HEALTHWELL ACQUISITION CORP. I MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL POSITION AND OPERATING RESULTS (Form 10-Q)

References in this report (the "Quarterly Report") to "we," "us" or the
"Company" refer to Healthwell Acquisition Corp. I References to our "management"
or our "management team" refer to our officers and directors, and references to
the "Sponsor" refer to Healthwell Acquisition Corp. I Sponsor LLC 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.
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 (as defined below) 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 incorporated on February 2, 2021 as a Delaware
corporation and formed for the purpose of effectuating a merger, capital stock
exchange, asset acquisition, stock purchase, reorganization or similar business
combination with one or more businesses, which we refer to throughout this
Quarterly Report as our "initial business combination". We intend to effectuate
our initial business combination using cash from the proceeds of our initial
public offering (the "Initial Public Offering") and the private placement of the
Private Placement Warrants (as defined below), the proceeds of the sale of our
shares in connection with our initial business combination (pursuant to forward
purchase agreements or backstop agreements we may enter into following the
consummation of the Initial Public Offering or otherwise), shares issued to the
owners of the target, debt issued to bank or other lenders or the owners of the
target, or a combination of the foregoing.
Results of Operations
We have neither engaged in any operations nor generated any operating revenues
to date. Our only activities for the period from February 2, 2021 (inception)
through September 30, 2021 were organizational activities, those necessary to
prepare for our initial public offering, described below, and, after our initial
public offering, identifying a target company for a business combination. We do
not expect to generate any operating revenues until after the completion of our
initial business combination. We will generate
non-operating
income in the form of interest income on cash and cash equivalents 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.

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For the three months ended September 30, 2021, we recorded net income of
$5,977,714, which resulted from the change in fair value of warrant liabilities
of $7,474,000 and unrealized gain on investments held in trust account of $418,
partially offset by expensed offering costs of $1,020,874, the change in fair
value of derivative asset-forward purchase agreement of $188,000, operating
costs of $156,682, and franchise tax expense of $131,148.
For the period from February 2, 2021 (inception) through September 30, 2021, we
recorded net income of $5,968,248, which resulted from the change in fair value
of warrant liabilities of $7,474,000 and unrealized gain on investments held in
trust account of $418, partially offset by expensed offering costs of
$1,020,874, the change in fair value of derivative asset-forward purchase
agreement of $188,000, formation and operating costs of $166,148, and franchise
tax expense of $131,148.
Liquidity and Capital Resources
For the period from February 2, 2021 (inception) through September 30, 2021, net
cash used in operating activities was $978,515, which was due to the change in
the fair value of warrant liabilities of $7,474,000, change in prepaid expenses
of $848,870, and interest income on investments held in Trust Account of $418,
partially offset by our net income of $5,968,248, expensed offering costs added
back to net income of $1,020,874, change in fair value of derivative
asset-forward purchase agreement of $188,000, change in accrued expenses of
$36,503, and change in franchise tax payable of $131,148.
For the period from February 2, 2021 (inception) through September 30, 2021, net
cash used in investing activities of $250,000,000 was the result of the amount
of net proceeds from the Initial Public Offering and the private placement sale
of warrants being deposited to the trust account.
For the period from February 2, 2021 (inception) through September 30, 2021, net
cash provided by financing activities was $251,962,174, which was due to
proceeds from the initial public offering, net of underwriter's discount paid of
$245,000,000, proceeds from the sale of private placement warrants of
$7,700,000, proceeds from the promissory note-related party of $350,000 and
proceeds from the sale of Class B common stock to the Sponsor of $25,000, offset
in part by the payment of offering costs of $762,826 and the repayment of the
promissory note-related party of $350,000.
On August 5, 2021, we consummated the Initial Public Offering of 25,000,000
units, at $10.00 per unit, generating gross proceeds of $250,000,000. Each unit
consisted of one share of Class A common stock (the "Public Shares"), $0.0001
par value, and
one-half
of one redeemable warrant ("Public Warrant"). Each Public Warrant entitles the
holder to purchase one share of Class A common stock at an exercise price of
$11.50 per whole share
Simultaneously with the closing of the Initial Public Offering, the Sponsor
purchased an aggregate of 7,700,000 Private Placement Warrants at a price of
$1.00 per unit (the "Private Placement Warrants") ($7,700,000 in the aggregate).
Each Private Placement Warrant is exercisable to purchase one share of Class A
common stock at a price of $11.50 per share. The proceeds from the sale of the
Private Placement Units were added to the net proceeds from the Initial Public
Offering held in the Trust Account. If we do not complete our initial business
combination within 24 months from the closing of the Initial Public Offering,
the proceeds held in the Trust Account will be used to fund the redemption of
the Public Shares (subject to the requirements of applicable law). There will be
no redemption rights or liquidating distributions from the Trust Account with
respect to the Private Placement Warrants.

