Celularity Inc. — Filing Summary
Filing identity: Although requested under Celularity Inc., this 10-Q is filed by GX Acquisition Corp., the SPAC that had agreed to combine with Celularity. It covers the quarter ended March 31, 2021; Celularity had not yet become the reporting company.
Business context and transaction
GX was a blank-check company and had not commenced operating activities or generated revenue. On January 8, 2021, GX agreed to merge with Celularity. The agreement provided for up to 147,327,224 newly issued GX Class A shares for Celularity stockholders, valued at approximately $10.15 per share. The proposed transaction was subject to closing conditions and was expected to be accounted for as a reverse recapitalization, with Celularity as the accounting acquirer.
Financial results and liquidity
- Revenue: No operating revenue in Q1 2021 or Q1 2020.
- Net income: $38.0 million in Q1 2021, compared with $6.4 million in Q1 2020. The 2021 result was driven primarily by a $40.0 million noncash gain from the decrease in fair value of warrant liabilities; it should not be read as operating profit.
- Costs and other income: Operating and formation costs rose to $2.05 million from $0.24 million. Trust-account interest was $27,883, versus $1.11 million in Q1 2020. No revenue-based margins are meaningful.
- Cash flow: Operating activities used $446,092, versus $549,577 used in Q1 2020. Ending cash outside the trust was $28,654, down from $314,696 at December 31, 2020. Financing included a $120,000 related-party loan.
- Assets and obligations: Trust-account securities were $291.8 million. Total liabilities were $39.8 million, including $23.8 million of warrant liabilities, $10.8 million of deferred underwriting fees payable upon a completed business combination, and $5.0 million of accounts payable and accrued expenses. Working capital deficit was $5.0 million.
Material changes, outlook, and risks
- Warrant liabilities fell from $63.8 million at year-end 2020 to $23.8 million at March 31, 2021, generating the large noncash gain. Cash generated from this accounting gain was nil.
- Redeemable Class A shares increased from 20.6 million to 28.75 million at quarter-end. The filing reports an $82.6 million noncash increase in their redemption value.
- GX said it needed additional financing to meet working-capital needs; sponsor and affiliate loans were possible but not committed. Management stated these conditions raised substantial doubt about GX’s ability to continue as a going concern through July 31, 2021, the deadline to complete a business combination or begin winding up.
- After quarter-end, stockholders approved extending the combination deadline to July 31, 2021. Holders redeemed 16,169,996 shares for approximately $164.1 million, at about $10.15 per share. Sponsor affiliates agreed to fund extension-period trust contributions through a non-interest-bearing loan, repayable at closing in cash or, subject to a cap, private warrants.
- Disclosure controls were deemed ineffective due to a material weakness in internal control over financial reporting previously described in GX’s amended 2020 annual report. Management reported no material change in internal control during the quarter.
- GX reported no legal proceedings and no off-balance-sheet arrangements. Trust investments were short-term U.S. Treasury securities; management did not expect material interest-rate exposure.
Important facts for investors to verify
- Whether and when the GX–Celularity business combination closed, and the final consideration, financing, and capitalization after redemptions.
- Celularity’s operating results, cash needs, and liquidity, which are not presented in this SPAC’s quarterly financial statements.
- GX’s post-quarter trust balance after the approximately $164.1 million redemption and the terms and funding of extension loans.
- The status and remediation of the disclosed material weakness and the effect of warrant remeasurement on reported earnings.
- The filing’s warrant fair-value table contains an apparent inconsistency in the public-warrant amount; the reported total warrant liability is $23.8 million.