ALSP Orchid Acquisition Corp I - Quarter Report: 2023 June (Form 10-Q)

ALSP ORCHID ACQUISITION CORPORATION I

FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2023

TABLE OF CONTENTS

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

References to the “Company,” “ALSP Orchid Acquisition Corporation I” “our,” “us” or “we” refer to ALSP Orchid Acquisition Corporation I. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this Quarterly Report on Form 10-Q. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.

Cautionary Note Regarding Forward-Looking Statements

All statements other than statements of historical fact included in this Quarterly Report on Form 10-Q including, without limitation, statements regarding our financial position, business strategy and the plans and objectives of management for future operations, are forward looking statements. When used in this Quarterly Report on Form 10-Q, words such as “may,” “should,” “could,” “would,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “continue,” or the negative of such terms or other similar expressions, as they relate to us or our management, identify forward looking statements. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those described in our other SEC filings. Such forward looking statements are based on the beliefs of management, as well as assumptions made by, and information currently available to, our management. No assurance can be given that results in any forward-looking statement will be achieved and actual results could be affected by one or more factors, which could cause them to differ materially. The cautionary statements made in this Quarterly Report on Form 10-Q should be read as being applicable to all forward-looking statements whenever they appear in this Quarterly Report. For these statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors detailed in our filings with the SEC. All subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are qualified in their entirety by this paragraph.

Overview

ALSP Orchid Acquisition Corporation I is a blank check company incorporated on August 31, 2021, as a Cayman Islands exempted company for the purpose of effecting a merger, share exchange, asset acquisition, share purchase, reorganization, or similar business combination with one or more businesses or entities (“initial business combination”). The Company has generated no operating revenues to date and does not expect to generate operating revenues until we consummate our initial business combination. The Company’s sponsor is ALSP Orchid Sponsor LLC (“Sponsor”), a Delaware limited liability company, which is owned, in part, and controlled by Accelerator Life Sciences Partners II, LP an affiliate of our sponsor.

The registration statement for the Company’s initial public offering was declared effective by the United States Securities and Exchange Commission on November 18, 2021. On November 23, 2021, the Company consummated its initial public offering of 17,250,000 units at $10.00 per unit, generating gross proceeds of approximately $172.5 million (“Initial Public Offering”), and incurring offering costs of approximately $10.0 million, inclusive of approximately $6.0 million in deferred underwriting commissions. Each unit consists of one Class A ordinary share and one-half warrant to purchase one Class A ordinary share at an exercise price of $11.50.

Simultaneously with the closing of our Initial Public Offering, the Company consummated the private placement of 915,000 private placement units at a price of $10.00 per private placement unit to the sponsor (the “Private Placement”), generating gross proceeds of approximately $9.2 million. Each private placement unit is identical to the units sold in our Initial Public Offering, subject to certain limited exceptions.

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Upon the closing of our Initial Public Offering and Private Placement, approximately $176 million of the net proceeds of our Initial Public Offering and certain proceeds of the Private Placement were placed in a trust account, located in the United States, with Continental Stock Transfer & Trust Company acting as trustee (“Trust Account”). The funds in the Trust Account will be invested only in U.S. government treasury obligations with a maturity of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act which invest only in direct U.S. government treasury obligations (collectively “Permitted Investments”), until the earlier of: (i) the completion of an initial business combination or (ii) the distribution of the assets held in the Trust Account. Our management has broad discretion with respect to the specific application of the net proceeds of our Initial Public Offering and the Private Placement, although substantially all of the net proceeds are intended to be applied toward consummating an initial business combination.

On February 17, 2023, the Company held an Extraordinary General Meeting of its shareholders (the “Extension Meeting”) to vote on a number of proposals, including a proposal to amend the Company’s amended and restated memorandum and articles of association ( the “Initial Period Extension Amendment”) to extend the initial date by which the Company must consummate an initial business combination from February 23, 2023 to August 23, 2023, subject to any additional extensions as provided in the Company’s amended and restated memorandum and articles of association. The Initial Period Extension Amendment was approved by the Company’s shareholders at the Extension Meeting.

In connection with the extension meeting, public shareholders holding 15,253,673 Class A Ordinary Shares validly exercised their right to redeem their public shares for an aggregate redemption amount of approximately $157.7 million. As a result, the amount held in the Trust Account has been materially reduced.

