References in this report (the "Quarterly Report") to "we," "us" or the
"Company" refer to HealthCor Catalio Acquisition Corp. References to our
"management" or our "management team" refer to our officers and directors, and
references to the "Sponsor" refer to HC Sponsor LLC. The following discussion
and analysis of the Company's financial condition and results of operations
should be read in conjunction with the 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.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended (the "Securities Act")
and Section 21E of the Exchange Act that are not historical facts and involve
risks and uncertainties that could cause actual results to differ materially
from those expected and projected. All statements, other than statements of
historical fact included in this Form 10-Q 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 Annual Report on Form 10-K 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.
This Management's Discussion and Analysis of Financial Condition has been
restated to give effect to the restatement of our financial statements as of
March 31, 2021 and June 30, 2021. In light of the recent comment letter issued
by the Securities & Exchange Commission ("SEC"), management re-evaluated the
Company's application of ASC 480-10-99 to its accounting classification of
public shares. In connection with the preparation of the Company's financial
statements as of September 30, 2021, management identified errors made in its
historical financial statements where, at the closing of the Company's Initial
Public Offering, the Company improperly classified a portion of its Class A
ordinary shares subject to possible redemption. The Company previously
determined the Class A ordinary shares subject to possible redemption cannot
result in net tangible assets being less than $5,000,001. Management determined
that the Class A ordinary shares issued during the Initial Public Offering can
be redeemed or become redeemable subject to the occurrence of future events
considered outside of the Company's control. Therefore, management concluded
that the redemption value should include all Class A ordinary shares subject to
possible redemption regardless if the result is less than $5,000,001 in net
tangible assets. . In accordance with SEC Staff Accounting Bulletin No. 99,
"Materiality" and SEC Staff Accounting Bulletin No. 108, "Considering the
Effects of Prior Year Misstatements when Quantifying Missatements in Current
Year Financial Statements", management has concluded the classification error
related to temporary equity and permanent equity was material to the historical
financial statements. Therefore, the Company, in consultation with its Audit
Committee, concluded that its previously issued financial statements impacted
should be restated. This resulted in a restatement to temporary equity with the
offset recorded to additional paid-in capital (to the extent available),
accumulated deficit and Class A ordinary shares.
Overview
We are a blank check company incorporated as a Cayman Islands exempted company
on November 18, 2020 for the purpose of effecting a merger, share exchange,
asset acquisition, share purchase, reorganization or other similar business
combination with one or more businesses. We intend to effectuate our Business
Combination using cash from the proceeds of the Initial Public Offering and the
sale of the Private Placement Shares, our capital shares, debt or a combination
of cash, shares and debt.
We expect to continue to incur significant costs in the pursuit of our
acquisition plans. We cannot assure you that our plans to raise capital or to
complete our initial Business Combination will be successful.
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Recent Developments
On July 7, 2021, the Company entered into a business combination agreement with
Optimus Merger Sub I, Inc., a wholly owned subsidiary of HealthCor ("Merger Sub
I"), Optimus Merger Sub II, Inc., a wholly owned subsidiary of HealthCor
("Merger Sub II"), Hyperfine, Inc. ("Hyperfine") and Liminal Sciences, Inc.
("Liminal") (as it may be amended, supplemented or otherwise modified from time
to time, the "Business Combination Agreement"). The Business Combination
Agreement and the transactions contemplated thereby (collectively, the "Business
Combination") were unanimously approved by the boards of directors of each of
HealthCor, Hyperfine and Liminal on July 7, 2021. Pursuant to the Business
Combination Agreement and subject to the terms and conditions set forth therein,
HealthCor will domesticate as a Delaware corporation (the "Domestication") and
will be renamed Hyperfine, Inc. (referred to herein as "New Hyperfine"), Merger
Sub I will merge with and into Hyperfine (the "Hyperfine Merger"), with
Hyperfine surviving the Hyperfine Merger as a wholly owned subsidiary of New
Hyperfine, and Merger Sub II will merge with and into Liminal (the "Liminal
Merger" and, together with the Hyperfine Merger, the "Mergers"), with Liminal
surviving the Liminal Merger as a wholly owned subsidiary of New Hyperfine.
