QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
Title of each class |
Trading Symbol(s) |
Name of each exchange on which registered | ||
one-half of one redeemable warrant |
The | |||
The | ||||
The |
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-accelerated filer |
☒ | Smaller reporting company | ||||
| Emerging growth company | ||||||
HEALTHWELL ACQUISITION CORP. I
TABLE OF CONTENTS
March 31, 2023 |
December 31, 2022 |
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| (Unaudited) | ||||||||
Assets: |
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Current assets: |
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Cash |
$ | $ | ||||||
Prepaid expenses |
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Total current assets |
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Investments held in Trust Account |
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Total Assets |
$ |
$ |
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Liabilities and Stockholders’ Deficit: |
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Current liabilities: |
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Accounts payable |
$ | $ | ||||||
Accrued expenses |
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Promissory note - related party |
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Income tax payable |
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Franchise tax payable |
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Total current liabilities |
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Warrant liabilities |
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Derivative liability - forward purchase agreement |
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Deferred underwriting fee payable |
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Deferred tax liability |
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Total Liabilities |
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Commitments and Contingencies (Note 6) |
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Class A common stock, subject to possible redemption, $ |
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Stockholders’ Deficit: |
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Preferred stock, $ |
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Class A common stock, $ |
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Class B common stock, $ |
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Additional paid-in capital |
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Accumulated deficit |
( |
) | ( |
) | ||||
Total stockholders’ deficit |
( |
) | ( |
) | ||||
Total Liabilities and Stockholders’ Deficit |
$ |
$ |
||||||
For the three months ended March 31, 2023 |
For the three months ended March 31, 2022 |
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Operating and formation costs |
$ | $ | ||||||
Franchise tax expense |
||||||||
Loss from operations |
( |
) |
( |
) | ||||
Interest expense |
( |
) | ||||||
Unrealized gains on investments held in Trust Account |
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Realized gains on investments held in Trust Account |
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(Loss) gain on change in fair value of derivative liability - forward purchase agreement |
( |
) | ||||||
(Loss) gain on change in fair value of warrant liabilities |
( |
) | ||||||
Income before income taxes |
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Income tax expense |
( |
) | ||||||
Net income |
$ |
$ |
||||||
Basic and diluted weighted average shares outstanding, Class A common stock |
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Basic and diluted net income per share, Class A common stock |
$ |
$ |
||||||
Basic and diluted weighted average shares outstanding, Class B common stock |
||||||||
Basic and diluted net income per share, Class B common stock |
$ |
$ |
||||||
Common Stock |
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Class A |
Class B |
Additional Paid-in Capital |
Accumulated Deficit |
Total Stockholders’ Deficit |
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Shares |
Amount |
Shares |
Amount |
|||||||||||||||||||||||||
Balance at December 31, 2022 |
$ |
$ | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||||||
Proceeds received in excess of initial fair value of convertible promissory note - related party |
— | — | — | — | — | |||||||||||||||||||||||
Remeasurement of Class A common stock to redemption value |
— | — | — | — | ( |
) | ( |
) | ( |
) | ||||||||||||||||||
Net income |
— | — | — | — | — | |||||||||||||||||||||||
Balance at March 31, 2023 |
$ |
$ |
$ |
$( |
$ |
( |
) | |||||||||||||||||||||
Common Stock |
||||||||||||||||||||||||||||
Class A |
Class B |
Additional Paid-in Capital |
Accumulated Deficit |
Total Stockholders’ Deficit |
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Shares |
Amount |
Shares |
Amount |
|||||||||||||||||||||||||
Balance at December 31, 2021 |
$ | $ | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||||||
Net income |
— | — | — | — | — | |||||||||||||||||||||||
Balance at March 31, 2022 |
$ |
$ |
$ |
$ |
( |
) |
$ |
( |
) | |||||||||||||||||||
For the three months ended March 31, 2023 |
For the three months ended March 31, 2022 |
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Cash Flows from Operating Activities: |
||||||||
Net income |
$ | $ | ||||||
Adjustments to reconcile net income to net cash used in operating activities: |
||||||||
Unrealized gain on investments held in Trust Account |
( |
) | ( |
) | ||||
Realized gain on investments held in Trust Account |
( |
) | ( |
) | ||||
Change in fair value of derivative liability - forward purchase agreement |
( |
