NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Note
1 — Description of Organization and Business Operations
FS
Development Corp. II (the “Company”) is a blank check company incorporated in Delaware on August 21, 2020. The Company was
formed 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 an emerging growth company and, as such,
the Company is subject to all of the risks associated with emerging growth companies.
As
of June 30, 2021, the Company had not commenced any operations. All activity for the period from August 21, 2020 (inception) through
June 30, 2021 relates to the Company’s formation and 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 (as defined below). The
Company has selected December 31 as its fiscal year end.
The Company’s sponsor is FS Development
Holdings II, LLC, a Delaware limited liability company (the “Sponsor”). The registration statements for the Company’s
Initial Public Offering became effective on February 16, 2021. On February 19, 2021, the Company consummated its Initial Public Offering
of 20,125,000 shares of Class A common stock, par value $0.0001 per share (“Class A Common Stock”) including the issuance
of 2,625,000 shares of Class A Common Stock as a result of the underwriter’s exercise in full of its over-allotment option, (each,
a “Public Share” and collectively, the “Public Shares”) at $10.00 per share, generating gross proceeds of approximately
$201.3 million, and incurring offering costs of approximately $11.5 million, of which approximately $7.0 million was for deferred underwriting
commissions (see Note 5).
Simultaneously with the closing of the Initial
Public Offering, the Company consummated the private placement (the “Private Placement”) of 602,500 shares of Class A Common
Stock (each, a “Private Placement Share” and collectively, the “Private Placement Shares”), at a price of $10.00
per Private Placement Share to the Sponsor, generating proceeds of approximately $6.0 million (see Note 4).
Upon the closing of the Initial Public Offering
and the Private Placement, approximately $201.3 million ($10.00 per share of Class A Common Stock) of the net proceeds of the sale of
the Public Shares in the Initial Public Offering and of the Private Placement Shares in the Private Placement were placed in a trust account
(“Trust Account”) located in the United States, with Continental Stock Transfer & Trust Company acting as trustee, and
are invested only in U.S. “government securities” within the meaning of Section 2(a)(16) of 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 of 1940, as amended (the “Investment Company Act”), which will be invested only in direct U.S. government treasury obligations,
as determined by the Company, until the earlier of: (i) the completion of a Business Combination and (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 Shares, although substantially all of the net proceeds are intended to be applied generally toward
consummating a Business Combination. There is no assurance that the Company will be able to complete a Business Combination successfully.
The Company must complete one or more initial Business Combinations having an aggregate fair market value of at least 80% of the net
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 the agreement to enter into 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 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 of 1940, as amended (the “Investment Company Act”).
FS DEVELOPMENT CORP. II
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
The
Company will provide the holders (the “Public Stockholders”) of the Public Shares upon the completion of a Business Combination
either (i) in connection with a stockholder meeting called to approve the Business Combination or (ii) by means of a tender offer. The
decision as to whether the Company will seek stockholder approval of a Business Combination or conduct a tender offer will be made by
the Company, solely in its discretion. The Public Stockholders will be entitled to redeem their Public Shares for a pro rata portion
of the amount then held in the Trust Account (initially anticipated to be $10.00 per Public Share). The per-share amount to be distributed
to Public Stockholders who redeem their Public Shares will not be reduced by the deferred underwriting commissions the Company will pay
to the underwriter (as discussed in Note 5). These Public Shares will be recorded at a redemption value and classified as temporary
equity upon the completion of the Initial Public Offering in accordance with the Financial Accounting Standards Board’s (“FASB”)
Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” The Company will
proceed with a Business Combination if a majority of the shares voted are voted in favor of the Business Combination. The Company will
not redeem the Public Shares in an amount that would cause its net tangible assets to be less than $5,000,001. If a stockholder vote
is not required by law and the Company does not decide to hold a stockholder vote for business or other legal reasons, the Company will,
pursuant to its Amended and Restated Certificate of Incorporation (the “Certificate of Incorporation”), conduct the redemptions
pursuant to the tender offer rules of the U.S. Securities and Exchange Commission (“SEC”) and file tender offer documents
with the SEC prior to completing a Business Combination. If, however, stockholder approval of the transaction is required by law, or
the Company decides to obtain stockholder approval for business or legal reasons, the Company will offer to redeem shares in conjunction
with a proxy solicitation pursuant to the proxy rules and not pursuant to the tender offer rules. Additionally, each public stockholder
may elect to redeem their Public Shares irrespective of whether they vote for or against the proposed transaction. If the Company seeks
stockholder approval in connection with a Business Combination, the Initial Stockholders (as defined below) agreed to vote their Founder
Shares (as defined below in Note 4), their Private Placement Shares and any Public Shares purchased during or after the Initial Public
Offering in favor of a Business Combination. In addition, the Initial Stockholders agreed to waive their redemption rights with respect
to their Founder Shares, their Private Placement Shares and Public Shares in connection with the completion of a Business Combination.
