The following discussion and analysis of the Company's financial condition and
results of operations should be read in conjunction with the audited financial
statements and the notes related thereto which are included in "Item 8.
Financial Statements and Supplementary Data" of this Annual Report on Form
10-K/A.
Certain information contained in the discussion and analysis set forth below
includes forward-looking statements. Our actual results may differ materially
from those anticipated in these forward-looking statements as a result of many
factors, including those set forth under "Cautionary Note Regarding
Forward-Looking Statements," "Item 1A. Risk Factors" and elsewhere in this
Annual Report on Form 10-K/A.
Cautionary Note Regarding Forward-Looking Statements
This Annual Report on Form 10-K/A includes forward-looking statements within the
meaning of Section 27A of the Securities Act and Section 21E of the Securities
Exchange Act. We have based these forward-looking statements on our current
expectations and projections about future events. These forward-looking
statements are subject to known and unknown risks, uncertainties and assumptions
about us that may cause our actual results, levels of activity, performance or
achievements to be materially different from any future results, levels of
activity, performance or achievements expressed or implied by such
forward-looking statements. In some cases, you can identify forward-looking
statements by terminology such as "may," "should," "could," "would," "expect,"
"plan," "anticipate," "believe," "estimate," "continue," or the negative of such
terms or other similar expressions. Factors that might cause or contribute to
such a discrepancy include, but are not limited to, those described in our other
SEC filings.
In this Annual Report Form 10-K/A for the year ended December 31, 2022, we are
restating our consolidated financial statements as of, and for the year ended
December 31, 2022.
The restatement results from our prior accounting for an extinguishment of a
significant contingent obligation. The Company recognized the waiver as an
extinguishment, with a resulting non-operating gain recognized in its statement
of operations for the year ended December 31, 2022. Upon subsequent review and
analysis, management concluded that the Company should have recognized the
extinguishment of the contingent liability as a reversal in the same relative
allocation applied at the initial public offering. Offering costs allocated to
the Class A common shares will be reversed against the Class A common shares and
the offering costs allocated to the derivative warrant liabilities will be
reversed on the statement of operations.
Therefore, our management and the Audit Committee of the Company's Board of
Directors (the "Audit Committee") concluded that our previously issued
consolidated financial statements as of and for the year ended December 31, 2022
(the "Annual Report") should no longer be relied upon and that it is appropriate
to restate the Annual Report. As such, we will restate its financial statements
in this Form 10-K/A for our consolidated financial statements as of and for the
year ended December 31, 2022.
The change in accounting for the extinguishment did not have any impact on the
Company's liquidity, and cash flows in the period.
In connection with the restatement, our management reassessed the effectiveness
of our disclosure controls and procedures for the periods affected by the
restatement. As a result of that reassessment, we determined that our disclosure
controls and procedures for such periods were not effective with respect to the
liability extinguishment. For more information, see Item 9A included in this
Annual Report on Form 10-K/A.
The restatement is more fully described in Note 2 of the notes to the financial
statements included herein.
Overview
We are a blank check company incorporated in Delaware on November 17, 2020. We
were formed for the purpose of effecting a merger, share exchange, asset
acquisition, share purchase, reorganization or similar business combination with
one or more businesses (the "Business Combination").
Our Sponsor is Priveterra Sponsor, LLC, a Delaware limited liability company.
The registration statement for the Initial Public Offering was declared
effective on February 8, 2021. On February 11, 2021, we consummated the Initial
Public Offering of
46
Table of Contents
27,600,000 Units, at $10.00 per Unit, generating gross proceeds of $276,000,000,
and incurring offering costs of approximately $5,520,000, inclusive of
approximately $9,660,000 in deferred underwriting commissions. On November 16,
2022, the Company and one of the underwriters executed a waiver letter
confirming the underwriter's waiver of its deferred fee under the terms of the
underwriting agreement. As a result, the Company recognized income of $3,767,400
in relation to the waiver of the deferred underwriter fee allocated to the
underwriter in the accompanying consolidated financial statements. As of
December 31, 2022 and 2021, the deferred underwriting fee payable is $5,892,600
and $9,660,000, respectively. On January 23, 2023, the Company and a second
underwriter executed a waiver letter confirming the underwriter's waiver of its
deferred fee under the terms of the underwriting agreement which represents and
additional $4,636,800 of the deferred fee as waived.
