References to the "Company," "Health Sciences Acquisitions Corporation 2,"
"our," "us" or "we" refer to Health Sciences Acquisitions Corporation 2. The
following discussion and analysis of the Company's financial condition and
results of operations should be read in conjunction with the annual financial
statements and the notes thereto contained elsewhere in this report. Certain
information contained in the discussion and analysis set forth below includes
forward-looking statements that involve risks and uncertainties.
In this Amendment No. 1 to the Annual Report on Form 10-K/A of the Company for
the fiscal year ended December 31, 2020, we are restating (i) our audited
balance sheet as of August 6, 2020 (ii) our audited financial statements as of
December 31, 2020, and for the period from May 25, 2020 (inception) to
December 31, 2020 and (iii) our unaudited interim financial statements as of
September 30, 2020 and for the period from May 25, 2020 (inception) through
September 30, 2020.
In preparation of our unaudited condensed financial statements as of and for
quarterly period ended September 30, 2021, we concluded we should restate our
financial statements to classify all redeemable ordinary shares subject to
possible redemption in temporary equity. In accordance with the SEC and its
staff's guidance on redeemable equity instruments in ASC 480-10-S99, redemption
provisions not solely within the control of us require ordinary shares subject
to redemption to be classified outside of permanent equity. We had previously
classified a portion of our redeemable ordinary shares in permanent equity, or
total stockholders' equity. Although we did not specify a maximum redemption
threshold, our Amended and Restated Memorandum and Articles of Association
currently provides that we will not redeem our public shares in an amount that
would cause its net tangible assets to be less than $5,000,001. Previously, we
did not consider redeemable shares classified as temporary equity as part of net
tangible assets. We revised this interpretation to include temporary equity in
net tangible assets.
As a result of the foregoing, the Audit Committee of the Company, in
consultation with its management, concluded that our previously issued (i)
audited balance sheet as of August 6, 2020 included in the Company's Current
Report on Form 8-K filed with the SEC on August 12, 2020 (the "Post-IPO Balance
Sheet"), (ii) unaudited condensed financial statements as of and for the
quarterly period ended September 30, 2020 included in the Company's Quarterly
Report on Form 10-Q filed with the SEC on November 5, 2020 (iii) audited annual
financial statements as of and for the period ended December 31, 2020 included
in the Company's Annual Report on Form 10-K, filed with the SEC on March 10,
2021 (iv) unaudited condensed financial statements as of and for the quarterly
period ended March 31, 2021 included in the Company's Quarterly Report on Form
10-Q filed with the SEC on May 17, 2021, (v) unaudited condensed financial
statements as of and for the quarterly period ended June 30, 2021 included in
the Company's Quarterly Report on Form 10-Q filed with the SEC on August 16,
2021; (iv) a section within footnote 2 to unaudited condensed financial
statements as of and for the quarterly period ended September 30, 2021, and Item
4 included, reported in the Q3 2021 10-Q as filed with the SEC, (collectively,
the "Affected Periods"), should be restated to report all Public Shares as
temporary equity and change the earnings per share presentation, and should no
longer be relied upon.
The identified errors had no effect on our previously reported revenue,
operating expenses, operating income, cash flows or cash.
In connection with the restatement, our management reassessed the effectiveness
of our disclosure controls and procedures for the periods affected by the
restatement. As a result of that reassessment, we determined that our disclosure
controls and procedures for such periods were not effective. For more
information, see "Part II, Item 9A. Controls and Procedures" included in this
Amendment No. 1 to the Annual Report on Form 10-K/A.
The restatement is more fully described in Note 2 of the notes to the financial
statements included herein.
Overview
We are a blank check company incorporated as a Cayman Islands company on May 25,
2020. We were formed for the purpose entering into a merger, share exchange,
asset acquisition, share purchase, recapitalization, reorganization or other
similar business combination with one or more target businesses (the "Business
Combination"). Our efforts to identify a prospective target business will not be
limited to any particular industry or geographic region, although we intend to
focus our search on target businesses domiciled in North America or Europe that
are developing assets in the biopharma and medical technology sectors. We are an
emerging growth company and, as such, we are subject to all of the risks
associated with emerging growth companies.
Our sponsor is HSAC 2 Holdings, LLC (the "Sponsor"). The registration statement
for the initial public offering (the "Initial Public Offering") was declared
effective on August 3, 2020. On August 6, 2020, we consummated an Initial Public
Offering of 16,000,000 ordinary shares (the "Public Shares"), including the
2,086,956 Public Shares as a result of the underwriters' full exercise of their
over-allotment option, at an offering price of $10.00 per Public Share,
generating gross proceeds of approximately $160.0 million, and incurring
offering costs of approximately $9.4 million, inclusive of approximately $5.6
million in deferred underwriting commissions.
