References in this report (the "Quarterly Report") to "we," "us" or the
"Company" refer to Lux Health Tech Acquisition Corp. References to our
"management" or our "management team" refer to our officers and directors and
references to the "Sponsor" refer to Lux Encore Sponsor, LP The following
discussion and analysis of the Company's financial condition and results of
operations should be read in conjunction with the unaudited condensed financial
statements and the notes thereto contained elsewhere in this Quarterly Report
(the "unaudited condensed financial statements"). Capitalized terms used but not
otherwise defined herein have the meaning set forth in the unaudited condensed
financial statements. 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 Securities Exchange Act of 1934, as amended (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 Quarterly Report 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," "continue," "could," "should," "would,"
"possible," "potential," "predict," "seek" and variations and similar words and
expressions may identify such forward-looking statements, but the absence of
these words does not mean that a statement is not forward-looking.
Forward-looking statements in this Quarterly Report may include, for example,
statements about:
• our ability to select an appropriate target business or businesses;
• our ability to complete our initial Business Combination;
• our expectations around the performance of a prospective target
business or businesses;
• our success in retaining or recruiting, or changes required in, our
officers, key employees or directors following our initial Business
Combination;
• our officers and directors allocating their time to other businesses
and potentially having conflicts of interest with our business or in
approving our initial Business Combination;
• our potential ability to obtain additional financing to complete our
initial Business Combination;
• our pool of prospective target businesses;
• our ability to consummate an initial Business Combination due to the
uncertainty resulting from the COVID-19 pandemic;
• the ability of our officers and directors to generate a number of
potential Business Combination opportunities;
• our public securities' potential liquidity and trading;
• the lack of a market for our securities;
• the use of proceeds not held in the Trust Account (as defined below) or
available to us from interest income on the Trust Account balance;
• the Trust Account not being subject to claims of third parties; or
• our financial performance following the Initial Public Offering.
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. There can be no assurance that future developments
affecting us will be those that we have anticipated. These forward-
21
--------------------------------------------------------------------------------
looking statements involve a number of risks, uncertainties (some of which are
beyond our control) or other assumptions that may cause actual results or
performance to be materially different from those expressed or implied by these
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 fiscal year ended December 31, 2021
filed with the U.S. Securities and Exchange Commission (the "SEC") on March 30,
2022 and this Quarterly Report. 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 incorporated in Delaware on September 1, 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 (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,
LP, a Delaware limited partnership 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 full
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 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 certain of the proceeds from the sale of Private Placement
Warrants in the Private Placement were placed in a trust account ("Trust
Account") located in the United States with Continental Stock Transfer & Trust
Company acting as trustee, and invested only in United States "government
securities" within the meaning of Section 2(a)(16) of 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 us,
until the earlier of: (i) the completion of a Business Combination and (ii) the
distribution of the Trust Account as described below.
Our management has broad discretion with respect to the specific application of
the net proceeds of the Initial Public Offering and the sale of Private
Placement Warrants, although substantially all of the net proceeds are intended
to be applied generally toward consummating a Business Combination. There is no
assurance that we will be able to complete a Business Combination successfully.
We must complete one or more initial Business Combinations having an aggregate
fair market value of at least 80% of the net assets held in the Trust Account
(as defined below) (excluding the amount of deferred underwriting discounts held
in Trust and taxes payable on the income earned on the Trust Account) at the
time of the agreement to enter into the initial Business Combination. However,
we only intend to complete a Business Combination if the post-transaction
company owns or acquires 50% or more of the issued and outstanding voting
securities of the target or otherwise acquires a controlling interest in the
target sufficient for it not to be required to register as an investment company
under the Investment Company Act 1940, as amended (the "Investment Company
Act").
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"), and our stockholders have not amended the Certificate of Incorporation
to extend such 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
22
--------------------------------------------------------------------------------
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 from September 1, 2020 (inception) through October 29, 2020,
was in preparation for an Initial Public Offering, and since our Initial Public
Offering through March 31, 2022, our activity has been limited to the search for
a prospective initial Business Combination. We will not generate any operating
revenues until the closing and completion of our initial Business Combination.
For the three months ended March 31, 2022, we had net income of approximately
$7.6 million, which consisted of approximately $7.8 million in change in fair
value of derivative warrant liabilities, approximately $2,000 in change in
valuation of the Convertible promissory note - related party, and approximately
$27,000 of income from investments held in Trust Account, partly offset by
approximately $280,000 of loss from operations including approximately $231,000
of general and administrative expenses and approximately $49,000 of franchise
tax expense.
For the three months ended March 31, 2021, we had a net income of approximately
$17.6 million, which consisted of approximately $18.0 million in change in fair
value of derivative warrant liabilities and approximately $5,000 of income from
investments held in Trust Account, partly offset by approximately $377,000 of
loss from operations including approximately $285,000 of general and
administrative expenses, approximately $43,000 of general and administrative
expenses - related party, and approximately $49,000 of franchise tax expense.
Going Concern
As of March 31, 2022, we had approximately $129,000 in cash and working capital
deficit of approximately $17,000 (not taking into account tax obligations of
approximately $49,000 that may be paid using investment income earned from Trust
Account and the Convertible promissory note - related party from our Sponsor at
fair value of approximately $482,000). Further, we expect to incur significant
costs in pursuit of our acquisition plans. Our plans to raise capital and to
consummate an initial business combination may not be successful. We also need
to raise additional funds to meet our obligations and sustain our operations. In
order to finance transaction costs in connection with a Business Combination,
our Sponsor may, but is not obligated to, provide us with Working Capital Loans.
As of March 31, 2022, there was $500,000 of principal borrowings under Working
Capital Loans outstanding.