Simultaneously with the closing of the Initial Public Offering, we consummated
the Private Placement of 5,213,333 Private Placement Warrants, at a price of
$1.50 per Private Placement Warrant to our Sponsor, generating gross proceeds to
us of approximately $7,820,000.
Upon the closing of the Initial Public Offering and the Private Placement,
$276,000,000 ($10.00 per Unit) of the net proceeds of the Initial Public
Offering and certain of the proceeds of the Private Placement was placed in the
Trust Account and was invested in permitted United States "government
securities" within the meaning of Section 2(a)(16) of the Investment Company Act
of 1940, as amended, having a maturity of 185 days or less or in money market
funds meeting certain conditions under Rule 2a-7 promulgated under the
Investment Company Act that invest only in direct U.S. government treasury
obligations.
Our 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 a Business Combination.
We will only have 30 months from the closing of the Initial Public Offering, or
August 11, 2023, (or such later date as may be approved by Priveterra
stockholders in an amendment to the Current Charter) to complete our initial
Business Combination (the "Combination Period"). If we do not complete a
Business Combination within this period of time, we will (i) cease all
operations except for the purposes of winding up; (ii) as promptly as reasonably
possible, but not more than ten business days thereafter, redeem the Public
Shares for a per share pro rata portion of the Trust Account, including interest
and not previously released to us to fund our working capital requirements (less
taxes payable and up to $100,000 of such net interest to pay dissolution
expenses) and (iii) as promptly as possible following such redemption, dissolve
and liquidate the balance of our net assets to our remaining stockholders, as
part of our plan of dissolution and liquidation. Our Sponsor and our executive
officers and independent director nominees (the "initial stockholders") entered
into a letter agreement with us, pursuant to which they have waived their rights
to participate in any redemption with respect to their Founder Shares; however,
if the initial stockholders or any of our officers, directors or affiliates
acquire shares of common stock in or after the Initial Public Offering, they
will be entitled to a pro rata share of the Trust Account upon our redemption or
liquidation in the event we do not complete a Business Combination within the
required time period. In the event of such distribution, it is possible that the
per share value of the residual assets remaining available for distribution
(including Trust Account assets) will be less than the Initial Public Offering
price per Unit in the Initial Public Offering.
On December 12, 2022, the Company entered into a Business Combination Agreement
(the "Business Combination Agreement") by and among the Company, Priveterra
Merger Sub, Inc., a Delaware corporation ("Merger Sub"), and AEON Biopharma,
Inc., a Delaware corporation ("AEON"). The Business Combination Agreement
provides, among other things, that on the terms and subject to the conditions
set forth therein, Merger Sub will merge with and into AEON, with AEON surviving
as a wholly owned subsidiary of the Company (the "Merger"). Upon the closing of
the Merger (the "Closing"), the Company will change its name to "AEON Biopharma,
Inc." The date on which the Closing actually occurs is hereinafter referred to
as the "Closing Date."
Pursuant to the Business Combination Agreement, at the effective time of the
Merger, each option, whether vested or unvested, exercisable for AEON equity
that is outstanding immediately prior to the effective time of the Merger shall
be assumed by the Company and continue in full force and effect on the same
terms and conditions as are currently applicable to such options, subject to
adjustments to exercise price and number of shares of Class A Common Stock
issued upon exercise.
Under the Business Combination Agreement, the Company will acquire all of the
outstanding equity interests of AEON (including equity interests issued upon
conversion of the outstanding convertible notes of AEON) in exchange for shares
of the Company's Class A common stock, par value $0.0001 per share (the "Class A
Common Stock"), based on an implied AEON equity value of $165,000,000, to be
paid to AEON stockholders at the effective time of the Merger, except that
809,000 shares of the
47
Table of Contents
Company's Class A Common Stock otherwise issuable as merger consideration shall
be held back to satisfy the exercise of certain of AEON's convertible notes upon
the maturity thereof.
