References to "we", "us", "our" or the "Company" are to Senior Connect
Acquisition Corp. I, except where the context requires otherwise. The following
discussion should be read in conjunction with our financial statements and
related notes thereto included elsewhere in this Annual Report on Form 10-K.
Cautionary Note Regarding Forward-Looking Statements
This Annual Report on Form 10-K includes forward-looking statements within the
meaning of Section 27A of the Securities Act, and Section 21E of the Exchange
Act. We have based these forward-looking statements on our current expectations
and projections about future events. These forward-looking statements are
subject to known and unknown risks, uncertainties and assumptions about us that
may cause our actual results, levels of activity, performance or achievements to
be materially different from any future results, levels of activity, performance
or achievements expressed or implied by such forward-looking statements. In some
cases, you can identify forward-looking statements by terminology such as "may,"
"should," "could," "would," "expect," "plan," "anticipate," "believe,"
"estimate," "continue," or the negative of such terms or other similar
expressions. Factors that might cause or contribute to such a discrepancy
include, but are not limited to, those described in our other U.S. Securities
and Exchange Commission ("SEC") filings.
46
Overview
We are a blank check company incorporated in Delaware on August 27, 2020. We
were 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 or entities (the "Business Combination").
Our sponsor is Health Connect Acquisitions Holdings LLC, a Delaware limited
liability company (the "Sponsor"). The registration statement for the initial
public offering (the "Initial Public Offering") was declared effective on
December 10, 2020. On December 15, 2020, we consummated the Public Offering of
41,400,000 units (the "Units" and, with respect to the Class A common stock
included in the Units being offered, the "Public Shares"), including the
issuance of 5,400,000 Units as a result of the underwriters' exercise of their
over-allotment option in full, at $10.00 per Unit, generating gross proceeds of
$414.0 million, and incurring offering costs of approximately $23.3 million,
inclusive of approximately $14.5 million in deferred underwriting commissions.
Simultaneously with the closing of the Initial Public Offering, we consummated
the private placement ("Private Placement") of 10,280,000 warrants (each, a
"Private Placement Warrant" and collectively, the "Private Placement Warrants"),
at a price of $1.00 per Private Placement Warrant to our Sponsor, generating
gross proceeds to us of approximately $10.3 million.
Upon the closing of the Initial Public Offering and the Private Placement,
$414.0 million ($10.00 per Unit) of the net proceeds of the Public Offering and
certain of the proceeds of the Private Placement was placed in a trust account
("Trust Account"), located in the United States with Continental Stock Transfer
& Trust Company acting as trustee, and invested only in U.S. "government
securities" within the meaning of Section 2(a)(16) of the Investment Company Act
of 1940, as amended (the "Investment Company Act") having a maturity of 185 days
or less or in money market funds meeting certain conditions under Rule 2a-7
promulgated under the Investment Company Act which invest only in direct U.S.
government treasury obligations, until the earlier of (i) the completion of the
Business Combination and (ii) the distribution of the Trust Account as described
below.
If we are unable to complete a Business Combination by December 15, 2023, or
such earlier date as determined by the Company's board of directors (the
"Combination Period"), we 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 us 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 our
obligations under Delaware law to provide for claims of creditors and the
requirements of other applicable law.
On December 12, 2022, we filed with the Secretary of State of the State of
Delaware an amendment (the "Extension Amendment") to our amended and restated
certificate of incorporation to change the date by which we must consummate a
Business Combination from December 15, 2022, 24 months from the closing of the
Initial Public Offering to the Combination Period. Our stockholders approved the
Extension Amendment at a special meeting of stockholders (the "Special Meeting")
on December 9, 2022. In connection with the Special Meeting, stockholders
holding 40,171,206 Public Shares properly exercised their right to redeem their
shares for cash at a redemption price of approximately $10.10 per share, for an
aggregate redemption amount of approximately $405.8 million. Following such
redemptions, approximately $12.4 million was left in trust and 1,228,794 Public
Shares remain outstanding.
Results of Operations
Our entire activity since inception through December 31, 2022 related to our
formation, the preparation for the Initial Public Offering, and since the
closing of the Initial Public Offering, the search for a prospective initial
Business Combination. We have neither engaged in any operations nor generated
any revenues to date. We will not generate any operating revenues until after
completion of our initial Business Combination, at the earliest. We generate
non-operating income in the form of interest income on investments held in Trust
Account. We expect to incur increased expenses as a result of being a public
company (for legal, financial reporting, accounting and auditing compliance), as
well as for due diligence expenses.
