UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For the quarterly period ended
For the transition period from to
Commission File No.
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address of Principal Executive Offices, including zip code)
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The | ||||
| The | ||||
| The |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☐ | Large accelerated filer | ☐ | Accelerated filer | |
| ☒ | Smaller reporting company | |||
| Emerging growth company | ||||
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):
As of November 20, 2023, there were shares of the Company’s common stock, including shares of common stock underlying the units, $0.0001 par value per share, issued and outstanding.
TABLE OF CONTENTS
i
PART 1 – FINANCIAL INFORMATION
Item 1. Financial Statements.
MOUNTAIN CREST ACQUISITION CORP. IV
CONDENSED BALANCE SHEETS
| September 30, 2023 |
December 31, 2022 |
|||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current Assets | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Cash and marketable securities held in the Trust Account | ||||||||
| TOTAL CURRENT ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
| Liabilities | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Income taxes payable | ||||||||
| Excise taxes payable | ||||||||
| Promissory note | ||||||||
| Convertible note | ||||||||
| Convertible note – related party | ||||||||
| Interest payable | ||||||||
| Deferred underwriting fee payable | ||||||||
| Total Current Liabilities | ||||||||
| Commitments and Contingencies (Note 6) | ||||||||
| Redeemable Common Stock | ||||||||
| Common stock subject to possible redemption, and shares at $ and $ per share as of September 30, 2023 and December 31, 2022, respectively | ||||||||
| Stockholders’ Deficit | ||||||||
| Common stock, $ par value; shares authorized; shares issued and outstanding (excluding 1,506,991 and 3,317,480 shares subject to possible redemption as of September 30, 2023 and December 31, 2022, respectively) | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( |
) | ( |
) | ||||
| Total Stockholders’ Deficit | ( |
) | ( |
) | ||||
| TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | $ | ||||||
The accompanying notes are an integral part of the unaudited condensed financial statements.
1
MOUNTAIN CREST ACQUISITION CORP. IV
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
|
For the |
For the |
|||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Operating and formation costs | $ | $ | $ | $ | ||||||||||||
| Loss from operations | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Other income: | ||||||||||||||||
| Interest earned on marketable securities held in Trust Account | ||||||||||||||||
| Interest expense | ( |
) | ( |
) | ||||||||||||
| Total other income | ||||||||||||||||
| Income before provision for income taxes | ( |
) | ||||||||||||||
| Provision for income taxes | ( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Net (loss) income | $ | ( |
) | $ | $ | $ | ( |
) | ||||||||
| Weighted average shares outstanding, common stock subject to possible redemption | ||||||||||||||||
| Basic and diluted net (loss) income per share, common stock subject to redemption | $ | $ | $ | $ | ( |
) | ||||||||||
| Weighted average shares outstanding, common stock, non-redeemable | ||||||||||||||||
| Basic and diluted net (loss) income per share, common stock, non-redeemable | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
The accompanying notes are an integral part of the unaudited condensed financial statements.
2
MOUNTAIN CREST ACQUISITION CORP. IV
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
(UNAUDITED)
FOR THE THREE AND nine MONTHS ENDED SeptembeR 30, 2023
| Common Stock | Additional Paid-in |
Accumulated | Total Stockholders’ |
|||||||||||||||||
| Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||
| Balance – January 1, 2023 | $ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||
| Accretion of common shares to redemption amount | - | ( |
) | ( |
) | |||||||||||||||
| Net income | - | |||||||||||||||||||
| Balance – March 31, 2023 | ( |
) | ( |
) | ||||||||||||||||
| Accretion of common shares to redemption amount | - | ( |
) | ( |
) | |||||||||||||||
| Excise tax payable attributable to redemption of common stock | - | ( |
) | ( |
) | |||||||||||||||
| Net income | - | |||||||||||||||||||
| Balance – June 30, 2023 | ( |
) | ( |
) | ||||||||||||||||
| Accretion of common shares to redemption amount | - | ( |
) | ( |
) | |||||||||||||||
| Net loss | - | ( |
) | ( |
) | |||||||||||||||
| Balance – September 30, 2023 | $ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022
| Common Stock | Additional Paid-in |
Accumulated | Total Stockholders’ |
|||||||||||||||||
| Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||
| Balance – January 1, 2022 | $ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||
| Net loss | - | ( |
) | ( |
) | |||||||||||||||
| Balance – March 31, 2022 | ( |
) | ( |
) | ||||||||||||||||
| Net loss | - | ( |
) | ( |
) | |||||||||||||||
| Balance – June 30, 2022 | ( |
) | ( |
) | ||||||||||||||||
| Accretion of common shares to redemption amount | - | ( |
) | ( |
) | |||||||||||||||
| Net income | - | |||||||||||||||||||
| Balance – September 30, 2022 | $ | $ | $ | ( |
) | $ | ( |
) | ||||||||||||
The accompanying notes are an integral part of the unaudited condensed financial statements.