The issuance of additional shares in connection with the Business Combination to
the current owners of AEON or other investors:
may significantly dilute the equity interest of Priveterra stockholders, which
? dilution would increase if the anti-dilution provisions in the Class B Common
Stock resulted in the issuance of shares of Class A Common Stock on a greater
than one-to-one basis upon conversion of the Class B Common Stock;
? may subordinate the rights of holders of Priveterra Common Stock if preferred
stock is issued with rights senior to those afforded Priveterra Common Stock;
could cause a change in control if a substantial number of shares of Priveterra
? Common Stock is issued, which may affect, among other things, our ability to
use our net operating loss carry forwards, if any, and could result in the
resignation or removal of our present officers and directors;
may have the effect of delaying or preventing a change of control of us by
? diluting the stock ownership or voting rights of a person seeking to obtain
control of us; and
? may adversely affect prevailing market prices for our Class A Common Stock.
Similarly, if we issue debt securities or otherwise incur significant debt to
bank or other lenders or the owners of AEON, it could result in:
? default and foreclosure on our assets if our operating revenues after the
Business Combination are insufficient to repay our debt obligations;
acceleration of our obligations to repay the indebtedness even if we make all
? principal and interest payments when due if we breach certain covenants that
require the maintenance of certain financial ratios or reserves without a
waiver or renegotiation of that covenant;
? our immediate payment of all principal and accrued interest, if any, if the
debt is payable on demand;
our inability to obtain necessary additional financing if the debt contains
? covenants restricting our ability to obtain such financing while the debt is
outstanding;
? our inability to pay dividends on Priveterra Common Stock;
using a substantial portion of our cash flow to pay principal and interest on
? our debt, which will reduce the funds available for dividends on our common
stock if declared, our ability to pay expenses, make capital expenditures and
acquisitions, and fund other general corporate purposes;
? limitations on our flexibility in planning for and reacting to changes in our
business and in the industry in which we operate;
? increased vulnerability to adverse changes in general economic, industry and
competitive conditions and adverse changes in government regulation;
limitations on our ability to borrow additional amounts for expenses, capital
? expenditures, acquisitions, debt service requirements, and execution of our
strategy; and
? other purposes and other disadvantages compared to our competitors who have
less debt.
As indicated in the accompanying financial statements, as of December 31, 2022,
the balance of the Trust Account was approximately $279,384,429 (excluding
$5,892,600 of deferred underwriting commissions and taxes payable on the income
earned on
48
Table of Contents
the Trust Account). Further, we expect to incur significant costs in the pursuit
of the Business Combination. We cannot assure you that our plans to raise
capital or to complete the Business Combination will be successful.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date.
Our only activities from November 12, 2020 (inception) through December 31, 2022
were organizational activities, those necessary to prepare for the initial
public offering (defined 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 business
combination. We generate non-operating income in the form of interest income on
marketable securities held in the trust account. 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 in connection with
identifying AEON as a target company for our initial business combination.
For the year ended December 31, 2022, we had net income of $6,375,345, which is
driven by an unrealized gain of $6,715,041 on our warrants, reduction of
underwriting fees of $162,571, and $3,706,667 in interest income from
investments held in our Trust Account. Partially offsetting our income is
operating costs and of $3,325,605 and provision for income tax of $883,329.
For the year ended December 31, 2021, we had net income of $8,200,831, which is
driven by an unrealized gain of $10,712,133 on our warrants and $79,687 in
interest income from investments held in our Trust Account. Partially offsetting
our income is $1,935,943 in formation and operating costs and warrant issue
costs of $655,046.
Liquidity and Capital Resources
As of December 31, 2022, we had $67,909 in our operating bank account and
working capital deficit of $2,874,594 (excluding taxes payable which is funded
by earnings from the Trust Account).