The Business Combination Agreement provides that, among other things, prior to
the effective time of the Mergers (the "Effective Time") and in connection with
the Domestication, (i) the Class A ordinary shares of HealthCor, issued and
outstanding immediately prior to the Domestication will convert into an equal
number of shares of Class A common stock of New Hyperfine (the "New Hyperfine
Class A common stock") and (ii) the Class B ordinary shares of HealthCor issued
and outstanding immediately prior to the Domestication will convert into an
equal number of shares of Class B common stock of New Hyperfine (the "New
Hyperfine Class B common stock"). Immediately following the Domestication, the
shares of New Hyperfine Class B common stock will convert into shares of New
Hyperfine Class A common stock (the "Conversion"). New Hyperfine Class A common
stock will carry one vote per share and, following the Conversion, New Hyperfine
Class B common stock will carry 20 votes per share. The New Hyperfine Class B
common stock will have the same economic terms as the New Hyperfine Class A
common stock, but will be subject to a "sunset" provision if Dr. Jonathan M.
Rothberg, the founder and Executive Vice Chairman of Hyperfine and founder and
Executive Chairman of Liminal and other permitted holders of New Hyperfine Class
B common stock collectively cease to beneficially own at least twenty percent
(20%) of the number of shares of New Hyperfine Class B common stock (as such
number of shares is equitably adjusted in respect of any reclassification, stock
dividend, subdivision, combination or recapitalization of the New Hyperfine
Class B common stock) collectively held by Dr. Rothberg and permitted
transferees of New Hyperfine Class B common stock as of the Effective Time.
As a consequence of the Mergers, at the Effective Time, (i) (a) each share of
Hyperfine capital stock (other than shares of Hyperfine Series A preferred
stock) issued and outstanding as of immediately prior to the Effective Time will
be automatically cancelled and extinguished and converted into the right to
receive the number of shares of New Hyperfine Class A common stock equal to the
Hyperfine Exchange Ratio (as defined in the Business Combination Agreement); and
(b) each share of Liminal capital stock (other than shares of Liminal Series A-1
preferred stock) issued and outstanding as of immediately prior to the Effective
Time will be automatically cancelled and extinguished and converted into the
right to receive the number of shares of New Hyperfine Class A common stock
equal to the Liminal Exchange Ratio (as defined in the Business Combination
Agreement); and (ii) (a) each share of Hyperfine Series A preferred stock issued
and outstanding as of immediately prior to the Effective Time will be
automatically cancelled and extinguished and converted into the right to receive
the number of shares of New Hyperfine Class B common stock equal to the
Hyperfine Exchange Ratio and (b) each share of Liminal Series A-1 preferred
stock issued and outstanding as of immediately prior to the Effective Time will
be automatically cancelled and extinguished and converted into the right to
receive the number of shares of New Hyperfine Class B common stock equal to the
Liminal Exchange Ratio; (iii) each option to purchase shares of Hyperfine or
Liminal common stock, whether vested or unvested, that is outstanding and
unexercised as of immediately prior to the Effective Time will be assumed by New
Hyperfine and will automatically become an option (vested or unvested, as
applicable) to purchase a number of shares of New Hyperfine Class A common stock
equal to the number of shares of Hyperfine or Liminal common stock subject to
such option immediately prior to the Effective Time multiplied by the Hyperfine
Exchange Ratio or the Liminal Exchange Ratio, as applicable, and rounded down to
the nearest whole number of shares, at an exercise price per share equal to the
exercise price per share of such option immediately prior to the Effective Time
divided by the Hyperfine Exchange Ratio or the Liminal Exchange Ratio, as
applicable, and rounded up to the nearest whole cent; and (iv) each Hyperfine
and Liminal restricted stock unit outstanding immediately prior to the Effective
Time will be assumed by New Hyperfine and will automatically become a restricted
stock unit with respect to a number of shares of New Hyperfine Class A common
stock, rounded down to the nearest whole share, equal to the number of shares of
Hyperfine or Liminal common stock subject to such Hyperfine or Liminal
restricted stock unit immediately prior to the Effective Time multiplied by
Hyperfine Exchange Ratio or Liminal Exchange Ratio, as applicable. The aggregate
number of shares of New Hyperfine capital stock a holder of Hyperfine or Liminal
capital stock is entitled to receive as a result of the events described in
clauses (i) and (ii) of the preceding sentence will be rounded down to the
nearest whole number of shares.
