NOTES TO UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Description of Organization and Business
Operations
CM Life Sciences III Inc. (the “Company”)
is a blank check company incorporated as a Delaware corporation on January 25, 2021. The Company was incorporated for the purpose of effecting
a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses
(the “Business Combination”). The Company is not limited to a particular industry or sector for purposes of consummating a
Business Combination. The Company is an early stage and emerging growth company and, as such, the Company is subject to all of the risks
associated with early stage and emerging growth companies.
As of September 30, 2021, the Company had not
commenced any operations. All activity for the period from January 25, 2021 (inception) through September 30, 2021 relates to the Company’s
formation and the preparation for the initial public offering (the “Initial Public Offering”) described below, and, subsequent
to the Initial Public Offering, identifying a target company for a Business Combination. The Company will not generate any operating revenues
until after the completion of its initial Business Combination, at the earliest. The Company will generate non-operating income in the
form of interest income from the proceeds derived from the Initial Public Offering.
The Company’s sponsor is CMLS Holdings III
LLC, a Delaware limited liability company (the “Sponsor”). The registration statement for the Company’s Initial Public
Offering was declared effective on April 6, 2021. On April 9, 2021, the Company consummated its Initial Public Offering of 55,200,000
units (the “Units” and, with respect to the Class A common stock included in the Units being offered, the “Public Shares”),
including 7,200,000 additional Units to cover over-allotments (the “Over-Allotment Units”), at $10.00 per Unit, generating
gross proceeds of $552.0 million, and incurring offering costs of approximately $31.0 million, of which approximately $19.3 million was
for deferred underwriting fees (see Note 3).
Simultaneously with the closing of the Initial
Public Offering, the Company consummated the private placement (“Private Placement”) of 8,693,333 warrants (each, a “Private
Placement Warrant” and collectively, the “Private Placement Warrants”) at a price of $1.50 per Private Placement Warrant
to the Sponsor and certain of the Company’s directors (and/or entities controlled by them), generating proceeds of approximately
$13.0 million (see Note 4).
Upon the closing of the Initial Public Offering
and the Private Placement, $552.0 million ($10.00 per Unit) of the net proceeds of the Initial Public Offering and certain of the proceeds
of the Private Placement was placed in a trust account (“Trust Account”), located in the United States with Continental Stock
Transfer & Trust Company acting as trustee, and was invested in U.S. government securities, within the meaning set forth in Section
2(a)(16) of the Investment Company Act of 1940, as amended (the “Investment Company Act”), having a maturity of 185 days or
less or in money market funds meeting certain conditions under Rule 2a-7 promulgated under the Investment Company Act which will be invested
only in direct U.S. government treasury obligations. Except with respect to interest earned on the funds held in the Trust Account that
may be released to the Company to pay taxes, if any, the proceeds from the Initial Public Offering and the sale of the Private Placement
Warrants will not be released from the Trust Account until the earliest of (i) the completion of initial Business Combination, (ii) the
distribution of the Trust Account as described below.
The Company’s management has broad discretion
with respect to the specific application of the net proceeds of the Initial Public Offering and the sale of Private Placement Warrants,
although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination. The Company
must complete one or more initial Business Combinations having an aggregate fair market value of at least 80% of the value of the assets
held in the Trust Account (excluding the deferred underwriting commissions and taxes payable on the interest earned on the Trust Account)
at the time of signing a definitive agreement in connection with the initial Business Combination. However, the Company will only complete
a Business Combination if the post-transaction company owns or acquires 50% or more of the outstanding voting securities of the target
or otherwise acquires a controlling interest in the target sufficient for it not to be required to register as an investment company under
the Investment Company Act. There is no assurance that the Company will be able to complete a Business Combination successfully.
CM LIFE SCIENCES III INC.
NOTES TO UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company will provide its holders of the Public
Shares (the “Public Stockholders”) with the opportunity to redeem all or a portion of their Public Shares upon the completion
of the initial Business Combination either (i) in connection with a stockholder meeting called to approve the Business Combination or
(ii) without a stockholder vote by means of a tender offer. The decision as to whether the Company will seek stockholder approval of a
proposed Business Combination or conduct a tender offer will be made by the Company, solely in its discretion. The stockholders will be
entitled to redeem their shares upon the completion of the initial Business Combination at a per-share price, payable in cash, equal to
the aggregate amount then on deposit in the Trust Account calculated as of two business days prior to the consummation of the initial
Business Combination, including interest earned on the funds held in the Trust Account and not previously released to the Company to pay
its taxes, divided by the number of then outstanding Public Shares, subject to the limitations and on the conditions described herein.
The amount in the Trust Account is at $10.00 per Public Share plus the pro rata portion of the funds in the Trust Account that are available
for distribution to Public Stockholders. The per share amount the Company will distribute to investors who properly redeem their shares
will not be reduced by the deferred underwriting commissions the Company will pay to the underwriters.
The shares of common stock subject to redemption
will be recorded at a redemption value and classified as temporary equity upon the completion of the Initial Public Offering, in accordance
with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing
Liabilities from Equity.” In such case, the Company will proceed with a Business Combination if the Company has net tangible assets
of at least $5,000,001 upon such consummation of a Business Combination and, if the Company seeks stockholder approval, a majority of
the issued and outstanding shares voted are voted in favor of the Business Combination.
The Company will have 24 months from the closing
of the Initial Public Offering, or April 9, 2023, to complete the initial Business Combination (the “Combination Period”)
or during any extended period of time that the Company may have to consummate an initial Business Combination as a result of an amendment
to its amended and restated certificate of incorporation (an “Extension Period”). However, if the Company is unable to complete
the initial Business Combination within the Combination Period or during any Extension Period, the Company will (i) cease all operations
except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the
Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest
earned on the funds held in the Trust Account and not previously released to the Company to pay its taxes (less up to $100,000 of interest
to pay dissolution expenses), divided by the number of then outstanding Public Shares, which redemption will completely extinguish Public
Stockholders’ rights as stockholders (including the right to receive further liquidating distributions, if any), and (iii) as promptly
as reasonably possible following such redemption, subject to the approval of the Company’s remaining stockholders and the Company’s
board of directors, liquidate and dissolve, subject, in each case, to the Company’s obligations under Delaware law to provide for
claims of creditors and the requirements of other applicable law.