) | ||||||
Change in fair value of warrant liabilities |
( |
) | ||||||
Deferred tax expense |
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Changes in operating assets and liabilities: |
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Prepaid expenses |
||||||||
Accounts payable |
||||||||
Accrued expenses |
( |
) | ||||||
Income tax payable |
||||||||
Franchise tax payable |
( |
) | ( |
) | ||||
Net cash used in operating activities |
( |
) | ( |
) | ||||
Cash Flows from Investing Activities: |
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Proceeds from Trust Account to pay taxes |
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Net cash provided by in investing activities |
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Cash Flows from Financing Activities: |
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Proceeds from issuance of promissory note to related party |
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Net cash provided by financing activities |
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Net change in cash |
( |
) | ( |
) | ||||
Cash - beginning of period |
||||||||
Cash - end of period |
$ |
$ |
||||||
Supplemental disclosure of noncash investing and financing activities: |
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Excess of cash received over fair value of convertible promissory note - related party |
$ | $ | ||||||
Remeasurement of Class A common stock subject to possible redemption to redemption value |
$ | $ | ||||||
Supplemental cash flow information |
||||||||
Cash paid for income and franchise taxes |
$ | $ | ||||||
Class A common stock subject to possible redemption at December 31, 2022 |
$ |
|||
Remeasurement of carrying value to redemption value |
||||
Class A common stock subject to possible redemption at March 31, 2023 |
$ |
|||
Three months ended March 31, 2023 |
Three months ended March 31, 2022 |
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Class A |
Class B |
Class A |
Class B |
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Basic and diluted net income per share: |
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Numerator: |
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Net income |
$ | $ | $ | $ | ||||||||||||
Denominator: |
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Basic and diluted weighted average shares outstanding |
||||||||||||||||
Basic and diluted net income per share |
$ | $ | $ | $ | ||||||||||||
| • | in whole and not in part; |
| • | at a price of $ |
| • | upon not less than |
| • | if, and only if, the reported last reported sale price of the Class A common stock for any |
| • | in whole and not in part; |
| • | at a price of $ |
| • | if the closing price of the Class A common stock for any |
Description |
Amount at Fair Value |
Level 1 |
Level 2 |
Level 3 |
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March 31, 2023 |
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Assets |
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Investments held in Trust Account: |
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Money Market investments |
$ | $ | $ | $ | ||||||||||||
Liabilities |
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Warrant liability – Public Warrants |
$ | $ | $ | $ | ||||||||||||
Warrant liability – Private Placement Warrants |
$ | $ | $ | $ | ||||||||||||
Derivative liability - forward purchase agreement |
$ | $ | $ | $ | ||||||||||||
Convertible promissory note - related party |
$ | $ | $ | $ | ||||||||||||
December 31, 2022 |
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Assets |
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Investments held in Trust Account: |
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Money Market investments |
$ | $ | $ | $ | ||||||||||||
Liabilities |
||||||||||||||||
– Public Warrants |
$ | $ | $ | $ | ||||||||||||
Warrant liability – Private Placement Warrants |
$ | $ | $ | $ | ||||||||||||
Derivative liability- forward purchase agreement |
$ | $ | $ | $ | ||||||||||||
As of March 31, 2023 |
As of December 31, 2022 |
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Stock price |
$ | $ | ||||||
Strike price |
$ | $ | ||||||
Dividend yield |
% | % | ||||||
Term to expected Business Combination (in years) |
||||||||
Volatility |
de minimus | de minimus | ||||||
Risk-free rate (1) |
||||||||
Probability of Business Combination |
% | % | ||||||
Fair value of derivative (asset) liability - forward purchase agreement |
$ | $ | ||||||
1 |
The risk-free rate was based on U.S. Treasury Rates commensurate with the remaining term to Business Combination / expiration of the Private Placement Warrants (see Note 7). |
As of March 31, 2023 |
||||
Warrant exercise price |
$ | |||
Term to expected Business Combination (in years) |
||||
Volatility |
de minimus | |||
Risk free rate |
% | |||
Discount factor |
||||
Probability of Business Combination |
% | |||
Fair value convertible promissory note - related party |
$ | |||
Fair value as of December 31, 2021 |
$ | |||
Change in fair value |
( |
) | ||
Fair value as of March 31, 2022 |
$ | |||
Fair value as of December 31, 2022 |
$ | |||
Initial measurement of draw on convertible promissory note - related party on March 31, 2023 |
||||
Fair value as of March 31, 2023 |
$ |
| • | one-third of the Earnout Shares are issuable upon the volume weighted average price of the shares of Pubco Common Stock (the “VWAP”) equaling or exceeding $ |
| • | one-third of the Earnout Shares are issuable upon (i) the VWAP equaling or exceeding $ |
| • | one-third of the Earnout Shares are issuable upon (i) the VWAP equaling or exceeding $ |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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.