The
Certificate of Incorporation provides that a Public Stockholder, together with any affiliate of such stockholder or any other person
with whom such stockholder is acting in concert or as a “group” (as defined under Section 13 of the Securities Exchange Act
of 1934, as amended (the “Exchange Act”)), will be restricted from redeeming its shares with respect to more than an aggregate
of 20% of the Public Shares, without the prior consent of the Company.
The
Sponsor and the Company’s officers and directors (the “Initial Stockholders”) agreed not to propose an amendment to
the Certificate of Incorporation to modify the substance or timing of the Company’s obligation to redeem 100% of the Public Shares
if the Company does not complete a Business Combination within the Combination Period (as defined below) or with respect to any other
material provisions relating to stockholders’ rights or pre-initial Business Combination activity, unless the Company provides
the Public Stockholders with the opportunity to redeem their Public Shares in conjunction with any such amendment.
If
the Company is unable to complete a Business Combination within 24 months from the closing of the Initial Public Offering, or February
19, 2023, or during any extended period of time that the Company may have to consummate a Business Combination as a result of an amendment
to the Certificate of Incorporation (the “Combination Period”), the Company will (i) cease all operations except for the
purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the Public Shares,
at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned
on the funds held in the Trust Account and not previously released to the Company to pay its 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 remaining stockholders and the 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.
FS DEVELOPMENT CORP. II
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
The
Initial Stockholders agreed to waive their rights to liquidating distributions from the Trust Account with respect to the Founder Shares
and Private Placement Shares if the Company fails to complete a Business Combination within the Combination Period. However, if the Initial
Stockholders acquire Public Shares in or after the Initial Public Offering, they will be entitled to liquidating distributions from the
Trust Account with respect to such Public Shares if the Company fails to complete a Business Combination within the Combination Period.
The underwriter has agreed to waive its rights to the deferred underwriting commission (see Note 5) held in the Trust Account in the
event the Company does not complete a Business Combination within the Combination Period and, in such event, such amounts will be included
with the other funds held in the Trust Account that will be available to fund the redemption of the Public Shares. In the event of such
distribution, it is possible that the per share value of the residual assets remaining available for distribution (including Trust Account
assets) will be only $10.00. In order to protect the amounts held in the Trust Account, the Sponsor agreed to be liable to the Company
if and to the extent any claims by a third party (except for the Company’s independent registered public accounting firm) for services
rendered or products sold to the Company, or a prospective target business with which the Company has entered into a letter of intent,
confidentiality or other similar agreement or business combination agreement (a “Target”), 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 Public 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 Target that 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 underwriter of the Initial Public Offering against certain liabilities, including liabilities
under the Securities Act of 1933, as amended (the “Securities Act”). The Company will seek to reduce the possibility that
the Sponsor will have to indemnify the Trust Account due to claims of creditors by endeavoring to have all vendors, service providers,
prospective target businesses or other entities with which the Company does business, execute agreements with the Company waiving any
right, title, interest or claim of any kind in or to monies held in the Trust Account.
