References to the "Company," "our," "us" or "we" refer to Healthcare Services
Acquisition Corporation. The following discussion and analysis of the Company's
financial condition and results of operations should be read in conjunction with
the audited financial statements and the notes thereto which are included in
"Item 8 Financial Statements and Supplementary Data" of this Annual Report on
Form 10-K. Certain information contained in the discussion and analysis set
forth below includes forward-looking statements. Our actual results may differ
materially from those anticipated in these forward-looking statements because of
many factors, including those set forth below under "Cautionary Note Regarding
Forward-Looking Statements," "Item 1A. Risk Factors" and elsewhere in this
Report.
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.
Overview
We are a blank check company incorporated in Delaware on August 26, 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 Healthcare Services
Acquisition Holdings, LLC, a Delaware limited liability company (our "Sponsor").
Our registration statement for our initial public offering (the "Initial Public
Offering") was declared effective on December 22, 2020. On December 28, 2020, we
consummated the Initial Public Offering of 33,120,000 units (the "Units" and,
with respect to the Class A common stock included in the Units being offered,
the "Public Shares"), which included 4,320,000 Units issued pursuant to the
partial exercise by the underwriters of their over-allotment option, at $10.00
per Unit, generating gross proceeds of $331.2 million, and incurring offering
costs of approximately $18.9 million, inclusive of $11.6 million in deferred
underwriting commissions.
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Simultaneously with the closing of the Initial Public Offering, we consummated
the private placement ("Private Placement") of 8,624,000 warrants (each, a
"Private Placement Warrant" and collectively, the "Private Placement Warrants")
to our Sponsor and certain funds and accounts managed by subsidiaries of
BlackRock, Inc. (collectively, the "Anchor Investor"), each exercisable to
purchase one share of Class A common stock at $11.50 per share, at a price of
$1.00 per Private Placement Warrant, generating gross proceeds to us of $8.6
million.
Upon the closing of the Initial Public Offering and the Private Placement,
$331.2 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 Continental 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 185 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.
If we are unable to complete a Business Combination within 24 months from the
closing of the Initial Public Offering, or December 28, 2022 (the "Combination
Period"), we will (i) cease all operations except for the purpose of winding up;
(ii) as promptly as reasonably possible but not more than ten business days
thereafter, 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 franchise and income taxes (less up to $100,000 of
interest to pay dissolution expenses), divided by the number of then outstanding
Public Shares, which redemption will completely extinguish rights of holders of
the Public Shares (the "Public Stockholders") as stockholders (including the
right to receive further liquidating 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, dissolve and liquidate, subject in each case to our obligations
under Delaware law to provide for claims of creditors and the requirements of
other applicable law.
Recent Developments
On December 13, 2021, we entered into a convertible promissory note with our
Sponsor pursuant to which our Sponsor agreed to loan us up to an aggregate
principal amount of $5,000,000 (the "Convertible Promissory Note"). The
Convertible Promissory Note is non-interest bearing and due on the date on which
we consummate a Business Combination. If we do not consummate a Business
Combination, we may use a portion of any funds held outside the Trust Account to
repay the Convertible Promissory Note; however, no proceeds from the Trust
Account may be used for such repayment. Up to $2,000,000 of the Convertible
Promissory Note may be converted into warrants at a price of $1.00 per warrant
at the option of our Sponsor. The warrants would be identical to the Private
Placement Warrants. The outstanding balance under the Convertible Promissory
Note amounted to $600,000 as of December 31, 2021.
Results of Operations
Our entire activity since inception through December 31, 2021, 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 year ended December 31, 2021, we had net income of approximately $10.6
million, which consisted of approximately $14.5 million in net operating gain
from change in fair value of derivative warrant liabilities, and approximately
$200,000 of income earned from investment held in the Trust Account, partially
offset by approximately $3.7 million in general and administrative expenses,
$240,000 in general and administrative expenses - related party, and
approximately $201,000 franchise tax expense.
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For the period from August 26, 2020 (inception) through December 31, 2020, we
had a net loss of approximately $2.3 million which consisted of approximately
$39,000 in general and administrative costs, approximately $69,000 in franchise
tax expense, approximately $776,000 in loss upon issuance of private placement
warrants, approximately $338,000 loss from changes in fair value of derivative
warrant liabilities, transaction costs associated with derivative warrant
liabilities of approximately $1.0 million, and approximately $8,000 in loss on
investments held in the Trust Account.
Liquidity and Going Concern
As of December 31, 2021, we had approximately $743,000 in our operating bank
account and working capital of approximately $0.9 million (not including tax
obligations of approximately $144,000 that may be paid using investment income
earned in the Trust Account).