Cautionary Note Regarding Forward-Looking Statements
All statements other than statements of historical fact included in this Quarterly Report, including, without limitation, statements in this section regarding our financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. When used in this Quarterly Report, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend” and similar expressions, as they relate to us or our management, identify forward-looking statements. Such forward-looking statements are based on the beliefs of our management, as well as assumptions made by, and information currently available to, our management. Actual results could differ materially from those contemplated by the forward-looking statements as a result of certain factors detailed in our filings with the SEC. All subsequent written or oral forward-looking statements attributable to us or persons acting on our behalf are qualified in their entirety by this paragraph.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the unaudited condensed financial statements and the notes thereto included in this Quarterly Report under “Item 1. Financial Statements.”
Overview
We are a blank check company incorporated on February 2, 2021 as a Delaware corporation and formed for the purpose of effectuating a Business Combination with one or more businesses. We intend to effectuate our initial Business Combination using cash from the proceeds of the Initial Public Offering that occurred on August 5, 2021 and the private placement of the Private Placement Warrants, the proceeds of the sale of our shares in connection with our initial Business Combination (including to the target or pursuant to the Forward Purchase Agreement or other forward purchase agreements or backstop agreements we may enter into 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.
Recent Developments
On April 27, 2023, the Company entered into the BCA with Starton; Pubco; Purchaser Merger Sub; CallCo; ExchangeCo; the Sponsor, as the representative from and after the Effective Time of the
22
stockholders of Pubco (other than the Starton Shareholders (as defined below) and their successors and assignees); and Kiriakos Charlie Perperidis, in the capacity as the representative of the Starton Shareholders from and after the Effective Time. The BCA was amended by the First BCA Amendment on May 15, 2023.
Pursuant to the BCA, subject to the terms and conditions set forth therein, Purchaser Merger Sub will merge with and into the Company, with the Company continuing as the surviving entity and wholly-owned subsidiary of Pubco, in connection with which all of the existing securities of the Company will be exchanged for rights to receive securities of Pubco as follows: (a) each share of the Company’s common stock outstanding immediately prior to the Effective Time will automatically convert into one share of Pubco Common Stock, and (b) each whole Public Warrant, Private Placement Warrant and Forward Purchase Warrant will automatically convert into one warrant to purchase shares of Pubco Common Stock on substantially the same terms and conditions. Immediately following the Purchaser Merger, by means of the Plan of Arrangement, (i) CallCo will acquire a portion of the issued and outstanding Starton Shares from certain holders in exchange for Pubco Common Stock, and will contribute such Starton Shares to ExchangeCo in exchange for ExchangeCo common shares, (ii) following the Pubco Share Exchange, ExchangeCo will acquire the remaining issued and outstanding Starton Shares from the remaining shareholders of Starton in exchange for Exchangeable Shares. The Exchangeable Shares will be exchangeable, on a one-for-one basis, into shares of Pubco Common Stock, with each share valued at the price at which the Company redeems Public Shares held by its public stockholders in connection with the Starton Business Combination. As a result of the foregoing, Starton will become a wholly-owned subsidiary of ExchangeCo and an indirect subsidiary of Pubco.
Each outstanding Starton option will be assumed by Pubco and automatically converted into an option to purchase shares of Pubco Common Stock in accordance with the Plan of Arrangement and under an equity incentive plan to be adopted by Pubco prior to the Closing.
Pursuant to the terms of the BCA, the aggregate base consideration to be delivered to the Starton Shareholders in connection with the Starton Business Combination will be $260.0 million (including up to $20.0 million of incentive shares provided to potential PIPE investors), subject to adjustments for Starton’s closing debt (net of cash) and certain other adjustments, which consideration will be payable in newly-issued shares of (i) Pubco Common Stock or (ii) Exchangeable Shares, each valued at the Redemption Price.
