美国
证券和交易委员会
华盛顿特区 20549
表格
(标记一个)
根据1934年证券交易法第13或15(d)节的季度报告 |
截至本季度结束
根据1934年证券交易法第13或15(d)节的转型报告书 |
委托文件号码：
（按其章程规定的确切注册人名称）
| ||
（国家或其他管辖区的 | （IRS雇主 | |
公司成立或组织） | 唯一识别号码） | |
(主要行政办公室地址) | (邮政编码) |
(
(发行人的电话号码，包括区号)
根据证券法第12(b)条注册的证券：
| 交易 |
| 普通股，每股面值$0.001 | |
每一类的名称 | 符号: | ANNX | ||
|
检查发行人（1）在过去12个月内（或在注册人被要求提交此类报告的较短时间内）是否提交了《交易所法》第13条或15(d)条所要求提交的所有报告，以及（2）在过去90天内是否受到此类提交要求的约束。
请在以下方框内打勾：公司是否已电子提交了在过去的12个月内（或者在公司需要提交此类文件的较短时期内）根据规则405 of Regulation S-T(232.405章节)所要求提交的每一个互动数据文件。
(
大型加速报告人 | ☐ | 加速文件提交人 | ☐ |
☒ | 较小的报告公司 | ||
新兴成长公司 |
如果是新兴成长型企业，请勾选是否选择不使用按照《证券交易法》第13(a)条规定的新或修订财务会计准则的过渡期。
请在以下方框内打勾：公司是否是空壳公司(根据证券交易法第12b-2条规定定义）。是
截至2024年11月12日，有
截至2024年9月30日的第三季度10-Q表格
目录
页面 | ||
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2 | ||
3 | ||
2024年1月1日至2024年7月30日（前身）、2024年7月31日至2024年9月30日（后继），以及截至2023年9月30日止九个月的未经审计的简明合并现金流量表 | 5 | |
6 | ||
49 | ||
75 | ||
75 | ||
77 | ||
77 | ||
78 | ||
78 | ||
78 | ||
79 | ||
79 | ||
82 | ||
第一部分 - 财务信息
项目1.基本报表
Adagio医疗控股公司。
简明合并资产负债表
(以千计，除分享和每分享数据外)
(未经审计)
| 九月30日 |
| 12月31日， | ||||
2024 | 2023 | ||||||
(未经审计) | |||||||
资产 | |||||||
流动资产： | |||||||
现金及现金等价物 | $ | | $ | | |||
应收账款，净额 |
| |
| | |||
存货净额 | |
| | ||||
预付费用 |
| |
| | |||
其他流动资产 |
| |
| | |||
总流动资产 | | | |||||
物业和设备，净值 | | | |||||
使用权资产，净额 | | | |||||
无形资产，净额 | | — | |||||
商誉 | | — | |||||
其他资产 | | | |||||
总资产 | $ | | $ | | |||
负债、可转换优先股和股东权益（赤字） | |||||||
流动负债: | |||||||
应付账款 | $ | |
| $ | | ||
应计负债 |
| |
|
| | ||
经营租赁负债，流动 | | | |||||
可转换应付票据，流动 | — | | |||||
存量证券负债 | — | | |||||
短期贷款 | — | | |||||
应计交易费用 | — | | |||||
其他应计负债 | | | |||||
总流动负债 |
| |
|
| | ||
经营租赁负债，长期 | | | |||||
可转换票据应付款，非流动资产 | | — | |||||
认股权证负债 | | — | |||||
递延所得税负债，净 | | — | |||||
长期贷款 | — | | |||||
其他长期负债 | | | |||||
总负债 | |
| | ||||
100亿股认可，分别于2024年5月3日和2024年2月2日拥有发行并流通的股份数量 | |||||||
Legacy Adagio的可转换优先股，$ |
| — |
|
| | ||
股东权益（赤字）： | |||||||
Legacy Adagio的普通股，$ | — | ||||||
普通股，每股面值为 $0.0001； |
| |
|
| — | ||
追加实收资本 |
| |
|
| | ||
累积其他综合收益（损失） |
| ( |
|
| | ||
累积赤字 | ( | ( | |||||
股东权益（赤字） |
| |
|
| ( | ||
负债合计、可转换优先股和股东权益（赤字） | $ | |
| $ | | ||
附带的说明是这些简明合并财务报表不可或缺的一部分。
1
Adagio医疗控股公司。
综合损益表和综合收益（损失）简明综合利润表
(以千计，除分享和每分享数据外)
(未经审计)
截至2019年9月30日三个月的收入 | 截至九月三十日的九個月 | |||||||||||||||||||
2024 | 2023 | 2024 | 2023 | |||||||||||||||||
7月31日至9月30日 | 7月1日至7月30日 | 7月1日至9月30日 | 7月31日至9月30日 | 1月1日至7月30日 | 从1月1日到9月30日 | |||||||||||||||
收入 | $ | | $ | | $ | | $ | | $ | | $ | | ||||||||
营业费用和营业费用： | ||||||||||||||||||||
Cost of revenue | | | | | | | ||||||||||||||
研发 | | | | | | | ||||||||||||||
销售、一般和行政 | | | | | | | ||||||||||||||
营业费用总计 | | | | | | | ||||||||||||||
运营损失 | ( | ( | ( | ( | ( | ( | ||||||||||||||
其他收入（费用）： | ||||||||||||||||||||
可转换票据公允价值调整 | | ( | ( | | | ( | ||||||||||||||
权证负债公允值调整 | | | ( | | | ( | ||||||||||||||
利息支出 | ( | ( | ( | ( | ( | ( | ||||||||||||||
利息收入 | | — | | | | | ||||||||||||||
其他（费用）收益，净 | | | ( | | ( | ( | ||||||||||||||
其他总收益（费用），净额 | | ( | ( | | | ( | ||||||||||||||
净收入（亏损） | $ | | $ | ( | $ | ( | $ | | $ | ( | $ | ( | ||||||||
其他全面收益（损失）： | ||||||||||||||||||||
外币汇兑调整 | ( | ( | | ( | | ( | ||||||||||||||
全面收入（损失） | $ | | $ | ( | $ | ( | $ | | $ | ( | $ | ( | ||||||||
基本每股净利润（亏损）（注释15） | $ | | $ | ( | $ | ( | $ | | $ | ( | $ | ( | ||||||||
每股摊薄净利润（亏损）（注15） | $ | | $ | ( | $ | ( | $ | | $ | ( | $ | ( | ||||||||
附带的说明是这些简明合并财务报表不可或缺的一部分。
2
Adagio医疗控股公司。
合并可转换优先股及股东权益（亏损）简明报表
(以千为单位，除非另有说明)
截至2024年9月30日的三个月 | ||||||||||||||||||||||
累计 | ||||||||||||||||||||||
额外 | 其他 | 总计 | ||||||||||||||||||||
可转换优先股 | 普通股 | 实收资本 | 累计 | 综合的 | 股东的 | |||||||||||||||||
| 股份 |
| 金额 |
| 股份 |
| 金额 |
| 资本 |
| 赤字 |
| 收入 |
| 权益（赤字） | |||||||
截至2024年6月30日的余额（前任） | | $ | | | $ | | $ | | $ | ( | $ | | $ | ( | ||||||||
外币折算调整 | — | — | — | — | — | — | ( | ( | ||||||||||||||
股票期权行使 | — | — | | — | | — | — | | ||||||||||||||
基于股票的补偿 | — | — | — | — | | — | — | | ||||||||||||||
净损失 | — | — | — | — | — | ( | — | ( | ||||||||||||||
截至2024年7月30日的余额（前任） | | $ | | | $ | | $ | | $ | ( | $ | | $ | ( | ||||||||
截至2024年7月31日的余额（继任者） | — | $ | — | | $ | | $ | | $ | ( | $ | — | $ | | ||||||||
外币折算调整 | — | — | — | — | — | — | ( | ( | ||||||||||||||
发行赞助商收益 | — | — | | — | — | — | — | — | ||||||||||||||
净利润 | — | — | — | — | — | | — | | ||||||||||||||
截至2024年9月30日的余额（继承人） | — | $ | — | | $ | | $ | | $ | ( | $ | ( | $ | | ||||||||
截至2023年9月30日的三个月 | ||||||||||||||||||||||
累计 | ||||||||||||||||||||||
额外 | 其他 | 总计 | ||||||||||||||||||||
可转换优先股 | 普通股 | 实收资本 | 累计 | 综合的 | 股东的 | |||||||||||||||||
| 股份 |
| 金额 |
| 股份 |
| 金额 |
| 资本 |
| 赤字 |
| 收入 |
| 权益（赤字） | |||||||
截至2023年6月30日的余额（前身） | | $ | | | $ | | $ | | $ | ( | $ | | $ | ( | ||||||||
外币折算调整 | — | — | — | — | — | — | | | ||||||||||||||
股票期权行使 | — | — | ( | — | | — | — | | ||||||||||||||
基于股票的补偿 | — | — | — | — | | — | — | | ||||||||||||||
净损失 | — | — | — | — | — | ( | — | ( | ||||||||||||||
截至2023年9月30日的余额（前任） | | $ | | | $ | | $ | | $ | ( | $ | | $ | ( | ||||||||
3
Adagio Medical Holdings Inc.
可转换优先股和股东权益（赤字）简明合并报表
（以千计，共享数据除外）
截至2024年9月30日的九个月 | ||||||||||||||||||||||
累积 | ||||||||||||||||||||||
额外 | 其他 | 总计 | ||||||||||||||||||||
可转换优先股 | 普通股 | 已付款 | 累积 | 全面 | 股东 | |||||||||||||||||
| 股票 |
| 金额 |
| 股票 |
| 金额 |
| 资本 |
| 赤字 |
| 收入 |
| 权益（赤字） | |||||||
截至 2023 年 12 月 31 日的余额（前身） | | $ | | | $ | | $ | | $ | ( | $ | | $ | ( | ||||||||
外币折算调整 | — | — | — | — | — | — | | | ||||||||||||||
将优先股换成预先注资的认股权证 | ( | ( | — | — | | — | — | | ||||||||||||||
股票期权练习 | — | — | | — | | — | — | | ||||||||||||||
基于股票的薪酬 | — | — | — | — | | — | — | | ||||||||||||||
净亏损 | — | — | — | — | — | ( | — | ( | ||||||||||||||
截至 2024 年 7 月 30 日的余额（前身） | | $ | | | $ | | $ | | $ | ( | $ | | $ | ( | ||||||||
截至 2024 年 7 月 31 日的余额（继任者） | — | $ | — | | $ | | $ | | $ | ( | $ | — | $ | | ||||||||
外币折算调整 | — | — | — | — | — | — | ( | ( | ||||||||||||||
发放赞助商收益 | — | — | | — | — | — | — | — | ||||||||||||||
净收入 | — | — | — | — | — | | — | | ||||||||||||||
截至 2024 年 9 月 30 日的余额（继任者） | — | $ | — | | $ | | $ | | $ | ( | $ | ( | $ | | ||||||||
截至2023年9月30日的九个月 | ||||||||||||||||||||||
累积 | ||||||||||||||||||||||
额外 | 其他 | 总计 | ||||||||||||||||||||
可转换优先股 | 普通股 | 已付款 | 累积 | 全面 | 股东 | |||||||||||||||||
| 股票 |
| 金额 |
| 股票 |
| 金额 |
| 资本 |
| 赤字 |
| 收入 |
| 权益（赤字） | |||||||
截至2022年12月31日的余额（前身） | | $ | | | $ | | $ | | $ | ( | $ | | $ | ( | ||||||||
外币折算调整 | — | — | — | — | — | — | ( | ( | ||||||||||||||
股票期权练习 | — | — | | — | | — | — | | ||||||||||||||
基于股票的薪酬 | — | — | — | — | | — | — | | ||||||||||||||
净亏损 | — | — | — | — | — | ( | — | ( | ||||||||||||||
截至 2023 年 9 月 30 日的余额（前身） | | $ | | | $ | | $ | | $ | ( | $ | | $ | ( | ||||||||
随附的附注是这些简明合并财务报表的组成部分。
4
Adagio Medical Holdings Inc.
简明合并现金流量表
（以千计）
截至9月30日的九个月 | ||||||||||
2024 | 2023 | |||||||||
7 月 31 日至 9 月 30 日 | 1 月 1 日至 7 月 30 日 | 1 月 1 日至 9 月 30 日 | ||||||||
来自经营活动的现金流： |
| |||||||||
净收益（亏损） | $ | | $ | ( | $ | ( | ||||
为将净收益（亏损）与经营活动中使用的净现金进行对账而进行的调整： | ||||||||||
折旧和摊销 |
| |
| |
| | ||||
非现金运营租赁费用 | | | | |||||||
基于股票的薪酬 | — | | | |||||||
库存减值准备金 | ( | | | |||||||
定期贷款折扣的摊销 | — | | | |||||||
处置财产和设备损失 | — | | | |||||||
应付可转换票据公允价值的变化 | ( | ( | | |||||||
认股权证负债公允价值的变化 | ( | ( | | |||||||
经营资产和负债的净变动： |
|
|
| |||||||
应收账款，净额 |
| |
| ( |
| ( | ||||
库存，净额 |
| ( |
| ( |
| | ||||
预付费用和其他流动资产 |
| ( |
| ( |
| | ||||
应付账款 | ( | ( | — | |||||||
应计负债 |
| ( |
| |
| | ||||
应计交易成本 |
| — |
| |
| | ||||
其他应计负债 |
| |
| |
| | ||||
经营租赁负债 | ( | ( | | |||||||
其他长期负债 | — | — | ( | |||||||
递延税 |
| — |
| — |
| | ||||
用于经营活动的净现金 | ( | ( | ( | |||||||
来自投资活动的现金流： | ||||||||||
购买财产和设备 | ( | ( | ( | |||||||
购买软件 | — | — | ( | |||||||
用于投资活动的净现金： | ( | ( | ( | |||||||
来自融资活动的现金流： | ||||||||||
行使普通股期权的收益 | — | — | | |||||||
发行可转换应付票据的收益 | — | | | |||||||
定期贷款的收益 | — | — | | |||||||
偿还不可兑换的定期贷款 | — | ( | ( | |||||||
融资活动提供的净现金 | — | | | |||||||
外币折算对现金和现金等价物的影响 |
| |
| |
| | ||||
现金和现金等价物的净变动 |
| ( |
| ( |
| ( | ||||
期初的现金和现金等价物 | | | | |||||||
期末的现金和现金等价物 | $ | | $ | | $ | | ||||
现金流信息的补充披露： | ||||||||||
支付利息的现金 | $ | — | $ | | $ | | ||||
非现金投资和融资活动的补充披露： | ||||||||||
为换取租赁负债而获得的使用权资产 | $ | — | $ | ( | $ | — | ||||
经营租赁使用权资产记录的租赁负债 | $ | — | $ | | $ | — | ||||
分配给认股权证负债的定期贷款收益金额 | $ | — | $ | — | $ | | ||||
将优先股换成预先注资的认股权证 | $ | — | $ | | $ | — | ||||
随附的附注是这些简明合并财务报表的组成部分。
5
Adagio Medical Holding, Inc.
附注至简明合并财务报表
(未经审计)
以下展品作为本季度10-Q表格的一部分或参照并入。
我们的公司
Adagio Medical Holding, Inc.（之前称为Aja Holdco, Inc.）及其全资子公司（统称为“公司”、“继任者”）是一家医疗技术公司，专注于开发和商业化用于治疗心脏心律失常的消融技术，包括房颤、房扑和室性心动过速。公司的技术集中在超低温冷冻消融（“ULTC”）和脉冲场冷冻消融（“PFCA”）上，旨在使用公司的专有控制台、导管和刀头，在心脏的任何地方产生持久、连续、全层的病变。遗留的Adagio（如下文定义）在2020年6月和2024年3月分别获得了欧洲市场的iCLAS™冷冻消融系统和Vt冷冻消融系统的CE标记，并已在欧盟正式推出。该公司尚未在美国推出商业产品，但正在努力获得必要的监管批准。该公司总部门设在加利福尼亚州拉古那海岸。
在2024年7月31日（“交割日期”），ARYA Sciences Acquisition Corp IV，一家开曼群岛的豁免公司（“ARYA”）、Aja Holdco, Inc.（“ListCo”），一家特拉华州公司以及ARYA的全资子公司、Aja Merger Sub 1，一家开曼群岛的豁免公司及ListCo的全资子公司（“ARYA Merger Sub”）、Aja Merger Sub 2, Inc.，一家特拉华州公司及ListCo的全资子公司（“Company Merger Sub”）与Adagio Medical, Inc.，一家特拉华州公司（“遗留Adagio”、“前任”）完成了业务合并（“业务合并”），根据2024年2月13日各方的业务合并协议的条款，经过2024年6月25日ARYA与Adagio之间的同意和修正案第1号修改（“业务合并协议”）。
根据业务合并协议，在交割日期，（i）ARYA Merger Sub与ARYA合并（“ARYA合并”），Company Merger Sub与遗留Adagio合并（“Adagio合并”，与ARYA合并统称为“合并”），ARYA和遗留Adagio在合并中存续，且在合并生效后，ARYA和遗留Adagio均成为ListCo的全资子公司（ARYA合并生效的时间称为“ARYA合并生效时间”，Adagio合并生效的时间称为“Adagio合并生效时间”，合并均生效后的时间称为“交割”，交割发生的日期称为“交割日期”），（ii）ListCo向特拉华州国务卿递交了修改和重述的ListCo公司章程，并且ListCo的董事会批准并采纳了ListCo的修改和重述的章程，以及（iii）ListCo将其名称更改为Adagio Medical Holdings, Inc.