In connection with the Company's assessment of going concern considerations, in
accordance with ASC Topic 205-40, "Presentation of Financial Statements - Going
Concern," management determined that the mandatory liquidation and subsequent
dissolution as well as working capital deficit raise substantial doubt about its
ability to continue as a going concern one year from the date that these
financial statements are issued. No adjustments have been made to the carrying
amounts of assets or liabilities should we be required to liquidate after
October 29, 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.
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
underwriters
23
--------------------------------------------------------------------------------
exercised their over-allotment option in full on October 29, 2020; thus, the
1,125,000 Founder Shares were no longer subject to forfeiture.
In October 2020, the Sponsor transferred 40,000 Founder Shares to each of three
independent directors, a total of 120,000 Founder Shares. The fair value of the
120,000 Founder shares granted to each independent directors was $296,400 each,
or $7.41 per share, or $889,200 in the aggregate. The transfer of the Founder
Shares is in the scope of FASB ASC Topic 718, "Compensation-Stock Compensation"
("ASC 718"). Under ASC 718, stock-based compensation associated with
equity-classified awards is measured at fair value upon the grant date. The
Founders Shares were granted subject to a performance condition (i.e., the
occurrence of a Business Combination). Compensation expense related to the
Founders Shares is recognized only when the performance condition is probable of
occurrence under the applicable accounting literature in this circumstance. As
of March 31, 2022, the Company determined that a Business Combination is not
considered probable, and, therefore, no stock-based compensation expense has
been recognized. Stock-based compensation would be recognized at the date a
Business Combination is considered probable (i.e., upon completion of a Business
Combination) in an amount equal to the number of Founders Shares that ultimately
vest multiplied times the grant date fair value per share (unless subsequently
modified) less the amount initially received for the purchase of the Founders
Shares.
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.
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.
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 will 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 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
24
--------------------------------------------------------------------------------
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.
On December 3, 2021, we issued an unsecured the convertible promissory note (the
"Convertible promissory note -related party") in the principal amount of
$500,000 to our Sponsor. The Convertible promissory note -related party does not
bear interest and is repayable in full upon consummation of our initial business
combination (a "Business Combination"). If we do not complete a Business
Combination, the Convertible promissory note - related party shall not be repaid
and all amounts owed under it will be forgiven except to the extent that we have
funds available to it outside of its trust account established in connection
with the Initial Public Offering. Upon the consummation of a Business
Combination, our Sponsor shall have the option, but not the obligation, to
convert the principal balance of the Convertible promissory note - related
party, in whole or in part, to warrants of our Company, at a price of $1.50 per
warrant. The terms of the warrants will be identical to the terms of the
warrants issued by the Company to the Sponsor in a private placement that took
place simultaneously with the Company's Initial Public Offering. The Convertible
promissory note - related party is subject to customary events of default, the
occurrence of which, in certain instances, would automatically trigger the
unpaid principal balance of the Convertible promissory note - related party and
all other sums payable with regard to the Convertible promissory note - related
party becoming immediately due and payable. At March 31, 2022 and December 31,
2021, the principal amount of $500,000 was outstanding under the Convertible
promissory note - related party.
Services Agreement
Commencing on January 11, 2021, we entered into a services agreement with an
affiliate of our Sponsor to provide full-time support in our search for a
business combination. We agreed to reimburse for costs, fees, and expenses
associated with the full-time support. For the three months ended March 31,
2021, we incurred approximately $43,000 of such support included as general and
administrative expenses. The agreement was terminated on November 1, 2021 and as
such, nothing was incurred in the three months ended March 31, 2022 and no
amounts were due for such support at March 31, 2022.
Commitments and Contingencies
Forward Purchase Agreements
On October 22, 2020, 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 one forward purchase
share and one third of one forward purchase warrant, 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 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
25
--------------------------------------------------------------------------------
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 and Estimates
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America ("GAAP") requires management
to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses. A summary of our significant accounting
policies is included in Note 2 to our condensed financial statements in Part I,
Item 1 of this Quarterly Report. Certain of our accounting policies are
considered critical, as these policies are the most important to the depiction
of our financial statements and require significant, difficult or complex
judgments, often employing the use of estimates about the effects of matters
that are inherently uncertain. Such policies are summarized in the Management's
Discussion and Analysis of Financial Condition and Results of Operations section
in our 2021 Annual Report on Form 10-K filed with the SEC on March 30, 2022.
There have been no significant changes in the application of our critical
accounting policies during the three months ended March 31, 2022
We believe that our critical accounting policies and estimates have a higher
degree of inherent uncertainty and require our most significant judgments. In
addition, if we had used estimates different from any of these, our unaudited
condensed financial statements could have been materially different from those
presented. There were no changes in our critical accounting policies and
estimates during the three months ended March 31, 2022, from those set forth in
"Critical Accounting Policies and Estimates" in our December 31, 2021 Annual
Report on Form 10-K filed with the SEC on March 30, 2022.
Recent Accounting Pronouncements
See Note 2 to the unaudited condensed financial statements included in Part I,
Item 1 of this Quarterly Report for a discussion of recent accounting
pronouncements.
Off-Balance Sheet Arrangements
As of March 31, 2022, we did not have any off-balance sheet arrangements as
defined in Item 303(a)(4)(ii) of Regulation S-K.
Inflation
We do not believe that inflation had a material impact on our business, revenues
or operating results during the period presented.
26
--------------------------------------------------------------------------------
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 unaudited 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 Public Company
Accounting Oversight Board regarding mandatory audit firm rotation or a
supplement to the auditor's report providing additional information about the
audit and the unaudited condensed 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.
27
--------------------------------------------------------------------------------
© Edgar Online, source Glimpses