Liquidity
and Capital Resources
As
of June 30, 2021, the Company had approximately $353,000 in cash, and working capital deficit of approximately $0.7 million.
The
Company’s liquidity needs prior to the consummation of the Initial Public Offering were satisfied through the payment of
$25,000 from the Sponsor to cover certain offering costs on behalf of the Company in exchange for issuance of Founder Shares (as
defined in Note 4), and loan proceeds from the Sponsor of approximately $200,000 under the Note (see Note 4). The Company repaid the
Note in full on February 19, 2021. Subsequent to 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, the Sponsor or
an affiliate of the Sponsor, or certain of the Company’s officers and directors may, but are not obligated to, provide the
Company Working Capital Loans (as defined in Note 4). As of June 30, 2021, there were no amounts outstanding under any Working
Capital Loans.
Based
on the foregoing, management believes that the Company will have sufficient working capital and borrowing capacity to meet its 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 financial statements are presented in U.S. dollars in conformity with accounting principles generally
accepted in the United States of America (“GAAP”) for financial information 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, the unaudited
condensed financial statements reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement
of the balances and results for the periods presented. Operating results for the three and six months ended June 30, 2021 are not necessarily
indicative of the results that may be expected through December 31, 2021 or any future periods.
The
accompanying unaudited condensed financial statements should be read in conjunction with the audited financial statements and notes thereto
included in the Form 8-K and the prospectus filed by the Company with the SEC on February 25, 2021 and February 18, 2021, respectively.
FS DEVELOPMENT CORP. II
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Emerging
Growth Company
The
Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our
Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements
that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required
to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, 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 an emerging growth 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 an 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 unaudited condensed financial statements
with another public company that is neither an emerging growth company nor an emerging growth company that has opted out of using the
extended transition period difficult or impossible because of the potential differences in accounting standards used.
Proposed
Business Combination and Related Transaction
On
June 29, 2021, the Company entered into an agreement and plan of merger (the “Merger Agreement”) by and among the Company,
Orchard Merger Sub, Inc., a Delaware corporation (“Merger Sub”), Pardes Biosciences, Inc., a Delaware corporation (“Pardes”)
and Shareholder Representative Services LLC, solely in its capacity as the representative, agent and attorney-in-fact of the securityholders
of Pardes (in such capacity, the “Stockholders’ Representative”). The Merger Agreement provides, among other things,
that on the terms and subject to the conditions set forth therein, Merger Sub will merge with and into Pardes, with Pardes surviving
as a wholly-owned subsidiary of the Company (the “Merger”). Upon the closing of the Merger (the “Closing”), it
is anticipated that the Company will change its name to “Pardes Biosciences, Inc.” and is referred to herein as “New
Pardes” as of the time following such change of name. The date on which the Closing actually occurs is hereinafter referred to
as the “Closing Date.”
Consideration
and Structure
Under the Merger Agreement, the Company has agreed
to acquire all of the outstanding equity interests of Pardes in exchange for 32,500,000 shares of Class A Common Stock, to be paid at
the effective time of the Merger.
Pursuant to the Merger Agreement, at or prior
to the effective time of the Merger, each option exercisable for Pardes equity that is outstanding immediately prior to the effective
time of the Merger shall be assumed by the Company and continue in full force and effect on the same terms and conditions as are currently
applicable to such options, subject to adjustments to exercise price and number of shares of Class A Common Stock issued upon exercise.
Representations,
Warranties and Covenants
The
parties to the Merger Agreement have agreed to customary representations and warranties for transactions of this type. The representations
and warranties of Pardes made under the Merger Agreement will not survive the Closing. In addition, the parties to the Merger Agreement
agreed to be bound by certain customary covenants for transactions of this type, including, among others, covenants with respect to the
conduct of Pardes, the Company and their respective subsidiaries during the period between execution of the Merger Agreement and the
Closing. The covenants made under the Merger Agreement will not survive the Closing. Each of the parties to the Merger Agreement has
agreed to use its reasonable best efforts to cause all actions and things necessary to consummate and expeditiously implement the Merger.