请参考 注3 - 向前合并 有关业务合并的详细信息。
公司的普通股（如下定义）于2024年8月1日在纳斯达克资本市场（NASDAQ：ADGM）以ADGm的代码开始交易。
6
流动性与持续经营
附带的简明合并基本报表是基于假设公司将持续作为持续经营单位而编制的。 公司收入有限，自创立以来经历了反复的营业亏损和负的现金流，并预计在未来几年的时间里将继续保持这种状态。
截至2024年9月30日，继任者报告的现金及现金等价物为$
管理层不认为公司当前的现金及现金等价物足以在财务报表发布之日起的至少12个月内支持运营。管理层认为这对公司的持续经营能力提出了重大怀疑。
管理层打算通过（i）在短期内协商其他现金、股权或债务融资，（ii）继续追求必要的监管批准以在美国市场进行商业化，以及（iii）执行成本削减措施来管理现金消耗，来减轻影响其持续作为一个持续经营实体的重大疑虑的情况和事件。然而，无法保证当前的计划会为公司带来任何流动性，或以公司可接受的条款获得融资。
如果公司无法维持足够的财务资源，其业务、财务状况和经营结果将受到实质性和不利的影响。公司可能需要延迟、限制、减少或终止其产品发现和开发活动或未来的商业化努力。随附的简明合并基本报表是在假设公司将持续作为一个持续经营实体的基础上编制的，并不包括可能因这一不确定性结果而产生的调整。此会计基础预期公司资产的恢复和负债的履行将在正常商业过程中进行。
资源的战略重新调整 和 企业重组
在2023年12月1日，Legacy Adagio批准了一项资源战略重组和企业重组（以下简称“RIF”），旨在重新分配资本，以符合其未来两年的业务重点。
作为RIF的一部分，Legacy Adagio启动了裁员，
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注释2 - 重要会计政策摘要
基础 演示文稿
合并的基本报表已根据美国通用会计原则（“U.S. GAAP”）编制。此笔记中提到的适用指南是指美国权威的公认会计原则，见于会计准则汇编（“ASC”）和财务会计标准委员会（“FASB”）的会计标准更新（“ASU”）。
由于业务合并，从会计角度来看，ListCo是收购方，Legacy Adagio是被收购方和前身。财务报表展示包括Legacy Adagio在闭幕日期之前的期间的财务报表作为“前身”，以及公司在闭幕日期之后的期间的财务报表作为“后继者”，包括Legacy Adagio和ARYA的合并。后继者期间包括公司在2024年7月31日至2024年9月30日的运营结果和现金流。
由于在业务合并的截止日期应用收购会计法，随附的合并基本报表包含一条黑色分界线，指示所示的前任和继任报告实体在不同基础上呈现，因此不可比较。
未经审计 中期 基本信息
随附的截至2024年9月30日的 interim condensed consolidated balance sheet，涵盖了2024年7月1日至2024年7月30日（前任）、2024年7月31日至2024年9月30日（继任）、2024年1月1日至2024年7月30日（前任）、2024年7月31日至2024年9月30日（继任）以及截至2023年9月30日的三个月和九个月（前任）的 condensed consolidated statements of operations and comprehensive income (loss) 和关于 convertible preferred stock 及股东权益（赤字）的 condensed consolidated statements，涵盖了2024年1月1日至2024年7月30日（前任）、2024年7月31日至2024年9月30日（继任）以及截至2023年9月30日的九个月（前任），以及相关的脚注披露均未经审计。
这些未经审计的中期基本报表是根据美国公认会计原则编制的，管理层认为，这些报表反映了截至2024年9月30日（继任者）公司的财务状况所需的所有调整，这些调整仅包括正常的例行调整，并且反映了从2024年7月1日至2024年7月30日（前任）、2024年7月31日至2024年9月30日（继任者）、2024年1月1日至2024年7月30日（前任）、2024年7月31日至2024年9月30日（继任者）和截至2023年9月30日的三个月和九个月（前任）的经营成果和全面收入（亏损），以及从2024年1月1日至2024年7月30日（前任）、2024年7月31日至2024年9月30日（继任者）和截至2023年9月30日的九个月的现金流。
从2024年7月1日至2024年7月30日（前任）、2024年7月31日至2024年9月30日（继任者）、2024年1月1日至2024年7月30日（前任）和2024年7月31日至2024年9月30日（继任者）期间的结果并不一定预示着预计的截至2024年12月31日的年度结果或任何其他中期的结果。
新兴 增长 公司状态
根据《1933年证券法》第2(a)条的定义，公司是一家“新兴成长公司”（“证券法”），此定义经2012年的《创业公司启动法案》（“JOBS法案”）修订。
根据《就业法案》第102(b)(1)条款，新兴增长公司在私人公司（即那些尚未获得证券法注册声明有效或没有根据《交易法》注册证券的公司）被要求遵守新的或修订的财务会计标准之前，无需遵守新的或修订的财务会计标准。《就业法案》规定，公司可以选择不参加延长期过渡期，并遵守适用于非新兴增长公司的要求，但任何此类选择一旦做出即不可撤销。公司已决定不选择退出该延长期过渡期，这意味着当发布或修订会计标准时，如果其对公共公司或私人公司的适用日期不同，公司作为新兴增长公司，可以在私人公司采用新的或修订的标准时采纳新标准。
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原则 合并
合并的财务报表包括了Adagio Medical Holdings, Inc.及其全资子公司的账户。所有的内部公司余额和交易在合并中都已被消除。
估算的使用 假设
根据美国通用会计准则编制合并财务报表需要管理层做出估计和假设，这些估计和假设影响资产、负债、营业收入、费用以及或有资产和负债的披露。 这些估计和假设基于当前事实、历史经验和各种在特定情况下被认为合理的其他因素，其结果构成了对资产和负债账面价值及收入和费用的记录做出判断的基础，而这些信息从其他来源并不容易获得。 实际结果可能与这些估计有所不同。
细分市场
经营分部被定义为可获得单独财务信息的实体组成部分，并且该信息定期被首席运营决策者（“CODM”）审核，以决定如何将资源分配给单个分部并评估其表现。 本公司的CODM是首席执行官。 本公司已确定其运作为
现金及现金等价物
本公司将自购买之日起三个月内到期的所有高流动性投资，包括其货币市场账户，视为现金等价物。公司的所有现金等价物都有流动市场。在美国每个金融机构的账户中持有的现金存款，由联邦存款保险公司（“FDIC”）投保，最高为25万美元。在欧洲联盟每个金融机构的账户中持有的现金存款，由存款保险计划投保，最高为10万欧元。公司将现金存放在银行存款账户中，这些账户在某些情况下可能超过规定的保险限额。任何损失或无法访问未投保资金均可能对公司的财务状况、经营结果和现金流产生重大不利影响。管理层预计该账户不会发生任何损失。
集中度 信用风险和表外风险
可能使公司面临信用风险的金融工具主要包括现金及现金等价物。公司将其现金及现金等价物存入主要金融机构；然而，有时存入资金可能超过提供的保险金额。自成立以来，公司在其存入资金上未曾经历任何损失。
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收入确认
公司主要通过销售用于公司冷冻消融控制台（"控制台"）的冷冻消融导管、导丝、食道加热气囊及其他配件（统称为"消耗品"）来产生产品营业收入。公司直接将其产品销售给医院和医疗中心。在较小程度上，公司还产生来自无偿租赁给客户的控制台的租赁收入。
公司根据ASC 606《与客户的合同收入》（"ASC 606"）会计处理来自客户合同的营业收入。ASC 606的核心原则是公司应确认收入，以反映向客户转移承诺的货物或服务的情况，以及与公司期望获得的商品或服务交换的对价相符的金额。公司通过以下五个步骤确认来自客户的销售收入：
•步骤1：识别与客户的合同。
•步骤2：识别合同中的履约义务。
•步骤 3：确定交易价格。
•步骤4：将交易价格分配给合同中的履约义务。
•步骤五：当公司满足绩效义务时，确认营业收入。
公司的客户合同通常包含具有交付义务的绩效承诺，其中包括耗材，并可能还包括借给客户的控制台。公司会评估多项绩效义务安排中的每项承诺，以确定其是否代表一个独立的绩效义务。在公司客户安排中，主要的绩效义务是耗材的销售。
当公司将控制台借给客户时，它始终保留对控制台的所有权，并且不要求客户对任何消耗品进行最低购买承诺。在这种情况下，公司根据收到的客户订单向客户开具消耗品的发票。随着时间的推移，公司预计通过客户对其他消耗品的持续购买和使用来弥补借出控制台的成本。基于这些原因，公司判断消耗品的部分安排对价是隐含的控制台使用租金。因此，公司根据每项独立绩效义务的相对估计单独售价在租赁元件（即控制台）和非租赁元件（即消耗品）之间分配安排对价。分配给租赁元件的收入在2024年1月1日至2024年7月30日（前任公司）、2024年7月31日至2024年9月30日（继任公司）和截至2023年9月30日的九个月（前任公司）期间并不重要。
对客户消耗品销售的营业收入在公司的简明合并的经营和综合收益（亏损）报表中被分类为营业收入。消耗品的交付是满足于某一时点的绩效义务，当货物的控制权转移给客户时（即，装运点）。当控制权转移给客户时，收入被确认，金额反映公司预计应获得的产品对价。
其他 营业收入 考虑因素
营业收入是以扣除销售税后的净额报告的。公司已选择会计政策，不单独确认向客户发货的绩效义务，而是将其作为履约成本进行会计处理。
公司的合同主要包括固定金额。只有在与可变金额相关的不确定性得到解决时，甚至在这种情况下，公司才将在交易价格中包括估计的可变金额，以至于有可能不会发生重大收入累计逆转。客户通常需要在30天内付款。
由于公司合同的短期性质，获得合同的任何增量成本在发生时作为销售、一般和行政费用记录。
如果承诺的商品或服务在与客户的合同的背景下被视为不重要，则公司不评估它们是否是履约义务。此外，如果在合同开始时的预期是客户付款与承诺的商品或服务转移之间的时间将少于一年，则公司也不评估合同是否具有显著的融资成分。
在2024年1月1日至2024年7月30日（前任）、2024年7月31日至2024年9月30日（后任）及截至2023年9月30日的九个月（前任）期间，收入仅来自欧洲市场。
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库存
库存包括原材料、在制品和成品，按成本或可变现净值中的较低者进行计价。库存的成本流出方法为先进先出（"FIFO"）。成本可能包括材料、劳动力和制造业-半导体间接费用。每当因子表明库存成本超过账面价值时，库存的账面价值会被审查以评估可能的减值，管理层会根据可变现净值调整库存。公司还定期评估库存，以估算过剩数量和过时造成的损失，并在作出此类判断时将库存成本减记至可变现净值。可变现净值是根据预计销售价格（在业务的正常过程中）减去预计完成和处置成本来判断的。在研究和开发活动中使用的库存在发生时便会计入费用。
物业及设备
固定资产按成本入账，减去累计折旧。折旧和摊销采用直线法，分摊到相关资产的估计使用寿命，通常为 至
物业和设备包括借给客户的设备，并位于客户的场所。公司保留对客户评估持有的设备的所有权，并有权在设备未按预期使用时将其移除。
无形资产 资产
有限使用寿命的无形资产按照其预计的使用寿命进行直线摊销。在确定确定寿命无形资产的预计使用寿命时，公司考虑了收购资产的性质、竞争地位、生命周期位置以及预计未来的运营现金流，以及其通过持续投资和法律侵权保护来支持这些资产的承诺。
无限期使用的无形资产包括在建研发（“IPR&D”）。无限期寿命的无形资产在出现减值因子时需要进行减值测试，至少每年进行一次。然而，实体可以首先评估定性因素，以判断是否需要进行定量减值测试。如果实体根据定性评估判断无限期无形资产的公允价值可能低于其账面价值，则需要进一步测试。否则，不需要进一步的减值测试。无限期无形资产减值测试包括一步分析，将无形资产的公允价值与其账面价值进行比较。如果无形资产的账面价值超过其公允价值，则确认减值损失，金额等于该超出部分。
遗留Adagio没有重大无形资产。
商誉
根据ASC 350，商誉 - 其他无形资产，公司在报告单位级别对商誉进行减值测试。公司在商誉减值测试中有一个报告单位。商誉每年在第四季度进行减值测试，或者更频繁地进行测试，如果事件或情况的变化表明商誉的账面价值可能无法恢复（“触发事件”）。在发生触发事件时，实体有权先评估定性因素，以判断是否需要进行定量减值测试。如果商誉减值的可能性大于50%，则要将报告单位（即公司）的公平价值与其账面价值进行比较。对于账面价值超过公平价值的金额，确认减值损失，前提是确认的损失不能超过商誉的总金额。
Legacy Adagio没有商誉。
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集中度
公司截至2024年11月4日有
公司的
减值 长期资产的
公司每年或在事件或商业情况变化提示资产账面价值可能无法完全收回时，审查长期资产，包括物业和设备以及有限使用寿命的无形资产。 当资产的账面价值超过预期使用和最终处置的总未贴现现金流时，确认减值损失。 减值损失的金额为资产账面价值超过其公允价值的部分。 对于2024年1月1日至2024年7月30日（前任）、2024年7月31日至2024年9月30日（继任）以及截至2023年9月的九个月期间，公司确定存在
外币 翻译 and Transactions
The assets, liabilities, and results of operations of Adagio Medical GmbH are recorded using the Euro as the designated functional currency, which is the currency of the primary economic environment in which Adagio Medical GmbH operates. Consequently, transactions in currencies other than Euro are measured and recorded in Euro. Upon consolidation with the Company, its assets and liabilities are translated to U.S. Dollars at currency exchange rates as of the condensed consolidated balance sheet date and its revenues and expenses are translated at the weighted-average currency exchange rates during the applicable reporting periods. Translation adjustments resulting from the process of translating this entity’s financial statements are reported in accumulated other comprehensive income (loss) in the condensed consolidated balance sheets and foreign currency translation adjustment in the condensed consolidated statements of operations and comprehensive income (loss).
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租赁
公司根据ASC 842对其租赁财产进行会计处理。在该指导下，符合租赁定义的安排被分类为经营租赁或融资租赁，并在综合资产负债表上记录为使用权资产和租赁负债，计算方法是以隐含在租赁中的利率或公司的增量借款利率对固定租赁支付进行折现，增量借款利率是基于当前经济环境、当前借款、租赁价值、满足租赁义务的货币、利率敏感性、租赁期限和重要性来确定的有抵押借款的利率。租赁负债因利息而增加，并因每期付款而减少，使用权资产在租赁期限内进行摊销。对于经营租赁，租赁负债的利息和使用权资产的摊销在租赁期限内产生按直线法分配的租金费用。变量租赁费用在发生时确认。
公司在合同开始时确定合同是否是租赁或包含租赁。如果合同传达了在一段时间内控制和指导特定财产、厂房或设备使用权的权利，以换取对价，则该合同将被视为租赁或包含租赁。公司通常还必须有权获得从使用该财产、厂房和设备中获取实质上所有经济利益的权利。
公司在租赁开始时使用租赁协议中的隐含利率（如易于获得）或其增量借款利率作为计算未来租赁支付现值的基础。增量借款利率表示公司在类似期限和类似经济环境下，以有抵押方式借款所需支付的利率。
在计算使用权资产和租赁负债时，公司决定将租赁和非租赁组件合并用于其房地产业租赁。公司采用了排除初始期限为十二个月的短期租赁的政策选择，免于ASC 842的初始确认条款。请参阅 注释11-经营租赁 的更多详细信息。
公司的显性租赁协议针对其控制台符合经营租赁的条件，因此，营业收入根据ASC 842《租赁》和ASC 606《客户合同收入》进行确认。在2024年1月1日至2024年7月30日（前任）、2024年7月31日至2024年9月30日（继任）和截至2023年9月30日的九个月（前任）期间，分配给租赁组件的收入并不显著。
营业收入成本
营业收入的成本包括原材料、直接劳动力、制造费用、运输和接收成本以及与公司产品生产相关的其他不太重要的间接成本。
收入成本还包括借给客户的游戏主机的折旧费用。
研发
研究和开发费用主要包括直接参与研究和开发活动的人员的薪资、咨询费用和与员工相关的成本（包括基于股票的补偿）、临床试验费用、设备成本、材料成本、分摊的租金和设施成本以及折旧。与未来可能产品相关的研究和开发费用在发生时计入费用。公司还在发生时计提并报销与第三方进行的临床试验相关的活动费用。
销售、一般及行政
销售、一般与行政费用主要包括执行、财务及其他行政职能人员的工资和与员工相关的费用（包括基于股票的补偿）、分摊的租金和设施成本、与知识产权及公司事务相关的法律费用、会计和咨询服务的专业费用、营销成本和保险费用。公司在发生时将所有销售、一般和行政成本费用化。发生的交易成本记录在销售、一般和行政成本中。
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应计交易成本（前任）
与业务组合相关，前任Adagio应计交易成本，主要包括法律、会计及其他专业费用，这些费用已发生并计入费用，但尚未支付。至2023年12月31日的应计费用（前任）在简明合并资产负债表中记录为应计交易成本。
公平 价值 测量
公允价值测量的基础是：公允价值是一个退出价格，表示在市场参与者之间的有序交易中出售资产或转移负债所收到的金额。因此，公允价值是一种基于市场的测量，应基于市场参与者在定价资产或负债时使用的假设来确定。为考虑这些假设，以下三级公允价值等级用于确定测量公允价值的输入：
•一级-活跃市场中相同资产或负债的报价价格。
•二级-除了一级价格之外的可观察输入，适用于市场中直接或间接可观察的类似资产或负债。
•第三级 - 不可观察输入，这些输入由很少或没有市场活动支持，并使用定价模型、折现现金流方法或类似技术对金融工具进行估值，同时还包括那些确定公允价值需要重大判断或估计的工具。
按公允价值计量的金融工具的分类基于对公允价值计量的最低显著输入水平的整体评估。管理层对特定输入在整体公允价值计量中的重要性的评估需要判断，并考虑与资产或负债相关的特定因素。不同假设和/或估计方法的使用可能会对估计的公允价值产生重大影响。因此，披露的公允价值估计或初始记录的金额可能无法反映公司或金融工具持有人在当前市场交易中可以实现的金额。可转换票据应付和认股权证负债的公允价值可能受到某些不可观察输入的影响，特别是折现率、预期波动率以及历史和预测业绩。对这些输入的显著变化可能导致公允价值计量显著不同。
公允价值 期权 可转换票据
根据ASC 825财务工具（“ASC 825”）的规定，Legacy Adagio选择了公允价值选项来对2022年10月发行的可转换票据（“2022年10月可转换票据”）、2023年4月（“2023年4月可转换票据”）、2023年11月（“2023年11月可转换票据”）、2024年2月（“2024年2月可转换票据”，“2024年临时融资票据”）、2024年5月（“2024年5月可转换票据”）、2024年6月（“2024年6月可转换票据”）和2024年7月（“2024年7月可转换票据”）（统称为“Legacy Adagio可转换票据”）进行会计处理，公司也选择了公允价值选项来对可转换证券票据（如下定义）进行会计处理，以便以更精确的金额来衡量这些负债，反映Legacy Adagio和公司运营的当前经济环境。
上述可转换票据在发行时按公允价值记录，并随后在每个报告期末重新计量为公允价值。可转换票据的公允价值变动（不包括与利息相关的金额）记录在“可转换票据公允价值调整”中，而与利息相关的金额则作为利息费用记录在综合损益表中。
由于应用公允价值选项，与发行可转换票据相关的直接成本和费用在发生时计入费用（即不作为递延成本确认）。参考 第4条 - 公允价值计量 以获取更多详细信息。
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Warrants
The Company has Convert Warrants (as defined below) issued along with the Convertible Securities Notes, and PIPE Pre-funded Warrants (as defined below) issued in PIPE Financing (as defined below), which are classified as liabilities. The Company also has PIPE Base Warrants (as defined below) issued in PIPE Financing, which is classified as equity. Legacy Adagio has certain common stock warrants (“SVB Warrants”) issued along with the SVB Term Loan (as defined below) and pre-funded warrants to purchase Series E preferred stock (“Series E Pre-funded Warrants”), which were both classified as liabilities.
The Company and Legacy Adagio determine the classification of warrants 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 and meet all of the requirements for equity classification, including whether the warrants are indexed to the Company’s own shares of common stock, among other conditions for equity classification. This assessment 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 until settlement. Changes in the estimated fair value of the liability-classified warrants are recognized in warrant liabilities fair value adjustment in the condensed consolidated statements of operations and comprehensive income (loss).
The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is reassessed at the end of each reporting period. Equity instruments that are initially classified as equity that become subject to reclassification are reclassified to a liability at the fair value of the instrument on the reclassification date. Derivative instrument liabilities are classified in the condensed consolidated balance sheets as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within twelve months of the condensed consolidated balance sheet date.
See Note 10- Warrants for additional information related to the warrants.
Term Loan (Predecessor)
The Company accounts for the Predecessor term loan at residual value on the date of issuance. The expected life of the term loan is the contractual term ending on the maturity date. The Company classifies the term loan as current liabilities within twelve months of the maturity date or when otherwise due. Interest expense is recognized in the condensed consolidated statements of operations and comprehensive income (loss) over the contractual term of the loan. See Note 9- Debt for additional information related to the term loan.
Convertible Preferred Stock (Predecessor)
The Company records the Legacy Adagio convertible preferred stock at fair value on the dates of issuance, net of issuance costs. Upon the occurrence of certain events that are outside the Legacy Adagio’s control, including a deemed liquidation event, holders of the convertible preferred stock can cause redemption for cash. Each share of preferred stock would automatically be converted into shares of Legacy Adagio common stock at the then effective conversion rate immediately upon the earlier of (i) the election of the holders of a majority of the outstanding shares of preferred stock, voting as a separate class on an as-converted to common stock basis, or (ii) the closing of the sale of the Legacy Adagio’s common stock in a firm commitment, underwritten public offering registered under the Securities Act of 1933, as amended, with aggregate offering proceeds to Legacy Adagio (before deduction for underwriters’ discounts and expenses relating to the issuance) of at least $
As the Legacy Adagio preferred stock is considered to be contingently redeemable, the Legacy Adagio preferred stock has been classified outside of permanent equity.
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Stock-Based Compensation
The Company recognizes compensation expense for all stock-based awards issued to employees and non-employees based on the estimated grant-date fair value, which is recognized as expense on a straight-line basis over the requisite service period. The Company has elected to recognize forfeitures as they occur. The fair value of stock options is determined using the Black-Scholes option-pricing model. The determination of fair value for stock-based awards on the date of grant using an option-pricing model requires management to make certain assumptions including expected volatility, expected term, risk-free interest rate and expected dividends in addition to the Company’s common stock valuation. Refer to Note 14- Stock-Based Compensation.
Due to the absence of an active market for Legacy Adagio common stock, the Company utilized methodologies, approaches, and assumptions consistent with the American Institute of Certified Public Accountants Audit and Accounting Practice Aid Series: Valuation of Privately Held Company Equity Securities Issued as Compensation to estimate the fair value of Legacy Adagio common stock. In determining the exercise prices for options granted, the Company considered the fair value of the common stock as of the grant date. The fair value of the common stock is determined based upon a variety of factors, including the Company’s financial position, historical performance and operating results, the Company’s stage of development, the progress of the Company’s research and development programs, the prices at which the Company sold its convertible preferred stock, the superior rights, preferences and privileges of the Company’s convertible preferred stock relative to its common stock, external market conditions affecting the medical technologies industry, the lack of marketability of the Legacy Adagio common stock, prospects of a transaction and market performance of peer companies. Significant changes to the key assumptions underlying the factors used could result in different fair values of Legacy Adagio at each valuation date.
Income Taxes
Income taxes are recorded in accordance with ASC 740, Income Taxes (“ASC 740”), which provides for deferred taxes using an asset and liability approach. The Company recognizes deferred tax assets and liabilities for the expected future tax consequences of events that have been included in the condensed consolidated financial statements. Deferred tax assets and liabilities are determined based on the difference between the condensed consolidated financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse and include Net Operating Loss (“NOL”) carryforwards and Research and Development (“R&D”) tax credit carryforwards. Valuation allowances are provided if, based upon the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized.
The Company accounts for uncertain tax positions in accordance with the provisions of ASC 740. When uncertain tax positions exist, the Company recognizes the tax benefit of tax positions to the extent that the benefit would more likely than not be realized assuming examination by the taxing authority. The determination as to whether the tax benefit will more likely than not be realized is based upon the technical merits of the tax position as well as consideration of the available facts and circumstances.
ASU 2019-12, Simplifying the Accounting for Income Taxes was adopted in the first quarter of 2021 and the Company has recorded franchise taxes not based on income outside of income tax expense. The Company’s practice is to recognize interest and/or penalties related to income tax matters in income tax expense. The Company had
To date, there have been
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Note 3 – Forward Merger
On February 13, 2024, ARYA, ListCo, ARYA Merger Sub, and Company Merger Sub, entered into a Business Combination Agreement, which was amended by the Consent and Amendment No. 1 to the Business Combination Agreement, dated as of June 25, 2024.
Prior to the annual general meeting, holders of
Description of the Transaction
Upon the consummation of Business Combination,
| a) | Each issued and outstanding Class A ordinary share of ARYA, par value $ |
| b) | Each issued and outstanding Class B ordinary share of ARYA, par value $ |
| c) | Each warrant of Legacy Adagio (other than the Series E Pre-funded Warrants) was terminated in accordance with the terms of the applicable warrant agreement. |
| d) | All issued and outstanding convertible promissory notes of Legacy Adagio (excluding the Bridge Financing Notes and the 2024 Bridge Financing Notes, as defined below), including any accrued and unpaid interest thereon, are automatically and fully converted into shares of Legacy Adagio common stock in accordance with the terms of such convertible promissory notes, and such convertible promissory notes are cancelled, satisfied, extinguished, discharged and retired in connection with such conversion. |
| e) | Each share of Legacy Adagio preferred stock, par value $ |
| f) | All issued and outstanding shares of Legacy Adagio common stock including Series E Pre-funded Warrants that had been issued and outstanding are automatically cancelled and extinguished and converted into shares of the Company’s Common Stock based on the exchange ratio set forth in the Business Combination Agreement. |
| g) | Each issued, outstanding and unexercised option to purchase Legacy Adagio common stock (“Legacy Adagio Option”) had been vested prior to the Closing with an aggregate value that exceeds the aggregate exercise price of such Legacy Adagio Option (each an “In-the-Money Adagio Options”) are cancelled and extinguished in exchange for options to purchase shares of the Company’s Common Stock, and each issued and outstanding Legacy Adagio equity award (other than an In-the-Money Adagio Options) are automatically cancelled and extinguished for no consideration, and each holder thereof will cease to have any rights with respect thereto. |
| h) | $ |
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In connection with the execution of the Business Combination Agreement, ListCo and ARYA entered into Subscription Agreements (the “Initial Subscription Agreements”), with Perceptive Life Sciences Master Fund, Ltd, a Cayman Islands exempted company (the “Perceptive PIPE Investor”) and certain other investors (the “Initial Other PIPE Investors”, and together with the Perceptive PIPE Investor, the “Initial PIPE Investors”). In June 2024, ListCo and ARYA entered into additional Subscription Agreements (the “June Subscription Agreements” and, together with the Initial Subscription Agreements, the “Subscription Agreements”) with certain additional investors, (the “June PIPE Investors”, and together with the Initial Other PIPE Investors, the “Other PIPE Investors”, and the Other PIPE Investors, together with the Perceptive PIPE Investor, the “PIPE Investors”).