In addition to the shares of Pubco Common Stock or Exchangeable Shares deliverable at the Closing, the Starton Shareholders will have the contingent right to receive up to an additional shares 25,000,000 shares of Pubco Common Stock or Exchangeable Shares, as earnout consideration after the Closing. The Earnout Consideration will be issuable to the Starton Shareholders (as of the date of the Closing) as follows:
| • | one-third of the Earnout Shares are issuable upon the VWAP equaling or exceeding $12.00 per share for any twenty (20) out of any twenty (20) consecutive trading days during the five-year period after the Closing; |
| • | one-third of the Earnout Shares are issuable upon (i) the VWAP equaling or exceeding $14.00 per share for any twenty (20) out of any twenty (20) consecutive trading days during the Earnout Period or (ii) successful completion of a Phase 1B clinical trial for multiple myeloma, meaning the completion of an interim data analysis which is sufficient to obtain an agreement with the U.S. Food and Drug Administration (“FDA”) in which the FDA permits Starton to move forward to a phase 2 clinical study following a Type B End-of-Phase-1 meeting; and |
| • | one-third of the Earnout Shares are issuable upon (i) the VWAP equaling or exceeding $16.00 per share for any twenty (20) out of any twenty (20) consecutive trading days during the Earnout Period or (ii) achievement of the successful completion of an FDA required bridging study in healthy volunteers that proves bio-equivalence between the ambulatory subcutaneous pump and either a transdermal patch or an on body subcutaneous pump. |
23
Simultaneously with the execution and delivery of the BCA, the Company and Starton entered into the Voting Agreements with certain Starton Shareholders required to approve the Starton Business Combination. Under the Voting Agreements, such Starton Shareholders agreed to vote all of their Starton Shares in favor of the BCA and the related transactions. Such Starton Shareholders also agreed to take certain other actions in support of the BCA and related transactions and refrain from taking actions that would adversely affect their ability to perform their obligations under the Voting Agreements. Such Starton Shareholders also provided a proxy to the Company to vote their Starton Shares in accordance with the foregoing. The Voting Agreements prevent transfers of the Starton Shares held by such Starton Shareholders between the date of the Voting Agreement and the date of Closing, except for certain permitted transfers where the recipient also agrees to comply with the Voting Agreement.
Simultaneously with the execution of the BCA, the Company, Pubco, Starton and the Sponsor also entered into the Sponsor Support Agreement, pursuant to which the Sponsor agreed to vote all of its shares of the Company’s common stock in favor of the BCA and the Starton Business Combination. The Sponsor also agreed to waive its anti-dilution rights that would otherwise allow it to maintain ownership of 20% of Pubco. The Sponsor Support Agreement also prevents transfers of the Company’s securities held by the Sponsor between the date of the Sponsor Support Agreement and the termination of the Sponsor Support Agreement.
The BCA and related agreements and the First BCA Amendment are further described in our Current Reports on Form 8-K filed with the SEC on May 3, 2023 and May 15, 2023, respectively. The foregoing descriptions of each of the BCA, the form of Voting Agreement and the Sponsor Letter Agreement are qualified in their entirety by reference to such agreement filed as an exhibit to this Quarterly Report.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date. Our only activities for the period from February 2, 2021 (inception) through March 31, 2023 were organizational activities, the Initial Public Offering and identifying target companies for a Business Combination. We do not expect to generate any operating revenues until after the completion of our initial Business Combination. We generate non-operating income in the form of interest income on cash and cash equivalents held in the Trust Account. We incur expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as due diligence expenses in connection with our search for Business Combination targets, including Starton.
For the three months ended March 31, 2023, we had net income of $376,054, which resulted from unrealized gain on investments held in Trust Account of $153,692, and realized gain on investments held in Trust Account of $2,549,994, offset in part by a loss on the change in the fair value of warrant liabilities of $808,000, a loss on the change in fair value of derivative liability—forward purchase agreement of $536,000, operating and formation costs of $375,295, income tax expense of $556,992, franchise tax expense of $50,250, and interest expense of $1,095.
For the three months ended March 31, 2022, we had net income of $5,400,380, which resulted from a gain on change in the fair value of warrant liabilities of $5,454,000, change in fair value of derivative asset—forward purchase agreement of $216,000, unrealized gain on investments held in Trust Account of $72,777, a realized gain on investments held in Trust Account of $25,290, offset in part by formation and operating costs of $317,687, and franchise tax expense of $50,000.
Liquidity, Capital Resources, and Going Concern
On August 5, 2021, we consummated the Initial Public Offering of 25,000,000 Units, generating gross proceeds to the Company of $250,000,000. Simultaneously with the consummation of the Initial Public Offering, we completed the private sale of 7,700,000 Private Placement Warrants to the Sponsor at a purchase price of $1.00 per warrant, generating gross proceeds of $7,700,000. A portion of proceeds from the sale of the Private Placement Warrants were added to our net proceeds from the Initial Public Offering held in the Trust Account. If we do not complete an initial Business Combination by August 5, 2023 (24 months from the closing of the Initial Public Offering), the proceeds from the sale of the Private Placement Warrants deposited in the Trust Account will be used to fund the redemption of the Public Shares (subject to the requirements of applicable law) and the Private Placement Warrants will expire worthless.
