References to the "Company," "our," "us" or "we" refer to Lux Health Tech
Acquisition Corp. The following discussion and analysis of our's financial
condition and results of operations should be read in conjunction with the
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 Annual Report on Form 10-K 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 Securities Exchange Act of 1934, as
amended (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. Such statements include, but are not limited
to, possible business combinations and the financing thereof, and related
matters, as well as all other statements other than statements of historical
fact included in this Form 10-K. Factors that might cause or contribute to such
a discrepancy include, but are not limited to, those described in our other
Securities and Exchange Commission ("SEC") filings.
In this Report, we are restating our audited financial statements as of December
31, 2020 and for the period from September 1, 2020 (inception) to December 31,
2020.
On April 12, 2021, the SEC Staff issued the SEC Staff Statement. In the SEC
Staff Statement, the SEC Staff expressed its view that certain terms and
conditions common to SPAC warrants may require the warrants to be classified as
liabilities rather than equity on a SPAC's balance sheet. Since their issuance
on October 29, 2020, our warrants have been accounted for as equity within our
balance sheet, and after discussion and evaluation and taking into consideration
the SEC Staff Statement, we have concluded that our warrants should be presented
as liabilities with subsequent fair value remeasurement.
As a result of the foregoing, on June 4, 2021, the audit committee of the board
of directors of the Company, in consultation with its management, concluded that
its previously issued financial statements for the Affected Period should be
restated because of a misapplication in the guidance regarding accounting for
our outstanding warrants to purchase common stock and should no longer be relied
upon.
Historically, the warrants were reflected as a component of equity as opposed to
liabilities on the balance sheet and the statement of operations did not include
the subsequent non-cash changes in estimated fair value of the warrants, based
on our application of ASC 815-40. The views expressed in the SEC Staff Statement
were not consistent with the Company's historical interpretation of the specific
provisions within its warrant agreement and the Company's application of ASC
815-40 to the warrant agreement. We reassessed our accounting for the warrants
issued on October 29, 2020, in light of the SEC Staff's published views. Based
on this reassessment, and after consultation with our audit committee and
independent registered accounting firm, we determined that the warrants should
be classified as liabilities measured at fair value upon issuance, with
subsequent changes in fair value reported in our Statement of Operations each
reporting period. In addition, a portion of the initial transaction costs
related to the initial public offering and attributable to the warrants should
be expensed and the difference between the fair market value of the private
placement warrants and the initial purchase price consideration thereof
recognized as compensation expense.
Our accounting for the warrants as components of equity instead of as derivative
liabilities did not have any effect on our previously reported revenue,
operating expenses, operating income, cash flows or cash.
57
--------------------------------------------------------------------------------
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 with respect to the
classification of the Company's warrants as components of equity instead of as
derivative liabilities. For more information, see Item 9A included in this
Report.
We have not amended our previously filed Current Report on Form 8-K for the
period affected by the restatement. The financial information that has been
previously filed or otherwise reported for these periods is superseded by the
information in this Report, and the financial statements and related financial
information contained in such previously filed reports should no longer be
relied upon.
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 in Delaware on September 1, 2020 for
the purpose of effecting a merger, capital stock exchange, asset acquisition,
stock purchase, reorganization or similar business combination with one or more
businesses (the "Business Combination") that we have not yet identified. 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 Lux Encore Sponsor,
L.P., a Delaware limited liability and an affiliate of certain of our officers
and directors (our "Sponsor").
Our registration statement for our initial public offering (the "Initial Public
Offering") was declared effective on October 26, 2020. On October 29, 2020, we
consummated the Initial Public Offering of 34,500,000 units (the "Units" and,
with respect to the Class A common stock included in the Units being offered,
the "Public Shares"), which included 4,500,000 Units issued pursuant to the
partial exercise by the underwriters of their over-allotment option, at $10.00
per Unit, generating gross proceeds of $345.0 million, and incurring offering
costs of approximately $19.9 million, inclusive of $12.1 million in deferred
underwriting commissions.
Simultaneously with the closing of the Initial Public Offering, we consummated
the private placement ("Private Placement") of 5,933,333 warrants (each, a
"Private Placement Warrant" and collectively, the "Private Placement Warrants")
to the Sponsor, each exercisable to purchase one share of Class A common stock
at $11.50 per share, at a price of $1.50 per Private Placement Warrant,
generating gross proceeds us of $8.9 million.