FS DEVELOPMENT CORP. II
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Conditions
to Closing
Under the Merger Agreement, the obligations of the parties to consummate
the Merger are subject to the satisfaction or waiver of certain customary closing conditions of the respective parties, including, without
limitation: (i) the approval and adoption of the Merger Agreement and transactions contemplated thereby by requisite vote of the Company’s
stockholders (the “Company Stockholder Approval”) and Pardes’ stockholders (the “Pardes Stockholder Approval”);
(ii) the receipt of consents or approvals from the applicable governmental, regulatory or administrative authorities; (iii) the aggregate
cash proceeds from Company’s trust account, together with the proceeds from the Subscriptions (as defined below), equaling no less
than $100,000,000 (after deducting any amounts paid to Company stockholders that exercise their redemption rights in connection with the
Merger and net of the Company’s unpaid liabilities), (iv) (A) the representations and warranties of the Company, Pardes and Merger
Sub contained in the Merger Agreement (other than each party’s respective Fundamental Representations, as defined in the Merger
Agreement) being true and correct as of the date of the Merger Agreement and as of the Closing Date, except for any failure to be true
and correct that would not have or reasonably be expected to have a Material Adverse Effect (as defined in the Merger Agreement) and (B)
each party’s respective Fundamental Representations being true and correct as of the date of the Merger Agreement and as of the
Closing Date, except for de minimis inaccuracies; (v) the absence of a Material Adverse Effect since the date of the Merger Agreement;
(vi) the Company has not redeemed the Class A Common Stock of the Company in an amount that would cause the Company to have net tangible
assets of less than $5,000,001; and (vii) the Company’s initial listing application with Nasdaq in connection with the Merger has
been conditionally approved and, immediately following the effective time of the Merger, the Company has satisfied any applicable initial
and continuing listing requirements of Nasdaq, and the Company has not received any notice of non-compliance therewith, and the shares
of the Company’s Class A Common Stock has been approved for listing on Nasdaq.
Use
of Estimates
The
preparation of financial statements in conformity with GAAP requires the Company’s 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 June 30, 2021 and December 31, 2020.
Investments
Held in the 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 statement of operations. The estimated fair values of investments held in the Trust Account are
determined using available market information.
FS DEVELOPMENT CORP. II
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
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 Depository Insurance Corporation coverage limit of $250,000. As of June 30, 2021 and December
31, 2020, the Company had not experienced losses on these accounts and management believes the Company is not exposed to significant
risks on such accounts.
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 include:
|
●
|
Level
1, defined as observable inputs such as quoted prices (unadjusted) for identical instruments in active markets;
|
|
●
|
Level
2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted
prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active;
and
|
|
●
|
Level
3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions,
such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.
|
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.
As
of June 30, 2021, the carrying values of cash, accounts payable and accrued expenses approximate their fair values due to the short-term
nature of the instruments.
Offering
Costs Associated with the Initial Public Offering
Offering
costs consisted of legal, accounting, underwriting fees and other costs incurred through the Initial Public Offering that were charged
to stockholders’ equity 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.
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 480. Class A Common Stock subject to mandatory redemption (if any) are classified as
liability instruments and are measured at fair value. Conditionally redeemable Class A Common Stock (including shares of Class A Common
Stock that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of
uncertain events not solely within the Company’s control) are classified as temporary equity. At all other times, Class A Common
Stock are 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 occurrence of uncertain future events. Accordingly, as of June
30, 2021, 18,850,938 shares of Class A Common Stock subject to possible redemption at the redemption amount were presented at redemption
value as temporary equity, outside of the stockholders’ equity section of the Company’s condensed balance sheets. As of December
31, 2020, there were no shares of Class A Common Stock subject to possible redemption.
FS DEVELOPMENT CORP. II
NOTES TO UNAUDITED CONDENSED 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. Deferred tax assets were deemed immaterial as of June 30, 2021 and December 31, 2020.