3
MOUNTAIN CREST ACQUISITION CORP. IV
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| For the Nine Months Ended September 30, |
||||||||
| 2023 | 2022 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net income (loss) | $ | $ | ( |
) | ||||
| Adjustments to reconcile net income (loss) to net cash used in operating activities: | ||||||||
| Interest earned on marketable securities held in Trust Account | ( |
) | ( |
) | ||||
| Interest expense | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses | ( |
) | ||||||
| Accounts payable and accrued expenses | ||||||||
| Income taxes payable | ||||||||
| Net cash used in operating activities | ( |
) | ( |
) | ||||
| Cash Flows from Investing Activities: | ||||||||
| Investment of cash into Trust Account | ( |
) | ||||||
| Cash withdrawn from Trust Account to pay franchise and income taxes | ||||||||
| Cash withdrawn from Trust Account in connection with redemption | ||||||||
| Net cash provided by investing activities | ||||||||
| Cash Flows from Financing Activities: | ||||||||
| Proceeds from convertible promissory note | ||||||||
| Redemption of common stock | ( |
) | ||||||
| Net cash (used in) provided by financing activities | ( |
) | ||||||
| Net Change in Cash | ( |
) | ||||||
| Cash – beginning of period | ||||||||
| Cash – end of period | $ | $ | ||||||
| Non-Cash Investing and Financing Activities: | ||||||||
| Excise tax payable attributable to redemption of common stock | $ | $ | ||||||
| Conversion of accounts payable to promissory notes | $ | $ | ||||||
| Accretion to Class A common stock subject to possible redemption | $ | $ | ||||||
The accompanying notes are an integral part of the unaudited condensed financial statements.
4
MOUNTAIN CREST ACQUISITION CORP. IV
NOTES TO CONDENSED FINANCIAL STATEMENTS
September 30, 2023
(Unaudited)
NOTE 1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS
Mountain Crest Acquisition Corp. IV (the “Company”) was incorporated in Delaware on March 2, 2021. The Company was formed for the purpose of entering into a merger, share exchange, asset acquisition, stock purchase, reorganization or other similar business transaction with one or more businesses that the Company has not yet identified (a “Business Combination”).
The Company is not limited to a particular industry or geographic region for purposes of consummating a Business Combination. The Company is an early stage and emerging growth company and, as such, the Company is subject to all of the risks associated with early stage and emerging growth companies.
As of September 30, 2023, the Company had not commenced any operations. All activity through September 30, 2023 relates to the Company’s formation, the initial public offering (“Initial Public Offering”), which is described below, and subsequent to the Initial Public Offering, identifying a target company for a Business Combination, in particular the activities in connection with the proposed business combination transaction with CH Auto Technology Corporation, Ltd., a Cayman Islands exempted company, as described in Note 6, below. The Company will not generate any operating revenues until after the completion of a Business Combination, at the earliest. The Company will generate non-operating income in the form of interest income from the proceeds derived from the Initial Public Offering.