For the year ended December 31, 2022, we had net income of approximately $16.6
million, which consisted of approximately $14.6 million in change in fair value
of warrant liabilities and approximately $5.1 million of interest income from
investments held in Trust Account, partially offset by approximately $1.8
million in general and administrative expenses, $120,000 of related party
administrative fees and approximately $175,000 in franchise tax expense.
For the year ended December 31, 2021, we had net income of approximately $5.5
million, which consisted of approximately $7.1 million in change in fair value
of warrant liabilities and approximately $41,000 of interest income from
investments held in Trust Account, partially offset by approximately $1.3
million in general and administrative expenses, $120,000 of related party
administrative fees and approximately $200,000 in franchise tax expense.
47
Liquidity, Capital Resources and Going Concern
As of December 31, 2022, we had approximately $8,000 in our operating bank
account and a working capital deficit of approximately $1.3 million, not taking
into account tax obligations of approximately $248,000 that may be withdrawn
from income earned on investment held in Trust Account and approximately
$968,000 under the note payable - related party.
Prior to the consummation of the Initial Public Offering on December 15, 2020,
our liquidity needs were satisfied through the receipt of $25,000 from our
Sponsor in exchange for the issuance of Class B common stock, and the proceeds
of a promissory note from our Sponsor. Subsequent to the consummation of the
Public Offering and Private Placement, our liquidity needs have been satisfied
with certain portion of 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, our Sponsor may,
but is not obligated to, provide us working capital loans. As of December 31,
2022 and 2021, there were no Working Capital Loans.
Through December 31, 2022, our Sponsor loaned us approximately $968,000 in cash,
under a promissory note entered into on April 14, 2022, pursuant to which we may
borrow up to an aggregate principal amount of $3.0 million (the "Post-IPO
Promissory Note"). The Post-IPO Promissory Note is non-interest bearing and due
on the earlier of December 31, 2023 and the date on which we consummate our
initial business combination. If we complete a business combination, it would
repay such additional loaned amounts, without interest, upon consummation of the
business combination. In the event that a business combination does not close,
we may use a portion of the working capital held outside the trust account to
repay such additional loaned amounts but no proceeds from the trust account
would be used for such repayment.
We may need to raise additional capital through loans or additional investments
from our Sponsor, an affiliate of our Sponsor, or our officers or directors. Our
officers, directors and Sponsor, or their affiliates, 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, to meet our working capital needs.
Accordingly, we may not be able to obtain additional financing. If we are unable
to raise additional capital, we may be required to take additional measures to
conserve liquidity, which could include, but not necessarily be limited to,
curtailing operations, suspending the pursuit of a potential transaction,
reducing overhead expenses, and extending the terms and due dates of certain
accrued expenses and other liabilities. We cannot provide any assurance that new
financing will be available to it on commercially acceptable terms, if at all.
Based upon the analysis above, management has determined that the above
conditions indicate that it may be probable that we would not be able to meet
its obligations within one year after the date that the financial statements are
available to be issued. In connection with our assessment of going concern
considerations in accordance with the Financial Accounting Standards Board's
("FASB") Accounting Standards Codification ("ASC") Topic 205-40, "Presentation
of Financial Statements - Going Concern," we have determined that the liquidity
condition, mandatory liquidation and subsequent dissolution raises substantial
doubt about our ability to continue as a going concern. No adjustments have been
made to the carrying amounts of assets or liabilities should we be required to
liquidate after December 15, 2023. The financial statements do not include any
adjustment that might be necessary if we are unable to continue as a going
concern.
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 statements do not include any adjustments that
might result from the outcome of this uncertainty.
Related Party Transactions
Founder Shares
On August 27, 2020, the Sponsor subscribed to purchase 10,062,500 shares of our
Class B common stock, par value $0.0001 per share (the "Founder Shares"), and
fully paid for those shares on September 22, 2020. On November 23, 2020, the
Sponsor surrendered 1,437,500 shares of Class B common stock to us for
cancellation for no consideration. On December 10, 2020, we effected a 1:1.2
stock split of Class B common stock, resulting in an aggregate of 10,350,000
shares of Class B common stock outstanding. All shares and associated amounts
have been retroactively restated to reflect the share surrender and the stock
split. The initial stockholders agreed to forfeit up to 1,350,000 Founder Shares
to the extent that the over-allotment option was not exercised in full by the
underwriters, 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.