Simultaneously with the closing of the Initial Public Offering, we consummated
the private placement ("Private Placement") of (i) 450,000 ordinary shares
("Private Placement Share") at $10.00 per Private Placement Share (for a total
purchase price of $4.5 million) and (ii) 1,500,000 warrants ("Private Placement
Warrants") at a price of $1.00 per Private Placement Warrant (for a total
purchase price of $1.5 million), for an aggregate of $6.0 million to the
Sponsor, generating gross proceeds of $6.0 million.
Upon the closing of the Initial Public Offering and the Private Placement
(including the exercise of the over-allotment), $160.0 million ($10.00 per
Public Share) of the net proceeds of the sale of the Public Shares in the
Initial Public Offering and 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 held as cash or invested only in U.S.
"government securities," within the meaning set forth in Section 2(a)(16) of the
Investment Company Act, with a maturity of 180 days or less, or in money market
funds meeting certain conditions under the Investment Company Act, which invest
only in direct U.S. government treasury obligations, as determined by us, until
the earlier of: (i) the completion of a Business Combination and (ii) the
distribution of the Trust Account as described below.
21
We will have until August 6, 2022, to complete our initial Business Combination
(the "Combination Period"). If we do not complete a Business Combination by that
date, it will trigger the Company's automatic winding up, liquidation and
dissolution and, upon notice from us, the trustee of the Trust Account will
distribute the amount in the Trust Account to the Public Shareholders.
Concurrently, we shall pay, or reserve for payment, from funds not held in
Trust, its liabilities and obligations, although we cannot assure that there
will be sufficient funds for such purpose. If there are insufficient funds held
outside the Trust Account for such purpose, our Sponsor has agreed that it will
be liable to ensure that the proceeds in the Trust Account are not reduced by
the claims of target businesses or claims of vendors or other entities that are
owed money by us for services rendered or contracted for or products sold to us
and which have not executed a waiver agreement. However, we cannot assure that
the liquidator will not determine that he or she requires additional time to
evaluate creditors' claims (particularly if there is uncertainty over the
validity or extent of the claims of any creditors). We also cannot assure that a
creditor or shareholder will not file a petition with the Cayman Islands Court
which, if successful, may result in our company's liquidation being subject to
the supervision of that court. Such events might delay distribution of some or
all of our assets to the Public Shareholders. The Initial Shareholders have
agreed to waive their liquidation rights with respect to the Insider Shares and
Private Placement Shares held by them if we fail to complete a Business
Combination within the Combination Period. However, if the Initial Shareholders
should 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 we fail to complete a Business Combination within the
Combination Period. The underwriters have agreed to waive their rights to their
deferred underwriting commission held in the Trust Account in the event we do
not complete a Business Combination within the Combination Period and, in such
event, such amounts will be included with the funds held in the Trust Account
that will be available to fund the redemption of our Public Shares. In the event
of such distribution, it is possible that the per ordinary share value of the
residual assets remaining available for distribution (including Trust Account
assets) will be only $10.00 per ordinary share initially held in the Trust
Account.
Liquidity and Capital Resources
As of December 31, 2020, we had $2.0 million in operating cash and working
capital of approximately $2.0 million.
Prior to the completion of the Initial Public Offering, our liquidity needs had
been satisfied through a payment of $28,750 from our Sponsor to exchange for the
issuance of the Insider Shares (as defined below), and a loan of $300,000
pursuant to the Note issued to our Sponsor, which was repaid on August 7, 2020.
Subsequent to the consummation of the Initial Public Offering and Private
Placement, our liquidity needs have been satisfied with the proceeds from the
consummation of the Private Placement not held in the Trust Account. In
addition, in order to finance transaction costs in connection with a Business
Combination, the Sponsor may, but is not obligated to, provide us Working
Capital Loans (see Note 5). As of December 31, 2020, there were no amounts
outstanding under any Working Capital Loans.
However, in connection with the Company's assessment of going concern
considerations in accordance with FASB ASC 205-40, Presentation of Financial
Statements - Going Concern," management has determined that the mandatory
liquidation and subsequent dissolution raises substantial doubt about the
Company's ability to continue as a going concern. No adjustments have been made
to the carrying amounts.
Management continues to evaluate the impact of the COVID-19 pandemic and has
concluded that the specific impact is not readily determinable as of the date of
the balance sheet. The financial statement does not include any adjustments that
might result from the outcome of this uncertainty.
Results of Operations
Our entire activity since inception up to December 31, 2020 was for our
formation, preparation for our Initial Public Offering, and, since the closing
of our Initial Public Offering, a search for business combination candidates. We
will not be generating any operating revenues until the closing and completion
of our initial Business Combination. We generate non-operating income in the
form of interest income on marketable securities held in the Trust Account. We
are incurring expenses as a result of being a public company (for legal,
financial reporting, accounting and auditing compliance).