The registration statement for the Company’s Initial Public Offering was declared effective on June 29, 2021. On July 2, 2021, the Company consummated the Initial Public Offering of units (the “Units”) and, with respect to the shares of common stock included in the Units sold, the Public Shares at $ per Unit, generating gross proceeds of $
Simultaneously with the closing of the Initial Public Offering, the Company consummated the sale of units (the “Private Units”) at a price of $ per Private Unit in a private placement to Mountain Crest Holdings IV LLC (the “Sponsor”) and Network 1 Securities, Inc. generating gross proceeds of $
Following the closing of the Initial Public Offering on July 2, 2021, an amount of $
On July 6, 2021, the underwriters fully exercised their over- allotment option, resulting in an additional Units issued for an aggregate amount of $
Transaction costs amounted to $
5
The Company’s management has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering and the sale of the Private Units, although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination. The Company’s initial Business Combination must be with one or more target businesses that together have a fair market value equal to at least
The Company will provide its holders of the outstanding Public Shares (the “public stockholders”) with the opportunity to redeem all or a portion of their Public Shares upon the completion of a Business Combination either (i) in connection with a stockholder meeting called to approve the Business Combination or (ii) by means of a tender offer. The decision as to whether the Company will seek stockholder approval of a Business Combination or conduct a tender offer will be made by the Company, solely in its discretion. The stockholders will be entitled to redeem their shares for a pro rata portion of the amount then on deposit in the Trust Account (initially $10.00 per share, plus any pro rata interest earned on the funds held in the Trust Account and not previously released to the Company to pay its tax obligations). The per-share amount to be distributed to stockholders who redeem their shares will not be reduced by the deferred underwriting commission the Company will pay to the underwriters (as discussed in Note 6).
Pursuant to its Amended and Restated Certificate of Incorporation, the Company will proceed with a Business Combination provided the Company has net tangible assets of at least $
Notwithstanding the above, if the Company seeks stockholder approval of a Business Combination and it does not conduct redemptions pursuant to the tender offer rules, the Amended and Restated Certificate of Incorporation provides that a public stockholder, together with any affiliate of such stockholder or any other person with whom such stockholder is acting in concert or as a “group” (as defined under Section 13 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), will be restricted from redeeming its shares with respect to more than an aggregate of
The Sponsor has agreed to (i) waive its redemption rights with respect to Founder Shares, Private Shares and any Public Shares it may acquire during or after the Initial Public Offering in connection with the consummation of a Business Combination and (ii) not to propose an amendment to the Company’s Amended and Restated Certificate of Incorporation that would affect the substance or timing of the Company’s obligation to redeem % of its Public Shares if the Company does not complete a Business Combination, unless the Company provides the public stockholders an opportunity to redeem their Public Shares in conjunction with any such amendment. However, the Sponsor will be entitled to liquidating distributions with respect to any Public Shares acquired if the Company fails to consummate a Business Combination or liquidates within the Combination Period (defined below).
6
The Company initially had until July 2, 2022 to consummate a Business Combination, however, based upon the execution of the Merger Agreement on April 30, 2022, the period of time for the Company to complete a business combination under its certificate of incorporation was extended for a period of 6 months from July 2, 2022 to January 2, 2023 (Note 6). Subsequently, as approved by its stockholders at the special meeting of Stockholders held on December 15, 2022 (the “Special Meeting”), the Company entered into an amendment to the Investment Management Trust Agreement, dated as of June 29, 2021, with Continental Stock Transfer & Trust Company, on December 15, 2022 (the “Trust Amendment”). Pursuant to the Trust Amendment, the Company has the right to extend the time for the Company to complete its initial business combination (the “Business Combination Period”) under the Trust Agreement for a period of 3 months from January 2, 2023 to April 2, 2023, plus an option for the Company to further extend such date to July 2, 2023 and to be further extended to the extent the Company’s Amended and Restated Certificate of Incorporation is amended to extend the Business Combination Period. The Company extended the time it has to complete its initial business combination from January 2, 2023, to April 2, 2023 by depositing $
In connection with the stockholders’ vote at the Special Meeting of Stockholders held by the Company on December 15, 2022, shares were tendered for redemption.