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In addition to the consideration to be paid at the closing of the Business
Combination, holders of Hyperfine or Liminal common stock (on a fully-diluted
and as-converted to common stock basis) will be entitled to receive 10,000,000
shares of New Hyperfine Class A common stock (valued at $10.00 per share) if the
closing price of shares of New Hyperfine Class A common stock is equal to or
greater than $15.00 for a period of at least 20 days out of 30 consecutive
trading days during the period between the Closing Date and the third
anniversary of the Closing Date.
Concurrently with the execution of the Business Combination Agreement, HealthCor
has entered into the subscription agreements, dated as of July 7, 2021 (the
"Subscription Agreements"), with certain institutional and accredited investors
(the "PIPE Investors"), pursuant to which the PIPE Investors have agreed to
subscribe for and purchase, and HealthCor has agreed to issue and sell to the
PIPE Investors, immediately prior to the Closing, an aggregate of 12,610,000
shares of New Hyperfine Class A common stock at a price of $10.00 per share (the
"PIPE Financing"), for aggregate gross proceeds of $126.1 million. The shares of
New Hyperfine Class A common stock to be issued pursuant to the Subscription
Agreements have not been registered under the Securities Act of 1933, as amended
(the "Securities Act"), in reliance upon the exemption provided in Section
4(a)(2) of the Securities Act and/or Regulation D promulgated thereunder. Under
the Subscription Agreements, HealthCor has agreed that the PIPE Investors will
have certain registration rights in connection with the PIPE Financing. The PIPE
Financing is contingent upon, among other things, the substantially concurrent
closing of the Business Combination.
Concurrently with the execution of the Business Combination Agreement, the
Sponsor Joseph Healey, Michael Weinstein, Christopher Wolfgang, Taylor Harris,
HealthCor, Hyperfine and Liminal entered into a sponsor letter agreement, dated
as of July 7, 2021 (the "Sponsor Letter Agreement"), pursuant to which the
Sponsor and each other holder of HealthCor Class B ordinary shares has agreed
to, among other things, (i) vote in favor of the transaction proposals
(including the proposal to approve the Business Combination Agreement and the
related transactions contemplated therein) at the Special Meeting, (ii) be bound
by and subject to certain other covenants and agreements of the Business
Combination Agreement, as if they were directly party thereto, (iii) waive any
adjustment to the conversion ratio set forth in the governing documents of
HealthCor or any other anti-dilution or similar protection with respect to the
HealthCor Class B ordinary shares (whether resulting from the transactions
contemplated by the Business Combination Agreement, the Subscription Agreements
or otherwise), (iv) not redeem or otherwise exercise any right to redeem any of
his, her or its HealthCor equity securities; and (v) be bound by certain
transfer restrictions with respect to his, her or its HealthCor equity
securities prior to the closing of the Business Combination, in each case, on
the terms and subject to the conditions set forth in the Sponsor Letter
Agreement.