24
For the three months ended March 31, 2023, net cash used in operating activities was $709,640, which was due to a unrealized gain on investments held in the Trust Account of $153,692, realized gain on investments held in the Trust Account of $2,549,994, partially offset by our net income of $376,054, change in fair value of derivative liability-forward purchase agreement of 536,000, change in fair value of warrant liabilities of $808,000, deferred tax expense of $32,276, and changes in working capital of $241,716.
For the three months ended March 31, 2022, net cash used in operating activities was $290,266, which was due to a non-cash gain on the change in fair value of warrant liabilities of $5,454,000, change in fair value of derivative asset—forward purchase agreement of $216,000, changes in working capital of $77,421, unrealized gain on investments in the Trust Account of $72,777 and a realized gain on investments in the Trust Account of $25,290, offset in part by our net income of $5,400,380.
For the three months ended March 31, 2023, net cash provided by investing activities of $546,748 was the proceeds received from the Trust Account to pay taxes.
For the three months ended March 31, 2022, net cash provided by investing activities of $62,500 was the result of the amount of proceeds received from the Trust Account to pay franchise taxes.
For the three months ended March 31, 2023, net cash provided by financing activities was $60,000, which was a result of proceeds from a convertible promissory note.
There were no cash flows from financing activities for the three months ended March 31, 2022.
As of March 31, 2023, we had cash of $34,860 held outside the Trust Account. We intend to use the funds held outside the Trust Account primarily to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, and structure, negotiate and complete a Business Combination. We also incur expenses as a result of being a public company for legal, financial reporting, accounting and compliance. We will also have obligations to pay Delaware and California state franchise taxes and other taxes with the funds held outside of the Trust Account to the extent that interest earned on the Trust Account is not sufficient to cover these taxes. We currently believe that the interest earned on the Trust Account should be sufficient to cover these taxes.
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. 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 to be $200,000 per year for Delaware, and $800 per year for California, plus other taxes, including but not limited to federal and state income and excise taxes, which we may pay from funds from the sale of the Private Placement Warrants 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.
The unaudited condensed financial statements have been prepared in conformity with GAAP, which contemplates continuation of the Company as a going concern and the realization of assets and the satisfaction of liabilities in the normal course of business. We have incurred and expect to continue to incur significant costs in pursuit of our acquisition plans. We anticipate that the cash held outside of the Trust Account as of March 31, 2023, will not be sufficient to allow us to operate until August 5, 2023, the date at which we must complete our initial Business Combination. Further, if our initial Business Combination is not consummated August 5, 2023, there will be a mandatory liquidation and subsequent dissolution of the Company. These conditions raise substantial doubt about our ability to continue as a going concern for the next 12 months after the date that the accompanying financial statements are issued.
25
We plan to address this uncertainty through our initial Business Combination as discussed above. There is no assurance that our plans to consummate our initial Business Combination will be successfully completed by August 5, 2023. The financial statements included elsewhere in this Quarterly Report do not include any adjustments that might result from the outcome of this uncertainty.
In order to fund working capital deficiencies or finance transaction costs in connection with an intended initial Business Combination, the Sponsor or an affiliate of the Sponsor or certain of our officers and directors may, but are not obligated to, loan us funds as may be required on a non-interest basis. If we complete our initial Business Combination, we would repay such loaned amounts. 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 the Trust Account would be used for such repayment. Up to $1,500,000 of such loans may be convertible into warrants of the post Business Combination entity at a price of $1.00 per warrant at the option of the lender. The warrants would be identical to the Private Placement Warrants. The terms of such loans, if any, have not been determined and no written agreements exist with respect to such loans. Prior to the completion of our initial Business Combination, we do not expect to seek loans from parties other than our Sponsor or an affiliate of the 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 the Trust Account.
On March 17, 2023, we issued an unsecured promissory note in the principal amount of up to $750,000 to the Sponsor (the “March Working Capital Loan”).The March Working Capital Loan bears no interest and is due and payable upon the earlier to occur of (i) the date on which our initial Business Combination is consummated and (ii) the liquidation of the Company on or before August 5, 2023, or such later liquidation date as may be approved by our stockholders. At the election of the Sponsor, the unpaid principal amount of the March Working Capital Loan may be converted into warrants of the Company (the “Conversion Warrants”) with the total Conversion Warrants so issued equal to: (x) the portion of the principal amount of the March Working Capital Loan being converted divided by (y) $1.00, rounded up to the nearest whole number of warrants. On March 31, 2023, the Company drew $60,000 from the March Working Capital Loan, which has not yet been repaid as of March 31, 2023. Through May 18, 2023, the total amount drawn by the Company from the March Working Capital Loan was $400,000.