Pursuant to the subscription agreements, the PIPE Investors have committed financing valued at $
The PIPE Financing included:
(i)Commitments by certain Other PIPE Investors to purchase $
(ii)Commitments by certain Other PIPE Investors that were shareholders of ARYA to not to redeem
(iii)Agreements to purchase
(iv)Contribution of total $
(v)An additional cash investment of $
In return for the investment specified in (iv) and (v) above, the Perceptive PIPE Investor received
Further, in connection with the execution of the Business Combination Agreement, certain investors (“Convert Investors”) executed a securities purchase agreement, dated February 13, 2024, with ListCo (the “Convertible Security Subscription Agreement”), pursuant to which ListCo issued on the Closing Date to the Convert Investors $
Acquisition Method of Accounting
The Business Combination has been accounted for as a forward-merger in accordance with U.S. GAAP. Under this method of accounting, ListCo has been treated as the “accounting acquirer” and Legacy Adagio as the “accounting acquiree” for financial reporting purposes. Accordingly, for accounting purposes, the Business Combination has been accounted for using the acquisition method of accounting. The acquisition method of accounting is based on ASC 805 and uses the fair value concepts defined in ASC 820. ASC 805 requires, among other things, that assets acquired and liabilities assumed be recognized at their fair values as of the acquisition date, with limited exceptions per ASC 805-20-30-12 through 30-23. As such, under the acquisition method of accounting, ListCo’s assets and liabilities retain their carrying amounts, and the assets and liabilities of Legacy Adagio, including any intangible assets recognized in connection with the Business Combination, are recorded at their fair values as of the acquisition date, except as otherwise required. The excess of the purchase price over the estimated fair values of net assets acquired is recorded as goodwill.
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Under the acquisition method of accounting, ListCo was considered to be the accounting acquirer based on the terms of the Business Combination. Upon consummation of the Business Combination, the cash on hand resulted in the equity at risk being considered insufficient for Legacy Adagio to finance its activities without additional subordinated financial support. Therefore, Legacy Adagio was considered a Variable Interest Entity (“VIE”) and the primary beneficiary of Legacy Adagio was treated as the accounting acquirer.
ListCo is the primary beneficiary of Legacy Adagio. ListCo will hold
The following is a summary of the purchase price calculation (unaudited, in thousands except share and per share data):
Number of the Company’s Common Stock issued | | |
Number of replacement stock options granted to Legacy Adagio’s option holders by the Company | | |
Total shares and stock options | | |
Multiplied by the Company’s Common Stock price at the Closing | $ | |
Total | $ | |
Number of PIPE Base Warrants issued in lieu of settling Bridge Financing Notes | | |
Multiplied by estimated value of PIPE Base Warrants at the Closing | $ | |
Estimated fair value of PIPE Base Warrants issued in lieu of settling Bridge Financing Notes | $ | |
Total purchase price | $ | |
The allocation of the purchase price was as follows (unaudited, in thousands):
Assets Acquired: | |||
Cash | $ | ||
Accounts receivable, net | |||
Inventories, net | |||
Prepaid expenses | |||
Other current assets | |||
Property and equipment, net | |||
Intangible assets, net | |||
Goodwill | |||
Right-of-use asset, net | |||
Other assets | |||
Tota assets acquired | $ | ||
Liabilities Assumed: | |||
Accounts payable | $ | ||
Accrued liabilities | |||
Operating lease liabilities, current | |||
Convertible notes payable, long-term | |||
Warrant liabilities | |||
Operating lease liabilities, long-term | |||
Deferred tax liabilities | |||
Total liabilities assumed | $ | ||
Net total | $ |
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Goodwill represents the excess of the total purchase consideration over the fair value of the underlying net assets and captures the value attributable to future economic benefits arising from future technology development beyond the existing pipeline of identified IPR&D projects.
The acquired intangible assets consist of developed technology and IPR&D, which were valued at $
In connection with the Business Combination, the transactions that occurred concurrently with the Closing Date of the Business Combination were reflected “on the line”. “On the line” describes those transactions triggered by the consummation of the Business Combination that are not recognized in the consolidated financial statements of the Predecessor nor the Successor as they are not directly attributable to either period but instead were contingent on the Business Combination.
The number of shares of common stock issued and amounts recorded on the line within stockholders’ equity (deficit) are reflected below to arrive at the opening consolidated balance sheet of the Successor.
Accumulated | ||||||
Number of Shares | Common Stock | APIC | Deficit | |||
ListCo closing equity as of July 30, 2024 | — | — | $ | | $ | ( |
Accumulated deficit carried over from ARYA | — | — | — | ( | ||
Contribution of cash proceeds in PIPE Financing | | — | | — | ||
Conversion of ARYA convertible promissory Notes | | — | | — | ||
Conversion of ARYA Class A ordinary shares and Class B ordinary shares | | — | — | — | ||
Conversion of Class A ordinary shares subject to redemption | | — | | — | ||
Shares issued for acquisition of Legacy Adagio | | | | — | ||
Additional shares issued and reclassification of Class A ordinary shares subject to non-redemption agreements and open market subscription agreements | | — | | — | ||
Successor’s opening equity as of July 31, 2024 (Successor) | | | $ | | $ | ( |
In conversion of the ARYA’s equity outstanding prior to the Closing Date, for each issued and outstanding Class B ordinary share of ARYA at par value $
Pro Forma Financial Information (Unaudited)
The following unaudited pro forma financial information summarizes the results of operations for the Company as though the Business Combination had occurred on January 1, 2023 and has been derived from the historical consolidated financial statements of the Company’s Predecessor Periods and the Successor Period. The Successor and Predecessor Periods for the periods three months ended September 30, 2024; three months ended September 30, 2023; nine months ended September 30, 2024 and nine months ended September 30, 2023 have been combined. The unaudited pro forma financial information has been presented for illustrative purposes only and is not necessarily indicative of results of operations that would have been achieved had the acquisition taken place on the date indicated, or the future consolidated results of operations of the Company.
Three Months Ended September 30, | Nine Months Ended September 30, | ||||||||||
2024 |
| 2023 |
| 2024 |
| 2023 | |||||
Revenue | $ | $ | $ | | $ | ||||||
Net loss | ( | ( | ( | ( | |||||||
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The unaudited pro forma financial information for the three and nine months ended September 30, 2024 and 2023 combines the historical results of Adagio Medical, Inc., ARYA, and ListCo for the three and nine months ended September 30, 2024 and 2023, assuming that the companies were combined as of January 1, 2023.
The unaudited pro forma results reflect the adjustments for recording the step-up amortization adjustments for the fair value of intangible assets acquired, reversal of change in fair value of Legacy Adagio Convertible Notes and warrants, reversal of interest on Legacy Adagio Convertible Notes, reversal of interest on Legacy Adagio’s SVB Term Loan, and recording interest on Convertible Securities Notes.
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Note 4 – Fair Value Measurements
The Company’s financial instruments include its money market accounts (included as part of cash and cash equivalents), accounts receivable, accounts payable, common stock warrant liabilities (i.e. Convert Warrants and SVB Warrants), pre-funded warrant liabilities (i.e. PIPE Pre-funded Warrants), and convertible notes payables (i.e. Convertible Securities Notes and Legacy Adagio Convertible Notes). The recorded carrying amounts of cash and equivalents, accounts receivable and accounts payable approximates fair value due to their short-term nature. The convertible notes, common stock warrant liabilities, and pre-funded warrant liabilities are carried at fair value.
Assets and liabilities recognized at fair value on a recurring basis in the condensed consolidated balance sheets consists of cash equivalents, common stock warrant liabilities, pre-funded warrant liabilities, and convertible notes payables. These items are categorized based upon the level of judgment associated with the inputs used to measure their fair values. Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
The following tables summarize the Company’s financial instruments at fair value based on the fair value hierarchy for each class of instrument (in thousands):
September 30, 2024 (Successor) | Level 1 | Level 2 | Level 3 | |||
Assets: | ||||||
Money market account | $ | | $ | — | $ | — |
Liabilities: | ||||||
Convertible Securities Notes | $ | — | $ | — | $ | |
Convert Warrants | $ | — | $ | — | $ | |
PIPE Pre-funded Warrants | $ | — | $ | — | $ | |
December 31, 2023 (Predecessor) | Level 1 | Level 2 | Level 3 | |||
Assets: | ||||||
Money market account | $ | | $ | — | $ | — |
Liabilities: | ||||||
Legacy Adagio Convertible Notes | $ | — | $ | — | $ | |
SVB Warrants | $ | — | $ | — | $ | |
There were
Legacy Adagio Convertible Notes (Predecessor)
On October 27, 2022, Legacy Adagio entered into a note purchase agreement with investors for the issuance and sale of convertible promissory notes with an aggregate principal amount of $
On April 4, 2023, Legacy Adagio issued a $
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On November 28, 2023, Legacy Adagio issued a $
On February 13, 2024, Legacy Adagio issued a $
On May 21, 2024, Legacy Adagio issued a $
On June 25, 2024, Legacy Adagio issued a $
On July 23, 2024, Legacy Adagio issued a $
Upon the consummation of the Business Combination, the principal of Bridge Financing Notes along with its accrued but unpaid interest, was converted into the shares of the Company’s Common Stock and Base Warrants as part of the PIPE Financing. Refer to Note 9- Debt for details.
The Company measures Legacy Adagio Convertible Notes at fair value based on significant inputs not observable in the market, which caused them to be classified as Level 3 measurements within the fair value hierarchy.
In determining the fair value of the Legacy Adagio Convertible Notes as of December 31, 2023, the Company applied the probability-weighted expected return method (“PWERM”). The PWERM determines the value of an instrument based upon an analysis of future values for the potential instrument payouts under different future outcomes. The instrument value is based upon the present value of the probability of each future outcome becoming available to the instrument holders, and the rights of each security.
The Company calculated the estimated fair value of convertible promissory notes as of December 31, 2023 using the following assumptions:
As of December 31, 2023 | Discount rate | Expected Term (years) | Risk-Free interest rate | Volatility |
October 2022 Convertible Notes | | |||
April 2023 Convertible Notes | | |||
November 2023 Convertible Notes | |
In determining the fair value of the Legacy Adagio Convertible Notes as of July 31, 2024 prior to the Closing, the Company used the observed closing stock price of ARYA as of July 31, 2024 multiplied by the actual number of shares that the Legacy Adagio Convertible Notes converted into.
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The following table presents changes in the Level 3 convertible promissory notes measured at fair value for the year ended December 31, 2023 (Predecessor) (in thousands):
Year ended December 31, 2023 | Balance (beginning of year) | Additions | Fair value measurement adjustments | Balance | ||||
October 2022 Convertible Notes | $ | | $ | — | $ | | $ | |
April 2023 Convertible Notes | — | | ( | | ||||
November 2023 Convertible Notes | — | | | |
The following table presents changes in the Level 3 convertible promissory notes measured at fair value for the period from January 1, 2024 to July 30, 2024 (Predecessor) (in thousands):
Period from January 1 to July 30, 2024 (Predecessor) | Balance (beginning of year) | Additions | Fair value measurement adjustments | Balance | ||||
October 2022 Convertible Notes | $ | | $ | — | $ | ( | $ | |
April 2023 Convertible Notes | | — | | | ||||
November 2023 Convertible Notes | | | ( | | ||||
February 2024 Convertible Notes | — | | ( | | ||||
May 2024 Convertible Notes | — | | | | ||||
June 2024 Convertible Notes | — | | | | ||||
July 2024 Convertible Notes | — | | | |
Convertible Securities Notes (Successor)
On July 31, 2024, the Company issued the $
The Company measures the Convertible Securities Notes at fair value based on significant inputs not observable in the market, which caused them to be classified as Level 3 measurements within the fair value hierarchy.
The Company utilized the binomial lattice model to value the Convertible Securities Notes at the Closing Date and as of September 30, 2024. The following table summarizes the significant inputs as of the valuation dates:
Convertible Securities Notes | ||||
| July 31. 2024 |
| September 30, 2024 | |
Stock price | $ | $ | ||
Discount rate | ||||
Expected Term (years) | ||||
Risk-Free interest rate | ||||
Volatility |
The following table presents changes in the Level 3 convertible promissory notes measured at fair value for the periods from July 31, 2024 to September 30, 2024 (Successor) (in thousands):
Convertible Securities Notes - July 31, 2024 to September 30, 2024 (Successor) | |||
Balance (beginning of period) | $ | | |
Additions | — | ||
Fair value measurement adjustments | ( | ||
Balance (end of period) | $ | | |
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Warrant Liabilities (Predecessor)
i.Series E Pre-funded Warrants
On June 25, 2024, the Legacy Adagio issued to certain investor the Series E Pre-funded Warrants to purchase the Legacy Adagio’s Series E Preferred Stock, in exchange of the investor’s existing holding of Series E Preferred Stock. The exercise price of the pre-funded warrants is $
The fair value of the Series E Pre-funded Warrants is based on the fair value of the Series E Preferred Stock minus the exercise price. As of June 30, 2024, the Company estimated the fair value of the Series E Preferred Stock by applying a conversion factor of
As of July 31, 2024 prior to the Closing, the Company estimated the fair value of Series E Pre-funded Warrants based on the observed closing stock price of ARYA as of July 31, 2024 multiplied by the actual number of shares that the Series E Pre-funded Warrants converted into. The estimated fair value of the Series E Pre-funded Warrants as of June 30, 2024 and July 31, 2024 prior to the Closing is $
Upon the consummation of the Business Combination, the Series E Pre-funded Warrants were automatically cancelled and extinguished and converted into shares of the Company’s Common Stock based on the exchange ratio set forth in the Business Combination Agreement.
ii.SVB Warrants
On February 3, 2023, in conjunction with the Loan and Security Agreement (“LSA”) with Silicon Valley Bank (“SVB Term Loan”), Legacy Adagio issued Initial Warrants to purchase shares of common stock of the Company, and a contingent right to obtain an additional share of the common stock upon the non-occurrence of the Interest Only Milestone (as defined below). The Company measured SVB Warrants at fair value based on significant inputs not observable in the market, which caused them to be classified as Level 3 measurements within the fair value hierarchy. Changes in the fair value of the common stock warrants related to updated assumptions and estimates were recognized as warrant liabilities fair value adjustment within the condensed consolidated statements of operations and comprehensive income (loss).
The SVB Warrants were not material as of December 31, 2023 (Predecessor) and there were no material changes in fair value for the periods from July 1, 2024 to July 30, 2024 (Predecessor), January 1, 2024 to July 30, 2024 (Predecessor), and the three and nine months ended September 30, 2023 (Predecessor).
The SVB Warrants were terminated prior to the consummation of the Business Combination as the fair market value of Legacy Adagio common stock is lower than the warrant exercise price before the Closing. Refer to Note 10- Warrants for additional information.
25
认股权证负债（继承者）
i.转换Warrants
在2024年7月31日，公司发行了
As set forth in the agreement of the Convertible Securities Notes, the Convert Warrants are exercisable on a cashless basis or on a gross basis for one share of the Company’s Common Stock at $
可转换权证在公允价值层级中被分类为第3等级计量。公司在交易结束日和2024年9月30日利用Black-Scholes Merton期权模型对可转换证券附属票据进行估值。以下表格总结了估值日期的重要输入：
转换Warrants | ||||
| 2024年7月31日 |
| 2024年9月30日 | |
普通股票价格 | $ | $ | ||
预期波动率 | ||||
无风险利率 | ||||
预期股息收益率 | ||||
预期期限（年） |
下表展示了截至2024年7月31日至2024年9月30日（继任者）按公允价值计量的3级可转换债券的变化（单位：千）。
转换认股权证 - 2024年7月31日至2024年9月30日（继任者） | |||
期初余额 | $ | | |
新增 | — | ||
fair价值测量调整 | ( | ||
期末余额 | $ | | |
26
ii.PIPE预融资权证
在2024年7月31日，公司发行了
根据PIPE预融资认股权证协议的规定，PIPE预融资认股权证可在无现金方式或以总金额方式行使，兑换公司普通股的每股价格为$
PIPE预融资权证在公允价值层级中被分类为第三层次测量。PIPE预融资权证的公允价值基于公司普通股的公允价值减去行使价格。
下表呈现了自2024年7月31日至2024年9月30日（继任者）期间以公允价值计量的第三级PIPE预先融资认购权证的变动（单位：千）。
PIPE预资助权证 - 2024年7月31日至2024年9月30日（继承者） | |||
期初余额 | $ | | |
新增 | — | ||
fair价值测量调整 | ( | ||
期末余额 | $ | | |
注释5 - 存货，净值
截至2024年9月30日和2023年12月31日的存货包括以下内容（单位：千）:
2023年9月30日， | 12月31日 | |||||
2024 |
| 2023 | ||||
（继承者） | (前任) | |||||
原材料 | $ | | $ | | ||
在制品 | | | ||||
成品 |
| |
| | ||
存货总额 | $ | | $ | | ||
过时和过期的库存按发生时计入费用。库存的记录已扣除过时和制造业-半导体废料的$
库存的记录已扣除过时和制造业-半导体废料的$
27
注释6 - 资产和设备
截至2024年9月30日和2023年12月31日，公司的资产和设备净额包括以下内容（以千计）:
2023年9月30日， | 十二月-24 | |||||
| 2024 |
| 2023 | |||
(继任者) | (前任者) | |||||
控制台 | $ | | $ | | ||
其他机械和设备 | | | ||||
租赁改善 |
| |
| | ||
工具和模具 | | | ||||
计算机设备 | | | ||||
演示设备 | | | ||||
家具和固定装置 | | | ||||
施工中 | — | | ||||
车辆 |
| |
| | ||
不动产、厂房和设备总计 |
| |
| | ||
减：累计折旧 |
| ( |
| ( | ||
物业及设备（净额） | $ | | $ | | ||
折旧费用为$
折旧费用为$
注意 7 – 前进商誉和无形资产
公司的无形资产净额包括以下内容（以千计）：
2024年9月30日 | |||||||||||
(继承者) | |||||||||||
| 使用寿命（年） |
| 账面总额 |
| 累计摊销 |
| 净账面价值 | ||||
IPR&D | 不定期 | $ | $ | — | $ | ||||||
开发的科技 | ( | ||||||||||
总计 | $ | $ | ( | $ | |||||||
无形资产的摊销预计在2025年至2028年期间每年约为$
截至2024年9月30日（继承者），公司拥有$的商誉
根据公司的定性分析，
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备注 8 - 应计负债
下表展示截至2024年9月30日和2023年12月31日的应计负债的详细信息（以千计）:
2023年9月30日， | 12月31日 | |||||
2024 |
| 2023 | ||||
(继任者) |
| (前任者) | ||||
薪酬及相关费用 | $ | | $ | | ||
研发费用 | | | ||||
其他 | | | ||||
总计应计负债 | $ | | $ | | ||
备注 9 - 债务
截至2024年9月30日和2023年12月31日的未偿债务包括以下内容（单位：千）:
2024年9月30日 | 2023年12月31日 | ||||
(继任者) | (前任者) | ||||
可转换证券票据 | $ | | $ | — | |
2022年10月份以公允价值计量的可转换票据 | — | | |||
2023年4月可转换票据按公允价值计量 | — | | |||
2023年11月可转换票据按公允价值计量 | — | | |||
SVB定期贷款 | — | | |||
总未偿债务 | $ | | $ | | |
2022年10月可转换票据（前身）
2022年10月27日，Legacy Adagio与投资者签订了2022年10月可转换票据，发行和出售总本金为$的可转换本票
2023年4月4日，原定于2023年10月27日到期的2022年10月可转换票据被修订，将到期日延长至以下日期中的最晚者：（i）2024年1月5日，（ii）Legacy Adagio与ARYA之间关于潜在业务合并的一些拟议条款和条件的非约束性摘要的协议终止，或（iii）前述非约束性条款清单中所定义的独占期的终止或失效。2022年10月可转换票据协议也已修订，以将2022年10月可转换票据置于2023年4月可转换票据（如下所述）之下，并规定将所有2022年10月可转换票据的本金和应计利息转换为Legacy Adagio的E系列优先股，以便于业务合并。
On November 28, 2023, the October 2022 Convertible Notes agreement was further amended to subordinate the October 2022 Convertible Notes to the April 2023 Convertible Notes and the November 2023 Convertible Notes (as described below). Upon the consummation of the Business Combination, all principal and accrued interest in respect of the October 2022 Convertible Notes was converted into shares of the Legacy Adagio common stock, when multiplied by the exchange ratio applicable to the Legacy Adagio common stock in the Business Combination, entitled the holder of this note to receive a number of shares of the same class of common stock that are issued in the Private Investment in Public Equity Financing (“PIPE Financing”) equal to the then outstanding principal amount and any accrued and unpaid interest under this note, divided by
在2024年2月13日，2022年10月可转换票据协议进一步修订，将到期日期延长至商业合并协议的终止，并使2022年10月可转换票据从属于2023年4月可转换票据、2023年11月可转换票据和2024年2月可转换票据（如下所述）。
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The total of $
For the periods from July 1, 2024 to July 30, 2024 (Predecessor), from January 1, 2024 to July 30, 2024 (Predecessor), and the three and nine months ended September 30, 2023 (Predecessor), Legacy Adagio has recognized the interest expense of $
Upon the consummation of the Business Combination, all principal and accrued interest in respect to the October 2022 Convertible Notes were converted into
Bridge Financing Notes (Predecessor)
April 2023 Convertible Notes
On April 4, 2023, Legacy Adagio issued a $
On November 28, 2023, the April 2023 Convertible Notes were amended to align certain terms of the April 2023 Convertible Notes with the November 2023 Convertible Notes.
Upon the consummation of the Business Combination, this note was automatically converted into the type of securities that are issued in the PIPE Financing in an amount equal to the then-outstanding principal amount and any accrued and unpaid interest, divided by the effective price of the securities sold in the PIPE Financing.