If the Company is unable to complete an initial business combination within 21 months from the closing of the Initial Public Offering (the “Initial Period,” which may be extended in up to two separate instances by an additional three months each, for a total of up to 24 months or 27 months, as applicable (each period as so extended, an “Extension Period”), by depositing into the Trust Account for each three month extension in an amount of $0.10 per unit; provided that the Initial Period will automatically be extended to 24 months, and any Extended Period will automatically be extended to 27 or 30 months, as applicable (any such automatically extended period, the “Automatically Extended Period”), if the Company has filed (a) a Form 8-K including a definitive merger or acquisition agreement or (b) a proxy statement, registration statement or similar filing for an initial business combination but have not completed the initial business combination during the applicable period (any such Extended Period or Automatically Extended Period, an “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 our income 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 shareholders’ rights as shareholders (including the right to receive further liquidating distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of our remaining shareholders and our board of directors, proceed to commence a voluntary liquidation and thereby a formal dissolution of our Company, subject in each case to our obligations under Cayman Islands law to provide for claims of creditors and the requirements of other applicable law. There will be no redemption rights or liquidating distributions with respect to our warrants, which will expire worthless if we fail to consummate an initial business combination within 21 months (or during any Extension Period) from the close of our Initial Public Offering. The Company continues to pursue an initial business combination.

Liquidity and Capital Resources

As of June 30, 2023, the Company had a working capital deficit of $364,741 and at December 31, 2022 the Company had $454,784 in working capital. The Company had $107,991 and $211,306 in its operating bank account at June 30, 2023 and December 31, 2022, respectively.    

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Our liquidity needs up to June 30, 2023, have been satisfied through a contribution of $25,000 from our sponsor to cover certain expenses on our behalf in exchange for the issuance of Class B ordinary shares, (“the Founder Shares”), an advance of approximately $228,000 from an affiliate of our sponsor and the proceeds from the consummation of the Private Placement not held in the Trust Account. The Company fully repaid the advance to the related party on January 27, 2022. In addition, the Company issued an unsecured promissory note (the “Note”) in the principal amount of $350,000 to the Sponsor on April 28, 2023, which was funded in full by the Sponsor upon execution of the Note. The Note bears interest at a rate of 4.8% per annum, computed on the basis of a 365-day year, compounded semi-annually. The principal balance of the Note, and any accrued interest thereon, will be payable on the earliest to occur of (i) the date on which the Company consummates an initial business combination or (ii) the date that the winding up of the Company is effective (such date, the “Maturity Date”). The Note is subject to customary events of default, the occurrence of certain of which automatically triggers the unpaid principal balance of the Note, any accrued interest thereon and all other sums payable with regard to the Note becoming immediately due and payable.

On August 11, 2023, the Company issued a second unsecured promissory note (“Note 2”) in the principal amount of $350,000 to the Sponsor, which was funded in full by the Sponsor on August 11, 2023. The Note bears interest at a rate of 4.8% per annum, computed on the basis of a 365-day year, compounded semi-annually. The principal balance of the Note, and any accrued interest thereon, will be payable on the earliest to occur of (i) the date on which the Company consummates a Business Combination or (ii) the date that the winding up of the Company is effective (such date, the “Maturity Date”). The Note is subject to customary events of default, the occurrence of certain of which automatically triggers the unpaid principal balance of the Note, any accrued interest thereon and all other sums payable with regard to the Note becoming immediately due and payable.

In connection with the Company’s assessment of going concern considerations in accordance with Accounting Standards Codification 205-40, Presentation of Financial Statements - Going Concern, we have evaluated the Company’s liquidity and financial condition and determined that it is probable the Company will not be able to meet its obligations over the period of one year from the issuance date of the financial statements. While the Company plans to seek additional funding there is no guarantee the Company will be able to borrow such funds from its Sponsor, an affiliate of the Sponsor, or certain of the Company’s officers and directors, or consummate an initial business combination, in order to meet its obligations through the earlier of the consummation of an initial business combination or one year from this filing. We have determined that the uncertainty surrounding the Company’s liquidity condition raises substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Results of Operations

All activity since inception up to June 30, 2023, was in preparation for our formation, our Initial Public Offering and, since the closing of our Initial Public Offering, our activity has been limited to a search for initial business combination candidates. We will not be generating any operating revenues until the closing and completion of our initial business combination, at the earliest.