Prior to the completion of the Initial Public Offering, our liquidity needs have
been satisfied through a capital contribution from the Sponsor of $25,000 for
the founder shares and loans under an unsecured promissory note from the Sponsor
of $73,295. On February 15, 2021, we issued an unsecured convertible promissory
note to our Sponsor, pursuant to which we may borrow up to $1,500,000 from our
sponsor for ongoing expenses reasonably related to our business and the
consummation of an initial business combination. All unpaid principal under the
convertible note will be due and payable in full on the earlier of (i) August
11, 2023 and (ii) the effective date of our initial business combination. Our
Sponsor will have the option, at any time on or prior to such maturity date, to
convert any amounts outstanding under the convertible note into warrants to
purchase shares of our Class A Common Stock, par value $0.0001 per share, at a
conversion price of $1.50 per warrant, with each warrant entitling the holder to
purchase one share of our Class A Common Stock at a price of $11.50 per share,
subject to the same adjustments applicable to the private placement warrants
sold concurrently with our initial public offering. In June 2021 we had $100,000
of Working Capital Loans outstanding which were converted into 66,667 Working
Capital Warrants. As of December 31, 2022 and 2021, there were no borrowings
under the Working Capital Loans.
We have approximately $68,000 in cash and approximately $3,900,000 in current
liabilities as of December 31, 2022 and have incurred and expects to incur
additional significant costs in pursuit of financing and acquisition plans.
Additionally, we have until August 11, 2023 to consummate a Business
Combination. In connection with our assessment of going concern considerations
in accordance with FASB ASC Topic 205-40, "Presentation of Financial Statements-
Going Concern," we have determined that the liquidity condition and mandatory
liquidation, should a Business Combination not occur, and potential subsequent
dissolution raises substantial doubt about our ability to continue as a going
concern. We intend to complete a Business Combination before the mandatory
liquidation date. No adjustments have been made to the carrying amounts of
assets or liabilities should we be required to liquidate after August 11, 2023
(or such later date as may be approved by Priveterra stockholders in an
amendment to the Current Charter).
Management continues to evaluate the impact of the COVID-19 pandemic and has
concluded that the specific impact is not readily determinable as of the date of
the consolidated balance sheets. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
49
Table of Contents
Going Concern
We have approximately $68,000 in cash and approximately $3,900,000 in current
liabilities as of December 31, 2022 and have incurred and expects to incur
additional significant costs in pursuit of financing and acquisition plans.
Additionally, we have until August 11, 2023 to consummate a Business
Combination. In connection with our assessment of going concern considerations
in accordance with FASB ASC Topic 205-40, "Presentation of Financial Statements-
Going Concern," we have determined that the liquidity condition and mandatory
liquidation, should a Business Combination not occur, and potential subsequent
dissolution raises substantial doubt about our ability to continue as a going
concern. We intend to complete a Business Combination before the mandatory
liquidation date. No adjustments have been made to the carrying amounts of
assets or liabilities should we be required to liquidate after August 11, 2023
(or such later date as may be approved by Priveterra stockholders in an
amendment to the Current Charter).
Off-Balance Sheet Financing Arrangements
As of December 31, 2022, we did not have any off-balance sheet arrangements as
defined in Item 303(a)(4)(ii) of Regulation S-K.
Inflation
We do not believe that inflation had a material impact on our business, revenues
or operating results during the period presented.
JOBS Act
The Jumpstart Our Business Startups Act of 2012 (the "JOBS Act") contains
provisions that, among other things, relax certain reporting requirements for
qualifying public companies. We qualify as an "emerging growth company" and
under the JOBS Act are allowed to comply with new or revised accounting
pronouncements based on the effective date for private (not publicly traded)
companies. We are electing to delay the adoption of new or revised accounting
standards, and as a result, we may not comply with new or revised accounting
standards on the relevant dates on which adoption of such standards is required
for non-emerging growth companies. As a result, the consolidated financial
statements may not be comparable to companies that comply with new or revised
accounting pronouncements as of public company effective dates.