FASB
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 June 30, 2021 or December 31,
2020. 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 June 30, 2021 and December 31, 2020. 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’s condensed statements of operations include a presentation
of net income (loss) per share for Class A Common Stock subject to possible redemption in a manner similar to the two-class method of
net income (loss) per common stock. Net income (loss) per common stock, basic and diluted, for redeemable Class A Common Stock is calculated
by dividing the interest income earned on the Trust Account, less interest available to be withdrawn for the payment of taxes, by the
weighted average number of redeemable Class A Common Stock outstanding for the periods. Net income (loss) per common stock, basic and
diluted, for non-redeemable Class A and Class B common stock is calculated by dividing the net income (loss), adjusted for income attributable
to redeemable Class A common stock, by the weighted average number of non-redeemable Class A and Class B common stock outstanding for
the periods. Non-redeemable shares of Class A Common Stock are Private Placement Shares held by the Sponsor and non-redeemable shares
of Class B common stock include the Founder Shares as these common stocks do not have any redemption features and do not participate in
the income earned on the Trust Account.
The
following table reflects the calculation of basic and diluted net income (loss) per share of common stock:
|
|
For the Three Months
Ended
June 30,
2021
|
|
|
For the Six Months
Ended
June 30,
2021
|
|
|
|
|
|
|
|
|
Redeemable Class A common stock
|
|
|
|
|
|
|
Numerator: Income allocable to redeemable Class A common stock
|
|
|
|
|
|
|
|
|
Income from investments held in Trust Account
|
|
$
|
6,782
|
|
|
$
|
7,113
|
|
Less: Company’s portion available to be withdrawn to pay taxes
|
|
|
(6,782
|
)
|
|
|
(7,113
|
)
|
Net income attributable to redeemable Class A common stock
|
|
$
|
-
|
|
|
$
|
-
|
|
Denominator: Weighted average redeemable Class A common stock
|
|
|
|
|
|
|
|
|
Basic and diluted weighted average shares outstanding, redeemable Class A common stock
|
|
|
20,125,000
|
|
|
|
20,125,000
|
|
Basic and diluted net income per share, redeemable Class A common stock
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
Non-redeemable Class A and Class B common stock
|
|
|
|
|
|
|
|
|
Numerator: Net income (loss) minus net income allocable to redeemable Class A common stock
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(2,165,912
|
)
|
|
$
|
(2,334,105
|
)
|
Net income allocable to redeemable Class A common stock
|
|
|
-
|
|
|
|
-
|
|
Net income (loss) attributable to non-redeemable Class A and Class B common stock
|
|
$
|
(2,165,912
|
)
|
|
$
|
(2,334,105
|
)
|
Denominator: weighted average non-redeemable Class A and Class B common stock
|
|
|
|
|
|
|
|
|
Basic and diluted weighted average shares outstanding, non-redeemable Class A and Class B common stock
|
|
|
5,633,750
|
|
|
|
5,299,938
|
|
Basic and diluted net loss per share, non-redeemable Class A and Class B common stock
|
|
$
|
(0.38
|
)
|
|
$
|
(0.44
|
)
|
FS DEVELOPMENT CORP. II
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Recent
Accounting Pronouncements
Management
does not believe that any recently issued, but not yet effective, accounting standards if currently adopted would have a material effect
on the accompanying unaudited condensed financial statements.
Note
3 — Initial Public Offering
On
February 19, 2021, the Company consummated its Initial Public Offering of 20,125,000 Public Shares, including the issuance of 2,625,000
shares as a result of the underwriter’s exercise in full of its over-allotment option, at $10.00 per share, generating gross proceeds
of approximately $201.3 million, and incurring offering costs of approximately $11.5 million, of which approximately $7.0 million was
for deferred underwriting commissions.