The underwriter exercised its over-allotment option in full on December 15,
2020; thus, these 1,350,000 Founder Shares were no longer subject to forfeiture.
48
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 or earlier if,
subsequent to the initial Business Combination, 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, and (ii) the date following the
completion of the initial Business Combination on which we complete a
liquidation, merger, capital stock exchange or other similar transaction that
results in all of the stockholders having the right to exchange their Class A
common stock for cash, securities or other property.
Private Placement Warrants
Simultaneously with the closing of the Initial Public Offering, we consummated
the Private Placement of 10,280,000 Private Placement Warrants at a price of
$1.00 per Private Placement Warrant to the Sponsor, generating proceeds of
approximately $10.3 million, and incurring offering costs of approximately
$8,000.
Each whole Private Placement Warrant is exercisable for one whole share of
Class A common stock at a price of $11.50 per share, subject to adjustment. A
portion of the proceeds from the sale of the Private Placement Warrants to the
Sponsor was added to the proceeds from the Initial Public Offering held in the
Trust Account. If we do not complete a Business Combination within the
Combination Period, the Private Placement Warrants will expire worthless. The
Private Placement Warrants will be non-redeemable for cash (except as described
below) and exercisable on a cashless basis so long as they are held by the
Sponsor or its permitted transferees.
The Sponsor agreed, subject to limited exceptions, not to transfer, assign or
sell the Private Placement Warrants until 30 days after the completion of the
initial Business Combination.
Related Party Loans
In order to fund working capital deficiencies or finance transaction costs in
connection with a Business Combination, the Sponsor or an affiliate of the
Sponsor, or certain of our officers and directors may, but are not obligated to,
loan us funds as may be required ("Working Capital Loans"). If we complete a
Business Combination, we may repay the Working Capital Loans out of the proceeds
of the Trust Account released to us. Otherwise, the Working Capital Loans could
be repaid only out of funds held outside the Trust Account. In the event that a
Business Combination does not close, we 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 $1,500,000 of such Working
Capital Loans may be convertible into warrants of the post Business Combination
entity at a price of $1.00 per warrant. The warrants would be identical to the
Private Placement Warrants. 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 December 31, 2022 and 2021, we had no Working
Capital Loans.
On April 14, 2022, we entered into a promissory note with the Sponsor, pursuant
to which we may borrow up to an aggregate principal amount of $3.0 million (the
"Post-IPO Promissory Note"). The Post-IPO Promissory Note is non-interest
bearing and due on the earlier of December 31, 2023 and the date on which we
consummate its initial business combination. If we complete a business
combination, it would repay such additional loaned amounts, without interest,
upon consummation of the business combination. In the event that a business
combination does not close, we may use a portion of the working capital held
outside the trust account to repay such additional loaned amounts but no
proceeds from the trust account would be used for such repayment. If we fully
draw down on the Post-IPO Promissory Note and requires additional funds for
working capital purposes, the Sponsor, an affiliate of the Sponsor, or our
officers and directors may, but are not obligated to, loan us such additional
funds as may be required. Borrowings made by us during the first quarter of 2022
were subsequently formalized with the execution of the Post-IPO Promissory Note
on April 14, 2022. As of December 31, 2022, there was approximately $968,000
outstanding under the Post-IPO Promissory Note.
Contractual Obligations
Registration Rights
The holders of Founder Shares, Private Placement Warrants 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. These holders
will be entitled to certain demand and "piggyback" registration rights. However,
the registration rights agreement provides that we will not permit any
registration statement filed under the Securities Act to become effective until
the termination of the applicable lock-up period for the securities to be
registered. We will bear the expenses incurred in connection with the filing of
any such registration statements.
49
Underwriting Agreement
The underwriters were entitled to an underwriting discount of $0.20 per unit,
approximately $8.3 million in the aggregate, paid upon the closing of the
Initial Public Offering. In addition, $0.35 per unit, or approximately $14.5
million in the aggregate, will be payable to the underwriters for deferred
underwriting commissions. 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.
Administrative Support Agreement
We entered into an agreement to pay our Sponsor a total of up to $10,000 per
month for overhead and administration support. Upon completion of the initial
Business Combination or our liquidation, we will cease paying these monthly
fees. We incurred $120,000 of such fees for the years ended December 31, 2022
and 2021. As of December 31, 2022 and 2021, an aggregate of approximately
$244,000 and $125,000, respectively, in related party accrued expenses was
outstanding, as reflected in the accompanying balance sheets.