For the three and six months ended June 30, 2023, we had net income (loss) of ($6,291) and $741,980, respectively, which consisted of $206,234 and $699,525, respectively in general and administrative expenses, $60,000 and $120,000, respectively of related party administrative fees, offset by interest of income from our investments held in the Trust Account, net of applicable tax withholding, of $259,943 and $1,561,505, respectively.

Critical Accounting Policies

This management’s discussion and analysis of our financial condition and results of operations is based on our unaudited condensed financial statements, which have been prepared in accordance with GAAP. The preparation of our unaudited condensed financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in our

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unaudited condensed financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to fair value of financial instruments and accrued expenses. We base our estimates on historical experience, known trends and events and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We have identified the following as our critical accounting policies:

Investments Held in the Trust Account

Our portfolio of investments held in the trust account is comprised of U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act, with a maturity of 185 days or less, or investments in money market funds that invest in U.S. government securities, or a combination thereof. The investments held in the trust account are classified as trading securities, which are presented on the balance sheet at fair value at the end of each reporting period. Gains and losses resulting from the change in fair value of investments held in trust account are included in gain on marketable securities, dividends and interest held in trust account in the statement of operations. The estimated fair values of investments held in trust account are determined using available market information, other than for investments in open-ended money market funds with published daily net asset values (“NAV”), in which case the Company uses NAV as a practical expedient to fair value. The NAV on these investments is typically held constant at $1.00 per unit.

Class A Ordinary Shares Subject to Possible Redemption

All of the Class A ordinary shares sold as part of the Units in our Initial Public Offering contain a redemption feature which allows for the redemption of such shares in connection with the Company’s liquidation, if there is a shareholder vote or tender offer in connection with our initial business combination and in connection with certain amendments to the Company’s amended and restated memorandum and articles of association. In accordance with FASB ASC Topic 480 (“ASC 480”), conditionally redeemable Class A ordinary shares (including Class A ordinary shares 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. Ordinary liquidation events, which involve the redemption and liquidation of all of the entity’s equity instruments, are excluded from the provisions of ASC 480. Accordingly, as of June 30, 2023 and December 31, 2022, 1,996,327 and 17,250,000, respectively, Class A ordinary shares, representing the public shares, subject to possible redemption at the redemption amount were presented at redemption value as temporary equity, outside of the shareholders’ deficit section of the Company’s balance sheet.

Net Income (Loss) Per Share

The Company complies with accounting and disclosure requirements of FASB ASC Topic 260 (“ASC 260”), “Earnings Per Share.” Net loss per ordinary share is computed by dividing net loss by the weighted average number of ordinary shares outstanding during the period. The Company has not considered the effect of the warrants sold in our Initial Public Offering and Private Placement to purchase an aggregate of 9,082,500 shares of Class A ordinary shares in the calculation of diluted earnings per share, since their inclusion would be anti-dilutive under the treasury stock method.

In order to determine the net income (loss) attributable to both the redeemable Class A shares and the non-redeemable Class A and Class B shares (“Non-redeemable shares”), the Company first considered the total income (loss) allocable to both sets of shares, including the accretion of Class A redeemable shares to redemption value which represents the difference between the gross proceeds of the Initial Public Offering, net of offering costs, and the redemption value of the redeemable shares of $10.68 and $10.20 per share at June 30, 2023 and 2022, respectively.    Subsequent to calculating the total income (loss) allocable to both sets of shares, the Company split the amount to be allocated pro rata between redeemable Class A shares and non-redeemable shares for the three and six months ended June 30, 2023 and 2022, respectively, reflective of the respective participation rights.

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At June 30, 2023 and 2022, the Company did not have any dilutive securities and other contracts that could, potentially, be exercised or converted into ordinary shares and then participate in the earnings. As a result, diluted income per common share is the same as basic net income per common share for the period presented.

Warrants

The Company accounts for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in ASC 480 and FASB ASC Topic 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own ordinary shares, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly period end date while the warrants are outstanding. For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the warrants are recognized as a non-cash gain or loss on the statements of operations. The warrants issued in our Initial Public Offering and Private Placement are equity classified.

Recent Accounting Pronouncements

Management does not believe that any recently issued, but not yet effective, accounting pronouncements, if currently adopted, would have a material impact on the accompanying financial statements.

Off-Balance Sheet Arrangements

As of June 30, 2023, the Company did not have any off-balance sheet arrangements as defined in Item 303(a)(4)(ii) of Regulation S-K.