Note
4 — Related Party Transactions
Founder
Shares and Private Placement Shares
On August 26, 2020, the Sponsor paid $25,000 to cover certain offering
costs on behalf of the Company in consideration of 2,875,000 shares (the “Founder Shares”) of the Company’s Class B
common stock, par value $0.0001 per share (“Class B Common Stock”). On January 22, 2021, the Sponsor transferred 30,000 Founder
Shares to each of Dr. Dubin, Mr. Hughes and Dr. Pakianathan, at their original per-share purchase price, for an aggregate of 90,000 Founder
Shares transferred. On February 5, 2021, the Company effected a 1:1½ stock split of the Class B Common Stock and on February 16,
2021, the Company effected a 1:11/6 stock split of the Class B Common Stock, resulting in the Sponsor holding an
aggregate of 4,941,250 Founder Shares and there being an aggregate of 5,031,250 Founder Shares outstanding. The Sponsor agreed to forfeit
up to 656,250 Founder Shares to the extent that the over-allotment option was not exercised in full by the underwriter, so that the Founder
Shares would represent 20.0% of the Company’s issued and outstanding shares of common stock after the Initial Public Offering (excluding
the Private Placement Shares). On February 19, 2021, the underwriter exercised its over-allotment option; thus, these 656,250 Founder
Shares are no longer subject to forfeiture.
Simultaneously
with the closing of the Initial Public Offering, the Company consummated the Private Placement of 602,500 Private Placement Shares, at
a price of $10.00 per Private Placement Share to the Sponsor, generating proceeds of approximately $6.0 million.
The Initial Stockholders agreed, subject to limited exceptions, not
to transfer, assign or sell any of the Founder Shares until the earlier to occur of: (i) one year after the completion of the initial
Business Combination and (ii) the date following the completion of the initial Business Combination on which the Company completes a liquidation,
merger, capital stock exchange or other similar transaction that results in all of the stockholders having the right to exchange their
common stock for cash, securities or other property and the Sponsor agreed not to transfer, assign or sell any of its Private Placement
Shares until 30 days after the completion of the initial Business Combination. Notwithstanding the foregoing, if the closing price of
the 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,
the Founder Shares will be released from the lockup.
Related
Party Loans
On
August 26, 2020, the Sponsor agreed to loan the Company an aggregate of up to $200,000 to cover expenses related to the Initial Public
Offering pursuant to a promissory note, as amended (the “Note”). This loan was non-interest bearing and payable upon the
completion of the Initial Public Offering. The Company borrowed $200,000 under the Note and fully repaid it on February 19, 2021.
In addition, in order to finance transaction costs
in connection with a 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 a Business Combination, the Company would repay the Working Capital Loans out of the proceeds of the Trust Account released
to the Company. Otherwise, the Working Capital Loans would be repaid only out of funds held outside the Trust Account. In the event that
a Business Combination does not close, the Company may use a portion of proceeds held outside the Trust Account to repay the Working
Capital Loans but no proceeds held in the Trust Account would be used to repay the Working Capital Loans. The Working Capital Loans would
either be repaid upon consummation of a Business Combination or, at the lenders’ discretion, up to $1.5 million of such Working
Capital Loans may be convertible into shares of Class A Common Stock of the post-Business Combination entity at a price of $10.00 per
share. Except for the foregoing, the terms of such Working Capital Loans, if any, have not been determined and no written agreements
exist with respect to such loans. As of June 30, 2021 and December 31, 2020, the Company had no borrowings under the Working Capital
Loans.
Subscription Agreement
In connection with the proposed business combination,
the Company entered in a subscription agreement with two related parties, each subscribing to purchase shares of Class A Common Stock
in the amount of $5,000,000 ($10,000,000 in aggregate) at the closing date of the proposed business combination.
FS DEVELOPMENT CORP. II
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Administrative Services Agreement
Commencing on the date that the Company’s
securities were first listed on Nasdaq and continuing until the earlier of the Company’s consummation of a Business Combination
and the Company’s liquidation, the Company agreed to pay the Sponsor, or an affiliate a total of $10,000 per month for office space,
secretarial and administrative services provided to members of the Company’s management team. The Company incurred approximately
$30,000 and $40,000 in administrative expenses under the agreement, which is recognized in the accompanying unaudited condensed statements
of operations for the three and six months ended June 30, 2021, respectively, within general and administrative expense – related
party. As of June 30, 2021 and December 31, 2020, there was no outstanding balance in accounts payable with related party, as reflected
in the accompanying condensed balance sheets.