As of December 31, 2023 (Predecessor), the principal amount outstanding was $
For the periods from July 1, 2024 to July 30, 2024 (Predecessor), from January 1, 2024 to July 30, 2024 (Predecessor), and the three and nine months ended September 30, 2023 (Predecessor), Legacy Adagio has recognized the interest expense of $
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2023年11月可转换债券
在2023年11月28日，Legacy Adagio向Perceptive PIPE投资者发行了一份面额为$
在业务合并完成时，该票据自动转换为在PIPE融资中发行的证券类型，其金额等于当时未偿还的本金和任何应计且未支付的利息，除以在PIPE融资中销售证券的有效价格。
在2023年12月，2023年11月的可转换票据被修订，允许在2023年12月13日和2023年12月28日分别发行金额为$的延期提款承诺。
截至2023年12月31日（前公司），未偿还的本金金额为$
在2024年7月1日至2024年7月30日（前公司）以及2024年1月1日至2024年7月30日（前公司）期间，Legacy Adagio已确认利息费用为$
2024年可转换债券
在2024年5月21日，Legacy Adagio向Perceptive PIPE投资者发行了一项金额为$
在业务合并完成时，该票据自动转换为在PIPE融资中发行的证券类型，其金额等于当时未偿还的本金和任何应计且未支付的利息，除以在PIPE融资中销售证券的有效价格。
在2024年7月1日至2024年7月30日（前身）以及在2024年1月1日至2024年7月30日（前身）期间，Legacy Adagio已确认利息支出为$
2024年6月可转换票据
2024年6月25日，Legacy Adagio向Perceptive PIPE投资者发行了一份$
在业务合并完成时，该票据自动转换为在PIPE融资中发行的证券类型，其金额等于当时未偿还的本金和任何应计且未支付的利息，除以在PIPE融资中销售证券的有效价格。
在2024年7月1日至2024年7月30日（前任）和2024年1月1日至2024年7月30日（前任）期间，Legacy Adagio已确认利息费用为$
31
2024年7月可转换债券
在2024年7月23日，Legacy Adagio向Perceptive PIPE投资者发行了一份$
在业务合并完成时，该票据自动转换为在PIPE融资中发行的证券类型，其金额等于当时未偿还的本金和任何应计且未支付的利息，除以在PIPE融资中销售证券的有效价格。
在2024年7月1日至2024年7月30日（前任）期间，Legacy Adagio已确认利息支出$
根据业务合并协议，未偿还的$
2024年2月可转换债券（前身）
在2024年2月13日，Legacy Adagio向Perceptive PIPE投资者发行了一笔本金为$
在商业合并完成时，2024年2月可转换票据将自动转让给公司，作为根据2024年2月13日公司、ARYA、Legacy Adagio与Perceptive PIPE投资者之间签署的票据购买协议和可转换证券认购协议（见下文）发行可转换证券票据的一部分。任何在2024年2月可转换票据的本金上产生的利息将因将票据转让给公司而被没收。
在2024年7月1日至2024年7月30日（前任）和2024年1月1日至2024年7月30日（前任）期间，Legacy Adagio已确认利息费用为$
在结算日，$
32
SVB 定期贷款（前身）
2023年2月3日，Legacy Adagio签署协议以获得首笔定期贷款预付款$
与SVB定期贷款的发行相关，Legacy Adagio发行了负债分类的Warrants，公允价值为$
认定Warrants负债和控件权利的初始确认导致了$的折扣。
截至2023年12月31日，SVB定期贷款的未偿本金为$。
在2024年7月1日至2024年7月30日（前任）、2024年1月1日至2024年7月30日（前任）及截至2023年9月30日的三个月和九个月（前任）期间，Legacy Adagio已确认利息支出为$
在交易结束之前，Legacy Adagio现有的SVB定期贷款净余额为$
可转换证券票据（继承者）
与业务合并协议的执行相关，Convert Investors 于2024年2月13日签订了可转换证券认购协议，并于2024年6月20日与ListCo进行了修订。根据协议，ListCo在交割日向Convert Investors发行 $
总计$
共计
2024年2月可转换票据的转换是根据与其他签署可转换证券认购协议的投资者相同的条款进行的。
从2024年7月31日到2024年9月30日（继任者）期间，公司已确认利息支出为$
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Note 10 - Warrants
SVB Warrants (Predecessor)
On February 3, 2023, in conjunction with the LSA, the Legacy Adagio issued Initial Warrants to purchase
The exercise price of the SVB Warrants is $
The SVB Warrants were terminated prior to the consummation of the Business Combination as the fair market value of Legacy Adagio common stock is lower than the exercise price of the SVB Warrants before the Closing.
Series E Pre-funded Warrants (Predecessor)
On June 25, 2024, in conjunction with the Series E Preferred Stock exchange agreement (refer to Note 13-Mezzanine Equity and Stockholders’ Equity (Deficit)), Legacy Adagio issued to a certain investor
The exercise price of the pre-funded warrants is $
Upon the consummation of the Business Combination, the
Convert Warrants (Successor)
As mentioned in Note 9- Debt, the Company issued $
PIPE Pre-funded Warrants (Successor)
The Company issued
As set forth in the agreement of the PIPE Pre-Funded Warrants, the PIPE Pre-Funded Warrants are exercisable on a cashless basis or on a gross basis for one share of the Company’s Common Stock at an exercise price of $
34
PIPE Base Warrants (Successor)
On the Closing Date, the Company issued
The Company also issued
Further, in connection with the non-redemption agreements entered with certain Other PIPE Investors holding
The Base Warrants can be exercised to the Company’s Common Stock at any time during the period from the issuance date to the expiration date which is the fifth anniversary from the date of issuance. The warrants can be exercised on a gross or net basis at an exercise price of $
The Base Warrants were fair valued at $
According to the ASC 815, it is determined that the Base Warrants associated with the PIPE Financing are indexed to the Company’s Common Stock under and are accounted for as equity, which is initially measured at fair value. The Base Warrants are classified as equity in the financial statements because they meet the ASC 815-40 indexation guidance. Specifically, 1) the Base Warrants can be exercised at any time during the exercise period without contingencies; 2) the Base Warrants can be settled in a fixed number of shares upon exercise with any adjustments, such as antidilution and alternative issuance adjustments, consistent with ASC 815 guidance, which does not preclude equity classification. Additionally, the Company has sufficient authorized shares available to settle the Base Warrants, and all the adjustments are in the control of the Company, further supporting the equity classification.
35
Note 11 - Operating Leases
The Company leases distribution and research and development facilities as well as sub-leases office and manufacturing space from third parties and related parties (refer to Note 17- Related Party Transactions) under its operating leases. The leases have expirations ranging from March 2024 to June 2026, some of which include rent escalations or an
As of September 30, 2024 and December 31, 2023, the Company does not have any finance or short-term leases and has not entered into leases which have not yet commenced that would entitle the Company to significant rights or create additional obligations during the periods as of September 30, 2024 and December 31, 2023.
The following table summarizes quantitative information of the Company’s operating leases for the periods from January 1, 2024 to July 30, 2024 (Predecessor), from July 31, 2024 to September 30, 2024 (Successor), and the nine months ended September 30, 2023 (Predecessor):
Nine months ended September 30, | |||||||
2024 | 2023 | ||||||
Predecessor | Successor | Predecessor | |||||
In thousands, unaudited | January 1 to July 30 | July 31 to September 30 | January 1 to September 30 | ||||
Operating cash flows paid for operating leases | $ | $ | $ | ||||
Weighted average remaining lease term (years) | |||||||
Weighted average discount rate | |||||||
Operating lease cost was $
Operating lease cost was $
The following table presents the future minimum payments under the non-cancelable operating leases as of September 30, 2024 (in thousands):
Three months ending December 31, 2024 | $ | | ||
Year ending December 31, 2025 | | |||
Year ending December 31, 2026 | | |||
Total undiscounted future cash flows | | |||
Less: imputed interest | ( | |||
Total operating lease liability | $ | |
36
Note 12 - Commitments and Contingencies
Litigation
The Company is not currently party to any legal proceedings. At each reporting date, the Company evaluates whether or not a potential loss amount or a potential range of loss is probable and reasonably estimable under the provisions of the authoritative guidance that addresses accounting for contingencies. The Company expenses as incurred the costs related to such legal proceedings, if any.
Note 13 - Mezzanine Equity and Stockholders’ Equity (Deficit)
Authorized Shares (Predecessor)
The Legacy Adagio’s Amended and Restated Articles of Incorporation authorize the issuance of two classes of stock designated as common and preferred stock, each having a par value of $
Convertible Preferred Stock (Predecessor)
Legacy Adagio classifies convertible preferred stock as temporary equity on the accompanying condensed consolidated balance sheets, as all such preferred stock is redeemable either at the option of the holder or upon an event outside the control of Legacy Adagio. The requirements of a deemed liquidation event, as defined within its amended and restated certificate of incorporation filed in November 2020, are not entirely within Legacy Adagio’s control. In the event of such a deemed liquidation event, the proceeds from the event are distributed in accordance with the liquidation preferences, provided that the holders of preferred stock have not converted their shares into common stock. Legacy Adagio records the issuance of preferred stock at the issuance price less related issuance costs. Legacy Adagio has not adjusted the carrying value of outstanding preferred stock to its liquidation preference because a deemed liquidation event is not probable of occurring as of the end of the reporting period.
During the periods from January 1, 2024 to July 30, 2024 (Predecessor), the following transactions have been executed:
•On June 25, 2024,
On the Closing Date, the Legacy Adagio’s
There were no preferred stock transactions during the year ended December 31, 2023 (Predecessor).
37
The following table summarizes information related to issuance of the Company’s preferred stock as of December 31, 2023 (Predecessor) (in thousands, except share data):
Preferred Stock Class | Number of Shares Authorized | Shares Issued and Outstanding | Carrying Value (1) | Conversion Price | Number of Common Stock Equivalent Shares | Liquidation Preference | |||
Series A | | | $ | | $ | | | $ | |
Series B | | | | | | | |||
Series C | | | | | | | |||
Series D | | | | | | | |||
Series E | | | | | | | |||
| | $ | | | $ | |
(1)The carrying value reflects the gross proceeds received from the sale of the preferred stock less issuance costs.
The relative rights, terms, privileges, and restrictions granted to or imposed upon preferred stockholders are described below:
Preferred Stock - Dividends
Prior and in preference to any declaration or payment of any dividends to the holders of common stock, the holders of preferred stock shall be entitled to receive dividends out of any assets legally available therefor, at the rate of eight percent (
In the event that the dividend amount declared by the Board of Directors of Legacy Adagio is insufficient to permit payment of the full aforesaid dividends, such dividends will be paid ratably to each holder of preferred stock in proportion to the dividend amounts to which each holder of preferred stock is entitled. After payment of the full amount of the aforesaid dividends, any additional dividends declared shall be distributed to the holder of common stock and preferred stock in proportion to the number of shares of common stock that would be held by such holder on an as-converted to common stock basis.
Liquidation Preference
In the event of liquidation of Legacy Adagio, including a merger, acquisition, or sale of all or substantially all the assets of Legacy Adagio, holders of preferred stock are entitled to receive an amount equal to the original issue price of each share of preferred stock held plus any dividends declared but not yet paid, prior to any distribution of assets or surplus funds of Legacy Adagio to common stock shareholders. After payment has been made to the holders of the preferred stock of the full amounts to which they are entitled as noted above, the remaining assets would be distributed among the holders of the common stock pro rata based on the number of shares of common stock held by each holder.
If, at the time of liquidation, the assets are insufficient to permit full payment of the liquidation preferences of the series listed in the order above, the assets must be distributed ratably among the holders of the series in proportion to the full preferential amount each such holder is otherwise entitled to receive in respect to such shares.
38
Voting Rights
So long as the shares of preferred stock that are convertible into at least
On all other matters, the holders of the preferred stock shall have full voting rights and powers equal to the voting rights and powers of the holders of common stock.
Fractional votes by the holders of preferred stock shall not be permitted and any fractional voting rights shall be rounded to the nearest whole number.
Conversion Rights
Each share of preferred stock shall be convertible, at the option of the holder, into shares of common stock without the payment of any additional consideration. The preferred stock shall be convertible into the number of fully paid and nonassessable shares of common stock which results from dividing the conversion price per share in effect for the preferred stock at the time of conversion into the per share conversion value. The initial per share conversion price of Series A, Series B, Series C, Series D, and Series E is $
Each share of preferred stock shall automatically be converted into shares of common stock at the then effective conversion rate immediately upon the earlier of (i) the election of the holders of a majority of the outstanding shares of preferred stock, voting as a separate class on an as-converted to common stock basis, or (ii) the closing of the sale of the Legacy Adagio common stock in a firm commitment, underwritten public offering registered under the Securities Act of 1933, as amended, with aggregate offering proceeds to Legacy Adagio (before deduction for underwriters’ discounts and expenses relating to the issuance) of at least $
Protective Provisions
So long as there are at least
So long as shares of Series E preferred stock that are convertible into at least
39
Common Stock (Predecessor)
Each share of common stock is entitled to
On the Closing Date, as explained in Note 3- Forward Merger, each share of Legacy Adagio issued and outstanding prior to the Closing Date was converted into the Company’s Common Stock based on exchange ratio set forth in the Business Combination Agreement.
Common Stock (Successor)
As of September 30, 2024 (Successor), the Company’s certificate of incorporation, as amended and restated, authorized the Company to issue up to
In September 2024, the Company issued
As of the reporting date, the vesting of the Sponsor Earnout was not considered probable.
According to ASC 815, it is determined that the Sponsor Earnout is indexed to the Company’s Common Stock and classified as equity and is initially measured at fair value and not subsequently remeasured. The Sponsor Earnout vests when the Company’s stock price meets a stated price or there is a company sale during the earnout period. Upon meeting either vesting condition, the same number of the Company’s Common Stock would be issued and no longer subject to forfeiture or cancellation. The Sponsor Earnout meets the ASC 815-40 indexation guidance. Specifically, the stated stock price and company sale, as the exercise contingencies, do not preclude equity indexation and there is no variability in the number of shares issuable under the Sponsor Earnout. Additionally, the Sponsor Earnout at the issuance meets the ASC 815-40 equity classification criterion as the Company has sufficient authorized shares available to settle the Sponsor Earnout and all the antidilution adjustments are in the control of the Company.
The holders of the Company’s Common Stock are entitled to receive dividends whenever funds are legally available, when and if declared by the Company’s Board of Directors. As of September 30, 2024 (Successor), no cash dividend has been declared to date. Each share of the Company’s Common Stock is entitled to one vote.
Below table summarizes the number of shares of common stock outstanding immediately following the Closing:
Number of Shares | ||
Contribution from PIPE Financing for cash | | |
Conversion of ARYA convertible promissory notes | | |
Conversion of ARYA Class A ordinary shares and Class B ordinary shares | | |
Conversion of Class A ordinary shares subject to redemption | | |
Shares issued in purchase consideration | | |
Additional shares issued and reclassification of Class A ordinary shares subject to non-redemption agreements and open market subscription agreements | | |
Total | |
The table below summarizes the Company’s reserved common stock for further issuance as of September 30, 2024 (Successor) and December 31,2023 (Predecessor):
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September 30, 2024 | December 31, 2023 | |||
(Successor) | (Predecessor) | |||
Conversion of preferred stock | — | | ||
Stock options issued and outstanding under the 2012 and 2022 Plan | — | | ||
Common shares available for future grant under the 2012 and 2022 Plan | — | | ||
Base Warrants | | — | ||
PIPE Pre-funded Warrants | | — | ||
Convertible Securities Notes | | — | ||
Convert Warrants | | — | ||
Company’s Common Stock issuable upon the exercise of outstanding options Legacy Adagio’s equity plans that were assumed in the Business Combination | | — | ||
Common Stock reserved for future issuance under the 2024 Equity Incentive Plan | | — | ||
Common Stock reserved for future issuance under the 2024 Key Employee Equity Incentive Plan | | — | ||
Common Stock reserved for future issuance under the 2024 Employee Stock Purchase Plan | | — | ||
Common stock reserved for future issuance | | |
Note 14 - Stock-Based Compensation
Predecessor Periods
2012 Stock Incentive Plan
In January 2011, Legacy Adagio’s Board approved the 2012 Stock Incentive Plan (the “2012 Plan”), which permitted grants of Incentive Stock Options (“ISOs”) and Non-statutory Stock Options (“NSOs”) to employees, directors and consultants. The maximum number of shares that can be granted under the 2012 Plan cannot exceed
2022 Stock Incentive Plan
In April 2022, the Legacy Adagio’s Board approved, in conjunction with the termination of the 2012 Plan, the 2022 Stock Incentive Plan (the “2022 Plan”), permitting ISOs and NSOs to employees, directors and consultants. The maximum number of shares granted under the 2022 Plan cannot exceed
The Stock Incentive Plan provides a means whereby participants may purchase shares of common stock pursuant to ISOs or NSOs and such persons may be granted shares of common stock for consideration consisting of cash and/or past services rendered to or on behalf of Legacy Adagio. ISOs may only be granted to employees. NSOs and stock purchase rights may be granted to employees and consultants. Generally, options awards only have service conditions that need to be met for the awards to vest, with the exception of grants to
The stock options generally vest over
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The following table summarizes stock option activity during the periods from January 1, 2024 to July 30, 2024 (Predecessor):
| Weighted | |||||||||
Weighted | Average | Aggregate | ||||||||
Average | Remaining | Intrinsic | ||||||||
| Exercise Price | Contractual | Value | |||||||
Shares | Per Share | Life (years) | (in thousands) | |||||||
Outstanding, December 31, 2023 (Predecessor) |
| | $ | | $ | | ||||
Forfeited |
| ( | | — | — | |||||
Options forfeited in connection with the Business Combination |
| | | — | ||||||
Outstanding, July 30, 2024 (Predecessor) |
| | $ | | — | $ | — | |||
Vested and expected to vest, July 30, 2024 (Predecessor) | | $ | | — | $ | — | ||||
Vested and exercisable, July 30, 2024 (Predecessor) | | $ | | — | $ | — | ||||
There were
The fair value of awards vested was $
Upon the consummation of the Business Combination,
Stock-Based Compensation Expense
The following table summarizes the total stock-based compensation expense for the stock options expense recorded in the unaudited condensed consolidated statements of operations and comprehensive income/(loss) for the periods from January 1, 2024 to July 30, 2024 (Predecessor), July 1 to July 30 (Predecessor), and the three and nine months ended September 30, 2023 (Predecessor) (in thousands):
2024 | 2023 | |||||||||||
July 1 to July 30 | January 1 to July 30 | Three months ended September 30 | Nine months ended September 30 | |||||||||
Selling, general, and administration | $ | | $ | | $ | | $ | | ||||
Research and development | | | | | ||||||||
Total stock-based compensation expense | $ | | $ | | $ | | $ | | ||||
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Successor Periods
2024 Equity Incentive Plan
The Board of Directors of the Company adopted the 2024 Equity Incentive Plan on July 26, 2024. The purpose of the plan is to promote the success and enhance the value of the Company by linking the individual interests of the members of the Board, Employees, and Consultants to those of Company stockholders and by providing such individuals with an incentive for outstanding performance to generate superior returns to Company stockholders. The 2024 Equity Incentive Plan authorizes the issuance of up to
The Company has not granted any awards under this plan as of September 30, 2024.
2024 Key Employee Equity Incentive Plan
The Board of Directors of the Company adopted the 2024 Key Employee Equity Incentive Plan on July 26, 2024. The purpose of the Plan is to promote the success and enhance the value of the Company by linking the individual interests of key employees of the Company to those of Company stockholders and by providing such individuals with an incentive for outstanding performance to generate superior returns to Company stockholders. The 2024 Key Employee Equity Incentive Plan authorizes the issuance of up to
The Company has not granted any awards under this plan as of September 30, 2024.
2024 Employee Stock Purchase Plan
The Board of Directors of the Company adopted the 2024 Equity Incentive Plan on July 26, 2024. The 2024 Employee Stock Purchase Plan provides a means by which eligible employees of the Company and certain designated related corporations may be given an opportunity to purchase shares of the Company’s Common Stock. The plan permits the Company to grant a series of purchase rights to eligible employees under an Employee Stock Purchase Plan. The 2024 Employee Stock Purchase Plan authorizes the issuance of up to
The Company has
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The following table summarizes stock option activity during the periods from July 31, 2024 to September 30, 2024 (Successor):
| Weighted | |||||||||
Weighted | Average | Aggregate | ||||||||
Average | Remaining | Intrinsic | ||||||||
| Exercise Price | Contractual | Value | |||||||
Shares | Per Share | Life (years) | (in thousands) | |||||||
Outstanding, July 31, 2024 (Successor) |
| | $ | | — | $ | | |||
Options issued as part of the Business Combination |
| | | — | | |||||
Outstanding, September 30, 2024 (Successor) |
| | $ | | — | $ | | |||
Options vested, September 30, 2024 (Successor) | | $ | | — | $ | | ||||
Options vested and exercisable, September 30, 2024 (Successor) | | $ | | — | $ | | ||||
As discussed above, the Company has not granted any options under the 2024 Equity Incentive Plan, the 2024 Key Employee Equity Incentive Plan and the 2024 Employee Stock Purchase Plan.
Note 15 – Earnings Per Share (“EPS”)
Predecessor
Basic net loss per common share is computed by dividing net loss attributable to common stockholders by the weighted-average number of shares of common stock outstanding for the period. Diluted net loss per common share excludes the potential impact of the Company’s convertible preferred stock, common stock warrants, and common stock options because the Company's net losses would cause such shares to be anti-dilutive. Therefore, as the Company recorded net losses in the periods presented, basic and diluted net loss per common share are the same.
(Predecessor) | ||||||||
Period from July 1 to July 30, 2024 | Period from July 1 to July 30, 2023 | Period from January 1 to July 30, 2024 | Nine months ending September 30, 2023 | |||||
Numerator: | ||||||||
Net income (loss) attributable to common stockholders | $ | ( | $ | ( | $ | ( | $ | ( |
Denominator: | ||||||||
Weighted-average shares outstanding used in computing net income (loss) per share attributable to common stockholders - basic and diluted | ||||||||
Net income (loss) per share attributable to common stockholders - basic and diluted | $ | ( | $ | ( | $ | ( | $ | ( |
The following potentially dilutive securities were excluded from the computation of diluted net loss per share calculations for the periods presented because the impact of including them would be anti-dilutive:
(Predecessor) | ||
As of July 30, 2024 | As of September 30, 2023 | |
Convertible preferred stock | | |
Stock options | | |
SVB Warrants | - | |
Total potentially dilutive securities | ||
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Successor
After the Business Combination, the Successor calculated basic EPS and diluted EPS to common stockholders in conformity with the two-class method required for companies with participating securities. The Company considered (i) the Convertible Securities Notes and (ii) the earnout shares subject to vesting conditions to be participating securities as they participate in any distributions declared by the Company. The Company’s Base Warrants and Convert Warrants are considered as non-participating securities, as the holders are not entitled to any shareholder right prior to the exercise of the Base Warrants and the Convert Warrants. As of the reporting date, none of the Base Warrants or the Convert Warrants were exercised to receive the Company’s Common Stock.