On June 22, 2023, the Company held the Special Meeting of Stockholders. The Company filed an amendment to its Amended and Restated Certificate of Incorporation with the Delaware Secretary of State on June 22, 2023 (the “Extension Amendment”), giving the Company the right to extend the time for the Company to complete its business combination (the “Business Combination Period”) from July 2, 2023 to January 2, 2024.
In connection with the stockholders’ vote at the Special Meeting of Stockholders held by the Company on June 22, 2023, shares were tendered for redemption and $
On June 27, 2023, the Company transferred $
If the Company is unable to complete a Business Combination within the Combination Period, the Company 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 the Company to pay taxes, divided by the number of then outstanding Public Shares, which redemption will completely extinguish public stockholders’ rights 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 Company’s remaining stockholders and the Company’s board of directors, dissolve and liquidate, subject in the case of clauses (ii) and (iii) to the Company’s obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law.
The Sponsor has agreed to waive its liquidation rights with respect to the Private Shares if the Company fails to complete a Business Combination within the Combination Period. However, if the Sponsor or any of its respective affiliates acquire Public Shares after the Initial Public Offering, such Public Shares will be entitled to liquidating distributions from the Trust Account if the Company fails to complete a Business Combination within the Combination Period. The underwriters have agreed to waive their rights to their deferred underwriting commission (see Note 6) held in the Trust Account in the event the Company does not complete a Business Combination within the Combination Period and, in such event, such amounts will be included with the other funds held in the Trust Account that will be available to fund the redemption of the Public Shares. In the event of such distribution, it is possible that the per share value of the assets remaining available for distribution will be less than the Initial Public Offering price per Unit ($10.00).
7
In order to protect the amounts held in the Trust Account, the Sponsor has agreed to be liable to the Company if and to the extent any claims by a vendor for services rendered or products sold to the Company, or a prospective target business with which the Company has discussed entering into a transaction agreement, reduce the amounts in the Trust Account to below the lesser of (i) $10.00 per Public Share and (ii) the actual amount per Public Share held in the Trust Account as of the date of the liquidation of the Trust Account, if less than $10.00 per Public Share due to reductions in the value of the trust assets, less taxes payable, provided that such liability will not apply to any claims by a third party who executed a waiver of any and all rights to the monies held in the Trust Account nor will it apply to any claims under the Company’s indemnity of the underwriters of Initial Public Offering against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the “Securities Act”). Moreover, in the event that an executed waiver is deemed to be unenforceable against a third party, the Sponsor will not be responsible to the extent of any liability for such third-party claims.
Risks and Uncertainties
Management continues to evaluate the impact of the COVID-19 pandemic and has concluded that while it is reasonably possible that the virus could have a negative effect on the Company’s financial position, results of its operations, and/or search for a target company, the specific impact is not readily determinable as of the date of these condensed financial statements. The condensed financial statements do not include any adjustments that might result from the outcome of this uncertainty.
In February 2022, the Russian Federation and Belarus commenced a military action with the country of Ukraine. As a result of this action, various nations, including the United States, have instituted economic sanctions against the Russian Federation and Belarus. Further, the impact of this action and related sanctions on the world economy are not determinable as of the date of these condensed consolidated financial statements. The specific impact on the Company’s financial condition, results of operations, and cash flows is also not determinable as of the date of these condensed consolidated financial statements.
On August 16, 2022, the Inflation Reduction Act of 2022 (the “IR Act”) was signed into federal law. The IR Act provides for, among other things, a new U.S. federal 1% excise tax on certain repurchases of stock by publicly traded U.S. domestic corporations and certain U.S. domestic subsidiaries of publicly traded foreign corporations occurring on or after January 1, 2023. The excise tax is imposed on the repurchasing corporation itself, not its shareholders from which shares are repurchased. The amount of the excise tax is generally 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. In addition, certain exceptions apply to the excise tax. The U.S. Department of the Treasury (the “Treasury”) has been given authority to provide regulations and other guidance to carry out and prevent the abuse or avoidance of the excise tax.