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As of September 30, 2021, we had cash of $983,659 held outside the trust
account. We will use these funds to primarily identify and evaluate prospective
partner businesses, perform business due diligence on prospective partner
businesses, travel to and from the offices, plants or similar locations of
prospective partner businesses or their representatives or owners, review
corporate documents and material agreements of prospective partner businesses,
and structure, negotiate and complete a business combination.
We intend to use substantially all of the funds held in the trust account,
including any amounts representing interest earned on the trust account (which
interest shall be net of taxes payable and excluding deferred underwriting
commissions) to complete our initial business combination. We may withdraw
interest to pay taxes, if any. We estimate our annual franchise tax obligations,
based on the number of shares of our common stock authorized and outstanding
after the completion of the Initial Public Offering, to be $131,148 to date,
which we may pay from funds from this offering held outside of the trust account
or from interest earned on the funds held in the trust account and released to
us for this purpose. Our annual income tax obligations will depend on the amount
of interest and other income earned on the amounts held in the trust account. To
the extent that our common 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.
We do not believe we will need to raise additional funds following this offering
in order to meet the expenditures required for operating our business prior to
the completion of our initial business combination, other than funds available
from loans from our sponsor, members of our management team or any of their
affiliates. However, if our estimates of the costs of identifying a prospective
partner business, undertaking
in-depth
due diligence and negotiating an initial business combination are less than the
actual amount necessary to do so, we may have insufficient funds available to
operate our business prior to the completion of our initial business
combination. Moreover, we may need to obtain additional financing to complete
our initial business combination, either because the transaction requires more
cash than is available from the proceeds held in our trust account, or because
we become obligated to redeem a significant number of our public shares upon
completion of the business combination, in which case we may issue additional
securities or incur debt in connection with such business combination.
In order to fund working capital deficiencies or finance transaction costs in
connection with an intended initial business combination, our sponsor or an
affiliate of our sponsor or certain of our directors and officers may, but are
not obligated to, loan us funds as may be required. If we complete our initial
business combination, we may repay such loaned amounts out of the proceeds of
the trust account released to us. Otherwise, such loans may be repaid only out
of funds held outside the trust account. In the event that our initial business
combination does not close, we may use a portion of the working capital held
outside the trust account to repay such loaned amounts but no proceeds from our
trust account would be used to repay such loaned amounts. Up to $1,500,000 of
such loans may be convertible into warrants at a price of $1.00 per warrant at
the option of the lender. The warrants would be identical to the private
placement warrants issued to our sponsor. The terms of such loans, if any, have
not been determined and no written agreements exist with respect to such loans.
We do not expect to seek loans from parties other than our sponsor or an
affiliate of our sponsor as we do not believe third parties will be willing to
loan such funds and provide a waiver against any and all rights to seek access
to funds in our trust account.
These amounts are estimates and may differ materially from our actual expenses.
In addition, we could use a portion of the funds not being placed in trust to
pay commitment fees for financing, fees to consultants to assist us with our
search for a target business or as a down payment or to fund a
"no-shop"
provision (a provision designed to keep target businesses from "shopping" around
for transactions with other companies or investors on terms more favorable to
such target businesses) with respect to a particular proposed business
combination, although we do not have any current intention to do so. If we
entered into an agreement where we paid for the right to receive exclusivity
from a