Upon the closing of the Initial Public Offering and the Private Placement,
$345.0 million of the net proceeds of the sale of the Units in the Initial
Public Offering and the sale of Private Placement Warrants in the Private
Placement were placed in a trust account ("Trust Account") located in the United
States with American 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 180 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, as
determined by the Company, until the earlier of: (i) the completion of a
Business Combination and (ii) the distribution of the Trust Account as described
below. Except with respect to interest earned on the funds held in the trust
account that may be released to us to pay our taxes, if any, the funds held in
the trust account will not be released until the earliest to occur of: (a) the
completion of our initial Business Combination; (b) the redemption of any Public
Shares properly tendered in connection with a stockholder vote to amend our
amended and restated certificate of incorporation (i) to modify the substance or
timing of our obligation to allow redemption in connection with our initial
Business Combination or to redeem 100% of our Public Shares if we do not
complete our initial Business Combination within 24 months from the closing of
the Initial Public Offering or (ii) with respect to any other provisions
relating to stockholders' rights or pre-initial Business Combination activity;
and (c) the redemption of all of our Public Shares if we have not completed our
initial Business Combination within 24 months from the closing of the Initial
Public Offering, subject to applicable law. Based on current interest rates, we
expect that interest income earned on the trust account (if any) will be
sufficient to pay our income and franchise taxes.
58
--------------------------------------------------------------------------------
If we are unable to complete a Business Combination within 24 months from the
closing of the Initial Public Offering, or October 29, 2022, (the "Combination
Period"), we will (i) cease all operations except for the purpose of winding up;
(ii) as promptly as reasonably possible but no more than ten business days
thereafter subject to lawfully available funds therefor, 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 our taxes as
well as expenses relating to the administration of the trust account (less up to
$100,000 of interest to pay dissolution expenses) divided by the number of the
then outstanding Public Shares, which redemption will completely extinguish
Public Stockholders' rights as stockholders (including the right to receive
further liquidation distributions, if any), subject to applicable law; 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.
Results of Operations
Our entire activity since inception through December 31, 2020 related to our
formation, the preparation for the Initial Public Offering, and since the
closing of the Initial Public Offering, the search for a target for its 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. We will generate non-operating
income in the form of interest income on cash and cash equivalents. 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 period from September 1, 2020 (inception) through December 31, 2020, we
had a net loss of approximately $17.4 million which consisted of approximately
$0.6 million in general and administrative expenses-related party, approximately
$0.2 million in general and administrative costs, approximately $1.1 million of
financing costs, approximately $15.5 million of change in fair value of
derivative warrant liabilities, and approximately $65,000 in franchise tax
expense, partly offset by approximately $4,000 in gain on investments held in
Trust Account. The $0.6 million in general and administrative expenses is
primarily related to the non-cash compensation expense recognized as a result of
the fair value of the Private Placement Warrants being in excess of the amount
paid by the Sponsor, pursuant to ASC 718, Share-based Compensation.
As a result of the restatement described in Note 2 of the notes to the financial
statements included herein, we classify the warrants issued in connection with
our Initial Public Offering and Private Placement as liabilities at their fair
value and adjust the warrant instruments to fair value at each reporting period.
These 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. For the period from September 1, 2020 (inception) through December
31, 2020, the change in fair value of warrants was an increase of approximately
$15.5 million.
Going Concern
As of December 31, 2020, we had $0.6 million in cash and working capital of
approximately $1.0 million (not taking into account tax obligations of
approximately $65,000 that may be paid using investment income earned from Trust
Account). Further, we expect to incur significant costs in pursuit of our
acquisition plans. Management's plans to address this need for capital are
discussed in the section of this annual report titled "Management's Discussion
and Analysis of Financial Condition and Results of Operations." Our plans to
raise capital and to consummate our initial business combination may not be
successful. In addition, management is currently evaluating the impact of the
COVID-19 pandemic on the industry and its effect on our financial position,
results of our operations and/or search for a target company. These factors,
among others, raise substantial doubt about our ability to continue as a going
concern. The financial statements contained elsewhere in this annual report do
not include any adjustments that might result from our inability to continue as
a going concern.
