References in this report (the "Quarterly Report") to "we," "us" or the
"Company" refer to Viveon Health Acquisition Corp. References to our
"management" or our "management team" refer to our officers and directors, and
references to the "Sponsor" refer to Viveon Health, LLC. The following
discussion and analysis of the Company's financial condition and results of
operations should be read in conjunction with the condensed consolidated
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" 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" 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 final prospectus for its initial public
offering 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
August 7, 2020 for the purpose of entering into a merger, share exchange, asset
acquisition, stock purchase, recapitalization, reorganization or other similar
business combination with one or more target businesses. Although we are not
limited to a particular industry or geographic region for purposes of
consummating an initial business combination, we intend to focus on businesses
that have their primary operations located in North America in the healthcare
industry. We intend to utilize cash derived from the proceeds of our initial
public offering in effecting our initial business combination.
The issuance of additional shares in connection with an initial business
combination:
? may significantly dilute the equity interest of our investors in this offering
who would not have pre-emption rights in respect of any such issuance;
? may subordinate the rights of holders of shares of common stock if we issue
shares of preferred stock with rights senior to those afforded to our shares of
common stock;
? will likely cause a change in control if a substantial number of our shares of
common stock are issued, which may affect, among other things, our ability to
use our net operating loss carry forwards, if any, and most likely will also
result in the resignation or removal of our present officers and directors; and
? may adversely affect prevailing market prices for our securities.
? Similarly, if we issue debt securities, it could result in:
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? default and foreclosure on our assets if our operating revenues after our
Initial Business Combination are insufficient to pay our debt obligations;
? acceleration of our obligations to repay the indebtedness even if we have made
all principal and interest payments when due if the debt security contains
covenants that required the maintenance of certain financial ratios or reserves
and we breach any such covenant without a waiver or renegotiation of that
covenant;
? our immediate payment of all principal and accrued interest, if any, if the
debt security is payable on demand;
? our inability to obtain additional financing, if necessary, if the debt
security contains covenants restricting our ability to obtain additional
financing while such security is outstanding; and
? limitations on our ability to borrow additional amounts for expenses, capital
expenditures, acquisitions, debt service requirements, execution of our
strategy and other purposes and other disadvantages compared to our competitors
who have less debt.
We expect to continue to incur significant costs in the pursuit of our
acquisition plans. We cannot assure you that our plans to complete our initial
business combination will be successful.
Recent Developments
On January 12, 2022, we entered into a merger agreement (the "Merger Agreement")
with VHAC Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary
of the Company ("Merger Sub"), and Suneva Medical, Inc., a Delaware corporation
("Suneva"). Pursuant to the terms of the Merger Agreement, a business
combination between the Company and Suneva will be effected through the merger
of Merger Sub with and into Suneva, with Suneva surviving the merger as a wholly
owned subsidiary of the Company (the "Merger"). The board of directors of the
Company has (i) approved and declared advisable the Merger Agreement, the Merger
and the other transactions contemplated thereby and (ii) resolved to recommend
approval of the Merger Agreement and related transactions by the stockholders of
the Company.
The Merger Agreement and the transactions contemplated thereby were approved by
the boards of directors of each of the Company and Suneva. We intend to
effectuate our proposed initial business combination with Suneva using a
combination of cash from the proceeds of our initial public offering (and the
concurrent private placement of shares to our sponsor, as described in "Part I,
Item 1. Business" of our annual report on Form 10-K as filed with the SEC on
March 31, 2022), the proceeds of the sale of our shares to private investors in
connection with our initial business combination and shares issued to the owners
of Suneva.
For further information regarding the Merger Agreement and our proposed initial
business combination with Suneva, please refer to Note 1 of this Quarterly
Report and the Company's Form S-4, which was filed with the SEC on July 13,
2022.
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On March 18, 2022, we held our 2022 Annual Meeting of Stockholders for the
purpose of approving: (i) a proposal to approve an amendment to our amended and
restated certificate of incorporation to (i) extend the date by which the
Company has to consummate a business combination for three months, from March
28, 2022 (the "Original Termination Date") to June 28, 2022 (the "Extended
Date"), and (ii) allow us, without another stockholder vote, to elect to extend
the date to consummate a business combination on a monthly basis for up to six
times by an additional one month each time after the Extended Date, upon five
days' advance notice prior to the applicable deadline, for a total of up to nine
months after the Original Termination Date, unless the closing of the proposed
business combination with Suneva or any potential alternative initial business
combination shall have occurred (the "Extension Proposal"); (ii) a proposal to
re-elect five current directors to our Board of Directors (the "Director
Election Proposal"); and (iii) a proposal to ratify the appointment of Marcum
LLP as our independent registered certified public accountants for fiscal year
2020 (the "Auditor Ratification Proposal"). Stockholders voted to approve the
Extension Proposal, Director Election Proposal and Auditor Ratification
Proposal.
