References in this report (the "Quarterly Report") to "we," "us" or the
"Company" refer to EQ Health Acquisition Corp. References to our "management" or
our "management team" refer to our officers and directors, and references to the
"Sponsor" refer to EQ Health Sponsor Group LLC. 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. Certain information contained in
the discussion and analysis set forth below includes forward-looking statements
that involve risks and uncertainties.
Special Note Regarding Forward-Looking Statements
This Quarterly Report includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended (the "Securities Act")
and Section 21E of the Exchange Act that are not historical facts and involve
risks and uncertainties that could cause actual results to differ materially
from those expected and projected. All statements, other than statements of
historical fact included in this Form 10-Q including, without limitation,
statements in this "Management's Discussion and Analysis of Financial Condition
and Results of Operations" regarding the Company's financial position, business
strategy and the plans and objectives of management for future operations, are
forward-looking statements. Words such as "expect," "believe," "anticipate,"
"intend," "estimate," "seek" and variations and similar words and expressions
are intended to identify such forward-looking statements. Such forward-looking
statements relate to future events or future performance, but reflect
management's current beliefs, based on information currently available. A number
of factors could cause actual events, performance or results to differ
materially from the events, performance and results discussed in the
forward-looking statements. For information identifying important factors that
could cause actual results to differ materially from those anticipated in the
forward-looking statements, please refer to the Risk Factors section of the
Company's Annual report on Form 10-K for the year ended December 31, 2021 filed
with the U.S. Securities and Exchange Commission (the "SEC"). The Company's
securities filings can be accessed on the EDGAR section of the SEC's website at
www.sec.gov. Except as expressly required by applicable securities law, the
Company disclaims any intention or obligation to update or revise any
forward-looking statements whether as a result of new information, future events
or otherwise.
Overview
We are a blank check company formed under the laws of the State of Delaware on
September 2, 2020, for the purpose of effecting a merger, capital stock
exchange, asset acquisition, stock purchase, reorganization or other similar
business combination with one or more businesses. We intend to effectuate our
Business Combination using cash from the proceeds of the Initial Public Offering
and the sales of the Private Placement Warrants, our capital stock, debt or a
combination of cash, stock and debt.
We expect to continue to incur significant costs in the pursuit of our
acquisition plans. We cannot assure you that our plans to raise capital or to
complete our initial Business Combination will be successful.
Results of Operations
We have neither engaged in any operations nor generated any operating revenues
to date. Our only activities through September 30, 2022 were organizational
activities, those necessary to prepare for the Initial Public Offering,
described below, and identifying a target company for a Business Combination. We
do not expect to generate any operating revenues until after the 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 incur
expenses as a result of being a public company (for legal, financial reporting,
accounting and auditing compliance), as well as for due diligence expenses in
connection with searching for, and completing, a Business Combination.
For the three months ended September 30, 2022, we had net income of $1,651,286,
which consisted of a change in fair value of warrant liabilities of $250,970,
reduction in liabilities of $770,000 and interest earned on marketable
securities held in the Trust Account of $1,083,243 offset by operating and
formation costs of $205,986 and provision for income taxes of $246,941.
For the nine months ended September 30, 2022, we had net income of $8,985,594,
which consisted of a change in fair value of warrant liabilities of $7,656,273,
reduction in liabilities of $770,000 and interest earned on marketable
securities held in the Trust Account of $1,447,822 offset by operating and
formation costs of $640,033 and provision for income taxes of $248,468.
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For the three months ended September 30, 2021, we had net income of $1,583,251,
which consisted of a change in fair value of warrant liabilities of $2,256,826
and an interest earned on marketable securities held in Trust Account of
$48,488, offset by operational costs of $690,250 and an unrealized loss on
marketable securities held in Trust Account of $31,813.
For the nine months ended September 30, 2021, we had net income of $6,275,392,
which consisted of a change in fair value of warrant liabilities of $11,304,811,
interest earned on marketable securities held in the Trust account of $58,464,
offset by operational costs of $2,814,320, offering costs allocated to warrant
liabilities of $794,263, a loss on initial issuance of Private Placement
Warrants of $1,471,998 and an unrealized loss on marketable securities held in
Trust Account of $7,302.
Liquidity and Capital Resources
On February 2, 2021, we consummated the Initial Public Offering of 21,999,960
Units, at a price of $10.00 per Unit, which included the full exercise by the
underwriters of their over-allotment option in the amount of 2,869,560 Units,
generating gross proceeds of $219,999,600. Simultaneously with the closing of
the Initial Public Offering, we consummated the sale of 6,399,992 Private
Placement Warrants to the Sponsor at a price of $1.00 per Private Placement
Warrant generating gross proceeds of $6,399,992.