Additionally, we are in the process of evaluating the benefits of relying on the
other reduced reporting requirements provided by the JOBS Act. Subject to
certain conditions set forth in the JOBS Act, if, as an "emerging growth
company," we choose to rely on such exemptions we may not be required to, among
other things, (i) provide an auditor's attestation report on our system of
internal controls over financial reporting pursuant to Section 404, (ii) provide
all of the compensation disclosure that may be required of non-emerging growth
public companies under the Dodd-Frank Wall Street Reform and Consumer Protection
Act, (iii) comply with any requirement that may be adopted by the Public Company
Accounting Oversight Board regarding mandatory audit firm rotation or a
supplement to the auditor's report providing additional information about the
audit and the consolidated financial statements (auditor discussion and
analysis) and (iv) disclose certain executive compensation related items such as
the correlation between executive compensation and performance and comparisons
of the CEO's compensation to median employee compensation. These exemptions will
apply for a period of five years following the completion of our Initial Public
Offering or until we are no longer an "emerging growth company," whichever is
earlier.
Contractual Obligations
Administrative Services Agreement
Commencing on the date that our securities are first listed on the Nasdaq Stock
Market, we agreed to pay the Sponsor up to $25,000 per month for administrative
and other services, of which $10,000 per month will be paid to the Sponsor for
office space and administrative services provided to members of the management
team and up to $15,000 will be used to compensate the Company's Chief Operating
Officer and Chief Financial Officer and Secretary for a portion of their time
spent on the Company's affairs. Upon completion of the Business Combination or
the Company's liquidation, the Company will cease paying these monthly fees.
Registration Rights
The initial stockholders and holders of the Private Placement Warrants will be
entitled to registration rights pursuant to a registration rights agreement. The
initial stockholders and holders of the Private Placement Warrants will be
entitled to make up to
50
Table of Contents
three demands, excluding short form registration demands, that register such
securities for sale under the Securities Act. In addition, these holders will
have "piggy-back" registration rights to include their securities in other
registration statements filed by us. We will bear the expenses incurred in
connection with the filing of any such registration statements.
Underwriting Agreement
We granted the underwriters a 45-day option to purchase up to 3,600,000
additional Units to cover any over-allotments, at the initial public offering
price less the underwriting discounts and commissions. The warrants that were
issued in connection with the 3,600,000 over-allotment Units are identical to
the public warrants and have no net cash settlement provisions.
We paid an underwriting discount of 2% of the per Unit offering price, or
approximately $5,520,000 million in the aggregate at the closing of the Initial
Public Offering, and agreed to pay an additional fee (the "Deferred Underwriting
Fees") of 3.5% of the gross offering proceeds, or approximately $9,660,000 in
the aggregate upon the Company's completion of an Initial Business Combination.
The Deferred Underwriting Fees will become payable to the underwriters from the
amounts held in the Trust Account solely in the event the Company completes its
initial Business Combination. On November 16, 2022, the Company and one of the
underwriters executed a waiver letter confirming the underwriter's waiver of its
deferred fee under the terms of the underwriting agreement. As a result, the
Company recognized $162,571 of other income and $3,604,829 towards Class A
redeemable shares in relation to the waiver of the deferred underwriter fee
allocated to the underwriter in the accompanying consolidated financial
statements. As of December 31, 2022 and 2021, the deferred underwriting fee
payable is $5,892,600 and $9,660,000, respectively. On January 23, 2023, the
Company and a second underwriter executed a waiver letter confirming the
underwriter's waiver of its deferred fee under the terms of the underwriting
agreement which represents and additional $4,636,800 of the deferred fee as
waived.
Critical Accounting Policies
The preparation of consolidated financial statements and related disclosures in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the consolidated financial statements, and income and
expenses during the periods reported. Actual results could materially differ
from those estimates. We have not identified any critical accounting policies.