On March 18, 2022, stockholders elected to redeem 15,092,126 shares of our Class
A common stock, resulting in redemption payments out of the trust account
totaling approximately $152,451,819. Subsequent to the redemptions, 5,032,874
shares of common stock remained in the trust account.
On March 21, 2022, an initial amount of $2,700,000 was drawn down from the
Notes. $720,000 of the loan proceeds was deposited into our trust account in
connection with extending the business combination completion window from March
28, 2022 until the Extended Date. After the Extended Date, if we elect to
continue to extend such date until December 28, 2022 (the "Final Extension
Date"), we shall make a monthly deposit of $240,000 into the trust account each
month for each monthly period, or portion thereof, until the Final Extension
Date. We deposited $240,000 into the trust account on June 23, 2022 and July 26,
2022 to extend the business combination completion window to July 28, 2022 and
August 28, 2022, respectively.
The entry into the Subscription Agreement and the terms of the Notes and
Subscription Warrants was approved by the Audit Committee of the Board of
Directors of the Company at a meeting held on March 21, 2022.
On March 23, 2022, we filed an amendment to our amended and restated certificate
of incorporation with the Delaware Secretary of State (the "Amendment") The
Amendment (i) extends the date by which we have to consummate a business
combination for three months, from the Original Termination Date to the Extended
Date and (ii) allows us, without another stockholder vote, to elect to extend
the date to consummate a business combination on a monthly basis for up to six
times by an additional one month each time after the Extended Date, upon five
days' advance notice and the deposit of $240,000 prior to the applicable
deadline, for a total of up to nine months after the Original Termination Date,
unless the closing of the proposed business combination with Suneva Medical,
Inc. or any potential alternative initial business combination shall have
occurred. As disclosed in the Current Report on Form 8-K filed on March 18,
2022, the Amendment was approved by our stockholders at our Annual Meeting of
Stockholders held on March 18, 2022.
On March 21, 2022, March 23, 2022, April 4, 2022, April 27, 2022 and May 9,
2022, we entered into a series of unsecured senior promissory note agreements
("Note Agreements") with several lenders affiliated with the our Sponsor, Viveon
Health LLC and Rom Papadopoulos, the Chief Financial Officer of the Company, for
up to an aggregate amount totaling $4.0 million (the "Notes"). The Notes do not
bear interest and mature upon the earlier of (i) the closing of the our initial
business combination, and (ii) December 31, 2022 (the "Maturity Date"). As of
June 30, 2022, we had received $3.4 million of funding for the Notes.
In accordance with ASC 470-20-25-2, Debt with Conversion and Other Options -
Debt Instruments with Detachable Warrants, the proceeds received upon issuing
the Notes with a common stock warrant were allocated to the two elements based
on the relative fair values of the debt instrument without the warrants and of
the warrants themselves at time of issuance. The measurement of the common stock
warrant fair value was determined utilizing a Monte Carlo simulation model
considering all relevant assumptions current at the date of issuance. See Note
11 to the condensed consolidated financial statements for more details on the
assumptions used. The portion of the proceeds so allocated to the warrants shall
be accounted for as paid-in capital. The remainder of the proceeds shall be
allocated to the debt instrument portion of the transaction.
Discounts to the principal amounts are included in the carrying value of the
Notes and amortized to "Interest expense" over the remaining term of the
underlying debt. During the three and six months ended June 30, 2022, we
recorded a $550,000 and $3,420,000 debt discount upon issuance of the Notes. The
discount is amortized to interest expense over the term of the debt. For the
three and six months ended June 30, 2022, the amortization of the discount
resulted in interest expense of $259,746 and $359,289, respectively.
On July 13, 2022, the Company, Merger Sub, and Suneva entered into the Second
Amendment to Merger Agreement that amended and modified the Merger Agreement to
extend the outside closing date to December 31, 2022 and to reduce the amount of
parent closing cash required as a closing condition from $50 million to $30
million, net of company expenses and parent expenses and net of repayment of the
$1.5 million subordinated convertible promissory note issued by Suneva to
Intuitus Suneva Debt LLC (an entity affiliated with our Chief Financial
Officer), dated May 10, 2022 (unless converted into Suneva capital stock at the
consummation of the business combination, which conversion is mandatory except
in the case of a default by Suneva). Further, the defined term parent expenses
was amended to include our operating expenses, severance payments and deferred
compensation.