Under the two-class method, undistributed earnings allocated to these participating securities were subtracted from net income in determining net income attributable to common stockholders. Net income attributable to common stockholders was not allocated to Convertible Securities Notes as the holders of Convertible Securities Notes did not have a contractual obligation to share in income.
Further, Basic EPS under the two-class method includes the impact of the Company’s PIPE Pre-funded Warrants as the PIPE Pre-funded Warrants are exercisable for only $
The Company discloses the Diluted EPS under the if-converted method as such diluted EPS is lower than the diluted EPS calculated under the two-class method. The Earn-out shares subject to vesting conditions are not considered in the denominator for the calculation of diluted EPS as the vesting conditions for the Earn-out shares were not met during the successor reporting period.
The following table sets forth the computation of basic earnings per share attributable to common stockholders and the participating securities for the periods presented (in thousands, except share and per share data):
Basic EPS:
July 31, 2024 to September 30, 2024 (Successor) | ||||||||
Common Shares | Convertible Securities Notes | Sponsor Earnout | ||||||
(amounts in thousands, except the per share information) | ||||||||
Numerator: | ||||||||
Net income allocated to each class of participating securities | $ | | $ | $ | ||||
Denominator: | ||||||||
Weighted-average shares outstanding | | — | — | |||||
Shares issuable to Convertible Securities Notes | — | | — | |||||
Sponsor Earnout | — | — | | |||||
Net income per share attributable to each class of participating securities – Basic | $ | | $ | | $ | | ||
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The following table sets forth the computation of diluted earnings per share attributable to common stockholders for the periods presented (in thousands, except share and per share data):
Diluted EPS:
(amounts in thousands, except the per share information) | July 31, 2024 to September 30, 2024 (Successor) | ||
Numerator: | |||
Net income – Basic | $ | | |
Less: Adjustment for fair value changes to convertible securities notes | ( | ||
Net income attributable to common stockholders – Diluted | $ | | |
Denominator: | |||
Weighted-average shares outstanding – Basic | | ||
Weighted-average effect of shares issuable to Convertible Securities Notes (if-converted method) | | ||
Weighted-average shares outstanding – Diluted | | ||
Net income per share attributable to common shares – Diluted (if-converted method) | $ | |
The following potentially dilutive securities were excluded from the computation of diluted net loss per share calculations for the periods presented because the impact of including them would be anti-dilutive:
September 30, 2024 (Successor) | ||
Base Warrants | | |
Convert Warrants | | |
Earn-out Shares, subject to vesting conditions | | |
Stock options issued in connection with the Business Combination | | |
Total potentially dilutive securities | |
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Note 16 - Income Taxes
The Company accounts for income taxes in accordance with ASC 740. Under the provisions of ASC 740, management is required to evaluate whether a valuation allowance should be established against its deferred tax assets. The Company currently has a full valuation allowance against our deferred tax assets. As of each reporting date, the Company’s management considers new evidence, both positive and negative, that could impact management’s view with regard to future realization of deferred tax assets. For the periods from January 1, 2024 to July 30, 2024 (Predecessor) and July 31, 2024 to September 30, 2024 (Successor), there was no material change from fiscal year ended December 31, 2023 (Predecessor) in the amount of the Company's deferred tax assets that are not considered to be more likely than not to be realized in future years.
For the periods from January 1, 2024 to July 30, 2024 (Predecessor) and July 31, 2024 to September 30, 2024 (Successor), the effective tax rate for the Company’s operations was
For the nine months ended September 30, 2023 (Predecessor), the effective tax rate for the Company’s operations was
The Company is subject to U.S. federal income tax as well as income tax of foreign and state tax jurisdictions. The tax years 2019-2023 remain open to examination by the major taxing jurisdictions to which the Company is subject, except the Internal Revenue Service for which the tax years 2020-2023 remain open.
Note 17 - Related Party Transactions
Shared Services Agreement
During the periods from January 1, 2024 to July 30, 2024 (Predecessor), from July 31, 2024 to September 30, 2024 (Successor), from July 1, 2024 to July 30, 2024 (Predecessor), and the three and nine months ended September 30, 2023 (Predecessor), the Company incurred $
Laguna Hills Sublease (Predecessor)
In addition to the Shared Services Agreement, Legacy Adagio also sub-leases approximately
During the periods from January 1, 2024 to July 30, 2024 (Predecessor), and the three and nine months ended September 30, 2023, Legacy Adagio incurred $
Refer to Note 11-Operating Leases for further detail.
October 2022 Convertible Notes (Predecessor)
On October 27, 2022, Legacy Adagio issued a $
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Convertible Securities Notes (Successor)
In connection with the Business Combination and the Convertible Securities Notes agreement, the Company issued a $
PIPE Financing (Successor)
In connection with the Business Combination and the PIPE Financing, the Company issued
Further, in connection with the PIPE Financing, the Company issued
Note 18 - Subsequent Events
The Company evaluates subsequent events and transactions that occurred after the condensed consolidated balance sheet date through the date that the financial statements were issued. During this period, the Company did not identify any subsequent events that would have required adjustment in the condensed consolidated financial statements.
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Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations.
References in this Item 2 to “we,” “us,” “ListCo” or the “Company” refer to Adagio Medical Holdings, Inc. and its consolidated subsidiaries at and after the consummation of the Business Combination (as defined below). References to our “management” or our “management team” refer to our officers and directors. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited 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.
Cautionary Note Regarding Forward-Looking Statements
Some of the statements contained in this Quarterly Report may constitute “forward-looking statements” for purposes of the federal securities laws. Our forward-looking statements include, but are not limited to, statements regarding our or our management team’s expectations, hopes, beliefs, intentions or strategies regarding the future. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “plan,” “possible,” “potential,” “predict,” “project,” “should,” “would” and similar expressions may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking.
The forward-looking statements contained in this Quarterly Report are based on our current expectations and beliefs concerning future developments and their potential effects on us. There can be no assurance that future developments affecting us will be those that we have anticipated. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond our control) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements. These risks and uncertainties include, but are not limited to, the following risks, uncertainties (some of which are beyond our control) or other factors:
| ● | Failure to recognize the anticipated benefits of the Business Combination, which may be affected by, among other things, competition and our ability to grow and manage growth profitably and retain our key employees. |
| ● | We have no operating history and no revenues, and you have no basis on which to evaluate our ability to achieve our business objective; |
| ● | The Company is a medical device company that has incurred net losses in every period to date and expects to continue to incur significant losses as it develops its business; |
| ● | The Company’s growth prospects partially depend on its ability to accelerate the commercialization of its products and to capitalize on market opportunities; |
| ● | The Company’s growth prospects partially depend on its ability to accelerate the commercialization of its products and to capitalize on market opportunities; |
| ● | Even if the Company is able to launch its pipeline portfolio successfully, it may experience material delays in its commercialization program relative to its current expectations; |
| ● | The life sciences technology market is highly competitive. Competitors include new entrants and established companies, many of which have significantly greater resources than the Company. If the Company fails to compete effectively, its business and results of operation and ours will suffer; |
| ● | If the Company is unable to establish manufacturing capacity by itself or with third-party partners in a timely and cost-effective manner, commercialization of its products would be delayed, which would result in lost revenue and harm its and our business; |
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| ● | 公司的产品商业化将需要公司与领先的生命科学公司和研究机构建立关系并成功合作； |
| ● | 如果公司无法建立有效的商业化网络，包括有效的分销渠道以及销售和营销功能，这可能会对其及我们的业务、财务状况、运营结果和前景产生不利影响； |
| ● | 公司的经营业绩未来可能会显著波动，这使得其及我们的未来经营业绩难以预测，可能导致其及我们的经营业绩低于预期或公司和/或我们可能提供的任何指导； |
| ● | 没有任何保证表明公司能够执行其业务模型，包括实现其产品的市场接受度； |
| ● | 公司产品的成功依赖于适当的医生培训、实践和患者选择； |
| ● | 即使公司的产品商业化并获得广泛的科学和市场认可，如果公司未能改进这些产品或推出具有吸引力的新产品，其收入和前景，以及我们的收入和前景，可能会受到影响； |
| ● | 公司的产品市场规模可能小于预估，从而限制公司成功销售其产品的能力； |
| ● | 失去任何第三方供应商和制造商，或这些供应商和制造商在生产公司产品时遇到的任何困难； |
| ● | 未能防范软件或硬件的漏洞； |
| ● | 未能筹集额外资金以开发业务发展和商业化计划； |
| ● | 由于政治不稳定、自然灾害或其他原因，导致不利的美国或全球经济状况造成的风险； |
| ● | 我们一位或多位高管及其他关键员工的失去； |
| ● | 未能招聘和留住合格员工； |
| ● | 未能遵守联邦、州和地方法律法规； |
| ● | 无法维持我们普通股在纳斯达克资本市场的上市； |
| ● | 本文件中讨论的其他风险和不确定性以及我们向美国证券交易委员会（“SEC”）提交的文件，包括公司于2024年8月6日提交给SEC的8-K当前报告。 |
如果这些风险或不确定性中的一个或多个变为现实，或我们任何假设被证明不正确，则实际结果可能在重要方面与这些前瞻性声明中预测的结果有所不同。我们不承担更新或修订任何前瞻性声明的义务，无论是由于新信息、未来事件还是其他原因，除非适用的证券法要求这样做。
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管理层关于财务状况和经营成果的讨论与分析
以下对财务状况和运营结果的讨论和分析应与本报告中包含的压缩合并财务报表及相关附注和其他财务信息一起阅读。讨论和分析中的某些信息包含了前瞻性声明，这些声明涉及风险和不确定性。我们的实际结果可能因多种因素与这些前瞻性声明中的预期结果有重大差异。请参见本报告中的“关于前瞻性声明的警示说明”和“风险因素”。除非上下文另有要求，本招股说明书本节中提及的“我们”、“我们”、“Adagio”和“公司”均指Adagio Medical Holdings, Inc及其合并子公司在业务合并完成后的业务和运营。提及“Legacy Adagio”指的是Adagio Medical, Inc及其合并子公司在交割前的业务和运营。“ListCo”指的是交割前的特拉华州公司Aja HoldCo, Inc。ListCo在交割后更名为“Adagio Medical Holdings, Inc”。提到我们的“管理层”或“管理团队”指我们的高管和董事。
2024年7月26日，ARYA Sciences Acquisition Corp IV（“ARYA”）召开了年度股东大会，ARYA股东在会议上审议并通过了诸如业务合并协议等事项。2024年7月31日，业务合并协议的各方完成了业务合并。
根据会计标准分类法805《商业合并》中列出的标准分析，ListCo被视为在业务合并中的会计收购方。Legacy Adagio是根据会计标准分类法805《商业合并》中的标准分析，被视为会计被收购方及前身。因此，Legacy Adagio的历史财务报表在完成业务合并后成为合并公司的历史财务报表。因此，本报告中包含的财务报表反映了(i)交割前Legacy Adagio的历史运营结果；(ii)交割后公司的合并结果。附带的财务信息包括一个前身期间，该期间包括至2024年7月30日与业务合并同时的时期，以及从2024年7月31日至2024年9月30日的继任期间。在压缩合并财务报表和报表附注的表格中，已在前身和继任期间之间放置黑线，以突出这两个期间之间缺乏可比性，并区分这些期间的截止时间。
Overview
我们是一家发展阶段的医疗器械公司，专注于心脏心律失常的消融技术的开发和商业化，包括房颤（“AF”）、房扑（“AFL”）和室性心动过速（“VT”）。我们的独特产品组合基于超低温冷冻消融（“ULTC”）和脉冲场冷冻消融（“PFCA”）。我们的科技基于一个假设，即能够持续创建持久的、连续的、贯穿整个层次的病变是改善心脏消融在心房和心室中有效性和结果的基础。
我们的产品组合包括三个产品系列：iCLAS™房用ULTC导管及附件，vCLAS™室用ULTC导管，以及Cryopulse™房用PFCA导管及附件。所有这些导管都共享同一套ULTC冷冻消融控制台。一台独立的脉冲场消融（PFA）控制台与冷冻消融控制台连接，以实现PFCA治疗的同步，配合Cryopulse导管使用，未来将进行最大程度的集成，以实现操作灵活性和最小占地面积。我们于2020年5月在欧洲获得了iCLAS™冷冻消融系统的CE标志，并在欧盟商业化推出。
我们正在不断努力，达到技术组合开发过程中的下一个里程碑。我们于2024年3月获得了欧洲的Vt冷冻消融系统的CE标记，并已在欧盟商业发布。关键里程碑包括数据发布、临床试验以及美国和欧洲市场的监管和商业化发展。每个设备的数据发布是关键的估值驱动里程碑，因为投资者使用这些数据来理解程序的有效性。预计良好的结果将推动我们在市场条款下的额外投资和融资。
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我们在美国尚未正式推出，但正在努力获得必要的监管批准。自2011年成立以来，我们每年都出现净亏损截至2024年9月30日和2023年12月31日，我们累计亏损分别为1320万美元和13360万美元。我们的净收入（亏损）在2024年7月31日至2024年9月30日（继任者）期间为360万美元，在2024年1月1日至2024年7月30日（前任者）期间为（2130）万美元，以及在截至2023年9月30日的九个月内（前任者）为（2800）万美元。经营活动中使用的净现金分别为640万美元、1600万美元和1860万美元。我们几乎所有的净亏损都源于与我们的研究和开发项目相关的成本以及与我们的运营相关的一般和管理成本。截至2024年9月30日和2023年12月31日，我们的现金分别为2830万美元和140万美元。
随附的简明合并财务报表是在假设我们将继续作为持续经营单位的基础上编制的，该假设考虑了在正常经营过程中实现资产和负债。我们的营业收入有限，自成立以来经历了重复的经营亏损和负现金流，并预期在未来几年仍将继续出现这些情况。这些因素对继续作为持续经营单位的能力提出了重大疑问，自财务报表发布之日起的十二个月内。此外，管理层认为我们当前的现金及现金等价物不足以支持至少12个月的运营，因此对我们继续作为持续经营单位的能力存在重大疑问。请参见我们简明合并财务报表中的注释1-组织和业务描述，以获取关于持续经营评估的补充信息。
额外资本的需求部分将取决于我们开发活动的范围和成本。截至目前，我们尚未从商业化产品的销售中产生任何显著的营业收入。我们产生产品收入的能力将取决于我们产品在美国和欧洲的成功开发和最终商业化。在此之前，如果有的话，我们预计将通过出售股权或债务、信用额度下的借款，或通过潜在的合作、其他战略交易或政府及其他拨款来资助我们的运营。当需要时，可能没有充足的资本可供我们使用，或其条件不可接受。如果我们无法筹集资本，我们可能被迫延迟、减少、暂停或停止我们的研发项目或任何未来的商业化努力，这将对我们的业务、前景、经营结果和财务状况产生负面影响。有关更多信息，请参见2024年8月6日向SEC提交的公司8-K当前报告中的“风险因素”部分。
合并的描述
在2024年7月31日（“交割日期”），ARIA科学收购公司IV，一家开曼群岛豁免公司（“ARYA”），Aja Holdco, Inc.（“ListCo”），一家特拉华州公司及ARYA的全资子公司，Aja Merger Sub 1，一家开曼群岛豁免公司及ListCo的全资子公司（“ARYA Merger Sub”），Aja Merger Sub 2, Inc.，一家特拉华州公司及ListCo的全资子公司（“公司合并子公司”），及Adagio Medical, Inc.，一家特拉华州公司（“Legacy Adagio”或“前任”），根据2024年2月13日各方签署的《业务合并协议》（“业务合并协议”）的条款，完成了业务合并（“业务合并”）。该协议经过2024年6月25日ARYA和Adagio之间签署的《业务合并协议的同意和修正案第1号》的修订。
根据业务合并协议，在交割日，(i) ARYA合并子公司与ARYA合并（“ARYA合并”），公司合并子公司与Legacy Adagio合并（“Adagio合并”，与ARYA合并统称为“合并”），ARYA和Legacy Adagio在合并中存续，完成这种合并后，ARYA和Legacy Adagio均成为ListCo的全资子公司（ARYA合并生效的时间称为“ARYA合并生效时间”，Adagio合并生效的时间称为“Adagio合并生效时间”，两个合并都生效的时间称为“交割”，交割发生的日期称为“交割日”），(ii) ListCo向特拉华州州务卿提交了ListCo的修订和重述的公司章程，ListCo的董事会批准并采纳了ListCo的修订和重述的章程，以及(iii) ListCo将其名称更改为Adagio医疗控股公司。
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在年度股东大会之前，持有2,707,555股ARYA可赎回A类普通股的股东行使了以约每股11.56美元的赎回价格赎回股份的权利，总赎回金额约为3130万。
在商业合并完成后，
a)每一股已发行的ARN A类普通股，面值为每股0.0001美元，均被自动取消、终止并转换为公司的普通股，每股面值为0.0001美元（“公司的普通股”）。
b)每一股已发行的ARN B类普通股，面值为每股0.0001美元，均被自动取消、终止并转换为接收一股公司的普通股的权利，除了(i) 1,000,000股被赞助方放弃的B类普通股，及发行给PIPE投资者（如下文定义），包括感知PIPE投资者（如下文定义）；(ii) 1,147,500股公司普通股授予赞助方的股份，受股权触发价格归属的限制，如果在交易完成的第十周年之前，公司在任何30个交易日内的后续交易价格等于或超过每股24.00美元，超过20个交易日（“股份触发价格归属”）。
c)Legacy Adagio的每个Warrants（除系列E预认购Warrants外）已根据适用的Warrants协议的条款终止。
d)遗产Adagio所有已发行的可转换承诺票据（不包括桥接融资票据和2024年桥接融资票据，如下所定义），以及其所产生的任何应计和未支付的利息，将根据这些可转换承诺票据的条款自动完全转换为遗产Adagio的普通股，并因此类转换而取消、满足、终止、解除并注销该可转换承诺票据。
e)每一份Legacy Adagio优先股，面值为每股0.001美元，已发行并且尚未注销的股份将自动按照一比一的比例转换为Legacy Adagio普通股。
f)所有已发行并且尚未注销的Legacy Adagio普通股，包括已发行的系列E预认购Warrants，均自动被取消和撤销，并根据业务合并协议中规定的交换比例转换为公司的普通股。
g)每个已经发行、未行使的购买Legacy Adagio普通股的期权（“Legacy Adagio期权”）在交割前已完全归属，其总价值超过该Legacy Adagio期权的总行使价格（每个“有利可图的Adagio期权”）将被取消并用购买公司普通股的期权进行交换，而每个已发行和在外的Legacy Adagio股权奖励（不包括有利可图的Adagio期权）将自动取消并以无对价的形式消失，且各持有人将不再对其享有任何权利。
h)$700万的2024年桥梁融资票据转换为可转换证券票据和认股权证（如下定义）。
在执行业务合并协议时，ListCo与ARYA签订了认购协议（“初步认购协议”），其中包括Perceptive Life Sciences Master Fund, Ltd，一家开曼群岛豁免公司（“Perceptive PIPE投资者”）以及其他一些投资者（“初步其他PIPE投资者”，与Perceptive PIPE投资者合称为“初步PIPE投资者”）。在2024年6月，ListCo与ARYA签署了额外的认购协议（“6月认购协议”，与初步认购协议合称为“认购协议”），与若干额外的投资者（“6月PIPE投资者”，与初步其他PIPE投资者合称为“其他PIPE投资者”，与Perceptive PIPE投资者合称为“PIPE投资者”）。
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Pursuant to the subscription agreements, the PIPE Investors have committed financing valued at $64.5 million (the “PIPE Financing”).
The PIPE Financing included:
(i)Commitments by certain Other PIPE Investors to purchase $2.5 million in Class A shares of ARYA in the open market and not to redeem such shares before the Closing, resulting in the issuance of 355,457 shares of Company’s Common Stock and 299,902 warrants exercisable for shares of the Company’s Common Stock (the “Base Warrants”).
(ii)Commitments by certain Other PIPE Investors that were shareholders of ARYA to not to redeem 247,700 Class A shares of ARYA, resulting in the issuance of 405,772 shares of Company’s Common Stock and 343,756 Base Warrants.
(iii)Agreements to purchase 1,036,666 shares of Company’s Common Stock, 1,440,000 Base Warrants, and 670,000 PIPE Pre-funded Warrants for a cash investment of $12 million in the Company.
(iv)Contribution of total $29.5 million in April 2023 Convertible Notes, November 2023 Convertible Notes, May 2024 Convertible Notes, June 2024 Convertible Notes, and July 2024 convertible Notes (collectively, “Bridge Financing Notes”), and accrued interest of $1.7 million by the Perceptive PIPE Investor.
(v)An additional cash investment of $15.9 million by the Perceptive PIPE Investor.
In return for the investment specified in (iv) and (v) above, the Perceptive PIPE Investor received 6,622,959 shares of Company’s Common Stock and 5,445,069 Base Warrants.
Further, in connection with the execution of the Business Combination Agreement, certain investors (“Convert Investors”) executed a securities purchase agreement, dated February 13, 2024, with ListCo (the “Convertible Security Subscription Agreement”), pursuant to which ListCo issued on the Closing Date to the Convert Investors $20.0 million of 13% senior secured convertible notes (the “Convertible Securities Notes”), which will be convertible into shares of the Company’s Common Stock at a conversion price of $10.00 per share, subject to adjustment, and 1,500,000 warrants (the “Convert Warrants”), each Convert Warrant being exercisable on a cashless basis or for cash at a price of $24.00 per share, subject to adjustment. Such $20.0 million of financing in the form of Convertible Securities Notes includes the conversion of the 2024 Bridge Financing Notes into Convertible Securities Notes and Convert Warrants at Closing, as further described in Note 9-Debt in our condensed consolidated financial statements.