Derivative Financial Instruments
We evaluate our financial instruments to determine if such instruments are
derivatives or contain features that qualify as embedded derivatives in
accordance with ASC Topic 815, "Derivatives and Hedging". Derivative instruments
are recorded at fair value on the grant date and re-valued at each reporting
date, with changes in the fair value reported in the statements of operations.
Derivative assets and liabilities are classified in the balance sheets as
current or non-current based on whether or not net-cash settlement or conversion
of the instrument could be required within 12 months of the balance sheet date.
We have determined the warrants are a derivative instrument.
FASB ASC 470-20, Debt with Conversion and Other Options addresses the allocation
of proceeds from the issuance of convertible debt into its equity and debt
components. We apply this guidance to allocate IPO proceeds from the Units
between Class A Common Stock and warrants, using the residual method by
allocating IPO proceeds first to fair value of the warrants and then the Class A
Common Stock.
Investments Held in the Trust Account
Our portfolio of investments held in the Trust Account is comprised of U.S.
government securities, within the meaning set forth in Section 2(a)(16) of the
Investment Company Act, with a maturity of 185 days or less, or investments in
money market funds that invest in U.S. government securities, or a combination
thereof. The investments held in the Trust Account are classified as trading
securities. Trading securities are presented on the balance sheets at fair value
at the end of each reporting period. Gains and losses resulting from the change
in fair value of these securities is included in gain on marketable securities,
dividends and interest held in Trust Account in the accompanying statements of
operations. The estimated fair values of investments held in the Trust Account
were determined using available market information.
51
Table of Contents
Class A Common Stock Subject to Possible Redemption
We account for Class A Common Stock subject to possible redemption in accordance
with the guidance in Accounting Standards Codification ("ASC") Topic 480
"Distinguishing Liabilities from Equity." Class A Common Stock subject to
mandatory redemption (if any) is classified as a liability instrument and is
measured at fair value. Conditionally redeemable Class A Common Stock (including
Class A Common Stock that feature redemption rights that are either within the
control of the holder or subject to redemption upon the occurrence of uncertain
events not solely within the Company's control) is classified as temporary
equity. At all other times, Class A Common Stock is classified as stockholders'
equity. Our Class A Common Stock features certain redemption rights that is
considered to be outside of the Company's control and subject to the occurrence
of uncertain future events. Accordingly, Class A Common Stock subject to
possible redemption is presented at redemption value as temporary equity,
outside of the stockholders' (deficit) equity section of the balance sheets.
Net Income Per Share
We have two classes of common shares, which are referred to as Class A Common
Stock and Class B Common Stock. Earnings and losses are shared pro rata between
the two classes of stock. Private and public warrants to purchase 14,480,000
Class A Common Stock at $11.50 per share were issued on February 8, 2021. No
warrants were exercised during the period ended December 31, 2022 and 2021. The
calculation of diluted income per common share does not consider the effect of
the warrants issued in connection with the (i) IPO, (ii) exercise of
over-allotment, and (iii) Private Placement since the exercise of the warrants
are contingent upon the occurrence of future events. As a result, diluted net
income per common share is the same as basic net income per common share for the
periods. Accretion associated with the redeemable Class A Common Stock is
excluded from earnings per share as the redemption value approximates fair
value.
Recent Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update ("ASU") 2016-13, Financial Instruments-Credit Losses
(Topic 326): Measurement of Credit Losses on Financial Instruments, which
requires entities to measure all expected credit losses for financial assets
held at the reporting date based on historical experience, current conditions,
and reasonable and supportable forecasts. ASU 2016-13 also requires additional
disclosures regarding significant estimates and judgments used in estimating
credit losses, as well as the credit quality and underwriting standards of an
entity's portfolio. The Company expects to adopt the provisions of this guidance
on January 1, 2023. The adoption is not expected to have a material impact on
the Company's consolidated financial statements.
Besides the above, the Company's management does not believe that any other
recently issued, but not yet effective, accounting standards if currently
adopted would have a material effect on the accompanying consolidated financial
statements.
© Edgar Online, source Glimpses
PRIA ACQU 