22
For the period from May 25, 2020 (inception) through December 31, 2020, we had a
net loss of approximately $174,000, which consisted of approximately $130,000 in
general and administrative expenses and related party administrative fees of
$50,000 offset by approximately $6,000 of net income on the investments held in
the Trust Account.
Related Party Transactions
Insider Shares
On June 11, 2020, we issued 3,593,750 ordinary shares to the Sponsor (the
"Insider Shares") for an aggregate purchase price of $28,750. On August 3, 2020,
we effected a share dividend of 0.113043478 ordinary shares for each outstanding
share (an aggregate of 406,250 ordinary shares), resulting in an aggregate of
4,000,000 ordinary shares outstanding.
The Initial Shareholders agreed not to transfer, assign or sell any of their
Insider Shares (except to certain permitted transferees) until, with respect to
50% of the Insider Shares, the earlier of six months after the date of the
consummation of the initial Business Combination and the date on which the
closing price of our ordinary shares equals or exceeds $12.50 per ordinary share
for any 20 trading days within a 30-trading day period following the
consummation of the initial Business Combination, and, with respect to the
remaining 50% of the Insider Shares, six months after the date of the
consummation of the initial Business Combination, or earlier in each case if,
subsequent to the initial Business Combination, we complete a liquidation,
merger, stock exchange or other similar transaction which results in all of the
shareholders having the right to exchange their ordinary shares for cash,
securities or other property.
Related Party Loans
On June 11, 2020, our Sponsor agreed to loan us up to $300,000 to be used for
the payment of costs related to the Initial Public Offering pursuant to a
promissory note (the "Note"). The Note was non-interest bearing, unsecured and
due on the date we consummate the Initial Public Offering. We borrowed $300,000
under the Note, and fully repaid the Note in full on August 7, 2020.
In addition, in order to finance transaction costs in connection with a Business
Combination, the Initial Shareholders may, but are not obligated to, loan us
funds, from time to time or at any time, in whatever amount they deem reasonable
in their sole discretion (the "Working Capital Loans"). Each loan would be
evidenced by a promissory note. The notes would either be paid upon consummation
of the initial Business Combination, without interest, or, at the lender's
discretion, up to $500,000 of such loans may be converted upon consummation of
the Business Combination into additional private warrants at a price of $1.00
per warrant. If we do not complete a Business Combination within the Combination
Period, the Working Capital Loans will be repaid only from amounts remaining
outside the Trust Account, if any. The warrants would be identical to the
Private Placement Warrants. As of December 31, 2020, the Company had no
borrowings under the Working Capital Loans.
Administrative Support Agreement
Commencing on the date of our prospectus, we agreed to pay an affiliate of the
Sponsor a total of $10,000 per month for office space and certain office and
secretarial services. Upon completion of the Business Combination or our
liquidation, we will cease paying these monthly fees. During the period from May
25, 2020 (inception) through December 31, 2020, the Company incurred $50,000 in
expenses for these services.
23
Contractual Obligations
Registration Rights
The holders of the Insider Shares, Private Placement Shares, Private Placement
Warrants and warrants that may be issued upon conversion of Working Capital
Loans (and any ordinary shares issuable upon the exercise of the Private
Placement Warrants and warrants that may be issued upon conversion of Working
Capital Loans) are entitled to registration rights pursuant to a registration
rights agreement. The holders of a majority of these securities are entitled to
make up to two demands that we register such securities. The holders of the
majority of the Insider Shares can elect to exercise these registration rights
at any time commencing three months prior to the date on which these ordinary
shares are to be released from escrow. The holders of a majority of the Private
Placement Shares, Private Placement Warrants or ordinary shares issued in
payment of Working Capital Loans made to us can elect to exercise these
registration rights at any time after we consummate a Business Combination. In
addition, the holders have certain "piggy-back" registration rights with respect
to registration statements filed subsequent to our consummation of the initial
Business Combination. We will bear the expenses incurred in connection with the
filing of any such registration statements.
Underwriting Agreement
We granted the underwriters a 45-day option from the date of the prospectus to
purchase up to 2,086,956 additional ordinary shares at the Initial Public
Offering price less the underwriting discounts and commissions. On August 6,
2020, the underwriters fully exercised the over-allotment option.
The underwriters were entitled to an underwriting discount of $0.20 per share,
or approximately $3.3 million in the aggregate, paid upon the closing of the
Initial Public Offering. In addition, the underwriters will be entitled to a
deferred underwriting commission of $0.35 per share, or approximately $5.6
million in the aggregate since the underwriters' over-allotment option was
exercised in full. The deferred fee will become payable to the underwriters from
the amounts held in the Trust Account solely in the event that we complete a
Business Combination, subject to the terms of the underwriting agreement.