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Key Factors Affecting Our Performance
We compete primarily on the basis that our products are designed to enable more physicians to treat more patients more efficiently and effectively. Our continued success depends on our ability to:
•continue to develop innovative, proprietary products that address significant clinical needs in a manner that is safe and effective for patients and easy-to-use for physicians;
•obtain and maintain regulatory clearances or approvals;
•demonstrate safety and effectiveness in our sponsored and third-party clinical trials;
•expand its sales force across key markets to increase physician awareness;
•obtain and maintain coverage and adequate reimbursement for procedures using its products;
•attract and retain skilled research, development, sales and clinical personnel;
•cost-effectively manufacture, market and sell its products; and
•obtain, maintain, enforce and defend our intellectual property rights and operate its business without infringing, misappropriating or otherwise violating the intellectual property rights of others.
Innovation
Our business strategy relies significantly on innovation to develop and introduce new products and to differentiate our products from our competitors. We expect our research and development expenditures to increase as we make additional investments to support our growth strategies. We plan to increase our research and development expenditures with internal initiatives, as well as potentially licensing or acquiring technology from third parties. We also expect expenditures associated with our manufacturing organization to grow over time as production volume increases and we bring new products to market. Our internal and external investments will be focused on initiatives that we believe will offer the greatest opportunity for growth and profitability. With a significant investment in research and development, a strong focus on innovation and a well-managed innovation process, we believe we can continue to innovate and grow.
Regulatory
Our commercial success will depend upon a number of factors, some of which are beyond our control, including the receipt of regulatory clearances, approvals, or authorizations for existing or new product offerings by us, or product enhancements. We must complete additional clinical testing before we can seek regulatory approval in the United States and begin commercialization of our products. After our products are cleared, approved, or authorized, numerous and pervasive regulatory requirements continue to apply. As such, our ability to navigate, obtain and maintain the required regulatory clearances, approvals, or authorizations, as well as comply with other regulatory requirements, for our products will in part drive our results of operations and impact our business.
Investments in Our Growth
In order to generate future growth, we plan to continue to expand and leverage our sales and marketing infrastructure to increase our customer base and grow our business. Identifying and recruiting qualified sales and marketing personnel and training them on our products, applicable federal and state laws and regulations, and on our internal policies and procedures requires significant time, expense and attention. It often takes several months or more before a sales representative is fully trained and productive. Our ability to increase our customer base and achieve broader market acceptance of our products will also depend to a significant extent on our ability to expand our marketing efforts as our plans to dedicate significant resources to our marketing programs.
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Competition
Our industry is intensely competitive, subject to rapid change and significantly affected by new product introductions and other market activities of industry participants. Our most significant competitors are large, well-capitalized companies. We must continue to successfully compete considering our competitors’ existing and future products and related pricing and their resources to successfully market to the physicians who could use our products. Publications of clinical results by us, our competitors and other third parties can also have a significant influence on whether, and the degree to which, we are able to gain market share and increase utilization of our products.
Reimbursement and Insurance Coverage
In both U.S. and non-U.S. markets, our ability to successfully commercialize and achieve market acceptance of our products depends, in significant part, on the availability of adequate financial coverage and reimbursement from third-party payors, including governmental payors (such as the Medicare and Medicaid programs in the United States), managed care organizations and private health insurers. Third-party payors decide which treatments they will cover and establish reimbursement rates for those treatments. Our products are purchased by hospitals and other providers who will then seek reimbursement from third-party payors for the procedures performed using our products. Reimbursement systems in international markets vary significantly by country and by region within some countries, and reimbursement approvals must be obtained on a country-by-country basis. In certain international markets, a product must be approved for reimbursement before it can be approved for sale in that country. Furthermore, many international markets have government-managed healthcare systems that control reimbursement for new devices and procedures. In most markets there are private insurance systems as well as government-managed systems.
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Key Components of Results of Operations
Revenues
We generate product revenue primarily from the sale of the catheters, stylets and warming balloons (“Consumables”) used with our consoles. We sell our products directly to hospitals and medical centers. To a lesser extent, we also generate lease revenue from the implied rental of consoles loaned to customers at no charge. We recognize revenue in accordance with ASC Topic 606, Revenue from Contracts with Customers, when we transfer promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Please refer to Note 2-Summary of Significant Accounting Policies in our condensed consolidated financial statements for additional details on our revenue recognition policy. Our revenue is subject to fluctuation due to the foreign currency in which our products are sold.
Costs and Operating Expenses
Cost of Revenue
Cost of revenue includes raw materials, direct labor, manufacturing overhead, shipping and receiving costs and other less significant indirect costs related to the production of our products. Cost of revenue also includes the depreciation expense of consoles loaned to the customers.
Research and Development Expenses
Research and development expenses are expensed when incurred and are related to the development of our product candidates which includes pre-clinical, clinical, quality assurance, and research and development operational activities. These costs consist of:
•salaries, benefits, and other employee-related costs, including stock-based compensation expense for personnel engaged in research and development functions;
•activities associated with clinical trials performed by third parties;
•professional fees;
•equipment, materials, and costs related to product manufacturing; and
•other operational costs including rent and facilities costs, and depreciation.
We do not track research and development expenses by project or product, as we are at an earlier stage in our pre-clinical and clinical development. Management believes that the breakdown of research and development expenses by project or product would be arbitrary and would not provide a meaningful assessment.
Management expects the research and development expenses to increase, as we will incur incremental expenses associated with the product candidates that are currently under development and in pre-clinical and clinical trials. Product candidates in later stages of clinical development generally have higher development costs, primarily due to the increased size and duration of later-stage clinical trials.
Selling, General and Administrative Expenses
Selling, general and administrative expenses consist primarily of salaries, and employee-related costs (including stock-based compensation) for personnel in executive, finance and other administrative functions, allocated rent and facilities costs, legal fees relating to intellectual property and corporate matters, professional fees for accounting and consulting services, marketing costs and insurance costs, and transaction costs in connection with the Business Combination. We expense all selling, general and administrative costs as incurred.
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Convertible notes fair value adjustment
We recorded the October 2022 Convertible Notes, the April 2023 Convertible Notes, the November 2023 Convertible Notes, the 2024 Bridge Financing Note, the May 2024 Convertible Notes, the June 2024 Convertible Notes, July 2024 Convertible Notes, and Convertible Securities Notes at fair value at issuance and subsequently remeasure them to fair value at each reporting period. The change in fair value of the convertible promissory notes, excluding amounts related to interest, is recorded in “Convertible notes fair value adjustment,” while amounts related to interest are recorded as interest expense in the consolidated statements of operations and comprehensive income (loss).
Warrant liabilities fair value adjustment
We accounted for certain common stock warrants outstanding as warrant liabilities at fair value, determined using the Black-Scholes option pricing model. The liability is subject to re-measurement at each reporting period and any change in fair value is recognized as warrant liabilities fair value adjustment in the condensed consolidated statements of operations and comprehensive income (loss).
Interest expense
Interest expense is primarily incurred from our outstanding debt obligations, including those under the October 2022 Convertible Notes, the April 2023 Convertible Notes, the November 2023 Convertible Notes, the February 2024 Convertible Notes, the May 2024 Convertible Notes, June 2024 Notes, July 2024 Convertible Notes, Convertible Securities Notes , and the SVB Term Loan.
Interest Income
Interest income consists primarily of interest earned on our cash, cash equivalents, and marketable securities.
Other (expense) income, net
Other (expense) income, net primarily consists of foreign currency unrealized and realized gain / loss, and other income related to research and development (“R&D”) tax credit.
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Results of Operations
Comparison for the periods from January 1, 2024 to July 30, 2024 (Predecessor), from July 31, 2024 to September 30, 2024 (Successor), from July 1, 2024 to July 30, 2024 (Predecessor), and from July 31, 2024 to September 30, 2024 (Successor), to the three and nine months ended September 30, 2023 (Predecessor)
The following table sets forth a summary of our results of operations. This information should be read together with our condensed consolidated financial statements and related notes.
For the three months ended September 30, | ||||||||||||||||
2024 | 2023 | |||||||||||||||
Successor | Predecessor | Predecessor | Change | |||||||||||||
July 31 to September 30 | July 1 to July 30 | July 1 to September 30 | $ | % | ||||||||||||
Revenue | $ | 132 | $ | 53 | $ | 41 | $ | 144 | $ | 351% | ||||||
Cost of revenue and operating expenses: | ||||||||||||||||
Cost of revenue | 414 | 157 | 253 | 318 | 126 | |||||||||||
Research and development | 1,217 | 1,251 | 4,418 | (1,950) | (44) | |||||||||||
Selling, general, and administrative | 2,926 | 4,851 | 4,451 | 3,326 | 75 | |||||||||||
Total cost of revenue and operating expenses | 4,557 | 6,259 | 9,122 | 1,694 | 19 | |||||||||||
Loss from operations | (4,425) | (6,206) | (9,081) | (1,550) | 17 | |||||||||||
Other income (expense): | ||||||||||||||||
Convertible notes fair value adjustment | 3,255 | (1,907) | (1,051) | 2,399 | (228) | |||||||||||
Warrant liabilities fair value adjustment | 4,973 | 177 | (23) | 5,173 | n.m | |||||||||||
Interest expense | (435) | (304) | (485) | (254) | 52 | |||||||||||
Interest income | 166 | — | 2 | 164 | 8,200 | |||||||||||
Other (expense) income, net | 72 | 5 | (123) | 200 | (163) | |||||||||||
Total other income (expense), net | 8,031 | (2,029) | (1,680) | 7,682 | (457) | |||||||||||
Net income (loss) | $ | 3,606 | $ | (8,235) | $ | (10,761) | $ | 6,132 | $ | (57) | ||||||
Other comprehensive income (loss): | ||||||||||||||||
Foreign currency translation adjustment | (9) | (2) | 4 | (15) | n.m | |||||||||||
Comprehensive income (loss) | $ | 3,597 | $ | (8,237) | $ | (10,757) | $ | 6,117 | $ | (57) | ||||||
n.m. = not meaningful
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For the nine months ended September 30, | ||||||||||||||||
2024 | 2023 | |||||||||||||||
Successor | Predecessor | Predecessor | Change | |||||||||||||
July 31 to September 30 | January 1 to July 30 | January 1 to September 30 | $ | % | ||||||||||||
Revenue | $ | 132 | $ | 333 | $ | 222 | $ | 243 | $ | 109% | ||||||
Cost of revenue and operating expenses: | ||||||||||||||||
Cost of revenue | 414 | 1,381 | 972 | 823 | 85 | |||||||||||
Research and development | 1,217 | 7,585 | 13,625 | (4,823) | (35) | |||||||||||
Selling, general, and administrative | 2,926 | 13,047 | 8,234 | 7,739 | 94 | |||||||||||
Total cost of revenue and operating expenses | 4,557 | 22,013 | 22,831 | 3,739 | 16 | |||||||||||
Loss from operations | (4,425) | (21,680) | (22,609) | (3,496) | 15 | |||||||||||
Other income (expense): | ||||||||||||||||
Convertible notes fair value adjustment | 3,255 | 2,059 | (4,084) | 9,398 | (230) | |||||||||||
Warrant liabilities fair value adjustment | 4,973 | 191 | (83) | 5,247 | n.m | |||||||||||
Interest expense | (435) | (1,818) | (1,082) | (1,171) | 108 | |||||||||||
Interest income | 166 | 3 | 2 | 167 | n.m | |||||||||||
Other (expense) income, net | 72 | (33) | (113) | 152 | (135) | |||||||||||
Total other income (expense), net | 8,031 | 402 | (5,360) | 13,793 | (257) | |||||||||||
Net income (loss) | $ | 3,606 | $ | (21,278) | $ | (27,969) | $ | 10,297 | $ | (37) | ||||||
Other comprehensive income (loss): | ||||||||||||||||
Foreign currency translation adjustment | (9) | 3 | (1) | (5) | n.m | |||||||||||
Comprehensive income (loss) | $ | 3,597 | $ | (21,275) | $ | (27,970) | $ | 10,292 | $ | (37) | ||||||
n.m. = not meaningful
Revenue
Our revenues were $0.1 million and $53.0 thousand for the periods from July 31, 2024 to September 30, 2024 (Successor) and from July 1, 2024 to July 30, 2024 (Predecessor), respectively, and $41.0 thousand for the three months ended September 30, 2023 (Predecessor). The increase of $0.1 million, or 351%, is due to the increase of consumable sales. For the three months ended September 30, 2024, and 2023, revenue was generated only in European markets.
Our revenues were $0.1 million and $0.3 million for the periods from July 31, 2024 to September 30, 2024 (Successor) and from January 1, 2024 to July 30, 2024 (Predecessor), respectively, and $0.2 million for the nine months ended September 30, 2023 (Predecessor). The increase of $0.2 million, or 109%, is due to the increase of consumable sales. For the nine months ended September 30, 2024, and 2023, revenue was generated only in European markets.
Costs of revenue and operating expenses
Cost of revenue
Cost of revenue was $0.4 million and $0.2 million for the period from July 31, 2024 to September 30, 2024 (Successor) and from July 1, 2024 to July 30, 2024 (Predecessor), respectively, and $0.3 million for the three months ended September 30, 2023 (Predecessor). The increase of $0.3 million, or 126%, primarily resulted from a $0.3 million increase in cost of goods sold related to increased sales.
Cost of revenue was $0.4 million and $1.4 million for the period from July 31, 2024 to September 30, 2024 (Successor) and from January 1, 2024 to July 30, 2024 (Predecessor), respectively, and was $1.0 million for the nine months ended September 30, 2023 (Predecessor). The increase of $0.8 million, or 85%, primarily resulted from a $0.4 million increase in cost of goods sold related to increased sales and a $0.4 million increase in the depreciation of consoles.
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Research and development expenses
Research and development expenses were $1.2 million and $1.3 million for the period from July 31, 2024 to September 30, 2024 (Successor) and from July 1, 2024 to July 30, 2024 (Predecessor), respectively, and was $4.4 million for the three months ended September 30, 2023. The $2.0 million decrease, or 44%, was primarily related to a $0.5 million decrease in product manufacturing, $0.6 million decrease in clinical trial expense, $0.3 million decrease in animal testing cost, $33.0 thousand decrease in travel costs related to clinical studies, $0.1 million decrease in regulatory fees, $0.2 million decrease in payroll, and $0.1 million decrease in costs related to prototypes and other research and development costs. The decrease in research and development expenses results from Legacy Adagio receiving CE Marking on VT Cryoablation in March 2024.
Research and development expenses were $1.2 million and $7.6 million for the period from July 31, 2024 to September 30, 2024 (Successor) and from January 1, 2024 to July 30, 2024 (Predecessor), respectively, and was $13.6 million for the nine months ended September 30, 2023. The $4.8 million decrease, or 35%, was primarily related to a $1.3 million decrease of manufacturing absorption costs, $1.1 million decrease in product manufacturing, $0.9 million decrease in clinical trial expense, $0.5 million decrease in animal testing cost, $0.3 million decrease in costs related to consulting and prototypes, $0.1 million decrease in travel, and $0.6 million decrease in payroll. The decrease in research and development expenses results from Legacy Adagio receiving CE Marking on VT Cryoablation in March 2024.
The following is a breakdown of our research and development costs by type of expense:
Three months ended September 30, | Nine months ended September 30, | |||||||||||||
2024 | 2023 | 2024 | 2023 | |||||||||||
Successor | Predecessor | Predecessor | Successor | Predecessor | Predecessor | |||||||||
July 31 to September 30 | July 1 to July 30 | July 1 to September 30 | July 31 to September 30 | January 1 to July 30 | January 1 to September 30 | |||||||||
Pre-clinical trial costs and other research and development costs | $ | 568 | $ | 265 | $ | 1,197 | $ | 568 | $ | 1,732 | $ | 3,093 | ||
Clinical trial costs | 379 | 397 | 1,040 | 379 | 2,619 | 3,918 | ||||||||
Quality assurance costs | 373 | 201 | 843 | 373 | 1,764 | 2,259 | ||||||||
Operational costs | (103) | 388 | 1,338 | (103) | 1,470 | 4,355 | ||||||||
Total research and development expenses | $ | 1,217 | $ | 1,251 | $ | 4,418 | $ | 1,217 | $ | 7,585 | $ | 13,625 | ||
Our clinical trial expenses relate to trials for our iCLAS atrial ULTC catheter and system (CYROCURE-2), iCLAS atrial ULTC catheter and system (iCLAS for PsAF), vCLAS ventricular ULTC catheter (CYROCURE-VT), vCLAS ventricular ULTC catheter (FULCRUM-VT), and PFCA catheter. Clinical trial costs include the expenses spent on clinical trials studies and other related expenses. Quality assurance includes regulatory fees and third-party service fees. Pre-clinical trial costs and other research and development costs includes the expenses resulting from professional fees, prototypes, and animal testing. Operational costs includes the expenses spent on product manufacturing.
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Selling, General and Administrative Expenses
Selling, general and administrative expenses were $2.9 million and $4.9 million for the period from July 31, 2024 to September 30, 2024 (Successor) and from July 1, 2024 to July 30, 2024 (Predecessor), respectively, and $4.5 million for the three months ended September 30, 2023 (Predecessor). The increase in selling, general and administrative expenses of $3.3 million, or 75%, is primarily due to an increase of $2.4 million in professional fees which include legal and accounting fees related to the transaction costs associated with the Business Combination and an increase in payroll and personnel expense of $0.9 million.
Selling, general and administrative expenses were $2.9 million and $13.0 million for the period from July 31, 2024 to September 30, 2024 (Successor) and from January 1, 2024 to July 30, 2024 (Predecessor), respectively, and $8.2 million for the nine months ended September 30, 2023 (Predecessor). The increase in selling, general and administrative expenses of $7.7 million, or 94%, is primarily due to an increase of $5.7 million in professional fees which include legal and accounting fees related to the transaction costs associated with the Business Combination and an increase in payroll and personnel expense of $1.9 million and an increase in building and maintenance costs of $0.2 million.
Convertible notes fair value adjustment
The convertible notes fair value decreased $3.3 million and increased $1.9 million for the period from July 31, 2024 to September 30, 2024 (Successor) and from July 1, 2024 to July 30, 2024 (Predecessor), respectively, and increased $1.1 million for the three months ended September 30, 2023 (Predecessor). The decrease of $3.3 million for the period from July 31, 2024 to September 30, 2024 (Successor) is due to a decrease in the fair value of the Convertible Securities Notes. The increase of $1.9 million from July 1, 2024 to July 30, 2024 (Predecessor) is related to an increase in the fair value of the April 2023 Convertible Notes, November 2023 Convertible Notes, May 2024 Convertible Notes, June 2024 Convertible Notes, and July 2024 Convertible Notes of $3.3 million, $1.7 million, $0.7 million, $0.6 million, and $0.2 million, respectively. The increases were offset by decreases in the fair value of the October 2022 Convertible notes and February 2023 Notes of $4.6 million and $39.0 thousand, respectively. The increase of $1.1 million for the three months ended September 30, 2023 (Predecessor) is due to a fair value increase of the October 2022 Convertible Notes and the April 2023 Convertible Notes of $0.9 million and $0.1 million, respectively.
The convertible notes fair value decreased $3.3 million and $2.1 million for the period from July 31, 2024 to September 30, 2024 (Successor) and from January 1, 2024 to July 30, 2024 (Predecessor), respectively, and increased $4.1 million for the nine months ended September 30, 2023 (Predecessor). The decrease of $3.3 million for the period from July 31, 2024 to September 30, 2024 (Successor) is due to a decrease in the fair value of the Convertible Securities Notes. The decrease of $2.1 million January 1, 2024 to July 30, 2024 (Predecessor) is related to decreases in the October 2022 Convertible Notes, November 2023 Convertible Notes, and February 2024 Convertible Notes of $4.3 million, $2.4 million, and $0.3 million, respectively. These decreases were offset by increases in the April 2023 Convertible Notes, May 2024 Convertible Notes, June 2024 Convertible Notes, July 2024 Convertible Notes of $3.4 million, $0.7 million, $0.6 million, and $0.2 million, respectively. The increase of $4.1 million for the nine months ended September 30, 2023 (Predecessor) is due to a fair value increase of the October 2022 Convertible Notes and the April 2023 Convertible Notes of $3.9 million and $0.2 million, respectively.
Warrant liabilities fair value adjustment
The warrant liabilities fair value decreased $5.0 million and $0.2 million for the period from July 31, 2024 to September 30, 2024 (Successor) and from July 1, 2024 to July 30, 2024 (Predecessor), respectively, and increased $22.6 thousand for the three months ended September 30, 2023 (Predecessor). The decrease of $5.0 million from July 31, 2024 to September 30, 2024 (Successor) is related to a decrease in the fair value of the PIPE Pre-funded Warrants and the Convert Warrants of $2.7 million and $2.3 million, respectively. The decrease of $0.2 million from July 1, 2024 to July 30, 2024 (Predecessor) is related to a decrease in the fair value of SVB Warrants and Series E Pre-funded Warrants of $63.3 thousand and $0.1 million, respectively. The increase of $22.6 thousand for the three months ended September 30, 2023 (Predecessor) is due to a fair value increase of the SVB Warrants.
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The warrant liabilities fair value decreased $5.0 million and $0.2 million for the period from July 31, 2024 to September 30, 2024 (Successor) and from January 1, 2024 to July 30, 2024 (Predecessor), respectively, and increased $82.7 thousand for the nine months ended September 30, 2023 (Predecessor). The decrease of $5.0 million from July 31, 2024 to September 30, 2024 (Successor) is related to a decrease in the fair value of the PIPE Pre-funded Warrants and the Convert Warrants of $2.7 million and $2.3 million, respectively. The decrease of $0.2 million from January 1, 2024 to July 30, 2024 (Predecessor) is related to a decrease in the fair value of SVB Warrants and Series E Pre-funded Warrants of $77.6 thousand and $0.1 million, respectively. The increase of $82.7 thousand for the nine months ended September 30, 2023 (Predecessor) is due to a fair value increase of the SVB Warrants.
Interest expense
Interest expense was $0.4 million and $0.3 million for the period from July 31, 2024 to September 30, 2024 (Successor) and from July 1, 2024 to July 30, 2024 (Predecessor), respectively, and was $0.5 million for the three months ended September 30, 2023 (Predecessor). The increase of $0.3 million, or 52%, was related to additional interest incurred from the convertible promissory notes issued in November 2023, February 2024, May 2024, June 2024, July 2024 Notes, and the Convertible Securities Notes.