Our liquidity needs have been satisfied prior to the completion of the Initial
Public Offering through receipt of a $25,000 from the sale of shares of Class B
common stock to our Sponsor and loan proceeds from our Sponsor of approximately
$174,000 under a promissory note. The Company repaid the Note in full upon
closing of the Initial Public Offering. Subsequent to the consummation of the
Initial Public Offering and Private Placement, our liquidity needs have been
satisfied from the proceeds from the consummation of the Private Placement not
held in the Trust Account. In addition, in order to finance transaction costs in
connection with a Business Combination, our Sponsor or an affiliate of our
Sponsor or our officers and directors may, but are not obligated to, provide us
working capital loans ("Working Capital Loans"). To date, we have $600,000
borrowings under the Working Capital Loans.
In connection with the management assessment of going concern considerations in
accordance with FASB ASC 205-40, "Basis of Presentation - Going Concern,"
management has determined that liquidity condition, mandatory liquidation and
subsequent dissolution raise substantial doubt about our ability to continue as
a going concern. We plan to complete a business combination by the mandatory
liquidation date. No adjustments have been made to the carrying amounts of
assets or liabilities should we be required to liquidate after December 28,
2022. The financial statements do not include any adjustment that might be
necessary if we are unable to continue as a going concern.
Risks and Uncertainties
We continue to evaluate the impact of the COVID-19 pandemic and have concluded
that the specific impact is not readily determinable as of the date of the
balance sheet. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Related Party Transactions
Founder Shares
On September 2, 2020, our Sponsor purchased 8,625,000 shares of Class B common
stock, par value $0.0001 per share, (the "Founder Shares") for an aggregate
price of $25,000. In October 2020, our Sponsor transferred an aggregate of
90,000 Founder Shares to the independent directors. Shares and the associated
amounts have been retroactively restated to reflect: (i) in December 2020, our
Sponsor forfeited 1,725,000 shares of Class B common stock and (ii) a stock
dividend of 1,380,000 shares declared in December 2020 with respect to Class B
common stock, resulting in an aggregate of 8,280,000 shares of Class B common
stock outstanding. Our Sponsor agreed to forfeit 1,080,000 Founder Shares to the
extent that the over-allotment option was not exercised in full by the
underwriter, 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 December 28, 2020; thus, these 1,080,000
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 or (B) subsequent
to the initial Business Combination, (x) if the last reported sale price of the
Class A common stock equals or exceeds $12.00 per share (as adjusted for stock
splits, stock dividends, 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, reorganization or other
similar transaction that results in all of the stockholders having the right to
exchange their shares of Class A common stock for cash, securities or other
property.
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Private Placement Warrants
Simultaneously with the closing of the Initial Public Offering, we consummated
the Private Placement of 8,624,000 Private Placement Warrants to the Sponsor and
the Anchor Investor at a price of $1.00 per Private Placement Warrant,
generating gross proceeds of $8.6 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 and the Anchor Investor
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, the
Anchor Investor or their permitted transferees.
Our Sponsor, the Anchor Investor and our officers and directors agreed, subject
to limited exceptions, not to transfer, assign or sell any of its Private
Placement Warrants until 30 days after the completion of the initial Business
Combination.
Related Party Loans
On September 2, 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
$174,000 under the Note and repaid this Note in full upon closing of the Initial
Public Offering.
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. On December 13, 2021, as part of the Working Capital Loan, we
entered an unsecured promissory note in the principal amount of up to $5,000,000
with our Sponsor. This promissory note does not bear interest. 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 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 $2.0 million of such
Working Capital Loans may be convertible into warrants of the post Business
Combination entity at a price of $1.00 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 have $600,000
borrowings under the Working Capital Loans.
Due to Related Party
Our officers or directors pay for certain expenses on our behalf. Such expenses
are recorded as due to related party and reimbursed to our officers or
directors. As of December 31, 2021 and 2020, there was $0 and $20,200
outstanding balance in due to related party for these fees, respectively.
Administrative Services Agreement
Commencing on the effective date of the prospectus through the earlier of
consummation of the initial Business Combination or our liquidation, we agreed
to pay our Sponsor a total of $20,000 per month for office space, utilities and
administrative support. During the year ended December 31, 2021 and for the
period from August 26, 2020 (inception) through December 31, 2020, we incurred
and paid $240,000 and $5,807, respectively, of such services, included as
administrative services - related party on the accompanying statements of
operations.
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Our officers or directors will be reimbursed for any out-of-pocket expenses
incurred in connection with activities on our behalf such as identifying
potential target businesses and performing due diligence on suitable Business
Combinations. Our audit committee will review on a quarterly basis all payments
that were made to our Sponsor, officers or directors, or our or their
affiliates. Any such payments prior to an initial Business Combination will be
made using funds held outside the Trust Account. Other than quarterly audit
committee review of such payments, we do not expect to have any additional
controls in place governing the reimbursement payments to our directors and
officers for their out-of-pocket expenses incurred in connection with
identifying and consummating an initial Business Combination.