The Sponsor and the Company’s officers and
directors agreed to (i) waive their redemption rights with respect to any founder shares and Public Shares they hold in connection with
the completion of the initial Business Combination, (ii) waive their redemption rights with respect to their founder shares and Public
Shares in connection with a stockholder vote to approve an amendment to the Company’s amended and restated certificate of incorporation,
(iii) waive their rights to liquidating distributions from the Trust Account with respect to any founder shares they hold if the Company
fails to complete the initial Business Combination within the Combination Period or during any Extension Period, although they will be
entitled to liquidating distributions from the Trust Account with respect to any Public Shares they hold if the Company fails to complete
the initial Business Combination within such time period, and (iv) vote any founder shares held by them and any Public Shares purchased
during or after the Initial Public Offering (including in open market and privately-negotiated transactions) in favor of the initial Business
Combination.
The Sponsor agreed that it will be liable to the
Company if and to the extent any claims by a third party for services rendered or products sold to the Company, or a prospective target
business with which the Company will enter into a written letter of intent, confidentiality or other similar agreement or Business Combination
agreement, reduce the amount of funds in the Trust Account to below the lesser of (i) $10.00 per Public Share and (ii) the actual amount
per Public Share held in the Trust Account as of the date of the liquidation of the Trust Account, if less than $10.00 per share due to
reductions in the value of the trust assets, less taxes payable, provided that such liability will not apply to any claims by a third
party or prospective target business who executed a waiver of any and all rights to the monies held in the Trust Account (whether or not
such waiver is enforceable) nor will it apply to any claims under the Company’s indemnity of the underwriters of the Initial Public
Offering against certain liabilities, including liabilities under the Securities Act. However, the Company has not asked the Sponsor to
reserve for such indemnification obligations, nor has the Company independently verified whether the Sponsor has sufficient funds to satisfy
its indemnity obligations and the Company believes that the Sponsor’s only assets are securities of the Company. Therefore, the
Company cannot assure that the Sponsor would be able to satisfy those obligations. None of the Company’s officers or directors will
indemnify the Company for claims by third parties including, without limitation, claims by vendors and prospective target businesses.
CM LIFE SCIENCES III INC.
NOTES TO UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Proposed Business Combination
On August 5, 2021, the
Company entered into an agreement and plan of merger (the “Merger Agreement”) with EQRx, Inc., a Delaware corporation (“EQRx”),
and Clover III Merger Sub Inc., a Delaware corporation and a direct, wholly owned subsidiary of the Company (“Merger Sub”).
On October 28, 2021, the Company entered into an amendment (the “Amendment”) to the Merger Agreement.
Business Combination
Pursuant to the terms of the Merger Agreement,
the Company will acquire EQRx through the merger of Merger Sub with and into EQRx, with EQRx surviving as a wholly-owned subsidiary of
the Company (the “Merger”). In connection with the Merger, the Company will be renamed. Pursuant to the Amendment, in addition
to our stockholders’ approval of our second amended and restated certificate of incorporation (the “Proposed Charter”)
under our governing documents and applicable law, the parties agreed to a mutual closing condition that the Proposed Charter shall have
been approved at the Special Meeting (as defined in the Merger Agreement) by the affirmative vote of the holders of a majority of the
shares of the Class A common stock, par value $0.0001 per share, of the Company (the “Class A Common Stock”) then outstanding
and entitled to vote thereon at the Special Meeting, voting separately as a single series.
The Merger and the other transactions contemplated
by the Merger Agreement (collectively, the “EQRx Business Combination”) were approved by the boards of directors of each of
the Company and EQRx.
The EQRx Business Combination is expected to close
in the fourth quarter of 2021, following the receipt of the required approval by EQRx’s and the Company’s stockholders and
the satisfaction of certain other customary closing conditions.
Business Combination Consideration
At the effective time of the Merger (the “Effective
Time”), each share of EQRx’s common stock and preferred stock (collectively, “EQRx Capital Sock”) issued and outstanding
immediately prior to the Effective Time will be cancelled and automatically deemed for all purposes to represent the right to receive
a portion of the total consideration, with each EQRx’s stockholder (as applicable) being entitled to receive a number of shares
of Class A Common Stock equal to: (x) such EQRx stockholder’s total shares of EQRx Capital Stock multiplied by (y) the number equal
to the final quotient of: (i) $3,650,000,000 divided by (ii) 10 divided by (iii) the Aggregate Company Share Amount (as defined in the
Merger Agreement).
In addition, at the Effective Time, each outstanding
option to purchase EQRx Capital Stock will be rolled over into options to purchase Class A Common Stock, as further set forth in and in
accordance with the terms of the Merger Agreement; and each outstanding EQRx restricted stock award will be cancelled and converted into
restricted stock awards of Class A Common Stock calculated in accordance with the terms of the Merger Agreement.
Refer to the Company’s current report on
Form 8-K, filed with the SEC on August 6, 2021, for more information.
Risks and Uncertainties
Management continues to evaluate the impact of
the COVID-19 pandemic on the industry and has concluded that while it is reasonably possible that the virus could have a negative effect
on the Company’s financial position, results of its operations, and/or search for a target company, the specific impact is not readily
determinable as of the date of these condensed consolidated financial statements. The condensed consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
Liquidity and Capital Resources
As of September 30, 2021, the Company had approximately
$2.1 million in cash, and working capital of approximately $54,000.
CM LIFE SCIENCES III INC.
NOTES TO UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company’s liquidity needs through September
30, 2021 were satisfied through the payment of $25,000 from the Sponsor to cover for certain offering costs on behalf of the Company in
exchange for issuance of the Founder Shares (as defined in Note 5), loan proceeds from the Sponsor of $156,000 under the Note (as defined
in Note 5) and the proceeds from the consummation of the Private Placement not held in the Trust Account. Subsequent to March 31, 2021,
the Company borrowed an additional amount of $44,000, for a total of $200,000 outstanding balance under the Note. On April 9, 2021, the
Company repaid the Note in full and borrowings under the Note are no longer available. Subsequent from the consummation of the Initial
Public Offering, the Company’s liquidity has been satisfied through the net proceeds from the consummation of the Initial Public
Offering and the Private Placement held outside of the Trust Account. In addition, in order to finance transaction costs in connection
with a Business Combination, our Sponsor may, but is not obligated to, provide us Working Capital Loans (as defined in Note 5). As of
September 30, 2021, there were no amounts outstanding under any Working Capital Loan.