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target business, the amount that would be used as a down payment or to fund a
"no-shop"
provision would be determined based on the terms of the specific business
combination and the amount of our available funds at the time. Our forfeiture of
such funds (whether as a result of our breach or otherwise) could result in our
not having sufficient funds to continue searching for, or conducting due
diligence with respect to, prospective target businesses.
Off-Balance
Sheet Arrangements
We did not have any
off-balance
sheet arrangements as of September 30, 2021.
Contractual Obligations
Promissory Note-Related Party
On February 10, 2021, the Company issued an unsecured promissory note, as
amended on July 6, 2021, to the Sponsor (the "Promissory Note"), pursuant to
which the Company could borrow up to an aggregate of $350,000 to cover expenses
related to the Initial Public Offering. The Promissory Note was
non-interest
bearing and was payable on the earlier of (i) June 30, 2022 or (ii) the
consummation of the Initial Public Offering. As of September 30, 2021, there was
no borrowings outstanding under the Promissory Note. On August 5, 2021, the
Company repaid the outstanding balance under the Promissory Note.
Underwriting Agreement
The Company granted the underwriters a
45-day
option to purchase up to 3,750,000 additional Units to cover over-allotments at
the Initial Public Offering price, less the underwriting discounts and
commissions. On September 11, 2021, the over-allotment option expired.
The underwriters were paid a cash underwriting discount of $0.20 per Unit, or
$5,000,000 in the aggregate, upon the closing of the Initial Public Offering. In
addition, $0.35 per unit, or $8,750,000 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 the Company completes a Business Combination, subject to the
terms of the underwriting agreement.
Critical Accounting Policies
The preparation of condensed financial statements and related disclosures in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and income and expenses
during the periods reported. Actual results could materially differ from those
estimates. We have identified the following critical accounting policies.
Net Income Per Common Share
Net income per common share is computed by dividing net income by the
weighted-average number of shares of common stock outstanding during the period.
As the shares of Class A common stock are considered to be redeemable at fair
value, and a redemption at fair value does not amount to a distribution
different than other stockholders, Class A and Class B shares of common stock
are presented as one class of stock in the calculation net income per share. As
a result, the calculated net income per share is the same for Class A and
Class B shares of common stock. At September 30, 2021, the Company did not have
any dilutive securities and other contracts that could, potentially, be
exercised or converted into shares of common stock and then share in the
earnings of the Company. As a result, diluted income per share is the same as
basic income per share for the periods presented.
Class A Common Stock Subject to Possible Redemption
All of the 25,000,000 shares of Class A common stock sold as part of the Units
in the Initial Public Offering contain a redemption feature which allows for the
redemption of such Public Shares in connection with the Company's liquidation,
if there is a stockholder vote or tender offer in connection with the Business
Combination and in connection with certain amendments to the Company's second
amended and restated certificate of incorporation. In