Following the Initial Public Offering, the full exercise of the over-allotment
option, and the sale of the Private Placement Warrants, a total of $219,999,600
was placed in the Trust Account, and we had $1,517,076 of cash held outside of
the Trust Account, after payment of costs related to the Initial Public
Offering, and available for working capital purposes. We incurred $12,630,102 in
transaction costs, including $4,399,992 of underwriting fees, $7,699,986 of
deferred underwriting fees and $530,124 of other offering costs.
For the nine months ended September 30, 2022, cash used in operating activities
was $741,787. Net income of $8,985,594 was affected by the change in fair value
of warrant liabilities of $7,656,273 and interest earned on marketable
securities held in the Trust Account of $1,447,822. Changes in operating assets
and liabilities used $623,286 of cash for operating activities.
For the nine months ended September 30, 2021, cash used in operating activities
was $736,807. Net income of $6,275,392 was affected by the change in fair value
of warrant liabilities of $11,304,811, a loss on initial issuance of Private
Placement Warrants of $1,471,998, transaction costs allocated to warrant
liabilities of $794,263, interest earned on marketable securities held in the
Trust Account of $58,464 and an unrealized loss on marketable securities held in
our Trust Account of $7,302. Changes in operating assets and liabilities
provided $2,077,513 of cash for operating activities.
As of September 30, 2022, we had cash and marketable securities held in the
Trust Account of $221,140,021. We intend to use substantially all of the funds
held in the Trust Account, including any amounts representing interest earned on
the Trust Account (less deferred underwriting commissions and income taxes
payable), to complete our Business Combination. To the extent that our capital
stock or debt is used, in whole or in part, as consideration to complete our
Business Combination, the remaining proceeds held in the Trust Account will be
used as working capital to finance the operations of the target business or
businesses, make other acquisitions and pursue our growth strategies.
As of September 30, 2022, we had cash of $301,752. We intend to use the funds
held outside the Trust Account primarily to identify and evaluate target
businesses, perform business due diligence on prospective target businesses,
travel to and from the offices, plants or similar locations of prospective
target businesses or their representatives or owners, review corporate documents
and material agreements of prospective target businesses, and structure,
negotiate and complete a Business Combination.
On July 23, 2021 and October 26, 2021, the Company's founders committed to
provide us with an aggregate of $2,500,000 in loans. The loans, if issued, will
be non-interest bearing, unsecured and will be repaid upon the consummation of a
Business Combination. If the Company does not consummate a Business Combination,
all amounts loaned to the Company will be forgiven except to the extent that we
have funds available outside of the Trust Account to repay such loans.
On February 25, 2022, the Company entered into a non-interest bearing promissory
note with the sponsor for a principal of $500,000 "the Sponsor Loan." The
promissory note under the Sponsor Loan is payable on the earlier of (i) January
28, 2023 and (ii) the consummation of a Business Combination. The principal
balance may be prepaid at any time. On August 24, 2022, the Company entered into
an additional non-interest bearing Promissory Note with the Sponsor for a
principal of $125,000. The Promissory Note is payable on the earlier of (i)
January 28, 2023 and (ii) the consummation of a Business Combination. The
principal balance may be prepaid at any time. As of September 30, 2022, a
principal balance of $600,000 has been advanced.
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In order to fund working capital deficiencies or finance transaction costs in
connection with a Business Combination, our Sponsor or an affiliate of our
Sponsor or certain of our officers and directors may, but are not obligated to
(except as described above), loan us funds as may be required. If we complete a
Business Combination, we may repay such loaned amounts out of the proceeds of
the Trust Account released to us. 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 loaned amounts, but no proceeds from our Trust Account
would be used for such repayment. Up to $1,500,000 of such loans may be
convertible into warrants, at a price of $1.00 per warrant, at the option of the
lender. The warrants would be identical to the Private Placement Warrants.
We do not believe we will need to raise additional funds in order to meet the
expenditures required for operating our business. However, if our estimate of
the costs of identifying a target business, undertaking in-depth due diligence
and negotiating a Business Combination are less than the actual amount necessary
to do so, then notwithstanding the Sponsor Loan, we may have insufficient funds
available to operate our business prior to our Business Combination. Moreover,
we may need to obtain additional financing either to complete our Business
Combination or because we become obligated to redeem a significant number of our
public shares upon consummation of our Business Combination, in which case we
may issue additional securities or incur debt in connection with such Business
Combination.
Subject to compliance with applicable securities laws, we would only complete
such financing simultaneously with the completion of our Business Combination.