Commitments and Contingencies
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 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), as well as the Forward Purchasers and their permitted
transferees, are entitled to registration rights pursuant to a registration
rights agreement. These holders will be entitled to certain demand and
"piggyback" registration rights. 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
$6.6 million in the aggregate, paid upon the closing of the Initial Public
Offering. An additional fee of $0.35 per unit, or $11.6 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 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. The Company has identified the following as its
critical accounting policies:
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 the Financial Accounting Standards Board's
("FASB") Accounting Standards Codification ("ASC") Topic 480 "Distinguishing
Liabilities from Equity" ("ASC 480"). Class A common stock subject to mandatory
redemption (if any) is classified as a liability instrument and is measured at
fair value. Conditionally redeemable Class A common stock (including Class A
common stock that features 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) is classified as temporary equity. At all other
times, Class A common stock is classified as stockholders' equity. Our Class A
common stock features 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, 2021 and 2020, 33,120,000 shares of Class A
common stock subject to possible redemption were presented at redemption value
as temporary equity, outside of the stockholders' deficit section of the balance
sheets.
Under ASC 480-10-S99, the Company has elected to recognize changes in the
redemption value immediately as they occur and adjust the carrying value of the
security to equal the redemption value at the end of the reporting period. This
method would view the end of the reporting period as if it were also the
redemption date of the security. Immediately upon the closing of the Initial
Public Offering, we recognized the accretion from initial book value to
redemption amount value. The change in the carrying value of shares of the
redeemable Class A common stock resulted in charges against additional paid-in
capital and accumulated deficit.
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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.
The 16,560,000 Public Warrants issued in connection with the Initial Public
Offering and the 8,624,000 Private Placement Warrants are recognized as
derivative liabilities in accordance with ASC 815. Accordingly, we recognize the
warrant instruments as liabilities at fair value and adjust the instruments to
fair value at each reporting period. 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 was initially calculated using a Monte Carlo simulation model
that assumes optimal exercise of our redemption option, including the make whole
table, at the earliest possible date. The fair value of Private Placement
Warrants was initially calculated using the Black-Scholes Option Pricing Model
since these instruments do not have the early redemption feature. Beginning in
January 2021, the fair value of the Public Warrants is determined based on the
listed price in an active market for such warrants. As the transfer of Private
Placement Warrants to anyone who is not a permitted transferee would result in
the Private Placement Warrants having substantially the same terms as the Public
Warrants, we determined that the fair value of each Private Placement Warrant is
equivalent to that of each Public Warrant. The fair value of the Warrants as of
December 31, 2021 is based on observable listed prices for such warrants. The
determination of the fair value of the warrant liability may be subject to
change as more current information becomes available and accordingly the actual
results could differ significantly. Derivative warrant liabilities are
classified as non-current liabilities as their liquidation is not reasonably
expected to require the use of current assets or require the creation of current
liabilities.
Net Income (Loss) Per Share of Common Stock
We comply with accounting and disclosure requirements of FASB ASC Topic 260,
"Earnings Per Share." We have two classes of shares, which are referred to as
Class A common stock and Class B common stock. Income and losses are shared pro
rata between the two classes of shares. Net income (loss) per common share is
calculated by dividing the net income (loss) by the weighted average shares of
common stock outstanding for the respective period.
The calculation of diluted net income (loss) per common stock does not consider
the effect of the warrants issued in connection with the Initial Public Offering
and the Private Placement to purchase an aggregate of 25,184,000 shares of
common stock because their exercise is contingent upon future events and their
inclusion would be anti-dilutive under the treasury stock method. As a result,
diluted net income (loss) per share is the same as basic net income (loss) per
share for the year ended December 31, 2021, and for the period from August 26,
2020 (inception) through December 31, 2020. Accretion associated with the
redeemable Class A common stock is excluded from earnings per share as the
redemption value approximates fair value.
Recent Accounting Pronouncements
In August 2020, the FASB issued ASU No. 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): Accounting for Convertible Instruments
and Contracts in an Entity's Own Equity, which simplifies accounting for
convertible instruments by removing major separation models required under
current GAAP. The ASU removes certain settlement conditions that are required
for equity contracts to qualify for the derivative scope exception, and it also
simplifies the diluted earnings per share calculation in certain areas. As
permitted by the standard, we have elected to early adopt this standard in our
first quarter of 2021 with no impact upon adoption.
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.
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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
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.
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