Contractual Obligations

Registration and Shareholder Rights

The holders of the Founder Shares, Private Placement Shares and warrants that may be issued upon conversion of working capital loans, if any, are entitled to registration rights pursuant to a registration rights agreement signed on the effective date of our Initial Public Offering. The holders of these securities are entitled to demand that the Company register such securities. In addition, the holders have certain registration rights which provides that the Company will not permit any registration statement filed under the Securities Act to become effective until termination of the applicable lock-up period, which occurs (i) in the case of the founder shares, as described in Note 4, and (ii) in the case of the Private Placement units and the respective Class A ordinary shares underlying the Private Placement warrants, 30 days after the completion of an 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 final prospectus relating to our Initial Public Offering to purchase up to 2,250,000 additional units to cover over-allotments, if any, at $10.00 per unit, less underwriting discounts and commissions. The underwriters exercised this option in full on November 23, 2021.

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The underwriters were paid a cash underwriting discount of two percent (2%) of the gross proceeds of our Initial Public Offering, or $3,450,000. Additionally, the underwriters will be entitled to a deferred underwriting commission of 3.5% or $6,037,500 of the gross proceeds of our Initial Public Offering held in the Trust Account solely upon the completion of the Company’s initial business combination subject to the terms of the underwriting agreement.

On July 6, 2023, pursuant to the terms of the Underwriting Agreement, Stifel waived the deferred underwriting fee owed to Stifel by the Company. On July 13, 2023, pursuant to the terms of the Underwriting Agreement, Nomura waived the deferred underwriting fee owed to Nomura by the Company. In total, deferred underwriting commissions of $6,037,500 were waived by Stifel and Nomura.

JOBS Act

On April 5, 2012, the JOBS Act was signed into law. The JOBS Act contains provisions that, among other things, relax certain reporting requirements for qualifying public companies. The Company will qualify as an “emerging growth company” and under the JOBS Act will be allowed to comply with new or revised accounting pronouncements based on the effective date for private (not publicly traded) companies. The Company is electing to delay the adoption of new or revised accounting standards, and as a result, the Company may not comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. As such, our financial statements may not be comparable to companies that comply with public company effective dates.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not required for smaller reporting companies.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act (as defined under Section 13 of the Exchange Act)), is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in Company reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

As of June 30, 2023, as required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were effective.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

Item 1. Legal Proceedings

None

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Item 1A. Risk Factors

Factors that could cause our actual results to differ materially from those in this report include the risk factors described in our Annual Report on Form 10-K filed with the SEC. As of the date of this Quarterly Report, there have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K with the SEC.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

On November 23, 2021, we consummated our initial public offering of 17,250,000 Units, inclusive of 2,250,000 Units sold to the underwriters upon the election to fully exercise their over-allotment option, at a price of $10.00 per unit, generating total gross proceeds of $172,500,000. Each unit consists of one Class A ordinary share of the Company, par value $0.0001 per share, and one half of one redeemable warrant of the Company. Each whole warrant entitles the holder thereof to purchase one Class A ordinary share Ordinary Share for $11.50 per share, subject to adjustment. Stifel, Nicolaus & Company, Incorporated and Nomura Securities International, Inc. acted as joint book-running managers. The securities sold in our initial public offering were registered under the Securities Act on a registration statement on Form S-1 (No. 333-260709). The registration statement became effective on November 18, 2021.

Simultaneously with the consummation of our initial public offering, and the exercise of the over-allotment option in full, we consummated a private placement of 915,000 private placement units to our sponsor at a price of $10.00 per private placement unit, generating total proceeds of $9,150,000. Such securities were issued pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act.

The private placement units are identical to the public units except that (a) private placement units (including the underlying securities) may not, subject to certain limited exceptions, be transferred, assigned or sold by the holders until 30 days after the completion of our initial business combination and (b) the holders thereof will be entitled to registration rights.

Of the gross proceeds received from our initial public offering and the full exercise of the option to purchase additional Units, $175,950,000 was placed in the trust account.

We paid a total of $3,450,000 in underwriting discounts and commissions and $524,793 for other costs and expenses related to our initial public offering. In addition, the underwriters agreed to defer $6,037,500 in underwriting discounts and commissions.

For a description of the use of the proceeds generated in our initial public offering, see “PART I. Financial Information—Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations”.

Item 3. Defaults Upon Senior Securities

None

Item 4. Mine Safety Disclosures

None

Item 5. Other Information

None

Item 6. Exhibits

The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.

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SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

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