The fair value option was elected (see Note 10 of the condensed financial statements contained elsewhere in this Quarterly Report) and, as such, the fair value of the March Working Capital Loan is shown on the condensed balance sheets as $41,332 and $0 as of March 31, 2023 and December 31, 2022, respectively. The difference between the amount of the borrowing of $60,000 and the fair value of $41,332 is $18,668 and is recorded as an equity contribution in the Condensed Statements of Changes in Stockholders’ Deficit.
These amounts are estimates and may differ materially from our actual expenses. In addition, we could use a portion of the funds not placed in the Trust Account 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 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 March 31, 2023 and December 31, 2022.
Contractual Obligations
We do not have any long-term debt obligations, capital lease obligations, operating lease obligations, purchase obligations or other long-term liabilities, other than described below.
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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. On August 5, 2021, the Company repaid the outstanding balance under the Initial Promissory Note of $350,000 that was borrowed prior to the Initial Public Offering. As of December 31, 2022, there was no borrowings outstanding under the Promissory Note. The Company no longer has the ability to borrow under the Promissory Note.
On March 17, 2023, the Company issued an unsecured promissory note in the principal amount of up to $750,000 to the Sponsor. This March Working Capital Loan bears no interest and is due and payable upon the earlier to occur of (i) the date on which the Company’s initial Business Combination is consummated and (ii) the liquidation of the Company on or before August 5, 2023, or such later liquidation date as may be approved by the Company’s stockholders. At the election of the Sponsor, the unpaid principal amount of the March Working Capital Loan may be converted into Conversion Warrants with the total Conversion Warrants so issued equal to: (x) the portion of the principal amount of the March Working Capital Loan being converted divided by (y) $1.00, rounded up to the nearest whole number of warrants. On March 31, 2023, the Company drew $60,000 from the March Working Capital Loan, which has not yet been repaid as of March 31, 2023. Through May 18, 2023, the total amount drawn by the Company from the March Working Capital Loan was $400,000.
The fair value option was elected (see Note 10 of the condensed financial statements and the notes thereto contained elsewhere in this Quarterly Report) and, as such, the fair value of the March Working Capital Loan is shown on the condensed balance sheets as $41,332 and $0 as of March 31, 2023 and December 31, 2022, respectively. The difference between the amount of the borrowing of $60,000 and the fair value of $41,332 is $18,668 and is recorded as an equity contribution in the Condensed Statements of Changes in Stockholders’ Deficit.
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 our Initial Public Offering. In addition, $0.35 per Unit, or $8,750,000 in the aggregate will be payable to the underwriters as 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 an initial Business Combination, subject to the terms of the underwriting agreement.
Critical Accounting Policies and Significant Estimates
The preparation of condensed financial statements and related disclosures in conformity with GAAP 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 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.
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 Topic 480, Distinguishing Liabilities from Equity and ASC Topic 815, Derivatives and Hedging. The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480,
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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 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 condensed statement of operations. The accounting treatment of derivative financial instruments required that the Company record the warrants as derivative liabilities at fair value upon the closing of March Working Capital Loan. As of March 31, 2023, the Company estimated the fair value of the warrant derivative liabilities to be $2,424,000. The public warrants were allocated a portion of the proceeds from the issuance of the Units equal to its fair value.
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 our initial Business Combination and in connection with certain amendments to the 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 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 Public Shares have 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.
Net Income Per Share of Common Stock
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. Remeasurement associated with the redeemable shares of Class A common stock is excluded from net income per share as the redemption value approximates fair value. Therefore, the income per share calculation allocates income and losses shared pro rata between Class A and Class B common stock. As a result, the calculated net income per share is the same for Class A and Class B shares of common stock. The Company has not considered the effect of the warrants sold in the Initial Public Offering and private placement to purchase an aggregate of 20,200,000 shares in the calculation of diluted net income per share, since the exercise of the warrants is contingent upon the occurrence of future events. As a result, diluted net income per share is the same as basic net income per share for the periods presented.
Use of Estimates
The preparation of condensed financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed financial statements and the reported amounts of revenues and expenses during the reporting period.
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the condensed financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from those estimates. Significant estimates included in the condensed financial statements include warrant liabilities and derivative financial instruments.
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Actual results could materially differ from those estimates.
Recent Accounting Standards
Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s condensed financial statements.
Factors That May Adversely Affect our Results of Operations
Our results of operations and our ability to complete an initial Business Combination may be adversely affected by various factors that could cause economic uncertainty and volatility in the financial markets, many of which are beyond our control. Our business could be impacted by, among other things, downturns in the financial markets or in economic conditions, increases in oil prices, inflation, increases in interest rates, supply chain disruptions, declines in consumer confidence and spending, the ongoing effects of the COVID-19 pandemic, including resurgences and the emergence of new variants, and geopolitical instability, such as the military conflict in Ukraine. We cannot at this time fully predict the likelihood of one or more of the above events, their duration or magnitude or the extent to which they may negatively impact our business and our ability to complete an initial Business Combination.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this Item.
