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 unaudited interim
condensed 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.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q includes forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933, as amended, 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.
Overview
We are a blank check company incorporated as a Cayman Islands exempted 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"). Although there is no restriction or limitation on what
industry our target operates in, it is our intention to pursue prospective
targets that are focused on healthcare innovation. 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 our 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 $160.0 million, and incurring offering costs of
approximately $9.4 million, inclusive of $5.6 million in deferred underwriting
commissions.
Simultaneously with the closing of the Initial Public Offering, we consummated
the private placement (the "Private Placement") with the Sponsor of (i) 450,000
ordinary shares (the "Private Placement Shares") at $10.00 per Private Placement
Share (for a total purchase price of $4.5 million) and (ii) 1,500,000 warrants
(the "Private Placement Warrants") at a price of $1.00 per Private Placement
Warrant (for a total purchase price of $1.5 million), 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 option), $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
(the "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 185 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.
We paid a total of $3.2 million in underwriting discounts and commissions (not
including the $5.6 million deferred underwriting commissions payable at the
consummation of the initial Business Combination) and approximately $0.6 million
for other costs and expenses related to our formation and the Initial Public
Offering.
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We will have until August 6, 2022, or such later time as the Company's
shareholders may approve in accordance with the Amended and Restated Memorandum
and Articles of Association, 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 holders of the Insider Shares
prior to the Initial Public Offering (the "Initial Shareholders") have agreed to
waive their liquidation rights with respect to the Insider Shares and the
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 commissions 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 Going Concern
As of March 31, 2022, we had approximately $1.4 million of cash in our operating
account and working capital of approximately $1.2 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 3,593,750 ordinary shares to the Sponsor, and a loan of $300,000
pursuant to a promissory note originally issued to our Sponsor on June 11, 2020
(the "Note"), which was repaid in full on August 7, 2020. Subsequent to the
consummation of the Initial Public Offering and the Private Placement, our
liquidity needs have been satisfied with the net proceeds from the Private
Placement not held in the Trust Account. In addition, in order to finance
transaction costs in connection with a Business Combination, the Initial
Shareholders or their affiliates may, but are not obligated to, provide us
loans, from time to time or at any time, in whatever amount they deem reasonable
in their sole discretion (the "Working Capital Loans"). As of March 31, 2022 and
December 31, 2021, there were no amounts outstanding under any Working Capital
Loans.
Based on the foregoing, management believes that we will have sufficient working
capital and borrowing capacity to meet its needs through the earlier of the
consummation of a Business Combination or one year from this filing. Over this
time period, we will be using these funds for paying existing accounts payable,
identifying and evaluating prospective initial Business Combination candidates,
performing due diligence on prospective target businesses, paying for travel
expenditures, selecting the target business to merge with or acquire, and
structuring, negotiating and consummating the Business Combination. We plan to
complete a business combination by the mandatory liquidation date. However, in
connection with our assessment of going concern considerations in accordance
with FASB Accounting Standards Update ("ASU") 2014-15, "Disclosures of
Uncertainties about an Entity's Ability to Continue as a Going Concern," we have
determined that the mandatory liquidation and subsequent dissolution raises
substantial doubt about our ability to continue as a going concern. Management
intends to complete the Business Combination prior to the liquidation date. No
adjustments have been made to the carrying amounts of assets or liabilities
should we be required to liquidate after August 6, 2022. The unaudited condensed
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 condensed financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
In February 2022, the Russian Federation and Belarus commenced a military action
with the country of Ukraine. As a result of this action, various nations,
including the United States, have instituted economic sanctions against the
Russian Federation and Belarus. Further, the impact of this action and related
sanctions on the world economy are not determinable as of the date of the
condensed financial statements and the specific impact on our financial
condition, results of operations, and cash flows is also not determinable as of
the date of the unaudited condensed financial statements.
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Results of Operations
Our entire activity from inception to March 31, 2022 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, at the earliest. We generate non-operating income
in the form of interest income on investments 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).
For the three months ended March 31, 2022, we had a net loss of approximately
$438,000 which consisted of approximately $422,000 in general and administrative
expenses and related party administrative fees of $30,000, partially offset by
approximately $14,000 of net income on the investments held in the Trust
Account.
For the three months ended March 31, 2021, we had a net loss of approximately
$108,000, which consisted of approximately $82,000 in general and administrative
expenses and related party administrative fees of $30,000, partially offset by
approximately $4,000 of net gain 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. All shares and associated amounts have
been retroactively restated to reflect the share dividend. The holders of the
Insider Shares had agreed to forfeit an aggregate of up to 521,739 Insider
Shares, on a pro rata basis, to the extent that the option to purchase
additional ordinary shares is not exercised in full by the underwriters. On
August 6, 2020, the underwriters fully exercised the over-allotment option;
thus, the 521,739 Insider Shares were no longer subject to forfeiture.
The Initial Shareholders have 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 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
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 or their affiliates may, but are not
obligated to, loan us the Working Capital Loans, from time to time or at any
time, in whatever amount they deem reasonable in their sole discretion. 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 March 31, 2022 and
December 31, 2021, the Company had no borrowings under the Working Capital
Loans.
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Administrative Services Agreement
Commencing on the effective date of the registration statement relating to the
Initial Public Offering, we agreed to pay 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. For the three months ended March 31, 2022 and 2021, we
incurred $30,000 in expenses for these services. As of March 31, 2022 and
December 31, 2021, $0 and $150,000 were due to the Sponsor and are included in
accrued expenses - related party on the accompanying condensed balance sheets,
respectively.
Contractual Obligations
Registration Rights
The holders of the Insider Shares, the Private Placement Shares, the 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, the Private Placement Warrants or warrants that may be issued
upon conversion 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 effective date of the
registration statement relating to the Initial Public Offering 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 $3.2 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 $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 and Estimates
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 and generally have
a readily determinable fair value, or a combination thereof. When our
investments held in the Trust Account are comprised of U.S. government
securities, the investments are classified as trading securities. When our
investments held in the Trust Account are comprised of money market funds, the
investments are recognized at fair value. Trading securities and investments in
money market funds are presented on the balance sheets at fair value at the end
of each reporting period. Gains and losses resulting from the change in fair
value of these securities are included in interest income from investments held
in the Trust Account in the accompanying unaudited condensed statements of
operations. The estimated fair values of investments held in the Trust Account
are determined using available market information.
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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 Public 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 March 31, 2022 and December 31,
2021, 16,000,000 ordinary shares subject to possible redemption are presented as
temporary equity, outside of the shareholders' deficit section of the
accompanying condensed balance sheets.
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.
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 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 three
months ended March 31, 2022 and 2021. Accretion associated with the redeemable
ordinary shares is excluded from earnings per share as the redemption value
approximates fair value.
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 condensed 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 recently issued, but not yet
effective, accounting pronouncements, if currently adopted, that would have a
material effect on our condensed financial statements.
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