59
--------------------------------------------------------------------------------
Related Party Transactions
Founder Shares
On September 4, 2020, our Sponsor purchased 8,625,000 shares of our Class B
common stock, par value $0.0001 per share, (the "Founder Shares") for an
aggregate price of $25,000. Our Sponsor agreed to forfeit up to 1,125,000
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
our issued and outstanding shares after the Initial Public Offering. The
underwriter exercised its over-allotment option in full on October 29, 2020;
thus, the 1,125,000 Founder Shares were no longer subject to forfeiture.
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:
(a) one year after the completion of the initial Business Combination and
(b) upon completion of the initial Business Combination, (x) if the last
reported sale price of 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
or (y) the date on which we complete a liquidation, merger, capital stock
exchange or other similar transaction after the initial Business Combination
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 5,933,333 Private Placement Warrants to the Sponsor,
each exercisable to purchase one share of Class A common stock at $11.50 per
share, at a price of $1.50 per Private Placement Warrant, generating gross
proceeds to us of $8.9 million.
Each Private Placement Warrant is exercisable for one whole share of Class A
common stock at a price of $11.50 per share. 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. Except as set forth below, the Private
Placement Warrants will be non-redeemable for cash and exercisable on a cashless
basis so long as they are held by the Sponsor or their permitted transferees.
The purchasers of the Private Placement Warrants agreed, subject to limited
exceptions, not to transfer, assign or sell any of their Private Placement
Warrants (except to permitted transferees) until 30 days after the completion of
the initial Business Combination.
Related Party Loans
On September 4, 2020, our Sponsor agreed to loan us an aggregate of up to
$300,000 to cover expenses related to the Initial Public Offering pursuant to a
promissory note (the "Note"). This loan was non-interest bearing and payable
upon the completion of the Initial Public Offering. We borrowed approximately
$172,000 under the Note and repaid this Note in full as of October 30, 2020.
During the period from September 1, 2020 through December 31,2020, the Sponsor
paid certain expenses on behalf of the Company totaling $5,555 that were repaid
to the Sponsor with no balance remaining as of December 31, 2020.
In addition, in order to finance transaction costs in connection with a Business
Combination, our Sponsor or an affiliate of the Sponsor, or certain of our
officers and directors may, but are not obligated to, provide us with Working
Capital Loans. If we complete a Business Combination, we would repay the Working
Capital Loans out of the proceeds of the Trust Account released to us.
Otherwise, the Working Capital Loans would 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
60
--------------------------------------------------------------------------------
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 lender's discretion, up to
$1.5 million of such Working Capital Loans may be convertible into warrants of
the post Business Combination entity at a price of $1.50 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. To date,
we had no borrowings under the Working Capital Loans.
Commitments and Contingencies
Forward Purchase Agreements
In connection with the consummation of the Initial Public Offering, we entered
into a forward purchase agreement pursuant to which the Lux Ventures VI Entities
have agreed to purchase an aggregate of up to 1,500,000 forward purchase units,
each unit consisting of the forward purchase shares and the forward purchase
warrants, for $10.00 per unit, or an aggregate maximum amount of $15,000,000, in
a private placement that will close simultaneously with the closing of the
initial Business Combination. The Lux Ventures VI Entities will purchase a
number of forward purchase units that will result in gross proceeds to us
necessary to enable us to consummate an initial Business Combination and pay
related fees and expenses, after first applying amounts available to us from the
Trust Account (after paying the deferred underwriting discount and giving effect
to any redemptions of Public Shares) and any other financing source obtained by
us for such purpose at or prior to the consummation of the initial Business
Combination, plus any additional amounts mutually agreed by us and the Lux
Ventures VI Entities to be retained by the post-Business Combination company for
working capital or other purposes. The Lux Ventures VI Entities' obligation to
purchase forward purchase units will, among other things, be conditioned on the
Business Combination (including the target assets or business, and the terms of
the Business Combination) being reasonably acceptable to the Lux Ventures VI
Entities and on a requirement that such initial Business Combination is approved
by a unanimous vote of the board of directors. In determining whether a target
is reasonably acceptable to the Lux Ventures VI Entities, we expect that the Lux
Ventures VI Entities would consider many of the same criteria as the we will
consider but will also consider whether the investment is an appropriate
investment for the Lux Ventures VI Entities.
Registration Rights
The holders of Founder Shares, Private Placement Warrants and warrants that may
be issued upon conversion of Working Capital Loans (and any shares of Class A
common stock issuable upon the exercise of the Private Placement Warrants or
warrants issued upon conversion of the Working Capital Loans and upon conversion
of the Founder Shares), 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 be required to effect or permit any registration or
cause any registration statement to become effective until termination of the
applicable lock-up period. We will bear the expenses incurred in connection with
the filing of any such registration statements.