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 its liquidation. If we are unable to complete our
Business Combination because we do not have sufficient funds available to us, we
will be forced to cease operations and liquidate the Trust Account. In addition,
following our Business Combination, if cash on hand is insufficient, we may need
to obtain additional financing in order to meet our obligations.
Going Concern
In connection with the Company's assessment of going concern considerations in
accordance with Financial Accounting Standard Board's Accounting Standards
Codification Subtopic 205-40, "Presentation of Financial Statements - Going
Concern," the Company has until February 3, 2023 to consummate a Business
Combination. It is uncertain that the Company will be able to consummate a
Business Combination by this time. If a Business Combination is not consummated
by this date and an extension not requested by the Sponsor, there will be a
mandatory liquidation and subsequent dissolution of the Company. Management has
determined that the mandatory liquidation, should a Business Combination not
occur, and an extension is not requested by the Sponsor, and potential
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 of assets or liabilities should the Company be required to liquidate
after February 3, 2023.
Off-Balance Sheet Arrangements
We have no obligations, assets or liabilities, which would be considered
off-balance sheet arrangements as of September 30, 2022. We do not participate
in transactions that create relationships with unconsolidated entities or
financial partnerships, often referred to as variable interest entities, which
would have been established for the purpose of facilitating off-balance sheet
arrangements. We have not entered into any off-balance sheet financing
arrangements, established any special purpose entities, guaranteed any debt or
commitments of other entities, or purchased any non-financial assets.
Contractual Obligations
We do not have any long-term debt, capital lease obligations, operating lease
obligations, purchase obligations, or long-term liabilities, other than i) the
Sponsor Loan, and ii) an agreement to pay an affiliate of the Sponsor a monthly
fee of $10,000 for office space, utilities, secretarial and administrative
support services. We began incurring these fees on January 28, 2021 and will
continue to incur these fees monthly until the earlier of the completion of the
Business Combination and our liquidation.
The underwriters are entitled to a deferred fee of $0.35 per Unit, or $7,699,986
in the aggregate. The deferred fee will become payable to the underwriters 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.
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Critical Accounting Policies
The preparation of condensed financial statements and related disclosures in
conformity with accounting principles generally accepted in the United States of
America 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 income and expenses
during the periods reported. Actual results could materially differ from those
estimates. We have identified the following critical accounting policies.
Warrant Liabilities
We account for the warrants issued in connection with our Initial Public
Offering in accordance with the guidance contained in ASC 815 under which the
warrants do not meet the criteria for equity treatment and must be recorded as
liabilities. Accordingly, we classify the warrants as liabilities at their fair
value and adjust the warrants to fair value at each reporting period. This
liability is subject to re-measurement at each balance sheet date until
exercised, and any change in fair value is recognized in our statements of
operations. The fair value of the Public Warrants were initially estimated using
a Monte Carlo simulation approach. For periods subsequent to the detachment of
the Public Warrants from the Units, the close price of the Public Warrant price
was used as the fair value as of each relevant date. The fair value of the
Private Placement Warrants were valued using a Modified Black Scholes Option
Pricing Model.
Class A Common Stock Subject to Possible Redemption
We account for our Class A common stock subject to possible conversion in
accordance with the guidance in Accounting Standards Codification ("ASC") Topic
480 "Distinguishing Liabilities from Equity." Shares of Class A common stock
subject to mandatory redemption 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 Class A common
stock features certain redemption rights that are considered to be outside of
our control and subject to occurrence of uncertain future events. Accordingly,
Class A common stock subject to possible redemption is presented at redemption
value as temporary equity, outside of the stockholders' equity (deficit) section
of our condensed balance sheets.
Net Income (Loss) per Common Share
Net income (loss) per common share is computed by dividing net income (loss) by
the weighted average number of common stock outstanding during the period.
Accretion associated with the redeemable shares of Class A common stock is
excluded from income (loss) per common share as the redemption value
approximates fair value.
Recent Accounting Standards
In August 2020, the FASB issued Accounting Standards Update No. 2020-06,
"Debt-Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives
and Hedging-Contracts in Entity's Own Equity (Subtopic 815-40): Accounting for
Convertible Instruments and Contracts in an Entity's Own Equity" ("ASU
2020-06"), which simplifies accounting for convertible instruments by removing
major separation models required under current GAAP. ASU 2020-06 removes certain
settlement conditions that are required for equity contracts to qualify for the
derivative scope exception and it also simplifies the diluted earnings per share
calculation in certain areas. ASU 2020-06 is effective for fiscal years
beginning after December 15, 2023, including interim periods within those fiscal
years, with early adoption permitted. The Company adopted ASU 2020-06 effective
as of January 1, 2021. The adoption of ASU 2020-06 did not have an impact on the
Company's financial statements.
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 condensed financial statements.
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