Management has determined that the Company has
access to funds from the Sponsor or an affiliate of the Sponsor, or certain of the Company’s officers and directors to meet the
Company’s needs through the earlier of the consummation of a Business Combination or one year from this filing. Over this time period,
the Company will be using the funds held outside of the Trust Account for paying existing accounts payable, identifying and evaluating
prospective initial Business Combination candidates, performing due diligence on prospective target businesses, paying for travel expenditures,
selecting the target business to merge with or acquire, and structuring, negotiating and consummating the Business Combination.
Note 2 - Basis of Presentation and Summary
of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed consolidated
financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States
of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X
and pursuant to the rules and regulations of the SEC. Accordingly, they do not include all of the information and footnotes required by
GAAP. In the opinion of management, all adjustments (consisting of normal accruals) considered for a fair presentation have been included.
Operating results for the three months ended September 30, 2021 and for the period from January 25, 2021 (inception) through September
30, 2021 are not necessarily indicative of the results that may be expected for the year ending December 31, 2021 or any future period.
The accompanying unaudited condensed consolidated
financial statements should be read in conjunction with the Company’s prospectus as filed with the SEC on April 8, 2021 which contains
the audited financial statements and the notes thereto.
Revision to Previously Reported Financial Statements
In preparation of the Company’s unaudited
condensed financial statements as of and for the quarterly period ended September 30, 2021, the Company concluded it should revise its
financial statements to classify all Class A Common Stock subject to possible redemption in temporary equity. In accordance with the SEC
and its staff’s guidance on redeemable equity instruments, ASC 480, paragraph 10-S99, redemption provisions not solely within the
control of the Company require common stock subject to redemption to be classified outside of permanent equity. The Company had previously
classified a portion of its Class A Common Stock in permanent equity, or total stockholders’ equity. Although the Company did not
specify a maximum redemption threshold, its charter currently provides that the Company will not redeem its public shares in an amount
that would cause its net tangible assets to be less than $5,000,001. Previously, the Company did not consider redeemable stock classified
as temporary equity as part of net tangible assets. Effective with these financial statements, the Company revised this interpretation
to include temporary equity in net tangible assets. Accordingly, effective with this filing, the Company presents all redeemable Class
A Common Stock as temporary equity and to recognize accretion from the initial book value to redemption value at the time of its Initial
Public Offering and in accordance with ASC 480.
CM LIFE SCIENCES III INC.
NOTES TO UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The change in the carrying value of the redeemable
shares of Class A Common Stock at the Initial Public Offering resulted in a decrease of approximately $21.3 million in additional paid-in
capital and an increase of approximately $47.9 million to accumulated deficit as of April 9, 2021, as well as a reclassification of 6,924,903
shares of Class A Common Stock from permanent equity to temporary equity. The Company will
present this revision in a prospective manner in all future filings. Under this approach, the previously issued financial statement included
as an exhibit to the Company’s Form 8-K filed with the SEC on June 2, 2021 and Form 10-Q filed with the SEC on August 16, 2021
will not be amended, but historical amounts presented in the current and future filings will be recast to be consistent with the current
presentation, and an explanatory footnote will be provided.
The impact of the revision to the unaudited condensed
consolidated balance sheet as of June 30, 2021, is a reclassification of $84.8 million, from total stockholders’ equity to Class
A Common Stock subject to possible redemption. There is no impact to the reported amounts for total assets, total liabilities, or net
income (loss). In connection with the change in presentation for the Class A Common Stock subject to possible redemption, the Company
has revised its earnings per share calculation to allocate income and losses shared pro rata between the two classes of shares. This presentation
contemplates a Business Combination as the most likely outcome, in which case, both classes of shares share pro rata in the income and
losses of the Company.
Principles of Consolidation
The accompanying unaudited condensed consolidated
financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Emerging Growth Company Status
The Company is an “emerging growth company,”
as defined in Section 2(a) of the Securities Act of 1933, as amended, (the “Securities Act”), as modified by the Jumpstart
our Business Startups Act of 2012, (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting
requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being
required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations
regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding
advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1)
of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until
private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class
of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS
Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging
growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period
which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company,
as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard.
This may make comparison of the Company’s financial statement with another public company which is neither an emerging growth company
nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential
differences in accounting standards used.
Use of Estimates
The preparation of financial statements in conformity
with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expenses during the
reporting period. Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate
of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management
considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual
results could differ significantly from those estimates.
Cash and Cash Equivalents
The Company considers all short-term investments
with an original maturity of three months or less when purchased to be cash equivalents. The Company had no cash equivalents as of September
30, 2021.
CM LIFE SCIENCES III INC.
NOTES TO UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Investments Held in Trust Account
The Company’s portfolio of investments is
comprised of U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act, with a maturity
of 185 days or less, or investments in money market funds that invest in U.S. government securities and generally have a readily determinable
fair value, or a combination thereof. When the Company’s investments held in the Trust Account are comprised of U.S. government
securities, the investments are classified as trading securities. When the Company’s investments held in the Trust Account are comprised
of money market funds, the investments are recognized at fair value. Trading securities and investments in money market funds are presented
on the balance sheets at fair value at the end of each reporting period. Gains and losses resulting from the change in fair value of these
securities is included in income on investments held in the Trust Account in the accompanying unaudited condensed consolidated statement
of operations. The estimated fair values of investments held in the Trust Account are determined using available market information.
Concentration of Credit Risk
Financial instruments that potentially subject
the Company to concentrations of credit risk consist of cash accounts in a financial institution, which, at times, may exceed the Federal
Deposit Insurance Corporation coverage limit of $250,000. As of September 30, 2021, the Company has not experienced losses on these accounts
and management believes the Company is not exposed to significant risks on such accounts.