On July 8, 2021, Dr. Jonathan M. Rothberg and certain stockholders of Hyperfine
and Liminal affiliated with Dr. Rothberg (collectively, the "supporting
Hyperfine stockholders") entered into a Transaction Support Agreement (the
"Transaction Support Agreement"), with HealthCor Catalio Acquisition Corp. Under
the Transaction Support Agreement, each supporting Hyperfine stockholder agreed,
among other things, to (i) execute and deliver to Hyperfine, Liminal and
HealthCor, as promptly as reasonably practicable (and in any event within two
business days) following the time at which the Registration Statement on Form
S-4 (the "Registration Statement") filed in connection with the Business
Combination Agreement, dated as of July 7, 2021, by and among HealthCor, Optimus
Merger Sub I, Inc., Optimus Merger Sub II, Inc., Hyperfine and Liminal and the
transactions contemplated thereby is declared effective under the Securities Act
of 1933, as amended (the "Securities Act"), written consents of the Hyperfine
stockholders and the Liminal stockholders, respectively, sufficient to approve
the Business Combination Agreement, the related documents and the transactions
contemplated thereby (including the Business Combination) and (ii) be bound by
certain other covenants and agreements related to the Business Combination. The
shares of Hyperfine and Liminal capital stock that are owned by the supporting
Hyperfine stockholders and subject to the Transaction Support Agreement
represent over 74% of the aggregate outstanding voting power of Hyperfine common
stock and preferred stock (on an as-converted basis) and over 95% of the
aggregate outstanding voting power of Liminal common stock and preferred stock
(on an as-converted basis). In addition, the Transaction Support Agreement
prohibits the supporting Hyperfine stockholders from engaging in activities that
have the effect of soliciting a competing acquisition proposal.
On November 13, 2021, the Sponsor agreed to provide loans of up to an aggregate
of $1,000,000 to the Company through November 13, 2022 if funds are needed by
the Company upon request. These loans will be non-interest bearing, unsecured
and will be repaid upon the consummation of a business combination. The Sponsor
understands that if the Company does not consummate a business combination (as
described in the Company's prospectus, dated January 26, 2021), all amounts
loaned to the Company hereunder will be forgiven except to the extent that the
Company has funds available to it outside of its trust account established in
connection with the Company's initial public offering.
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Results of Operations
We have neither engaged in any operations nor generated any operating revenues
to date. Our only activities from inception through September 30, 2021 were
organizational activities and those necessary to prepare for our initial public
offering, and since our initial public offering, our activity has been limited
to the search for a prospective initial business combination as well as costs
incurred related to completing the business combination, as noted above in
Recent Developments. We do not expect to generate any operating revenues until
after the completion of our initial business combination. We expect to generate
non-operating income in the form of interest income on marketable securities
held after our initial public offering. We expect that we will 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 in
connection with searching for, and completing, a business combination.
For the three months ended September 30, 2021, we had net loss of $897,753,
which consists of $900,417 of operating costs offset by $2,664 of dividend
income earned on our marketable securities held in the Trust Account. Operating
costs consist of $587,165 of legal expenses to support business combination and
ongoing operating efforts.
For the nine months ended September 30, 2021, we had net loss of $2,480,413,
which consists of $2,494,910 of operating costs offset by $14,497 of dividend
income earned on our marketable securities held in the Trust Account. Operating
costs consist of $1,954,548 of legal expenses to support business combination
and ongoing operating efforts.
Liquidity and Capital Resources
On January 29, 2021, we consummated our initial public offering of 20,700,000
Class A ordinary shares, at a price of $10.00 per share, which included the full
exercise by the underwriters of their over-allotment option in the amount of
2,700,000 Class A ordinary shares, generating gross proceeds of $207,000,000.
Simultaneously with the closing of our initial public offering, we consummated
the sale of 614,000 Private Placement Shares to the Sponsor at a price of $10.00
per share generating gross proceeds of $6,140,000.
Following the closing of our initial public offering, the full exercise of the
over-allotment option, and the sale of the Private Placement Shares a total of
$207,000,000 was placed in the trust account. We incurred $11,928,907 in
transaction costs, including $4,140,000 of underwriting fees, $7,245,000 of
deferred underwriting fees and $543,907 of other offering costs.