Item 4. Controls and Procedures.
Evaluation of Disclosure 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 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 (together, the “Certifying Officers”), to allow timely decisions regarding required disclosure.
Under the supervision and with the participation of our management, including our Certifying Officers, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on the foregoing, our Certifying Officers concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report.
We do not expect that our disclosure controls and procedures will prevent all errors and all instances of fraud. Disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedures are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficiencies and instances of fraud, if any. The design of disclosure controls and procedures also is based partly on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
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Changes in Internal Control over Financial Reporting
During the most recently completed fiscal quarter, there have been no changes to our internal control over financial reporting during the quarterly period ended March 31, 2023 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
To the knowledge of our management team, there is no litigation currently pending or contemplated against us, any of our officers or directors in their capacity as such or against any of our property.
Item 1A. Risk Factors.
As a smaller reporting company under Rule 12b-2 of the Exchange Act, we are not required to include risk factors in this Quarterly Report. However, as of the date of this Quarterly Report, other than as set forth below, there have been no material changes with respect to those risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on March 3, 2023. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risks could arise that may also affect our business or ability to consummate an initial Business Combination. We may disclose changes to such risk factors or disclose additional risk factors from time to time in our future filings with the SEC.
For risks related to Starton and the Starton Business Combination, see Pubco’s Registration Statement on Form S-4 filed with the SEC on May 15, 2023.
Adverse developments affecting the financial services industry, including events or concerns involving liquidity, defaults or non-performance by financial institutions, could adversely affect our business, financial condition or results of operations, or our prospects.
The funds in our operating account and our Trust Account are held in banks or other financial institutions. Our cash held in non-interest bearing and interest-bearing accounts would exceed any applicable Federal Deposit Insurance Corporation (“FDIC”) insurance limits. Should events, including limited liquidity, defaults, non-performance or other adverse developments occur with respect to the banks or other financial institutions that hold our funds, or that affect financial institutions or the financial services industry generally, or concerns or rumors about any events of these kinds or other similar risks, our liquidity may be adversely affected. For example, on March 10, 2023, the FDIC announced that Silicon Valley Bank had been closed by the California Department of Financial Protection and Innovation. Although we did not have any funds in Silicon Valley Bank or other institutions that have been closed, we cannot guarantee that the banks or other financial institutions that hold our funds will not experience similar issues.
In addition, investor concerns regarding the U.S. or international financial systems could result in less favorable commercial financing terms, including higher interest rates or costs and tighter financial and operating covenants, or systemic limitations on access to credit and liquidity sources, thereby making it more difficult for us to acquire financing on terms favorable to us in connection with a potential Business Combination, or at all, and could have material adverse impacts on our liquidity, our business, financial condition or results of operations, and our prospects.
Market conditions, economic uncertainty or downturns could adversely affect our business, financial condition, operating results and our ability to consummate a Business Combination.
In recent years, the United States and other markets have experienced cyclical or episodic downturns, and worldwide economic conditions remain uncertain, including as a result of the COVID-19 pandemic, supply chain disruptions, the Ukraine-Russia conflict, instability in the U.S. and global banking systems, rising fuel prices, increasing interest rates or foreign exchange rates and high inflation and the possibility of a recession. A significant downturn in economic conditions may make it more difficult for us to consummate a Business Combination.
We cannot predict the timing, strength, or duration of any future economic slowdown or any subsequent recovery generally, or in any industry. If the conditions in the general economy and the markets in which we operate worsen from present levels, our business, financial condition, operating results and our ability to consummate a Business Combination could be adversely affected. For example, in January 2023, the outstanding national debt of the U.S. government reached its statutory limit. The U.S. Department of the Treasury (the “Treasury Department”) has announced that, since then, it has been using extraordinary measures to prevent the U.S. government’s default on its payment obligations, and to extend the time that the U.S. government has to raise its statutory debt limit or otherwise resolve its funding situation. The failure by Congress to raise the federal debt ceiling could have severe repercussions within the U.S. and to global credit and financial markets. If Congress does not raise the debt ceiling, the U.S. government could default on its payment obligations, or experience delays in making payments when due. A payment default or delay by the U.S. government, or continued uncertainty surrounding the U.S. debt ceiling, could result in a variety of adverse effects for financial markets, market participants and U.S. and global economic conditions. In addition, U.S. debt ceiling and budget deficit concerns have increased the possibility a downgrade in the credit rating of the U.S. government and could result in economic slowdowns or a recession in the U.S. Although U.S. lawmakers have passed legislation to raise the federal debt ceiling on multiple occasions, ratings agencies have lowered or threatened to lower the long-term sovereign credit rating on the United States as a result of disputes over the debt ceiling. The impact of a potential downgrade to the U.S. government’s sovereign credit rating or its perceived creditworthiness could adversely affect economic conditions, as well as our business, financial condition, operating results and our ability to consummate a Business Combination.