Fair Value of Financial Instruments
The fair value of the Company’s assets and
liabilities which qualify as financial instruments under the FASB ASC Topic 820, “Fair Value Measurements,” equal or approximate
the carrying amounts represented in the condensed consolidated balance sheet.
Fair Value Measurements
Fair value is defined as the price that would
be received for sale of an asset or paid for transfer of a liability, in an orderly transaction between market participants at the measurement
date. GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy gives
the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the
lowest priority to unobservable inputs (Level 3 measurements). These tiers consist of:
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Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
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Quoted prices in markets that are not active or financial instruments for which significant inputs to models are observable (including but not limited to quoted prices for similar securities, interest rates, foreign exchange rates, volatility and credit risk), either directly or indirectly; and
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Prices or valuations that require significant unobservable inputs (including the Management’s assumptions in determining fair value measurement).
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In some circumstances, the inputs used to measure
fair value might be categorized within different levels of the fair value hierarchy. In those instances, the fair value measurement is
categorized in its entirety in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement.
CM LIFE SCIENCES III INC.
NOTES TO UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Offering Costs Associated with the Initial
Public Offering
Offering costs consisted
of legal, accounting, underwriting fees and other costs incurred through the balance sheet date that were directly related to the Initial
Public Offering and that will be charged to stockholders’ equity upon the completion of the Initial Public Offering. Offering costs
will be allocated to the separable financial instruments issued in the Initial Public Offering based on a relative fair value basis, compared
to total proceeds received. Offering costs associated with derivative warrant liabilities will be expensed as incurred, presented as non-operating
expenses in the statement of operations. Offering costs associated with the Class A Common Stock issued were charged against the carrying
value of the shares of Class A Common Stock upon the completion of the Initial Public Offering. The Company classifies deferred underwriting
commissions as non-current liabilities as their liquidation is not reasonably expected to require the use of current assets or require
the creation of current liabilities.
Derivative Warrant Liabilities
The Company does not use derivative instruments
to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its financial instruments, including
issued stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives,
pursuant to ASC 480 and FASB ASC Topic 815, “Derivatives and Hedging” (“ASC 815”). The classification of derivative
instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting
period.
The warrants issued in connection with the Initial
Public Offering (the “Public Warrants”) and the Private Placement Warrants will be recognized as derivative liabilities in
accordance with ASC 815. Accordingly, the Company recognizes the warrant instruments as liabilities at fair value and adjusts the carrying
value of the instruments to fair value at each reporting period until they are exercised. The initial fair value of the Public Warrants
issued in connection with the Initial Public Offering were estimated using a Monte Carlo model. The fair value of the Public Warrants
as of September 30, 2021 is based on observable listed prices for such warrants. The fair value of the Private Placement Warrants as of
September 30, 2021 is determined using Black-Scholes option pricing model. The determination of the fair value of the warrant liability
may be subject to change as more current information becomes available and accordingly the actual results could differ significantly.
Derivative warrant liabilities are classified as non-current liabilities as their liquidation is not reasonably expected to require the
use of current assets or require the creation of current liabilities.
Class A Common Stock Subject to Possible
Redemption
The Company accounts for its Class A Common Stock
subject to possible redemption in accordance with the guidance in ASC Topic 480 “Distinguishing Liabilities from Equity.”
Class A Common Stock subject to mandatory redemption (if any) is classified as liability instruments and are measured at fair value. Conditionally
redeemable Class A Common Stock (including Class A Common Stock that features redemption rights that are either within the control of
the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) are classified
as temporary equity. At all other times, Class A Common Stock is classified as stockholders’ equity. The Company’s Class A
Common Stock feature certain redemption rights that are considered to be outside of the Company’s control and subject to the occurrence
of uncertain future events. Accordingly, as of Initial Public Offering, 55,200,000 shares of Class A Common Stock subject to possible
redemption are presented at redemption value as temporary equity, outside of the stockholders’ equity section of the Company’s
condensed consolidated balance sheets.
Effective with the closing of the Initial Public
Offering, the Company recognized the accretion from initial book value to redemption amount, which resulted in charges against additional
paid-in capital (to the extent available) and accumulated deficit.
CM LIFE SCIENCES III INC.
NOTES TO UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Income Taxes
The Company follows the asset and liability method
of accounting for income taxes under FASB ASC Topic 740, “Income Taxes” (“ASC 740”). Deferred tax assets and liabilities
are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts
of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment
date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
ASC 740 prescribes a recognition threshold and
a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax
return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities.
There were no unrecognized tax benefits as of September 30, 2021. The Company recognizes accrued interest and penalties related to unrecognized
tax benefits as income tax expense. No amounts were accrued for the payment of interest and penalties as of September 30, 2021. The Company
is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position.
The Company is subject to income tax examinations by major taxing authorities since inception.
Net Income (Loss) Per Share of Common Stock
The Company complies with accounting and disclosure
requirements of FASB ASC Topic 260, “Earnings Per Share.” The Company has two classes
of shares, which are referred to as Class A Common Stock and Class B Common Stock. Income and losses are shared pro rata between the two
classes of shares. Net income (loss) per common share is calculated by dividing the net income (loss) by the weighted average shares of
common stock outstanding for the respective period.
The calculation of diluted net income (loss) per
share of common stock does not consider the effect of the warrants issued in connection with the Initial Public Offering and the Private
Placement to purchase an aggregate of 19,733,333 shares of Class A Common Stock in the calculation of diluted income (loss) per share,
because their exercise is contingent upon future events and their inclusion would be anti-dilutive under the treasury stock method. As
a result, diluted net income (loss) per share is the same as basic net income (loss) per share for the three and nine months ended September
30, 2021. Accretion associated with the redeemable Class A Common Stock is excluded from earnings per share as the redemption value
approximates fair value.
The following table reflects presents a reconciliation
of the numerator and denominator used to compute basic and diluted net income (loss) per share for each class of common stock:
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For the
Three Months Ended
September 30, 2021
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For the Period From
January 25, 2021
(Inception) Through
September 30, 2021
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Class A
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Class B
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Class A
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Class B
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Basic and diluted net income (loss) per common stock:
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Numerator:
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Allocation of net income (loss)
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$
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5,235,452
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$
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1,308,863
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$
|
(19,026,658
|
)
|
|
$
|
(6,269,343
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted weighted average common stock outstanding
|
|
|
55,200,000
|
|
|
|
13,800,000
|
|
|
|
40,418,410
|
|
|
|
13,317,992
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net income (loss) per common stock
|
|
$
|
0.09
|
|
|
$
|
0.09
|
|
|
$
|
(0.47
|
)
|
|
$
|
(0.47
|
)
|
CM LIFE SCIENCES III INC.