Underwriting Agreement
The underwriters were entitled to an underwriting discount of $0.20 per Unit, or
$6.9 million in the aggregate, paid upon the closing of the Initial Public
Offering. An additional fee of $0.35 per Unit, or approximately $12.1 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.
Critical Accounting Policies
This management's discussion and analysis of our financial condition and results
of operations is based on our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the
61
--------------------------------------------------------------------------------United States of America. The preparation of our financial statements requires
us to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses and the disclosure of contingent assets
and liabilities in our financial statements. On an ongoing basis, we evaluate
our estimates and judgments, including those related to fair value of financial
instruments and accrued expenses. We base our estimates on historical
experience, known trends and events and various other factors that we believe to
be reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from these
estimates under different assumptions or conditions. We have identified the
following as our 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 sheets 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 income from investments held in
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.
Class A Common Stock Subject to Possible Redemption
We account for our Class A common stock subject to possible redemption in
accordance with the guidance in Accounting Standards Codification Topic 480
"Distinguishing Liabilities from Equity." Shares of Class A common stock subject
to mandatory redemption (if any) are classified as liability instruments and are
measured at fair value. Conditionally redeemable shares of Class A common stock
(including shares of Class A common stock 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, shares of Class A common stock are
classified as stockholders' equity. Our shares of Class A common stock 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, 32,882,503 shares of Class A common stock subject to possible
redemption were presented as temporary equity, outside of the stockholders'
equity section of the accompanying balance sheet.
Net Income (Loss) Per Share of Common Stock
Net loss per share is computed by dividing net loss by the weighted average
number of shares of common stock outstanding during the period. An aggregate of
28,541,603 shares of common stock subject to possible redemption at December 31,
2020 has been excluded from the calculation of basic loss per share of common
stock, since such shares, if redeemed, only participate in their pro rata share
of the trust earnings. The Company has not considered the effect of the warrants
sold in the Initial Public Offering and Private Placement to purchase an
aggregate of 17,433,333 shares of our common stock in the calculation of diluted
loss per share, since they are not yet exercisable.
Net loss per share is computed by dividing net loss by the weighted average
number of shares of common stock outstanding during the period. The Company has
not considered the effect of the warrants sold in the Initial Public Offering
and Private Placement to purchase an aggregate of 17,433,333 shares of our
common stock in the calculation of diluted loss per share, since the exercise of
the warrants are contingent upon the occurrence of future events and the
inclusion of such warrants would be anti-dilutive.
We apply the two-class method in calculating earnings per share. Net income
(loss) per common share, basic and diluted for Class A common stock subject to
possible redemption is calculated by dividing the income earned on the Trust
Account, net of applicable taxes, if any, by the weighted average number of
shares of Class A common stock subject to possible redemption outstanding for
the period. Net income (loss) per common share, basic and
62
--------------------------------------------------------------------------------
diluted for non-redeemable common stock is calculated by dividing net loss less
income attributable to Class A shares common stock subject to possible
redemption, by the weighted average number of shares of non-redeemable common
stock outstanding for the period presented.
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 ASC 480
and ASC 815-15. 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 issued 11,500,000 common stock warrants to investors in our Initial Public
Offering and issued 5,933,333 Private Placement Warrants. All of our outstanding
warrants are recognized as derivative liabilities in accordance with ASC 815-40.
Accordingly, we recognize the warrant instruments as liabilities at fair value
and adjust the instruments to fair value at each reporting period. The
difference between the fair market value of the private placement warrants and
the initial purchase consideration thereof is recorded as compensation expense.
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 the Public Warrants and Private Warrants were
initially and subsequently measured at fair value using a Monte Carlo simulation
model. Beginning as of December 31, 2020, the fair value of Public Warrants have
been measured based on the listed market price of such Public Warrants. The
Private Placement Warrants are measured by reference to the listed trading price
of the Public Warrants at December 31, 2020.
Recent Accounting Pronouncements
Our 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 financial statements.
Off-Balance Sheet Arrangements
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.
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 Public Company
Accounting Oversight Board regarding mandatory audit firm rotation or a
63
--------------------------------------------------------------------------------
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 Chief
Executive Officer'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.
© Edgar Online, source Glimpses
LUX HEALTH TECH ACQUISITION CORP. 