A 1% U.S. federal excise tax may be imposed on us in connection with our redemptions of shares in connection with a Business Combination or other stockholder vote pursuant to which stockholders would have a right to submit their shares for redemption (a “Redemption Event”).
Pursuant to the IR Act, commencing in 2023, a 1% U.S. federal excise tax is imposed on certain repurchases (including redemptions) of stock by publicly traded domestic (i.e., U.S.) corporations and certain domestic subsidiaries of publicly traded foreign corporations. The excise tax is imposed on the repurchasing corporation and not on its stockholders. The amount of the excise tax is equal to 1% of the fair market value of the shares repurchased at the time of the repurchase. However, for purposes of calculating the excise tax, repurchasing corporations are permitted to net the fair market value of certain new stock issuances against the fair market value of stock repurchases during the same taxable year. The Treasury Department authority to promulgate regulations and provide other guidance regarding the excise tax. In December 2022, the Treasury Department issued Notice 2023-2, indicating its intention to propose such regulations and issuing certain interim rules on which taxpayers may rely. Under the interim rules, liquidating distributions made by publicly traded domestic corporations are exempt from the excise tax. In addition, any redemptions that occur in the same taxable year as a liquidation is completed will also be exempt from such tax. Accordingly, redemptions of our Public Shares in connection with an extension of the Combination Period may subject us to the excise tax, unless one of the two exceptions above apply. Such redemptions would only occur if an extension of the Combination Period is approved by our stockholders and such extension is implemented by the Board.
If the deadline for us to complete a Business Combination (currently August 5, 2023) is extended, our public stockholders will have the right to require us to redeem their Public Shares. Any redemption or other repurchase may be subject to the excise tax. The extent to which we would be subject to the excise tax in connection with a Redemption Event would depend on a number of factors, including: (i) the fair market value of the redemptions and repurchases in connection with the Redemption Event, (ii) the nature and amount of any “PIPE” or other equity issuances in connection with the Business Combination (or otherwise issued not in connection with the Redemption Event but issued within the same taxable year of the Business Combination), (iii) if we fail to timely consummate a Business Combination and liquidate in a taxable year subsequent to the year in which a Redemption Event occurs and (iv) the content of any proposed or final regulations and other guidance from the Treasury Department. In addition, because the excise tax would be payable by us and not by the redeeming holders, the mechanics of any required payment of the excise tax remain to be determined. Any excise tax payable by us in connection with a Redemption Event may cause a reduction in the cash available to us to complete a Business Combination and could affect our ability to complete a Business Combination.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Unregistered Sales of Equity Securities
None.
Use of Proceeds
For a description of the use of proceeds generated in our initial public offering and private placement, see Part II, Item 5 of our Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as filed with the SEC on March 28, 2022. There has been no material change in the planned use of proceeds from the Initial Public Offering and private placement as described in the Registration Statement. The specific investments in our Trust Account may change from time to time.
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Purchases of Equity Securities by the Issuer and Affiliated Purchasers
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None.
Item 6. Exhibits.
The following documents are filed as part of, or incorporated by reference into, this Quarterly Report:
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| * | Filed herewith. |
| ** | Furnished herewith. |
| *** | The exhibits and schedules to this Exhibit have been omitted in accordance with Item 601(b)(2) of Regulation S-K. The Registrant agrees to furnish supplementally to the SEC a copy of all omitted exhibits and schedules upon its request. |
| (1) | Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on May 3, 2023. |
| (2) | Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on May 15, 2023. |
| (3) | Incorporated by reference to the Company’s Current Report on Form 8-K as filed with the SEC on March 23, 2023. |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Healthwell Acquisition Corp. I | ||||||
| Date: May 18, 2023 | By: | /s/ Alyssa Rapp | ||||
| Alyssa Rapp | ||||||
| Chief Executive Officer | ||||||
| Healthwell Acquisition Corp. I | ||||||
| Date: May 18, 2023 | By: | /s/ Tracy Wan | ||||
| Tracy Wan | ||||||
| President and Chief Financial Officer | ||||||
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