Interest expense was $0.4 million and $1.8 million for the period from July 31, 2024 to September 30, 2024 (Successor) and from January 1, 2024 to July 30, 2024 (Predecessor), respectively, and was $1.1 million for the nine months ended September 30, 2023 (Predecessor). The increase of $1.2 million, or 108% was related to additional interest incurred from the convertible promissory notes issued in April 2023, November 2023, February 2024, May 2024, June 2024, July 2024 Notes, and the Convertible Securities Notes .
Interest income
Interest income was $0.2 million and nil for the period from July 31, 2024 to September 30, 2024 (Successor) and from July 1, 2024 to July 30, 2024 (Predecessor), respectively, and was $2.0 thousand for the three months ended September 30, 2023 (Predecessor). The increase in interest income of $0.2 million is primarily due to the increase of cash balances in an asset management account.
Interest income was $0.2 million and $3.0 thousand for the period from July 31, 2024 to September 30, 2024 (Successor) and from January 1, 2024 to July 30, 2024 (Predecessor), respectively, and was $2.0 thousand for the nine months ended September 30, 2023 (Predecessor). The increase in interest income of $0.2 million, is primarily due to the increase of cash balances in an asset management account.
Other income (expense), net
Other income was $72.0 thousand and $5.0 thousand for the period from July 31, 2024 to September 30, 2024 (Successor) and from July 1, 2024 to July 30, 2024 (Predecessor), respectively, compared to other expense of $0.1 million for the three months ended September 30, 2023 (Predecessor). This increase in other income of $0.2 million was primarily attributable to the foreign exchange currency gain of $0.2 million.
Other income was $72.0 thousand and other expense was $33.0 thousand for the period from July 31, 2024 to September 30, 2024 (Successor) and from January 1, 2024 to July 30, 2024 (Predecessor), respectively, compared to other expense of $0.1 million for the nine months ended September 30, 2023 (Predecessor). This net increase in other income of $0.2 million was primarily attributable to the foreign exchange currency gain of $0.2 million.
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Liquidity and Capital Resources
Sources of Liquidity
To date, we have financed our operations primarily through the sale of equity securities, convertible promissory notes and the SVB Term Loan. Since inception we have incurred operating losses and negative cash flows and anticipate continuing to do so for at least the next several years.
As of September 30, 2024 and December 31, 2023, the Successor had cash and cash equivalents of $28.3 million and Predecessor had $1.4 million, respectively. For the period from July 31, 2024 to September 30, 2024 (Successor) and from January 1, 2024 to July 30, 2024 (Predecessor), net income (losses) were $3.6 million and $(21.3) million, respectively, and was $(28.0) million for the nine months ended September 30, 2023 (Predecessor). For the period from July 31, 2024 to September 30, 2024 (Successor), the period from January 1, 2024 to July 30, 2024 (Predecessor), and for the nine months ended September 30, 2023 (Predecessor) net cash used in operating activities was $6.4 million, $16.0 million, and $18.6 million, respectively.
For the twelve months after the issuance date of the financial statements, the Company projects $0.8 million of cash inflows from revenue. The Company does not require significant cash reserve to meet short term and long-term obligations with a balance of approximately $4.4 million for accounts payable, $2.9 million for accrued liabilities, and $0.4 million for other accrued liabilities as of September 30, 2024 (Successor). With the Company currently having a balance of $28.3 million in cash as of September 30, 2024 after the Closing of the Business Combination (refer to the Description of the Merger for additional details), the Company has more than adequate cash reserves to cover its current and non-current liabilities.
Future Funding Requirements
In the future, we may need to raise additional funds through the issuance of debt and/or equity securities or otherwise. Until such time, if ever, that we can generate revenue sufficient to achieve profitability, we expect to finance our operations through equity or debt financings, which may not be available to us on the timing needed or on terms that we deem to be favorable. To the extent that we raise additional capital through the sale of equity or convertible debt securities, the ownership interest of our stockholders will be diluted, and the terms of these securities may include liquidation or other preferences that adversely affect the rights of common stockholders. Debt financing and preferred equity financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making acquisitions or capital expenditures or declaring dividends. If we are unable to maintain sufficient financial resources, our business, financial condition and results of operations will be materially and adversely affected. We may be required to delay, limit, reduce or terminate our product discovery and development activities or future commercialization efforts.
Our future liquidity and capital funding requirements will depend on numerous factors, including:
•our revenue growth;
•our research and development efforts;
•our sales and marketing activities;
•our ability to raise additional funds to finance our operations;
•the outcome, costs and timing of any clinical trial results for our current or future products;
•the emergence and effect of competing or complementary products;
•the availability and amount of reimbursement for procedures using our products;
•our ability to maintain, expand and defend the scope of our intellectual property portfolio, including the amount and timing of
any payments we may be required to make, or that we may receive, in connection with the licensing, filing, prosecution, defense and enforcement of any patents or other intellectual property rights;
• | our ability to retain our current employees and the need and ability to hire additional management and sales, scientific and medical personnel; |
•the terms and timing of any collaborative, licensing or other arrangements that we have or may establish;
•debt service requirements; and
•the extent to which we acquire or invest in businesses, products or technologies;
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Our primary uses of capital are, and we expect will continue to be, investment in our commercial organization and related expenses, clinical research and development services, and related supplies, legal and other regulatory expenses, general administrative costs and working capital.
See the section titled “Risk Factors” of the Company's Current Report on Form 8-K filed with the SEC on August 6, 2024 for additional risks associated with our substantial capital requirements.
Debt Obligations (Predecessor)
October 2022 Convertible Notes
In October 2022, we entered into a Note Purchase Agreement with investors for the issuance and sale of convertible promissory notes (the “October 2022 Convertible Notes”) with an aggregate principal amount of $9.5 million at an interest rate of eight percent (8.0%) per year. The October 2022 Convertible Notes had an original maturity date of October 27, 2023, which was subsequently extended to the latest of (i) January 5, 2024, (ii) termination of agreements between Legacy Adagio and ARYA in connection with a non-binding summary of certain proposed terms and conditions of the Business Combination, or (iii) the termination or lapse of the exclusivity period as defined in the non-binding term sheet as mentioned above.
The October 2022 Convertible Notes were also amended to be subordinate to the April 2023 Convertible Notes (as described below) and provide for the conversion of all principal and accrued interest in respect of all the October 2022 Convertible Notes into shares of Series E Preferred Stock of Legacy Adagio in connection with the Business Combination. (refer to Note 9-Debt in our condensed consolidated financial statements for additional details).
In November 2023 and February 2024, the October 2022 Convertible Notes were further amended to also subordinate the November 2023 Convertible Notes and the 2024 Bridge Financing Note. Upon the consummation of the Business Combination, all principal and accrued interest in respect of the October 2022 Convertible Notes were converted into shares of Legacy Adagio Common Stock when multiplied by the exchange ratio applicable to the Legacy Adagio Common Stock in the Business Combination, which entitled the holder of this note to receive a number of shares of the same class of common stock that were issued in the PIPE Financing equal to the then outstanding principal amount and any accrued and unpaid interest under this note, divided by 75% of the effective price of each share of common stock sold in the PIPE Financing. Further, on the Closing Date, Legacy Adagio common stocks were converted to the Company’s Common Stock based on the exchange ratio set forth in the Business Combination Agreement.
Upon the consummation of the Business Combination, the October 2022 Convertible Notes automatically converted into 1,444,899 shares of the Company’s Common Stock.
Bridge Financing Notes
April 2023 Convertible Notes
In April 2023, we issued a $5.0 million convertible promissory note that would mature on the latest of (i) January 5, 2024, (ii) termination of agreements between Legacy Adagio and ARYA in connection with the Business Combination, or (iii) the termination or lapse of the exclusivity period as defined in the non-binding term sheet as mentioned above, and accrued simple interest at eight percent (8.0%) per annum. Additionally, we obtained the right to issue up to $10.0 million in additional convertible promissory notes available beginning one month after April 4, 2023 through the occurrence of an ARYA stockholder vote with regard to the Business Combination.
In November 2023, the April 2023 Notes were amended to align certain terms to the November 2023 Notes (refer to Note 9-Debt in our condensed consolidated financial statements for the periods ended September 30, 2024, and December 31, 2023, for additional details).
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November 2023 Convertible Notes
On November 28, 2023, Legacy Adagio issued to Perceptive Life Sciences Master Fund, Ltd. (the “Perceptive PIPE Investor”), a $2.0 million convertible promissory note that would mature on the latest of (i) January 5, 2024, (ii) termination of agreements between Legacy Adagio and ARYA in connection with a non-binding summary of the Business Combination, or (iii) the termination or lapse of the exclusivity period as defined in the non-binding term sheet as mentioned above (the “November 2023 Notes”). The November 2023 Notes accrued simple interest at eight percent (8.0%) per annum. Additionally, Legacy Adagio obtained the right to issue up to $6.0 million of Delayed Draw Commitment available beginning one month after November 28, 2023, through the occurrence of an ARYA stockholder vote with regard to the Business Combination.
In December 2023, the November 2023 Notes were amended to permit the issuance of a Delayed Draw Commitment in the original amount of $6.0 million. On December 13, 2023, and December 28, 2023, Legacy Adagio drew the principal amount of $1.0 million and $2.0 million, respectively. As of September 30, 2024, Legacy Adagio drew the remaining principal amount of $3.0 million. The combined $6.0 million convertible promissory notes were issued pursuant to the clause and terms in the November 2023 Notes agreement (refer to Note 9- Debt in our condensed consolidated financial statements for additional details).
May 2024 Convertible Notes
On May 21, 2024, Legacy Adagio issued a $3.0 million convertible promissory note (“May 2024 Notes”) to Perceptive PIPE Investor that matures upon the termination of the Business Combination Agreement in accordance with its terms. It accrues simple interest at eight percent (8.0%) per annum.
June 2024 Notes
On June 25, 2024, Legacy Adagio issued a $2.5 million convertible promissory note (“June 2024 Notes”) to Perceptive PIPE Investor that matures upon the termination of the Business Combination Agreement in accordance with its terms. It accrues simple interest at eight percent (8.0%) per annum.
July 2024 Notes
On July 23, 2024, Legacy Adagio issued a $1.0 million convertible promissory note (“July 2024 Notes”) to Perceptive PIPE Investor that matures upon the termination of the Business Combination Agreement in accordance with its terms. It accrues simple interest at eight percent (8.0%) per annum.
Pursuant to the Business Combination Agreement, the outstanding $29.5 million principal along with the accrued but unpaid interest of the Bridge Financing Notes, was converted in exchange for 4,372,607 shares of the Company’s Common Stock and 3,540,000 Base Warrants as part of the PIPE Financing.
February 2024 Convertible Notes
On February 13, 2024, the Legacy Adagio issued to Perceptive PIPE Investor a principal of $7.0 million convertible promissory note that matures upon the termination of the Business Combination Agreement in accordance with its terms. The February 2024 Convertible Notes accrues simple interest at eight percent (8.0%) per annum.
Upon the consummation of the Business Combination, the February 2024 Convertible Notes was automatically transferred to the Company in connection with the issuance of the Convertible Securities Notes to Perceptive PIPE Investor, pursuant to, and in accordance with, the note purchase agreement and the Convertible Security Subscription Agreement (as defined below), dated February 13, 2024, by and among the Company, ARYA, Legacy Adagio and Perceptive PIPE Investor. Any interest accrued on the principal amount of the February 2024 Convertible Notes will be forfeited in connection with the transfer of the notes to the Company.
On the Closing Date, the $7.0 million of February 2024 Convertible Notes were converted into $7.0 million Convertible Securities Notes and 525,000 Convert Warrants.
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SVB Term Loan
In February 2023, Legacy Adagio entered into an agreement with Silicon Valley Bank to borrow an initial term loan advance of $3.0 million and a right to borrow a subsequent term loan advance of $2.0 million (“SVB Term Loan”). The loans matured on January 1, 2025. In conjunction with the SVB Term Loan, Legacy Adagio issued warrants to acquire 32,720 shares of common stock in February 2023 and distributed additional warrants to acquire 16,360 shares of common stock as of September 30, 2023 (“SVB Warrant”). Prior to the Closing of the Business Combination, the existing SVB Term Loan of Legacy Adagio as on July 30, 2024 had a net balance of $1.0 million, including $1.0 million of principal payment due within twelve months with an unamortized debt discount of $9.7 thousand. The unpaid principal and accrued interest were carried as assumed liabilities to the Company and paid at the Closing. (Refer to Note 9-Debt in our condensed consolidated financial statements for additional details).
Debt Obligations (Successor)
Convertible Securities Notes
In connection with the execution of the Business Combination Agreement, Convert Investors executed the Convertible Security Subscription Agreement dated February 13, 2024, which was amended on June 20, 2024, with ListCo. In accordance with the agreement, ListCo issued on the Closing Date to the Convert Investors $20.0 million of Convertible Securities Notes and 1,500,000 Convert Warrants.
The total of $20.0 million Convertible Securities Notes will be convertible into shares of the Company’s Common Stock at a conversion price of $10.00 per share, subject to adjustment per the terms of the agreement, and the total of 1,500,000 warrants, each of which will be exercisable on a cashless basis or for one share of the Company’s Common Stock at $24.00 per share, subject to adjustment. The Convertible Securities Notes have a maturity of three years and nine months after the Closing and interest will be payable in cash or compound as additional principal outstanding which accrues on a quarterly basis.
The conversion of the February 2024 Convertible Notes was carried out on the same terms as the other Convert Investors executing the Convertible Security Subscription Agreement.
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Cash Flows
The following table shows a summary of our cash flows for each of the periods shown below:
Nine Months Ended September 30, | ||||||||||
2024 | 2023 | |||||||||
Successor | Predecessor | Predecessor | ||||||||
July 31 to September 30 | January 1 to July 30 | January 1 to September 30 | ||||||||
Net cash used in operating activities | $ | (6,358) | $ | (15,990) | $ | (18,561) | ||||
Net cash used in investing activates |
| (578) |
| (368) |
| (320) | ||||
Net cash provided by financing activities | — | 15,633 | 15,297 | |||||||
Effect of Foreign Currency Translation on cash | 42 | 24 | 18 | |||||||
Net change in cash and cash equivalents | $ | (6,894) | $ | (701) | $ | (3,566) | ||||
Comparison for the periods from January 1, 2024 to July 30, 2024 (Predecessor), from July 31, 2024 to September 30, 2024 (Successor), to the nine months ended September 30, 2023 (Predecessor)
Cash Flows Used in Operating Activities
Net cash used in operating activities for the period from July 31, 2024 to September 30, 2024 (Successor) was $6.4 million, consisting primarily of net income of $3.6 million, net by non-cash items of $7.9 million, and net by change in our net operating assets and liabilities of $2.1 million. Non-cash items primarily consisted of $0.3 million in depreciation and amortization; offset by a gain of $3.3 million from the change in fair value of convertible notes payable and a gain of $5.0 million from the change in fair value of warrant liabilities. Changes in our net operating assets and liabilities were primarily due to a $0.3 million increase in other accrued liabilities which was primarily driven by interest payable on the convertible note; offset by $1.3 million increase in prepaid expenses and other current assets, $0.4 million decrease in accounts payable, and a $0.7 million decrease in accrued liabilities.
Net cash used in operating activities for the period from January 1, 2024 to July 30, 2024 (Predecessor) was $16.0 million consisting primarily of a net loss of $21.3 million, adjusted by non-cash items of $0.8 million, and net with the change in our net operating assets and liabilities of $6.1 million. Non-cash items primarily consisted of $0.6 million in depreciation and amortization, $0.6 million in stock-based compensation, noncash operating lease expense of $0.1 million, and loss on disposal of property and equipment of $0.1 million; offset by a gain of $2.1 million from the change in fair value of convertible notes payable, and a gain of $0.2 million from the change in fair value of warrant liabilities. Changes in our net operating assets and liabilities were primarily due to a $7.4 million increase in accrued transaction costs, the increase in accrued liabilities of $0.5 million and a $1.7 million increase in other accrued liabilities, which were primarily driven by the increase in transaction costs related to the Business Combination, the increase in accrued variable compensation related to the Business Combination, and the increase in interest related the convertible notes; offset by a $2.6 million decrease in accounts payable, $0.8 million increase in inventory, which were primarily driven by the payment of accounts payable related to the Business combination and an increase in inventory purchases.
Net cash used in operating activities for the nine months ended September 30, 2023 (Predecessor), was $18.6 million, consisting primarily of a net loss of $28.0 million net by non-cash items of $5.0 million, and net by the change in our net operating assets and liabilities of $4.4 million. Non-cash items primarily consisted of a loss of $4.1 million related to the change in fair value of convertible notes payables, $0.4 million in depreciation and amortization, $0.3 million in stock-based compensation, and $0.1 million in noncash operating lease expenses. Changes in our net operating assets and liabilities, were primarily due to a $1.1 million increase in accrued liabilities, $0.9 million increase in operating leases liabilities, $0.4 million decrease in prepaid expenses and other current assets, a $0.2 million increase in accrued transaction costs, and a $1.8 million increase in other accrued liabilities which was primarily driven by the increase in interest related the convertible notes, and the increase in transaction costs related to the Business Combination; offset by a $0.1 million decrease in other long-term liabilities and a $0.1 million increase in accounts receivable.
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Cash Flow Used in Investing Activities
Net cash used in investing activities for the period from July 31, 2024 to September 30, 2024 (Successor) and the period from January 1, 2024 to July 30, 2024 (Predecessor) was $0.6 million and $0.4 million, respectively. Net cash used in investing activities for the for the nine months ended September 30, 2023 (Predecessor) was $0.3 million. The increase was due to the increased purchase of property.
Cash Flow Provided by Financing Activities
Net cash provided by financing activities for the period from July 31, 2024 to September 30, 2024 (Successor) was nil.
Net cash provided by financing activities for the period from January 1, 2024 to July 30, 2024 (Predecessor) was $15.6 million. It is primarily due to receiving $16.5 million from the issuance of the $7.0 million 2024 Bridge Financing Note, $3.0 million May 2024 Convertible Notes, $2.5 million June 2024 Convertible Notes, $1.0 million from the July 2024 Convertible Notes, and the draw of $3.0 million November 2023 Convertible Notes, net by a $0.9 million repayment of SVB Term Loan.
Net cash provided by financing activities for the nine months ended September 30, 2023 (Predecessor) was $15.3 million. It is due to receiving $13.0 million and $3.0 million from the issuance of convertible notes payable and SVB term loan, respectively, offset by a decrease of $11.0 thousand and $0.7 million related to exercise of common stock options in 2023 and repayment of SVB Term Loan, respectively.
Off-Balance Sheet Arrangements
During the periods presented, we did not have, nor do we currently have, any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes. We are, therefore, not exposed to the financing, liquidity, market, or credit risk that could arise if we had engaged in those types of relationships.
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with U.S. GAAP requires us to make estimates and assumptions that affect the amounts reported in our audited consolidated financial statements and accompanying notes included elsewhere in this Quarterly Report on Form 10. We base our estimates on historical experience, current business factors and various other assumptions that we believe are necessary to consider forming a basis for making judgments about the carrying values of assets and liabilities, the recorded amounts of revenue and expenses and the disclosure of contingent assets and liabilities. We are subject to uncertainties such as the impact of future events, economic and political factors, and changes in our business environment; therefore, actual results could differ from these estimates.
Accordingly, the accounting estimates used in the preparation of our audited consolidated financial statements will change as new events occur, as more experience is acquired, as additional information is obtained and as our operating environment changes. Changes in estimates are made when circumstances warrant. Such changes in estimates and refinements in estimation methodologies are reflected in reported results of operations; if material, the effects of changes in estimates are disclosed in the notes to our audited consolidated financial statements.
On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates under different assumptions or conditions.
Our significant accounting policies are described in Note 2-Summary of Significant Accounting Policies to our consolidated financial statements. These are the policies that we believe are the most critical to aid in fully understanding and evaluating our consolidated financial condition and results of operations.
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Stock-Based Compensation
We recognize compensation expense for all stock-based awards issued to employees and non-employees based on the estimated grant-date fair value, which is recognized as expense on a straight-line basis over the requisite service period. We have elected to recognize forfeitures as they occur. The fair value of stock options is determined using the Black-Scholes option-pricing model. The determination of fair value for stock-based awards on the date of grant using an option-pricing model requires management to make certain assumptions including expected volatility, expected term, risk-free interest rate and expected dividends in addition to our common stock valuation. The assumptions used in calculating the fair value of stock-based awards represent our best estimates and involve inherent uncertainties and the application of our judgment.
All stock-based compensation costs are recorded in cost of products sold, research and development expense or selling, general, and administrative expense in the consolidated statements of operations and comprehensive income (loss) based upon the respective employee’s or non-employee’s roles.
Common Stock Valuations (Predecessor)
Due to the absence of a public trading market, we determined the fair value of our common stock by considering numerous objective and subjective factors. The factors considered include, but are not limited to:
(i)the results of contemporaneous independent third-party valuations of our common stock;
(ii)the prices, rights, preferences and privileges of our preferred stock relative to those of our common stock;
(iii)the lack of marketability of our common stock;
(iv)actual operating and financial results;
(v)current business conditions and projects; and
(vi)the likelihood of achieving a liquidity event.
As of December 31, 2023, the fair value of our common stock was determined with probability weighted expected return method (“PWERM”), which assessed the probability weighted depending on different scenarios. As of June 30, 2024, the valuation was based on the scenario (i) bankruptcy/suboptimal sale scenario reflecting a zero return to common shareholders, with 0% probability, (ii) an “as converted” merger with a 95% probability, and (iii) a delayed but successful liquidity event per the option pricing method, with 5% probability. As of December 31, 2023, the valuation was based on the scenario (i) the bankruptcy/suboptimal sale scenario reflecting a zero return to common shareholders, with 20% probability (ii) a consummation of a business combination transaction with a SPAC, with 40% probability, and (iii) a delayed but successful liquidity event per the option pricing method, with 40% probability. As of December 31, 2023, in determining the value under the consummation of a business combination transaction with a SPAC scenario, we utilized the preliminary terms of the letter of intent with such SPAC that (i) the transaction based on diluted equity value of $38.8 million and (ii) all dilutive instruments are expected to convert or be exercised resulting in 6,369,633 total common shares outstanding.