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accordance with SEC and its staff's guidance on redeemable equity instruments,
which has been codified in Accounting Standards Codification ("ASC")
480-10-S99,
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 Class A common stock has been classified outside of permanent
equity.
The Company recognizes 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.
Warrant Liabilities
The Company accounts for warrants as either equity-classified or
liability-classified instruments based on an assessment of the warrant's
specific terms and applicable authoritative guidance in ASC 480,
Distinguishing Liabilities from Equity
("ASC 480") and ASC 815,
Derivatives and Hedging
("ASC 815"). The assessment considers whether the warrants are freestanding
financial instruments pursuant to ASC 480, meet the definition of a liability
pursuant to ASC 480, and whether the warrants meet all of the requirements for
equity classification under ASC 815, including whether the warrants are indexed
to the Company's own common stock, among other conditions for equity
classification. This assessment, which requires the use of professional
judgment, is conducted at the time of warrant issuance and as of each subsequent
quarterly period end date while the warrants are outstanding.
For issued or modified warrants that meet all of the criteria for equity
classification, the warrants are required to be recorded as a component of
additional
paid-in
capital at the time of issuance. For issued or modified warrants that do not
meet all the criteria for equity classification, the warrants are required to be
recorded at their initial fair value on the date of issuance, and each balance
sheet date thereafter. Changes in the estimated fair value of the warrants are
recognized as a
non-cash
gain or loss on the statement of operations. The fair value of the Public
Warrants, Private Placement Warrants was estimated using a Binomial lattice
model.
Recent Accounting Pronouncements
In August 2020, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update ("ASU") 2020-06, Debt - Debt with Conversion and
Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in
Entity's Own Equity (Subtopic 815-40) ("ASU 2020-06") to simplify accounting for
certain financial instruments. ASU 2020-06 eliminates the current models that
require separation of beneficial conversion and cash conversion features from
convertible instruments and simplifies the derivative scope exception guidance
pertaining to equity classification of contracts in an entity's own equity. The
new standard also introduces additional disclosures for convertible debt and
freestanding instruments that are indexed to and settled in an entity's own
equity. ASU 2020-06 amends the diluted earnings per share guidance, including
the requirement to use the if-converted method for all convertible instruments.
ASU 2020-06 is effective January 1, 2022 and should be applied on a full or
modified retrospective basis, with early adoption permitted beginning on January
1, 2021. The Company is currently assessing the impact, if any, that ASU 2020-06
would have on its financial position, results of operations or cash flows.
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 financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As of September 30, 2021, we were not subject to any market or interest rate
risk.
Item 4. Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are
designed to ensure that information required to be disclosed in our reports
filed or submitted under Securities Exchange Act of 1934, as amended (the
"Exchange Act") is recorded, processed, summarized and reported within the time
periods specified in the SEC's rules and forms. Disclosure controls and
procedures include, without limitation, controls and procedures designed to
ensure that information required to be disclosed in our reports filed or
submitted under the Exchange Act is accumulated and communicated to our
management, including our Chief Executive Officer and Chief Financial Officer,
to allow timely decisions regarding required disclosure.
Evaluation of Disclosure Controls and Procedures
As required by Rules
13a-15
and
15d-15
under the Exchange Act, our Chief Executive Officer and Chief Financial Officer
carried out an evaluation of the effectiveness of the design and operation of
our disclosure controls and procedures as of September 30, 2021. Based upon
their evaluation, our Chief Executive Officer and Chief Financial Officer
concluded that our disclosure controls and procedures (as defined in Rules
13a-15
(e) and
15d-15
(e) under the Exchange Act) were not effective as of September 30, 2021, due to
the restatement of our August 5, 2021 balance sheet (the "restatement") related
to the classification of redeemable Class A Shares and the accounting treatment
of the purchase of Founder Share interests by Anchor Investors, which combined,
constitutes a material weakness in our internal controls over financial
reporting.
Regarding the restatement of the Company's balance sheet included on the
Company's Form 8-K, as filed with the SEC on August 12, 2021, certain redemption
provisions not solely within the control of the Company require common stock
subject to redemption to be classified outside of permanent equity. The Company
had previously classified a portion of the Class A common stock in permanent
equity. The Company revised its financial statements to classify all Class A
common stock as temporary equity and any related impact, as the threshold in its
charter would not change the nature of the underlying shares as redeemable and
thus would be required to be disclosed outside of permanent equity.
Additionally, due to the requirement to record additional deferred offering
costs for the excess fair value of the Founder Share interests sold over the
purchase price, the Company has determined that the misstatement of the Balance
Sheet as of August 5, 2021 was material based on quantitative criteria.
It is noted that the non-cash adjustments to the financial statements do not
impact the amounts previously reported for our cash and cash equivalents, cash
held in trust, or total assets. In light of this material weakness, we performed
additional analysis as deemed necessary to ensure that our unaudited interim
financial statements were prepared in accordance with GAAP. Accordingly,
management believes that the financial statements included in this Quarterly
Report on Form 10-Q present fairly in all material respects our financial
position, results of operations and cash flows for the period presented.

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Changes in Internal Control Over Financial Reporting
Other than the implementation of the remediation activities regarding the
restatement of our August 5, 2021 balance sheet, during the most recently
completed fiscal quarter, there has been no change in our internal control over
financial reporting (as defined in
Rules 13a-15(f)
and
15d-15(f)
under the Exchange Act) that has materially affected, or is reasonably likely to
materially affect, our internal control over financial reporting. In light of
the restatement of our financial statement included in this Quarterly Report, we
plan to enhance our processes to identify and appropriately apply applicable
accounting requirements to better evaluate and understand the nuances of the
complex accounting standards that apply to our financial statements. Our plans
at this time include providing enhanced access to accounting literature,
research materials and documents and increased communication among our personnel
and third-party professionals with whom we consult regarding complex accounting
applications. The elements of our remediation plan can only be accomplished over
time, and we can offer no assurance that these initiatives will ultimately have
the intended effects.

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