NOTES TO UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Recent Accounting Pronouncements
In August 2020, the FASB issued Accounting Standards
Update (“ASU”) No. 2020-06, Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts
in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU
2020-06”), which simplifies accounting for convertible instruments by removing major separation models required under current GAAP.
The ASU 2020-06 also removes certain settlement conditions that are required for equity-linked contracts to qualify for the derivative
scope exception, and it simplifies the diluted earnings per share calculation in certain areas. The Company adopted ASU 2020-06 on January
1, 2021 using a modified retrospective method for transition. Adoption of the ASU 2020-06 did not impact the Company’s financial
position, results of operations or cash flows.
Management does not believe that any other recently
issued, but not effective, accounting standards, if currently adopted, would have a material effect on the Company’s unaudited condensed
consolidated financial statements.
Note 3 - Initial Public Offering
On April 9, 2021, the Company consummated its
Initial Public Offering of 55,200,000 Units, including 7,200,000 Over-Allotment Units, at $10.00 per Unit, generating gross proceeds of
$552.0 million, and incurring offering costs of approximately $31.0 million, of which approximately $19.3 million was for deferred underwriting
commissions.
Each Unit consists of one share of Class A Common
Stock and one-fifth of one redeemable warrant. Each whole warrant entitles the holder to purchase one share of Class A Common Stock at
a price of $11.50 per share, subject to adjustment. Only whole warrants are exercisable. No fractional warrants will be issued upon separation
of the units and only whole warrants will trade. The warrants will become exercisable 30 days after the completion of the initial Business
Combination and will expire five years after the completion of the initial Business Combination or earlier upon redemption or liquidation.
Note 4 - Private Placement
Simultaneously with the closing of the Initial
Public Offering, the Company consummated the Private Placement of 8,693,333 Private Placement Warrants, at a price of $1.50 per Private
Placement Warrant, to the Sponsor and certain of the Company’s directors (and/or entities controlled by them), generating proceeds
of approximately $13.0 million. Of these, the Sponsor purchased 8,110,001 Private Placement Warrants, and each of Mr. Henry, Mr. Robins
and Dr. Robins (and/or one or more entities controlled by them) purchased 166,666 Private Placement Warrants and Mr. Owusu-Kesse (and/or
one or more entities controlled by him) purchased 83,334 Private Placement Warrants.
The Private Placement Warrants were identical
to the warrants sold in the Initial Public Offering, except that the Private Placement Warrants, so long as they are held by the Sponsor
or its permitted transferees, (i) will not be redeemable by the Company (except as described herein), (ii) may not (including the Class
A Common Stock issuable upon exercise of these warrants), subject to certain limited exceptions, be transferred, assigned or sold by the
holders until 30 days after the completion of the Company’s initial Business Combination, (iii) may be exercised by the holders
on a cashless basis and (iv) will be entitled to certain registration rights.
If the Private Placement Warrants are held by
holders other than the Sponsor or its permitted transferees, the Private Placement Warrants will be redeemable by the Company and exercisable
by the holders on the same basis as the warrants included in the Units sold in the Initial Public Offering.
Note 5 - Related Party Transactions
Founder Shares
On February 4, 2021, the Sponsor paid $25,000,
or approximately $0.002 per share, to cover certain offering costs in consideration for 11,500,000 shares (the “Founder Shares”)
of Class B common stock, par value $0.0001 (“Class B Common Stock”). In February 2021, the Sponsor transferred 25,000 Founder
Shares to each of Mr. Henry, Mr. Owusu-Kesse, Mr. Robins and Dr. Robins. On April 6, 2021, the Company effected a 1.2:1 stock split of
the Class B Common Stock, resulting in the Sponsor holding an aggregate of 13,700,000 Founder Shares and there being an aggregate of 13,800,000
Founder Shares outstanding. All shares and the associated amounts have been retroactively restated to reflect the aforementioned stock
split. Of these, up to 1,800,000 Founder Shares were subject to forfeiture by the Sponsor depending on the extent to which the underwriters’
over-allotment option was exercised, so that the initial stockholders would collectively own 20% of the Company’s issued and outstanding
common stock after the Initial Public Offering. The underwriters exercised the over-allotment option in full on April 7, 2021 and closed
the purchase of the additional units on April 9, 2021; thus, these 1,800,000 Founder Shares are no longer subject to forfeiture.
CM LIFE SCIENCES III INC.
NOTES TO UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The initial stockholders agreed not to transfer,
assign or sell any of their Founder Shares until the earlier to occur of: (A) one year after the completion of the initial Business Combination
and (B) the date on which the Company completes a liquidation, merger, capital stock exchange or other similar transaction after the initial
Business Combination that results in all of the Company’s stockholders having the right to exchange their Class A Common Stock for
cash, securities or other property; except to certain permitted transferees (the “lock-up”). Any permitted transferees will
be subject to the same restrictions and other agreements of the initial stockholders with respect to any Founder Shares. Notwithstanding
the foregoing, if (i) the closing price of the Company’s Class A Common Stock equals or exceeds $12.00 per share (as adjusted for
stock splits, stock capitalizations, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day
period commencing at least 150 days after the initial Business Combination or (2) if the Company consummates a transaction after the initial
Business Combination which results in the stockholders having the right to exchange their shares for cash, securities or other property,
the Founder Shares will be released from the lock-up.
Promissory Note - Related Party
On February 4, 2021, the Sponsor agreed to loan
the Company up to $300,000 pursuant to a promissory note (the “Note”). This loan was non-interest bearing, unsecured and is
due upon the closing of the Initial Public Offering. As of March 31, 2021, the Company borrowed $156,000 under the Note. Subsequent to
March 31, 2021, the Company borrowed an additional amount of $44,000, for a total of $200,000 outstanding balance under the Note. On April
9, 2021, the Company repaid the Note in full. As of September 30, 2021, the Note was no longer available.