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Results of Operations
We have neither engaged in any operations nor generated any revenues to date.
Our only activities for the six months ended June 30, 2022 and for the six
months ended June 30, 2021 were organizational activities, those necessary to
prepare for the Initial Public Offering, and, after our initial public offering,
identifying target companies for a business combination, conducting due
diligence on such target companies and negotiating the Business Combination
Agreement with Suneva, which will give effect to our initial business
combination. We do not expect to generate any operating revenues until after the
completion of our business combination. We generate non-operating income in the
form of interest income on marketable securities held after our initial public
offering. 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.
For the three months ended June 30, 2022, we had net income of $474,283, which
consisted of a gain on the change in fair value of warrant liability of
$1,733,690, interest and dividend income on investments held in Trust Account of
$65,539, and interest income on the operating bank account of $158, partially
offset by a loss on the issuance of subscription warrants of $371,007,
professional fees of $436,108, amortization of the debt discount of $259,746,
operating costs of $170,733, expensed issuance costs of $55,000, and franchise
tax expense of $32,510.
For the three months ended June 30, 2021, we had a net loss of $1,864,021, which
consisted of professional fees of $1,672,823, operating costs of $248,030, stock
compensation expense of $157,140, and franchise tax expense of $25,000,
partially offset by a change in fair value of warrant liability of $233,873,
interest and dividend income on investments held in Trust Account of $5,069, and
interest income on the operating bank account of $30.
For the six months ended June 30, 2022, we had a net loss of $1,049,661, which
consisted of a loss on the issuance of subscription warrants of $3,209,183,
professional fees of $1,178,148, operating costs of $454,419, expensed issuance
costs of $374,000, amortization of the debt discount of $359,289, and franchise
tax expense of $80,491, partially offset by a change in fair value of warrant
liability of $4,527,247, interest and dividend income on investments held in
Trust Account of $78,453 and interest income on the operating bank account of
$169.
For the six months ended June 30, 2021, we had net income of $1,703,424, which
consisted of a change in fair value of warrant liability of $4,131,546, interest
income on investments held in Trust Account of $10,081, and interest income on
the operating bank account of $111, partially offset by professional fees of
$1,740,595, operating costs of $493,245, stock compensation expense of $157,140,
and franchise tax expense of $47,334.
Liquidity, Capital Resources, and Going Concern
For the six months ended June 30, 2022, net cash used in operating activities
was $1,023,969, which was due to the change in fair value of the warrant
liability of $4,527,247, our net loss of $1,049,661, and interest and dividends
earned on investments held in Trust Account of $78,453, offset in part by loss
on the issuance of the subscription warrants of $3,209,183, changes in working
capital of $688,920, expensed issuance costs of $374,000 and amortization of the
debt discount of $359,289.
For the six months ended June 30, 2021 net cash used in operating activities was
$1,446,696, which was due to a gain on the change in fair value of warrant
liability of $4,131,546 and interest and dividends earned on investments held in
Trust Account of $10,081, offset in part by net income of $1,703,424, changes in
working capital of $834,367, and stock compensation expense of $157,140.
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For the six months ended June 30, 2022 net cash provided by investing activities
was $151,491,819 which resulted from cash withdrawn from Trust Account to pay
redeeming stockholders, offset in part by cash deposited for the extension
contribution of $960,000.
There were no cash flows from investing activities for the six months ended June
30, 2021.
For the six months ended June 30, 2022, net cash used in financing activities
was $149,400,819, which was due to the redemption of common stock of
$152,451,819 and the payment of issuance costs of $369,000, offset in part by
proceeds from note agreements payable of $3,420,000.
For the six months ended June 30, 2021 net cash used in financing activities was
$593,638, which was due to the payment of the other payable - related party of
$364,880 and the payment of the promissory note - related party of $228,758.
As of June 30, 2022, we had cash and marketable securities in the trust account
of $51,869,623. 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 taxes payable and deferred underwriting commissions) to complete
our initial business combination with Suneva. We may withdraw interest to pay
taxes. During the three months ended June 30, 2022, we did not withdraw any of
the interest income from the Trust Account to pay for franchise and income
taxes. To the extent that our capital stock or debt is used, in whole or in
part, as consideration to complete our Initial 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 June 30, 2022, we had cash and cash equivalents of $1,462,266 outside of
the Trust Account and a working capital deficit of $1,760,512.