The valuation under the scenario of a delayed but successful liquidity event per the option pricing method was determined by the fair value per share at a marketable basis applied by a discount for lack marketability (“DLOM”). The fair value per share at a marketable basis was determined using the interval option value allocation approach. The DLOM was determined based on Finnerty put option model, marketability factors and restricted stock studies.
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The significant unobservable inputs into the valuation model include:
•the timing of potential events (for example, a consummation of a business combination transaction with a SPAC) and their probability of occurring;
•the selection of guideline public company multiples; and
•a discount for the lack of marketability of the common stock.
An increase or decrease in any of the unobservable inputs in isolation could result in a material change. In the future, depending on the weight of evidence and valuation approaches used, these or other inputs may have a more significant impact on the estimated fair value.
Convertible Notes Valuation (Predecessor)
As permitted under ASC 825, Financial Instruments (“ASC 825”), the Company elected the fair value option to account for the October 2022 Convertible Notes, the April 2023 Convertible Notes, the November 2023 Convertible Notes, the 2024 Bridge Financing Note, the May 2024 Convertible Notes, the June 2024 Convertible Notes, and the July 2024 Convertible Notes in order to measure those liabilities at amounts that more accurately reflect the current economic environment in which Legacy Adagio operates.
The change in fair value of the convertible promissory notes, excluding amounts related to interest, is recorded in “Convertible notes fair value adjustment,” while amounts related to interest are recorded as interest expense in the consolidated statements of operations and comprehensive income (loss). As a result of applying the fair value option, direct costs and fees related to the issuance of the convertible notes were expensed as incurred (i.e., not recognized as deferred costs). Refer to Note 3-Fair Value Measurements in our condensed consolidated financial statements for additional detail.
As of December 31, 2023, Adagio calculated the value of the convertible notes based on the equity value from 409(a) valuations, considering the expected payoff of the convertible notes upon different types of events.
Utilizing the PWERM, Adagio assessed the probability that the October 2022 Convertible Notes would be converted to common stock through the result of mandatory prepayment, Private Investment in PIPE Financing, or no PIPE Financing and no Qualified Financing, weighted with a probability of 20%, 40% and 40%, respectively, as of December 31, 2023.
Utilizing the PWERM, Adagio assessed the probability that the April 2023 Notes and the November 2023 Notes would be converted to common stock as a result of a liquidation event, PIPE Financing, or no PIPE Financing & no Qualified Financing, weighted with a probability of 20%, 40% and 40% as of December 31, 2023. Adagio also implied a credit spread by calibrating the value of the April 2023 Notes at issuance to the par value and then adjusted the calibrated credit spread for seniority difference and the market related movements as appropriate.
Additional assumptions used to estimate the fair value include: (i) the expected timing of the conversion, (ii) the amount subject to equity conversion, the sum of the notes’ principal and unpaid accrued interest, (iii) expected volatility, (iv) risk-free interest rate, and (v) the discount rate, based on the observed option-adjusted spread (OAS) data of traded bonds rated CCC-.
In determining the fair value of the convertible notes as of July 31, 2024 prior to the Closing, the Company used the observed closing stock price of ARYA as of July 31, 2024 multiplied by the actual number of shares that the convertible notes converted into.
SVB Term Loan (Predecessor)
Legacy Adagio accounts for the SVB Term Loan at residual value on the date of issuance. The expected life of the SVB Term Loan is the contractual term ending on the maturity date. Legacy Adagio classifies the term loan as current liabilities within twelve months of the maturity date or when otherwise due. Interest expense is recognized in the consolidated statements of operations and comprehensive income (loss) over the contractual term of the loan. See Note 9-Debt in our condensed consolidated financial statements for additional information related to the SVB Term Loan.
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SVB Warrants (Predecessor)
Adagio accounts for SVB Warrants outstanding as warrant liabilities at fair value, determined using the Black-Scholes option pricing model based on the common stock value from 409(a) valuation. The assumption used to estimate the fair value include: (i) expected volatility, (ii) risk-free interest rate, (iii) expected dividend yield, and (iv) expected term.
The liability is subject to re-measurement at each reporting period and any change in fair value is recognized in the condensed consolidated statements of operations and comprehensive income (loss). See Note 10-Warrants in our condensed consolidated financial statements for additional information related to the warrants.
Series E Pre-funded Warrants (Predecessor)
On June 25, 2024, Legacy Adagio issued to a certain investor the pre-funded warrants to purchase Legacy Adagio’s Series E Preferred Stock (“Series E Pre-funded Warrant”), in exchange of the investor’s existing holding of Series E Preferred Stock. The exercise price of the pre-funded warrants is $0.001 per warrant share. Legacy Adagio measured the Series E Pre-funded Warrants at fair value based on the indicated fair value of Series E Preferred Stock, which is not observable in the market.
Convertible Preferred Stock (Predecessor)
Prior to the Closing, Legacy Adagio recorded convertible preferred stock at fair value on the dates of issuance, net of issuance costs. Upon the occurrence of certain events that are outside our control, including a deemed liquidation event, holders of the convertible preferred stock can cause redemption for cash. As the preferred stock is considered to be contingently redeemable, the preferred stock has been classified outside of permanent equity. The preferred stock will be accreted to its redemption value if the deemed liquidation events are considered probable of occurring. Upon the consummation of the Business Combination, the Legacy Adagio’s convertible preferred stocks was converted into shares of Legacy Adagio’s common stock on a one-to-one basis prior to Adagio Merger Effective Time and then converted into the Company’s Common Stock at the Closing based on the exchange ratio set forth in the Business Combination Agreement.
Convertible Securities Notes (Successor)
The Company measures the Convertible Securities Notes at fair value based on significant inputs not observable in the market, which caused them to be classified as Level 3 measurements within the fair value hierarchy. The change in fair value of the convertible promissory notes, excluding amounts related to interest, is recorded in “Convertible notes fair value adjustment,” while amounts related to interest are recorded as interest expense in the consolidated statements of operations and comprehensive income (loss).
The Company utilized the binomial lattice model to value the Convertible Securities Notes at the Closing Date and as of September 30, 2024. See Note 9- Debt in our condensed consolidated financial statements for additional information related to the SVB Term Loan.
Convert Warrants (Successor)
On July 31, 2024, the Company issued 1,500,000 Convert Warrants in connection with the issuance of the $20.0 million Convertible Securities Notes.
As set forth in the agreement of the Convertible Securities Notes, the Convert Warrants are exercisable on a cashless basis or on a gross basis for one share of the Company’s Common Stock at $24.0 per share, subject to adjustments. The Company may be required to cash settle the Convert Warrants when it fails to timely deliver shares to the holder who exercises the Convert Warrants or upon the occurrence of a fundamental transaction. It is determined that the Convert Warrants do not meet the equity classification requirements under ASC 815 as the Covert Warrants may require cash settlement outside of the Company’s control upon a failure of timely delivery of shares or a fundamental transaction, and therefore the Convert Warrants are accounted for as derivative liabilities, and measured at fair value both initially and subsequently with changes in fair value recognized as warrant liabilities fair value adjustment within the condensed consolidated statements of operations and comprehensive income (loss).
The Convert Warrants are classified as Level 3 measurements within the fair value hierarchy. The Company utilized the Black-Scholes Merton option model to value the Convertible Securities Notes at the Closing Date and as of September 30, 2024.
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PIPE Base Warrants (Successor)
On the Closing Date, the Company issued Base Warrants (“PIPE Base Warrants”) along with the Company’s Common Stock in connection with the PIPE Financing.
The Base Warrants can be exercised to the Company’s Common Stock at any time during the period from the issuance date to the expiration date which is the fifth anniversary from the date of issuance. The warrants can be exercised on a gross or net basis at an exercise price of $10 per share.
The Base Warrants were fair valued at $2.41 per unit on the date of issuance based on the assumptions including (i) the value of the Company’s Common Stock is $6.64 per share; (ii) a risk-free rate at 3.93%; (iii) zero dividend yield; (iv) the common stock volatility at 84.0% and a volatility haircut of 10%; (v) the remaining term is 5 years.
According to the ASC 815, it is determined that the Base Warrants associated with the PIPE Financing are indexed to the Company’s Common Stock under and are accounted for as equity, which is initially measured at fair value. The Base Warrants are classified as equity in the financial statements because they meet the ASC 815-40 indexation guidance. Specifically, 1) the Base Warrants can be exercised at any time during the exercise period without contingencies; 2) the Base Warrants can be settled in a fixed number of shares upon exercise with any adjustments, such as antidilution and alternative issuance adjustments, consistent with ASC 815 guidance, which does not preclude equity classification. Additionally, the Company has sufficient authorized shares available to settle the Base Warrants, and all the adjustments are in the control of the Company, further supporting the equity classification.
Sponsor Earnout (Successor)
In September 2024, the Company issued 1,147,500 shares of the Company’s Common Stock (such issuance, the “Sponsor Earnout”) to the AYRA Sponsor under the Sponsor Letter Agreement dated February 13, 2024 (“the Sponsor Letter Agreement”). Pursuant to the agreement, the Sponsor Earnout shall be unvested and vests upon the earlier of: i) During the period from the effective time to the 10th anniversary of the Closing Date (the “Earn-Out Period”), the stock price of the Company’s Common Stock equals to or exceeds $24.00 per share (the “Trigger Price”) for any 20 trading days within any 30 trading day period from and after the Closing Date (the “Earn-Out Target”), and ii) immediately prior to the consummation of a company sale during the Earn-Out Period.
As of the reporting date, the vesting of the Sponsor Earnout was not considered probable.
According to ASC 815, it is determined that the Sponsor Earnout is indexed to the Company’s Common Stock and classified as equity and is initially measured at fair value and not subsequently remeasured. The Sponsor Earnout vests when the Company’s stock price meets a stated price or there is a company sale during the earnout period. Upon meeting either vesting condition, the same number of the Company’s Common Stock would be issued and no longer subject to forfeiture or cancellation. The Sponsor Earnout meets the ASC 815-40 indexation guidance. Specifically, the stated stock price and company sale, as the exercise contingencies, do not preclude equity indexation and there is no variability in the number of shares issuable under the Sponsor Earnout. Additionally, the Sponsor Earnout at the issuance meets the ASC 815-40 equity classification criterion as the Company has sufficient authorized shares available to settle the Sponsor Earnout and all the antidilution adjustments are in the control of the Company.
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PIPE Pre-funded Warrants (Successor)
On July 31, 2024, the Company issued 670,000 pre-funded warrants in exchange for cash proceeds in PIPE Financing to certain Other PIPE Investors (“PIPE Pre-funded Warrants”).
As set forth in the agreement of the PIPE Pre-funded Warrants, the PIPE Pre-funded Warrants are exercisable on a cashless basis or on a gross basis for one share of the Company’s Common Stock at $0.01 per share, subject to adjustments. The Company may be required to cash settle the PIPE Pre-funded Warrants when it fails to timely deliver shares to the holder who exercises the PIPE Pre-funded Warrants or upon the occurrence of a fundamental transaction. It is determined that the PIPE Pre-funded Warrants do not meet the equity classification requirements under ASC 815 as the PIPE Pre-funded Warrants may require cash settlement outside of the Company’s control upon a failure of timely delivery of shares or a fundamental transaction, and therefore the PIPE Pre-funded Warrants are accounted for as derivative liabilities, and measured at fair value both initially and subsequently with changes in fair value recognized as warrant liabilities fair value adjustment within the condensed consolidated statements of operations and comprehensive income (loss).
The PIPE Pre-funded Warrants are classified as Level 3 measurements within the fair value hierarchy. The fair value of the PIPE Pre-funded Warrants is based on the fair value of the Company’s Common Stock minus the exercise price.
Strategic Realignment of Resources and Corporate Restructuring
On December 1, 2023, Legacy Adagio approved a strategic realignment of resources and corporate restructuring (the “RIF”) designed to reallocate capital, conformant to its business focus for the next two years.
As part of the RIF, Legacy Adagio initiated a reduction in its workforce of 20 employees, representing approximately 19% of Legacy Adagio’s employees, which was completed on December 15, 2023. Legacy Adagio made no payment for severance or related benefit costs. Legacy Adagio made no payment of retention bonuses.
Emerging Growth Company Status
We are an emerging growth company (“EGC”), as defined in the JOBS Act. The JOBS Act permits companies with EGC status to take advantage of an extended transition period to comply with new or revised accounting standards, delaying the adoption of these accounting standards until they would apply to private companies. We have elected to use this extended transition period to enable us to comply with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. As a result, our financial statements may not be comparable to companies that comply with the new or revised accounting standards as of public company effective dates.
In addition, we intend to rely on the other exemptions and reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, if, as an EGC, we intend to rely on such exemptions, we are not 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(b) of the Sarbanes-Oxley Act; (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 financial statements (auditor discussion and analysis); and (iv) disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the Chief Executive Officer’s compensation to median employee compensation.
We will remain an EGC under the JOBS Act until the earliest of (i) the last date of our fiscal year in which we have total annual gross revenue of at least $1.235 billion, (ii) the date on which we are deemed to be a “large accelerated filer” under the rules of the SEC with at least $700.0 million of outstanding securities held by non-affiliates, or (iii) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the previous three-years.
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Recent Accounting Pronouncements
See Note 2- Summary of Significant Accounting Policies in our condensed consolidated financial statements for a description of recent accounting pronouncements applicable to our financial statements.
Item 3.Quantitative and Qualitative Disclosures About Market Risk.
We have operations primarily within the United States and we are exposed to market risk in the ordinary course of our business. Market risk represents the risk of loss that may impact our financial position due to adverse changes in financial market prices and rates. We do not believe that inflation has had a material effect on our business, results of operations or financial condition. Nonetheless, if our costs were to become subject to significant inflationary pressures, we may not be able to fully offset such higher costs. Our inability or failure to do so could harm our business, results of operations or financial condition.
Our revenue generated in Europe, as well as costs and expenses denominated in Euro, expose us to the risk of fluctuations in foreign currency exchange rates against the U.S. dollar. We are exposed to foreign currency risks related to our revenue and operating expenses, along with certain intercompany transactions, denominated in Euro. Accordingly, changes in exchange rates may negatively affect our future revenue and other operating results as expressed in U.S. dollars. We do not believe that foreign currency exchange risk has had a material effect on our business, results of operations or financial condition.
Item 4.Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the U.S. 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 the Company’s reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness the design and operation of our disclosure controls and procedures prior to the filing of this Quarterly Report. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer assessed the effectiveness of our internal control over financial reporting as of September 30, 2024, and determined that our internal control over financial reporting was not effective at a reasonable assurance level due to the material weaknesses in our internal control over financial reporting related to the inadequate design and operation of management’s review controls over valuation reports prepared by third-party specialists in conjunction with the accounting for certain debt and equity instruments, resulting in the conclusion that the Company’s internal control over financial reporting and the Company’s disclosure controls and procedures were not effective as of September 30, 2024.
We are currently implementing our remediation plan to address the material weaknesses identified above. Such measures include:
1) additional review of third-party valuation reports utilized in the accounting for certain debt and equity instruments;
2) additional review of the manual journal entries based on externally generated reports and agreements with regard to accounting issues in certain debt and equity instruments;
3) enhanced oversight controls on the work performed by third-party specialists.
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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 detected all of 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.
Changes in Internal Control over Financial Reporting
Other than in connection with executing upon the continued implementation of the remediation measures referenced above, there have been no changes in our internal controls over financial reporting during the quarter ended September 30, 2024, that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
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PART II - OTHER INFORMATION
Item 1.Legal Proceedings.
From time to time, we may become involved in various claims and legal proceedings. Regardless of outcome, litigation and other legal and administrative proceedings can have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors. We are currently not a party to any legal proceedings the outcome of which, if determined adversely to us, would individually or in the aggregate have a material adverse effect on our business, financial condition, and results of operations.
Item 1A. Risk Factors.
Factors that could cause our actual results to differ materially from those in this Quarterly Report include the risk factors described in our filings with the SEC, including the the Company's Current Report on Form 8-K filed with the SEC on August 6, 2024. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. We may disclose changes to such factors or disclose additional factors from time to time in our future filings with the SEC. Except as set forth below, there have been no material changes to the risk factors previously described in the Company's Current Report on Form 8-K filed with the SEC on August 6, 2024.
We are a medical device company that has incurred net losses in every period to date and expect to continue to incur significant losses as we develop our business.
We are a medical device company that has incurred net losses in each quarterly and annual period since inception and that has not yet generated any meaningful revenue. We expect to incur increasing costs as we continue to devote substantially all of our resources towards the development and anticipated further commercialization of our products, including iCLAS, vCLAS and Cryopulse. We cannot be certain if we will ever generate meaningful revenue or if or when we will produce sufficient revenue from operations to support our costs. Even if profitability is achieved, we may not be able to sustain profitability. Adagio Medical incurred net losses of $38.1 million and $23.7 million in 2023 and 2022, respectively. As of December 31, 2023, Adagio Medical had an accumulated deficit of $135.2 million. We expect to incur substantial losses and negative cash flows for the foreseeable future. In addition, as a public company, we incur significant legal, accounting, and other expenses that we did not incur as a private company. These increased expenses make it harder for us to achieve and sustain future profitability. We may incur significant losses in the future for a number of reasons, many of which are beyond our control, including the other risks described in this report and in our other filings with the SEC. These conditions raise substantial doubt about our ability to continue as a going concern.
We have identified material weaknesses in our internal controls over financial reporting. If we are unable to remediate these material weaknesses, if management identifies additional material weaknesses in the future or if we otherwise fail to maintain effective internal controls over financial reporting, we may not be able to accurately or timely report our financial position or results of operations, which may adversely affect our business and stock price or cause our access to the capital markets to be impaired.
We have identified material weaknesses in our internal controls over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal controls over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The Company’s management identified a material weakness related to the inadequate design and operation of management’s review controls over valuation reports prepared by third-party specialists in conjunction with the accounting for certain debt and equity instruments, resulting in the conclusion that the Company’s internal control over financial reporting and the Company’s disclosure controls and procedures were not effective as of December 31, 2023, March 31, 2024 and June 30, 2024 and in a material misstatement to Adagio’s financial statements. Accordingly, we determined that these control deficiencies constitute material weaknesses.
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We are in the early stages of designing and implementing a plan to remediate the material weaknesses identified. Our plan for remediation includes: 1) additional review of third-party valuation reports utilized in the accounting for certain debt and equity instruments; 2) additional review of the manual journal entries based on externally generated reports and agreements with regard to accounting issues in certain debt and equity instruments; and 3) enhanced oversight controls on the work performed by third-party specialists. We cannot assure you that these measures will significantly improve or remediate the material weaknesses described above. The implementation of these remediation measures is in the early stages and will require validation and testing of the design and operating effectiveness of our internal controls over a sustained period of financial reporting cycles and, as a result, the timing of when we will be able to fully remediate the material weaknesses is uncertain. If the steps we take do not remediate the material weaknesses in a timely manner, there could be a reasonable possibility that these control deficiencies or others may result in another material misstatement of our annual or interim financial statements that would not be prevented or detected on a timely basis. This, in turn, could jeopardize our ability to comply with our reporting obligations, limit our ability to access the capital markets and adversely impact our stock price.
We and our independent registered public accounting firm were not required to perform an evaluation of our internal control over financial reporting as of December 31, 2023 in accordance with the provisions of the Sarbanes-Oxley Act. Accordingly, we cannot assure you that we have identified all, or that we will not in the future have additional, material weaknesses. Material weaknesses may still exist when we report on the effectiveness of our internal control over financial reporting as required by reporting requirements under Section 404.
Implementing any appropriate changes to our internal controls may distract our officers and employees, entail substantial costs to modify our existing processes and take significant time to complete. These changes may not, however, be effective in maintaining the adequacy of our internal controls, and any failure to maintain that adequacy, or consequent inability to produce accurate financial statements on a timely basis, could increase our operating costs and harm our business. In addition, investors’ perceptions that our internal controls are inadequate or that we are unable to produce accurate financial statements on a timely basis may harm our stock price and make it more difficult for us to effectively market and sell our products and services to new and existing customers.
However, if we identify future deficiencies in our internal control over financial reporting or if we are unable to comply with the demands that are placed upon us as a public company, including the requirements of Section 404 of the Sarbanes-Oxley Act, in a timely or effective manner, we may be unable to accurately report our financial results, or report them within the timeframes required by the SEC. We also could become subject to sanctions or investigations by the SEC or other regulatory authorities. In addition, if we are unable to assert that our internal control over financial reporting is effective, or if our independent registered public accounting firm is unable to express an opinion as to the effectiveness of our internal control over financial reporting when required, investors may lose confidence in the accuracy and completeness of our financial reports, we may face restricted access to the capital markets and our stock price may be adversely affected.
Our current controls and any new controls that we develop may also become inadequate because of poor design or changes in our business, including increased complexity resulting from any international expansion, and weaknesses in our disclosure controls and internal control over financial reporting may be discovered in the future. Any failure to develop or maintain effective controls or any difficulties encountered in their implementation or improvement could cause us to fail to meet our reporting obligations, result in a restatement of our financial statements for prior periods, undermine investor confidence in us and adversely affect the trading price of our common stock. In addition, if we are unable to continue to meet these requirements, we may not be able to remain listed on Nasdaq.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds from Registered Securities.
None.
Item 3.Defaults upon Senior Securities.
None.
Item 4.Mine Safety Disclosures.
Not applicable.
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10.11 | ||
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10.23 | ||
10.24* | ||
31.1* | ||
31.2* | ||
32.1** | ||
32.2** | ||
101.INS* | Inline XBRL Instance Document | |
101.CAL* | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
101.SCH* | Inline XBRL Taxonomy Extension Schema Document | |
101.DEF* | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
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101.LAB* | Inline XBRL Taxonomy Extension Labels Linkbase Document | |
101.PRE* | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
104* | Inline XBRL for the cover page of this Quarterly Report on Form 10-Q, included in the Exhibit 101 Inline XBRL Document Set. |
*Filed herewith
**Furnished herewith
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SIGNATURES
Pursuant to the requirements of Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
ADAGIO MEDICAL HOLDINGS, INC. | ||
Date: November 14, 2024 | /s/ Olav Bergheim | |
Name: | Olav Bergheim | |
Title: | Chief Executive Officer | |
Date: November 14, 2024 | /s/ John Dahldorf | |
Name: | John Dahldorf | |
Title: | Chief Financial Officer | |
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