Working Capital Loans
In addition, in order to finance transaction costs
in connection with an intended Business Combination, the Sponsor or an affiliate of the Sponsor, or certain of the Company’s officers
and directors may, but are not obligated to, loan the Company funds as may be required (“Working Capital Loans”). If the Company
completes the initial Business Combination, the Company would repay the Working Capital Loans. In the event that the initial Business
Combination does not close, the Company may use a portion of the working capital held outside the Trust Account to repay the Working Capital
Loans but no proceeds from the Trust Account would be used to repay the Working Capital Loans. Up to $1,500,000 of such Working Capital
Loans may be convertible into Private Placement Warrants at a price of $1.50 per warrant at the option of the lender. Such warrants would
be identical to the Private Placement Warrants. As of September 30, 2021, the Company had no borrowings under the Working Capital Loans.
Forward Purchase Agreements
On April 6, 2021, the Company entered into separate
forward purchase agreements with affiliates of the Sponsor, in their capacities as investment advisors on behalf of one or more investment
funds, clients or accounts managed by affiliates of the Sponsor (collectively, the “Clients”), pursuant to which, the affiliates
will cause certain Clients to purchase from the Company up to an aggregate amount of 15,000,000 shares of Class A Common Stock (the “Forward
Purchase Shares”), for $10.00 per Forward Purchase Share, or an aggregate amount of up to $150,000,000 in a private placement that
will close concurrently with the closing of an initial Business Combination. The respective obligations of Clients to purchase Forward
Purchase Shares will, among other things, be conditioned on the completing an initial Business Combination with a company engaged in a
business that is within the investment objectives of the Clients purchasing Forward Purchase Shares and on the Business Combination (including
the target assets or business, and the terms of the Business Combination) being reasonably acceptable to such Clients as determined by
the affiliates of the Sponsor.
CM LIFE SCIENCES III INC.
NOTES TO UNAUDITED
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 6 - Commitments and Contingencies
Registration Rights
The holders of the (i) Founder Shares, (ii) Private
Placement Warrants and the shares of Class A Common Stock underlying such Private Placement Warrants and (iii) Private Placement Warrants
that may be issued upon conversion of Working Capital Loans and (iv) any Forward Purchase Shares that are issued in a private placement
simultaneously with the closing of the initial Business Combination, had registration rights to require the Company to register a sale
of any of its securities held by them pursuant to a registration rights agreement. The holders of these securities are entitled to make
up to three demands, excluding short form demands, that the Company registers such securities. In addition, the holders have certain “piggy-back”
registration rights with respect to registration statements filed subsequent to the Company’s completion of the initial Business
Combination. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
Underwriting Agreement
The Company granted the underwriters a 45-day
option from the date of the Initial Public Offering to purchase up to an additional 7,200,000 units to cover over-allotments, if any.
The underwriters exercised the over-allotment option in full on April 7, 2021 and closed the purchase of the additional Units on April
9, 2021.
The underwriters were entitled to a cash underwriting
discount of two percent (2%) of the gross proceeds of the Initial Public Offering, or approximately $11.0 million. Additionally, the underwriters
will be entitled to a deferred underwriting discount of 3.5% of the gross proceeds of the Initial Public Offering, or approximately $19.3
million if the underwriters’ over-allotment is exercised in full), upon the completion of the Company’s initial Business Combination.
Note 7 - Class A Common Stock Subject to Possible
Redemption
The Company’s Class A Common Stock features
certain redemption rights that are considered to be outside of the Company’s control and subject to the occurrence of future events.
The Company is authorized to issue 380,000,000 shares of Class A Common Stock with a par value of $0.0001 per share. Holders of the Company’s
Class A Common Stock are entitled to one vote for each share. As of September 30, 2021, there were 55,200,000 shares of Class A Common
Stock outstanding, which were all subject to possible redemption and are classified outside of permanent equity in the condensed consolidated
balance sheet.
The Class A Common Stock subject to possible redemption
reflected on the condensed consolidated balance sheet is reconciled on the following table:
Gross proceeds from Initial Public Offering
|
|
$
|
552,000,000
|
|
Less:
|
|
|
|
|
Fair value of Public Warrants at issuance
|
|
|
(17,995,200
|
)
|
Offering costs allocated at Class A Common Stock subject to possible redemption
|
|
|
(28,906,954
|
)
|
Plus:
|
|
|
|
|
Accretion on Class A Common Stock subject to possible redemption
|
|
|
46,902,154
|
|
Class A Common Stock subject to possible redemption
|
|
$
|
552,000,000
|
|
Note 8 - Stockholders’ Deficit
Preferred stock - The Company is
authorized to issue 1,000,000 shares of preferred stock with a par value of $0.0001 and with such designations, voting and other rights
and preferences as may be determined from time to time by the Company’s board of directors. As of September 30, 2021, there was
no preferred stock issued or outstanding.
Class A Common Stock - The Company
is authorized to issue 380,000,000 shares of Class A Common Stock with a par value of $0.0001 per share. As of September 30, 2021, there
were 55,200,000 Class A Common Stock issued and outstanding, which were all subject to possible redemption and have been classified
as temporary equity (see Note 7).
CM LIFE SCIENCES III INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
Class B Common Stock - The Company
is authorized to issue 20,000,000 shares of Class B Common Stock with a par value of $0.0001 per share. Holders are entitled to one vote
for each share of Class B Common Stock. As of September 30, 2021, there were 13,800,000 shares of Class B Common Stock issued and outstanding.
Holders of Class A Common Stock and holders of
Class B Common Stock will vote together as a single class on all matters submitted to a vote of the Company’s stockholders except
as required by law. Unless specified in the Company’s amended and restated certificate of incorporation, or as required by applicable
provisions of the DGCL or applicable stock exchange rules, the affirmative vote of a majority of the Company’s shares of common
stock that are voted is required to approve any such matter voted on by its stockholders.
