Filing Summary
Entity and period: This September 30, 2020 Form 10-Q is filed by Health Sciences Acquisitions Corporation 2, a Cayman Islands blank-check company, not Orchestra Biomed Holdings, Inc. The filing covers the period ended September 30, 2020; the company was incorporated on May 25, 2020. It had not begun operating or identified a completed business combination in the filing.
Financial position and results
- Revenue: None. The company stated it would not generate operating revenue before completing a business combination. Its activity to date was formation, the IPO, and searching for a target.
- Profit and expenses: Net loss was $66,214 for the three months ended September 30, 2020 and $81,428 from inception through September 30. Inception-to-date general and administrative expenses were $83,839, partly offset by $2,411 of trust investment gains. No meaningful prior-year comparable period is presented.
- Cash flow: Inception-to-date operating cash use was $247,521; investing cash use was $160.0 million, primarily the trust deposit; financing cash provided was $162.3 million. Ending cash was $2.04 million.
- Assets and liquidity: Total assets were $162.2 million, including $160.0 million in the Trust Account. Management reported approximately $2.1 million of working capital and believed available working capital and borrowing capacity would meet needs through a business combination or one year from the filing.
- Liabilities and equity: Total liabilities were $5.67 million, including $5.6 million of deferred underwriting commissions payable only upon a completed business combination. Current liabilities were $71,445. No working capital loans were outstanding at quarter-end; the $300,000 sponsor loan used before the IPO had been repaid.
- Margins and debt: Not meaningful for this pre-operating SPAC. The filing reports no outstanding borrowings at quarter-end.
Material developments and capital structure
- The company completed its IPO on August 6, 2020, selling 16.0 million public shares at $10 each for $160.0 million gross proceeds. It reported approximately $9.4 million of offering costs, including $5.6 million of deferred underwriting commissions.
- The sponsor simultaneously purchased private placement shares and warrants for an aggregate $6.0 million. The trust held $160.0 million initially and $160.0 million at quarter-end.
- At September 30, 15,152,890 public shares, recorded at $10 each, were classified as temporary equity because of redemption rights. The filing reports 20,450,000 shares issued and outstanding in total.
- The sponsor agreed to purchase 2.5 million shares, or equivalent target-company securities, for $25 million before, at, or after a business combination. The filing does not say this purchase had occurred.
Outlook, risks, and contingencies
- The company intended to focus its search on healthcare innovation, particularly North American or European biopharma and medical technology businesses. There was no revenue or earnings guidance.
- A business combination must be completed by August 6, 2022; otherwise, the company is required to wind up and distribute trust assets to public shareholders, subject to claims and liquidation procedures. The filing cautions there is no assurance a transaction will be completed.
- Public shareholders generally may redeem shares in connection with a business combination. The company must meet specified transaction and net tangible asset requirements; holders acting together are generally restricted from redeeming 20% or more of public shares without company consent.
- Management said the specific effect of COVID-19 was not readily determinable; the financial statements include no related adjustments. Claims against funds outside the trust, creditor disputes, or court-supervised liquidation could affect or delay distributions. Sponsor protection against certain trust claims is subject to its agreement and may not resolve all risks.
- The deferred underwriting commission is payable from the trust only if a business combination is completed; underwriters waive it if the company liquidates without one. Private placement warrants may expire worthless if no combination is completed.
- The filing reported no legal proceedings or off-balance-sheet arrangements. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Confirm the issuer: this filing is for Health Sciences Acquisitions Corporation 2, not Orchestra Biomed Holdings, Inc.; do not treat it as Orchestra’s operating results.
- Check subsequent filings for any announced or completed business combination, extensions, redemptions, or changes in the August 6, 2022 deadline.
- Verify trust balance, redemption levels, and the effect of deferred underwriting fees and transaction expenses on funds available for a deal or liquidation.
- Review sponsor-related arrangements, including the proposed $25 million purchase, potential working capital loans, and conflicts of interest in target selection.
- Assess the filing’s caveat that COVID-19 effects were uncertain, alongside the company’s limited operating history and dependence on completing a transaction.