The Sponsor, officers and directors, or any of
their respective affiliates will be reimbursed for any out-of-pocket expenses incurred in connection with activities on the Company’s
behalf such as identifying potential target businesses and performing due diligence on suitable Business Combinations. The Company’s
audit committee will review on a quarterly basis all payments that were made to the Sponsor, officers or directors, or their affiliates.
Note 5 — Commitments
and Contingencies
Registration Rights
The holders of Founder Shares, Private Placement
Shares, and shares of Class A Common Stock that may be issued upon conversion of Working Capital Loans, if any, are entitled to registration
rights pursuant to a registration rights agreement. The holders of these securities are entitled to make up to three demands, excluding
short form demands, that the Company register such securities. In addition, the holders have certain “piggy-back” registration
rights with respect to registration statements filed subsequent to the completion of 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 underwriter a 45-day option
from the date of the final prospectus relating to the Proposed Public Offering to purchase up to 2,625,000 additional shares of Class
A Common Stock to cover over-allotments, if any, at the Proposed Public Offering price, less underwriting discounts and commissions. The
underwriter exercised its over-allotment option in full on February 19, 2021.
The underwriter was entitled to an underwriting discount of $0.20 per
share, or approximately $4.0 million in the aggregate, paid upon the closing of the Initial Public Offering. In addition, $0.35 per share,
or approximately $7.0 million in the aggregate will be payable to the underwriter for deferred underwriting commissions. The deferred
fee will become payable to the underwriter from the amounts held in the Trust Account solely in the event that the Company completes a
Business Combination, subject to the terms of the underwriting agreement.
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 financial statement. The condensed financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Note 6 — Stockholders’
Equity
Preferred Stock— The Company
is authorized to issue 1,000,000 shares of preferred stock with a par value of $0.0001 per share. As of June 30, 2021 and December 31,
2020, there were no shares of preferred stock issued or outstanding.
Class A Common Stock—
The Company is authorized to issue 100,000,000 shares of Class A Common Stock with a par value of $0.0001 per share. As of June 30, 2021,
there were 1,876,562 shares of Class A Common Stock issued or outstanding, excluding 18,850,938 shares subject to possible redemption,
that were classified as temporary equity in the accompanying condensed balance sheets. As of December 31, 2020, there was no Class A
Common Stock issued or outstanding.
FS DEVELOPMENT CORP. II
NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS
Class B Common Stock — The
Company is authorized to issue 10,000,000 shares of Class B Common Stock with a par value of $0.0001 per share. As of June 30, 2021 and
December 31, 2020, there were 5,031,250 shares of Class B Common Stock issued and outstanding (see Note 4). Holders of record of Class
A Common Stock and Class B Common Stock will vote together as a single class on all matters submitted to a vote of the stockholders, with
each share of common stock entitling the holder to one vote except as required by law.
The 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 issued
and outstanding (excluding the Private Placement Shares) 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, 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 Shares 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 7 — Fair Value Measurements
The following table presents information about
the Company’s assets that are measured at fair value on a recurring basis as of June 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)
|
|
Investments held in Trust Account – money
market funds
|
|
$
|
201,257,113
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Transfers to/from Levels 1, 2, and 3 are recognized
at the beginning of the reporting period. There were no transfers between levels of the hierarchy for the three and six months ended
June 30, 2021. Level 1 instruments include investments in money market funds that invest solely in U.S. government securities with an
original maturity of 185 days or less.
Note 8 — Subsequent Events
The Company evaluated subsequent events and transactions
that occurred up to the date the condensed financial statements were available to be issued. Based upon this review, the Company determined
that there have been no events that have occurred that would require adjustments to the disclosures in the unaudited condensed financial
statements.