The shares of Class B Common Stock will automatically
convert into Class A Common Stock concurrently with or immediately following the consummation of the initial Business Combination on a
one-for-one basis, subject to adjustment for stock splits, stock dividends, reorganizations, recapitalizations and the like, and subject
to further adjustment as provided herein. In the case that additional shares of Class A Common Stock or equity-linked securities are issued
or deemed issued in connection with the initial Business Combination, the number of shares of Class A Common Stock issuable upon conversion
of all Founder Shares will equal, in the aggregate, on an as-converted basis, 20% of the total number of shares of Class A Common Stock
outstanding after such conversion (after giving effect to any redemptions of shares of Class A Common Stock by Public Stockholders), including
the total number of shares of Class A Common Stock issued, or deemed issued or issuable upon conversion or exercise of any equity-linked
securities or rights issued or deemed issued, by the Company in connection with or in relation to the consummation of the initial Business
Combination (including any Forward Purchase Shares), excluding any shares of Class A Common Stock or equity-linked securities or rights
exercisable for or convertible into shares of Class A Common Stock issued, or to be issued, to any seller in the initial Business Combination
and any Private Placement Warrants issued to the Sponsor, officers or directors upon conversion of Working Capital Loans; provided that
such conversion of Founder Shares will never occur on a less than one-for-one basis.
Note 9 - Derivative Warrant Liabilities
As of September 30, 2021, there were 11,040,000
and 8,693,333 Public Warrants and Private Placement Warrants outstanding, respectively.
Each whole Public Warrant will entitle the holder
to purchase one share of Class A Common Stock at a price of $11.50 per share, subject to adjustment as discussed herein. In addition,
if (x) the Company issue additional shares of Class A Common Stock or equity-linked securities for capital raising purposes in connection
with the closing of the initial Business Combination (excluding any issuance of Forward Purchase Shares) at an issue price or effective
issue price of less than $9.20 per share of Class A Common Stock (with such issue price or effective issue price to be determined in good
faith by the Company’s board of directors and, in the case of any such issuance to the initial stockholders or their affiliates,
without taking into account any Founder Shares held by the initial stockholders or such affiliates, as applicable, prior to such issuance),
(the “Newly Issued Price”) (y) the aggregate gross proceeds from such issuances represent more than 60% of the total equity
proceeds, and interest thereon, available for the funding of the initial Business Combination on the date of the consummation of the initial
Business Combination (net of redemptions), and (z) the volume weighted average trading price of the Company’s Class A Common Stock
during the 20 trading day period starting on the trading day prior to the day on which the Company consummates its initial Business Combination
(such price, the “Market Value”) is below $9.20 per share, the exercise price of the warrants will be adjusted (to the nearest
cent) to be equal to 115% of the higher of the Market Value and the Newly Issued Price, and the $18.00 per share redemption trigger price
described under “- Redemption of warrants when the price per share of Class A Common Stock equals or exceeds $18.00” and under
“- Redemption of warrants when the price per share of Class A Common Stock equals or exceeds $10.00” will be adjusted (to
the nearest cent) to be equal to 180% of the higher of the Market Value and the Newly Issued Price, and the $10.00 per share redemption
trigger price described under “- Redemption of warrants when the price per share of Class A Common Stock equals or exceeds $10.00”
will be adjusted (to the nearest cent) to be equal to the higher of the Market Value and the Newly Issued Price.
The warrants will become exercisable 30 days after
the completion of its initial Business Combination and will expire five years after the completion of the Company’s initial Business
Combination, or earlier upon redemption or liquidation.
CM LIFE SCIENCES III INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
The Company agreed that
as soon as practicable, but in no event later than fifteen (15) business days after the closing of the initial Business Combination, it
will use its best efforts to file with the SEC a registration statement for the registration, under the Securities Act, of the Class A
Common Stock issuable upon exercise of the warrants.
The Company will use its best efforts to cause
the same to become effective and to maintain the effectiveness of such registration statement, and a current prospectus relating thereto,
until the expiration of the warrants in accordance with the provisions of the warrant agreement. If a registration statement covering
the Class A Common Stock issuable upon exercise of the warrants is not effective by the sixtieth (60th) business day after
the closing of the initial Business Combination, warrant holders may, until such time as there is an effective registration statement
and during any period when the Company will have failed to maintain an effective registration statement, exercise warrants on a “cashless
basis” in accordance with Section 3(a)(9) of the Securities Act or another exemption. Notwithstanding the above, if the Company’s
Class A Common Stock are at the time of any exercise of a warrant not listed on a national securities exchange such that they satisfy
the definition of a “covered security” under Section 18(b)(1) of the Securities Act, the Company may, at its option, require
holders of public warrants who exercise their warrants to do so on a “cashless basis” in accordance with Section 3(a)(9) of
the Securities Act and, in the event the Company so elect, it will not be required to file or maintain in effect a registration statement,
and in the event the Company does not so elect, it will use its best efforts to register or qualify the shares under applicable blue sky
laws to the extent an exemption is not available.
Redemption of warrants when the price per share
of Class A Common Stock equals or exceeds $18.00.
Once the warrants become
exercisable, the Company may redeem the outstanding warrants (except as described herein with respect to the Private Placement Warrants):
|
●
|
in whole and not in part;
|
|
●
|
at a price of $0.01 per warrant;
|
|
●
|
upon a minimum of 30 days’ prior written notice of redemption to each warrant holder (the “30-day redemption period”); and
|
|
●
|
if, and only if, the closing price of the Class A Common Stock equals or exceeds $18.00 per share (as adjusted) for any 20 trading days within a 30-trading day period ending three business days before the Company sends to the notice of redemption to the warrant holders.
|
Redemption of warrants when the price per share
of Class A Common Stock equals or exceeds $10.00.