Purchase Agreement
Our Sponsor has entered into an agreement with us to purchase an aggregate of
2,500,000 of our ordinary shares or their equivalent in the securities of a
target company for an aggregate purchase price of $25.0 million prior to,
concurrently with, or following the closing of our business combination, either
in the open market transaction (to the extent permitted by law) or in a private
placement. The capital from such transaction may be used as part of the
consideration to the sellers in our initial Business Combination, and any excess
capital from such private placement would be used for working capital in the
post-transaction company.
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 180 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. Trading securities 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 these securities is included in net gain on investments held in
the Trust Account in the accompanying statement of operations. The estimated
fair values of investments held in the Trust Account are determined using
available market information.
Ordinary Shares Subject to Possible Redemption
We account for our ordinary shares subject to possible redemption in accordance
with the guidance in ASC Topic 480 "Distinguishing Liabilities from Equity."
Ordinary shares subject to mandatory redemption (if any) are classified as
liability instruments and are measured at fair value. Conditionally redeemable
ordinary shares (including 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 our control) are classified as
temporary equity. At all other times, ordinary shares are classified as
shareholders' equity. Our ordinary shares feature certain redemption rights that
are considered to be outside of our control and subject to the occurrence of
uncertain future events. Accordingly, as of December 31, 2020, 16,000,000
ordinary shares subject to possible redemption are presented as temporary
equity, outside of the shareholders' equity section of the accompanying balance
sheet.
Under ASC 480-10-S99, we have elected to recognize changes in the redemption
value immediately as they occur and adjust the carrying value of the security to
equal the redemption value at the end of the reporting period. This method would
view the end of the reporting period as if it were also the redemption date of
the security. Effective with the closing of the Initial Public Offering, we
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.
24
Net Loss Per Ordinary Share
We comply with accounting and disclosure requirements of FASB ASC Topic 260,
"Earnings Per Share." Net income (loss) per ordinary share is calculated by
dividing the net income (loss) by the weighted average number of ordinary shares
outstanding for the respective period.
The calculation of diluted net income (loss) per ordinary share does not
consider the effect of the warrants underlying the Units sold in the Private
Placement Warrants to purchase 1,500,000 ordinary shares since their exercise is
contingent upon future events and their inclusion would be anti-dilutive under
the treasury stock method. As a result, diluted net loss per share is the same
as basic net loss per share for the period from May 25, 2020 (inception) through
December 31, 2020. Accretion associated with the redeemable ordinary shares is
excluded from earnings per share as the redemption value approximates fair
value.
Off-Balance Sheet Arrangements and Contractual Obligations
As of December 31, 2020, we did not have any off-balance sheet arrangements as
defined in Item 303(a)(4)(ii) of Regulation S-K and did not have any commitments
or contractual obligations.
JOBS Act
The Jumpstart Our Business Startups Act of 2012 (the "JOBS Act") contains
provisions that, among other things, relax certain reporting requirements for
qualifying public companies. We qualify as an "emerging growth company" and
under the JOBS Act are allowed to comply with new or revised accounting
pronouncements based on the effective date for private (not publicly traded)
companies. We are electing to delay the adoption of new or revised accounting
standards, and as a result, we 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 a result, the financial statements may not
be comparable to companies that comply with new or revised accounting
pronouncements as of public company effective dates.
Additionally, we are in the process of evaluating the benefits of relying on the
other reduced reporting requirements provided by the JOBS Act. Subject to
certain conditions set forth in the JOBS Act, if, as an "emerging growth
company," we choose to rely on such exemptions we may not be required to, among
other things, (i) provide an auditor's attestation report on our system of
internal controls over financial reporting pursuant to Section 404, (ii) provide
all of the compensation disclosure that may be required of non-emerging growth
public companies under the Dodd-Frank Wall Street Reform and Consumer Protection
Act, (iii) comply with any requirement that may be adopted by the PCAOB
regarding mandatory audit firm rotation or a supplement to the auditor's report
providing additional information about the audit and the financial statements
(auditor discussion and analysis) and (iv) disclose certain executive
compensation related items such as the correlation between executive
compensation and performance and comparisons of the CEO's compensation to median
employee compensation. These exemptions will apply for a period of five years
following the completion of our Initial Public Offering or until we are no
longer an "emerging growth company," whichever is earlier.
Recent Accounting Pronouncements
Our management does not believe there are any other recently issued, but not yet
effective, accounting pronouncements, if currently adopted, that would have a
material effect on our financial statements.
© Edgar Online, source Glimpses