In connection with the our assessment of going concern considerations in
accordance with FASB's ASC Subtopic 205-40, Presentation of Financial Statements
- Going Concern, management has determined that if we are unable to raise
additional funds to alleviate liquidity needs or complete a business combination
by December 28, 2022, then we will cease all operations except for the purpose
of liquidating. The liquidity condition and date for mandatory liquidation and
subsequent dissolution raise substantial doubt about our 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 unable to continue as a going concern. We intend to
complete a business combination before the mandatory liquidation date or obtain
approval for an extension.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of June 30, 2022 and
December 31, 2021.
Contractual Obligations
We do not have any long-term debt, capital lease obligations, operating lease
obligations or long-term liabilities other than an agreement to pay an affiliate
of our sponsor a monthly fee of $20,000 for office space, utilities and
secretarial and administrative support and the series of unsecured senior
promissory note agreements we entered into with several lenders affiliated with
the our Sponsor. We began incurring these fees on December 22, 2020 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
$7,043,750. 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.
In addition, subject to certain conditions, we granted Chardan Capital Markets,
LLC, for a period of 12 months after the date of the consummation of a Business
Combination, a right of first refusal to act as book-running managing
underwriter or placement agent, with at least 30% of the economics, for any and
all future public and private equity, convertible and debt offerings. In
accordance with FINRA Rule 5110(f)(2)(E)(i), such right of first refusal shall
not have a duration of more than three years from the effective date of the
registration statement related to our initial public offering.
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Critical Accounting Policies
The preparation of condensed consolidated 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 condensed consolidated
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:
Common Stock Subject to Possible Redemption
All of the 5,032,874 public shares sold as part of the units in our initial
public offering and subsequent full exercise of the underwriters' over-allotment
option that have not been redeemed by stockholders, contain a redemption feature
which allows for the redemption of such redeemable common stock in connection
with our liquidation, if there is a stockholder vote or tender offer in
connection with our initial business combination and in connection with certain
amendments to our amended and restated certificate of incorporation. In
accordance with SEC and its staff's guidance on redeemable equity instruments,
which has been codified in ASC Topic 480, Distinguishing Liabilities from Equity
("ASC 480"), redemption provisions not solely within the control of the Company
require common stock subject to redemption to be classified outside of permanent
equity. Therefore, all redeemable common stock have been classified outside of
permanent equity.
We recognize changes in redemption value immediately as they occur and adjusts
the carrying value of redeemable common stock to equal the redemption value at
the end of each reporting period. Increases or decreases in the carrying amount
of redeemable common stock are affected by charges against additional paid in
capital and accumulated deficit.
Net (Loss) Income per Common Share
Net (loss) income per common share is computed by dividing net (loss) income by
the weighted average number of common shares outstanding for the period. The
calculation of diluted (loss) income per common share does not consider the
effect of the warrants and rights issued in connection with the (i) initial
public offering, (ii) exercise of over-allotment, (iii) Private Placement, and
(iv) extension financing since the exercise of the warrants and rights are
contingent upon the occurrence of future events and the inclusion of such
warrants and rights would be anti-dilutive. The warrants and rights are
exercisable to purchase 21,778,750 shares of common stock in the aggregate.
Derivative Financial Instruments
The Company evaluates its financial instruments to determine if such instruments
are derivatives or contain features that qualify as embedded derivatives in
accordance with ASC Topic 815, Derivatives and Hedging. The Company's derivative
instruments are recorded at fair value and re-valued at each reporting date,
with changes in the fair value reported in the condensed consolidated statements
of operations. Derivative assets and liabilities are classified on the condensed
consolidated balance sheets as current or non-current based on whether or not
net-cash settlement or conversion of the instrument' could be required within 12
months of the balance sheet date. The Company has determined that the private
warrants and subscription warrants are derivative instruments. As the private
warrants and subscription warrants meet the definition of a derivative the
private warrants and subscription warrants are measured at fair value at
issuance and at each reporting date in accordance with ASC 820, Fair Value
Measurement, with changes in fair value recognized in the statement of
operations in the period of change. In accordance with ASC Topic 825, Financial
Instruments, the Company has concluded that a portion of the transaction costs
which directly related to the initial public offering and the private placement,
should be allocated to the private warrants based on their relative fair value
against total proceeds, and recognized as transaction costs in the statement of
operations.
Recent Accounting Standards
Management does not believe that any other recently issued, but not yet
effective, accounting standards, if currently adopted, would have a material
effect on the Company's condensed consolidated financial statements.
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