For the nine months ended September 30, 2021, net cash used in operating
activities was $958,203. Net loss of $2,480,413 was affected by dividend income
earned of $14,497 and changes in operating assets and liabilities provided
$1,536,707 of cash from operating activities.
At September 30, 2021, we held cash in the Trust Account in the amount of
$207,014,497. We are using substantially all of the funds held in the trust
account, including any amounts representing interest earned on the trust account
(less deferred underwriting commissions and income taxes payable), to complete
our business combination. To the extent that our share capital or debt is used,
in whole or in part, as consideration to complete our business combination, the
remaining proceeds held in the trust account will be used as working capital to
finance the operations of the target business or businesses, make other
acquisitions and pursue our growth strategies.
As of September 30, 2021, the Company held $525,404 in cash outside of the Trust
Account and had a working capital deficit of $1,018,818. The deficit was
primarily due to legal accruals of $1.9 million of which approximately
$1,415,000 are contingent upon and will be paid through the consummation of the
initial business combination along with other contingent deal costs. On November
13, 2021, the Sponsor agreed to provide loans of up to an aggregate $1,00,000 to
the Company through November 13, 2022 if funds are needed by the Company upon
request. These loans will be non-interest bearing, unsecured and will be repaid
upon the consummation of a business combination. The Sponsor understands that if
the Company does not consummate a business combination (as described in the
Company's prospectus, dated January 26, 2021), all amounts loaned to the Company
hereunder will be forgiven except to the extent that the Company has funds
available to it outside of its trust account established in connection with the
Company's initial public offering.
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Based on the foregoing, management believes that the Company will have
sufficient working capital and borrowing capacity to meet its needs through the
earlier of the consummation of an initial business combination or one year from
this filing. Over this time period, the Company will be using these funds for
paying existing accounts payable, performing due diligence on prospective target
businesses, and structuring, negotiating and consummating the initial business
combination.
Off-Balance Sheet Arrangements
We have no obligations, assets or liabilities, which would be considered
off-balance sheet arrangements as of September 30, 2021. We do not participate
in transactions that create relationships with unconsolidated entities or
financial partnerships, often referred to as variable interest entities, which
would have been established for the purpose of facilitating off-balance sheet
arrangements. We have not entered into any off-balance sheet financing
arrangements, established any special purpose entities, guaranteed any debt or
commitments of other entities, or purchased any non-financial assets.
Contractual Obligations
We do not have any long-term debt, capital lease obligations, operating lease
obligations or long-term liabilities.
The underwriters are entitled to a deferred fee of $0.35 per share, or
$7,245,000 in the aggregate. 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
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 not identified any critical accounting policies.
Class A Ordinary Shares Subject to Possible Redemption
We account for our Class A ordinary shares subject to possible redemption in
accordance with the guidance in Accounting Standards Codification ("ASC") Topic
480 "Distinguishing Liabilities from Equity." Class A ordinary shares subject to
mandatory redemption is classified as a liability instrument and is measured at
fair value. Conditionally redeemable ordinary shares (including ordinary shares
that features redemption rights that is 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,
ordinary shares are classified as shareholders' equity. Our ordinary shares
feature certain redemption rights that are considered to be outside of our
control and subject to occurrence of uncertain future events. Accordingly, Class
A ordinary shares subject to possible redemption is presented as temporary
equity, outside of the shareholders' equity section of our unaudited condensed
balance sheets.
Net Loss Per Ordinary Share
We calculate loss per ordinary share by allocating net loss evenly to Class A
and Class B ordinary shares. This presentation contemplates a Business
Combination as the most likely outcome, in which case, both classes of ordinary
shares share pro rata in the income (loss) of the Company.
JOBS Act
On April 5, 2012, the JOBS Act was signed into law. The JOBS Act contains
provisions that, among other things, relax certain reporting requirements for
qualifying public companies. We will qualify as an "emerging growth company" and
under the JOBS Act will be 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 such, our financial statements may not be
comparable to companies that comply with public company effective dates.
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