Once the warrants become exercisable, the Company
may redeem the outstanding warrants:
|
●
|
in whole and not in part;
|
|
●
|
at $0.10 per warrant upon a minimum of 30 days’ prior written notice of redemption provided that holders will be able to exercise their warrants on a cashless basis prior to redemption and receive that number of shares, based on the redemption date and the “fair market value” (as defined below) of the Company’s Class A Common Stock except as otherwise described below;
|
|
●
|
if, and only if, the closing price of the Company’s Class A Common Stock equals or exceeds $10.00 per Public Share (as adjusted) for any 20 trading days within the 30-trading day period ending three trading days before the Company sends the notice of redemption to the warrant holders; and
|
|
●
|
if the closing price of the Class A Common Stock for any 20 trading days within a 30-trading day period ending three trading days before the Company sends notice of redemption to the warrant holders is less than $18.00 per share (as adjusted), the Private Placement Warrants must also be concurrently called for redemption on the same terms as the outstanding public warrants, as described above.
|
The “fair market value” of the Company’s
Class A Common Stock shall mean the volume weighted average price of the Company’s Class A Common Stock during the 10 trading days
immediately following the date on which the notice of redemption is sent to the holders of warrants. The Company will provide its warrant
holders with the final fair market value no later than one business day after the 10 trading day period described above ends. In no event
will the warrants be exercisable in connection with this redemption feature for more than 0.361 shares of Class A Common Stock per warrant
(subject to adjustment).
CM LIFE SCIENCES III INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
The Company will account for the 19,733,333 warrants
issued in accordance with the guidance contained in ASC 815-40. Such guidance provides that because the warrants do not meet the criteria
for equity treatment thereunder, each warrant must be recorded as a liability due to the existence of provisions whereby adjustments to
the exercise price of the warrants is based on a variable that is not an input to the fair value of a ’‘fixed-for-fixed’’
option and the existence of the potential for net cash settlement for the warrant holders (but not all common stockholders) in the event
of a tender offer.
The accounting treatment of derivative financial
instruments requires that the Company record a derivative liability upon the closing of the Initial Public Offering. Accordingly, the
Company will classify each warrant as a liability at its fair value and the warrants will be allocated a portion of the proceeds from
the issuance of the Units equal to its fair value determined by the Monte Carlo simulation and Black-Scholes model. This liability will
be subject to re-measurement at each balance sheet date. With each such re-measurement, the warrant liability will be adjusted to fair
value, with the change in fair value recognized in the Company’s statement of operations. The Company will reassess the classification
at each balance sheet date. If the classification changes as a result of events during the period, the warrants will be reclassified as
of the date of the event that causes the reclassification.
Note 10 - Fair Value Measurements
The following table presents information about
the Company’s financial assets and liabilities that are measured at fair value on a recurring basis as of September 30, 2021 and
indicates the fair value hierarchy of the valuation techniques that the Company utilized to determine such fair value:
Description
|
|
Quoted Prices in Active
Markets
(Level 1)
|
|
|
Significant Other
Observable Inputs
(Level 2)
|
|
|
Significant Other
Unobservable Inputs
(Level 3)
|
|
Assets: Investments in Trust Account
|
|
|
|
|
|
|
|
|
|
U.S. Treasury securities
|
|
$
|
552,015,433
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Derivative Warrant Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Public Warrants
|
|
$
|
23,625,600
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Private Placement Warrants
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
29,296,532
|
|
Transfers to/from Levels 1, 2, and 3 are recognized
at the beginning of the reporting period. The estimated fair value of Public Warrants was transferred from a Level 3 fair value measurement
to a Level 1 measurement, when the Public Warrants were separately listed and traded in May 2021. There were no other transfers to/from
Levels 1, 2, and 3 during the period from January 25, 2021 (inception) through September 30, 2021.
Level 1 instruments include investments in U.S
Treasury Securities invested in U.S. government securities and, as of September 30, 2021, the Public Warrants. The Company uses inputs
such as actual trade data, benchmark yields, quoted market prices from dealers or brokers, and other similar sources to determine the
fair value of its investments. The fair value of the Public Warrants as of September 30, 2021 is measured utilizing the listed trading
price.
The Company utilizes a Black-Scholes option pricing
model to estimate the fair value of the Private Placement Warrants at each reporting period. The Company recognized a loss of approximately
$15,213,000 for the derivative warrant liabilities upon their issuance on April 9, 2021. The Sponsor paid an aggregate of $13,040,000
for Private Placement Warrants with an initial aggregate fair value of approximately $28,253,000.
CM LIFE SCIENCES III INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
The estimated fair value of the Private Placement
Warrants is determined using Level 3 inputs. Inherent in a Black-Scholes option pricing model are assumptions related to expected stock-price
volatility, expected life, risk-free interest rate and dividend yield. The Company estimates the volatility of its common stock based
on historical volatility of select peer companies that matches the expected remaining life of the warrants. The risk-free interest rate
is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected remaining life of the warrants.
The expected life of the warrants is assumed to be equivalent to their remaining contractual term. The dividend rate is based on the historical
rate, which the Company anticipates remaining at zero. Any changes in these assumptions can change the valuation significantly.
The following tables provide quantitative information
regarding Level 3 fair value measurements inputs as their measurement dates:
|
|
As of
June 30,
2021
|
|
|
As of
September 30,
2021
|
|
Exercise price
|
|
$
|
11.50
|
|
|
$
|
11.50
|
|
Unit price
|
|
$
|
10.00
|
|
|
$
|
9.92
|
|
Volatility
|
|
|
23.7% - 41.0%
|
|
|
|
29.8% - 42.0%
|
|
Term (years)
|
|
|
5.98
|
|
|
|
5.25
|
|
Risk-free rate
|
|
|
1.09
|
%
|
|
|
1.02
|
%
|
Dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
The activity of derivative warrant liabilities,
classified as Level 3, for the period from January 25, 2021 (inception) through September 30, 2021 is summarized as follows:
Derivative warrant liabilities at January 25, 2021 (inception)
|
|
$
|
-
|
|
Derivative warrant liabilities at March 31, 2021
|
|
|
-
|
|
Issuance of Public and Private Warrants
|
|
|
46,248,532
|
|
Transfer of Public Warrants to Level 1
|
|
|
(17,995,200
|
)
|
Change in fair value of warrant liabilites
|
|
|
4,868,267
|
|
Derivative warrant liabilities at June 30, 2021
|
|
|
33,121,599
|
|
Change in fair value of warrant liabilites
|
|
|
(3,825,067
|
)
|
Derivative warrant liabilities at September 30, 2021
|
|
$
|
29,296,532
|
|
Note 11 - Subsequent Events
The Company evaluated subsequent events and transactions
that occurred up to the date the condensed consolidated financial statements were issued. Based upon this review, the Company did not
identify any subsequent events that would have required adjustment or disclosure in the condensed consolidated financial statements.