Critical Accounting Policies and Estimates
The preparation of financial statements and related disclosures in conformity
with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements, and the reported amounts of income and
expenses during the periods reported. Actual results could materially differ
from those estimates. We have identified the following as our critical
accounting policies:
Class A Common Stock Subject to Possible Redemption
We account for Class A common stock subject to possible redemption in accordance
with the guidance in ASC Topic 480 "Distinguishing Liabilities from Equity."
Common stock subject to mandatory redemption (if any) is classified as a
liability instrument and measured at fair value. Conditionally redeemable common
stock (including common stock that features redemption rights that are either
within the control of the holder or subject to redemption upon the occurrence of
uncertain events not solely within our control) is classified as temporary
equity. At all other times, common stock is classified as stockholders' equity.
Our outstanding common stock features certain redemption rights that are
considered to be outside of our control and subject to the occurrence of
uncertain future events. In connection with the Special Meeting, in December
2022, stockholders holding 40,171,206 Public Shares redeemed their shares for
cash. Accordingly, as of December 31, 2022 and 2021, 1,228,794 and 41,400,000
shares of Class A common stock subject to possible redemption, respectively, are
presented as temporary equity, outside of the stockholders' equity section of
the balance sheets.
Under ASC 480, 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 each reporting period. This method would view
the end of the reporting period as if it were also the redemption date for the
security. Immediately upon the closing of the Initial Public Offering, we
recognized the re-measurement from initial book value to redemption amount
value. The change in the carrying value of the redeemable Class A common stock
resulted in charges against additional paid-in capital (to the extent available)
and accumulated deficit.
Net Income per Share of Common Stock
We comply with accounting and disclosure requirements of FASB ASC Topic 260,
"Earnings Per Share." We have two classes of shares, which are referred to as
Class A common stock and Class B common stock. Income and losses are shared pro
rata between the two classes of shares. Net income (loss) per share of common
stock is calculated by dividing the net income (loss) by the weighted average
number of common stock outstanding for the respective period.
The calculation of diluted net income per share of common stock does not
consider the effect of the warrants underlying the Units sold in the Initial
Public Offering (including exercise of the over-allotment option) and the
Private Placement Warrants to purchase 30,980,000 shares of Class A common stock
in the calculation of diluted income per share, since the exercise of the
warrants is contingent upon the occurrence of future events. As a result,
diluted net income per share of common stock is the same as basic net income per
share of common stock for the years ended December 31, 2022 and 2021.
Re-measurement associated with the redeemable Class A common stock is excluded
from earnings per share as the redemption value approximates fair value.
50
Derivative Warrant Liabilities
We do not use derivative instruments to hedge exposures to cash flow, market, or
foreign currency risks. We evaluate all of our financial instruments, including
issued stock purchase warrants, to determine if such instruments are derivatives
or contain features that qualify as embedded derivatives, pursuant to FASB ASC
Topic 480 "Distinguishing Liabilities from Equity" and FASB ASC Topic 815,
"Derivatives and Hedging" ("ASC 815"). The classification of derivative
instruments, including whether such instruments should be recorded as
liabilities or as equity, is re-assessed at the end of each reporting period.
We account for our warrants issued in connection with the Initial Public
Offering and the Private Placement Warrants as derivative warrant liabilities in
accordance with ASC 815. Accordingly, we recognize the warrant instruments as
liabilities at fair value and adjust the instruments to fair value at each
reporting period. The liabilities are subject to re-measurement at each balance
sheet date until exercised, and any change in fair value is recognized in our
statement of operations. The fair value of warrants issued in connection with
the Private Placement have been estimated using a modified Black-Scholes model
at each balance sheet date. The fair value of the warrants issued in connection
with the Initial Public Offering was initially measured using a Monte-Carlo
simulation and subsequently been measured at each measurement date based on the
listed trading price of such warrants when separately listed and traded in
February 2021. The determination of the fair value of the warrant liability may
be subject to change as more current information becomes available and
accordingly the actual results could differ significantly. Derivative warrant
liabilities are classified as non-current liabilities as their liquidation is
not reasonably expected to require the use of current assets or require the
creation of current liabilities.
Recent Accounting Pronouncements
Our management does not believe that any recently issued, but not yet effective,
accounting standards updates, if currently adopted, would have a material effect
on the accompanying financial statements.
Off-Balance Sheet Arrangements and Contractual Obligations
As of December 31, 2022 and 2021, 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, our 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 of the
Sarbanes-Oxley Act, (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 Public Offering or until we
are no longer an "emerging growth company," whichever is earlier.
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