classified as a component of shareholders' equity. Our ordinary
shares feature certain redemption rights that are considered to be outside of
our control and subject to occurrence of uncertain future events. Accordingly,
ordinary shares subject to possible redemption is presented as temporary equity,
outside of the shareholders' deficit section of our balance sheets.
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Net Income per Ordinary Share
Net income per ordinary share is computed by dividing net income by the weighted
average number of ordinary shares outstanding during the period. Accretion
associated with the redeemable shares of ordinary shares is excluded from
earnings per share as the redemption value approximates fair value.
Recent Accounting Standards
In August 2020, the FASB issued ASU No. 2020-06, "Debt-Debt with Conversion and
Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in
Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments
and Contracts in an Entity's Own Equity" ("ASU 2020-06"), which simplifies
accounting for convertible instruments by removing major separation models
required under current GAAP. ASU 2020-06 removes certain settlement conditions
that are required for equity contracts to qualify for the derivative scope
exception, and it also simplifies the diluted earnings per share calculation in
certain areas. ASU 2020-06 must be adopted by January 1, 2023, including interim
periods within those fiscal years, with early adoption permitted. The Company is
currently assessing the impact, if any, that ASU 2020-06 would have on its
financial position, results of operations or cash flows.
Management does not believe that any recently issued, but not yet effective,
accounting standards, if currently adopted, would have a material effect on our
condensed financial statements.
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EUCRATES BIOMEDICAL ACQUISITION CORP. 