Any redemption or other repurchase that occurs after December 31, 2022, in connection with a Business Combination, extension vote or otherwise, may be subject to the excise tax. Whether and to what extent the Company would be subject to the excise tax in connection with a Business Combination, extension vote or otherwise would depend on a number of factors, including (i) the fair market value of the redemptions and repurchases in connection with the Business Combination, extension or otherwise, (ii) the structure of a Business Combination, (iii) the nature and amount of any “PIPE” or other equity issuances in connection with a Business Combination (or otherwise issued not in connection with a Business Combination but issued within the same taxable year of a Business Combination) and (iv) the content of regulations and other guidance from the Treasury. In addition, because the excise tax would be payable by the Company and not by the redeeming holder, the mechanics of any required payment of the excise tax have not been determined. The foregoing could cause a reduction in the cash available on hand to complete a Business Combination and in the Company’s ability to complete a Business Combination.
On June 22, 2023, the Company’s stockholders elected to redeem shares for a total of $
8
Liquidity and Capital Resources
As of September 30, 2023, the Company had $
In order to finance transaction costs in connection with a business combination, the Sponsor or an affiliate of the Sponsor or certain of the Company’s officers and directors may, but are not obligated to, provide the Company working capital loans, as defined below (see Note 5).
On August 26, 2022, the Company issued the Convertible Promissory Note to the Sponsor, pursuant to which the Company may borrow up to an aggregate amount of $
On October 24, 2022, the Company issued an unsecured promissory note in the aggregate principal amount up to $
On
December 21, 2022, the Company issued an unsecured promissory note in the aggregate principal amount up to $
On March 29, 2023, the Company issued an unsecured promissory note in the aggregate principal amount of $
On
March 31, 2023, the Company and UHY Advisors/UHY LLP (“UHY”), the Company’s independent registered public accounting firm,
entered into an unsecured promissory note for services rendered and unpaid in the principal sum of fifty-nine thousand seven hundred
ten and 08/100 dollars ($59,710.08), plus interest applied monthly on any un-paid balance at the rate of eight (8%) percent per year
until such sum is fully paid. On August 21, 2023, the Company and UHY extended the due date of promissory note to
October 31, 2023. If $59,710.08 is paid in full on this promissory note no later than October 31, 2023, all accrued finance charges
on this promissory note will be forgiven (Note 9). The promissory note is payable by the Company in advance without penalty. As of
September 30, 2023 and December 31, 2022, there were $
9
On June 7, 2023, the Company issued an unsecured promissory note in the aggregate principal amount of $
Going Concern
In connection with the Company’s assessment of going concern considerations in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” management has determined that if the Company is unable to complete a Business Combination by July 2, 2023, then the Company may cease all operations except for the purpose of liquidating. The liquidity condition, liquidation and subsequent dissolution raises substantial doubt about the Company’s ability to continue as a going concern. No adjustments have been made to the carrying amounts of assets or liabilities should the Company be required to liquidate after January 2, 2024.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X of the SEC. Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a complete presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited condensed financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented.
The accompanying unaudited condensed financial statements should be read in conjunction to the Company’s Annual Report on Form 10-K for the period ended December 31, 2022, as filed with the SEC on April 3, 2023. The interim results for the three and NINE months ended September 30, 2023 are not necessarily indicative of the results to be expected for the year ending December 31, 2023 or for any future periods.
Emerging Growth Company
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s condensed financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
10
Use of Estimates
The preparation of the condensed financial statements in conformity with U.S. GAAP requires the Company’s 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 expenses during the reporting period. Actual results could differ from those estimates.
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.
Cash and Cash Equivalents
The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. The Company did
Investments Held in Trust Account
The Company’s portfolio of investments held in the Trust Account is comprised of investments in money market funds that invest in U.S. treasury securities and generally have a readily determinable fair value, or a combination thereof. Gains and losses resulting from the change in fair value of these securities are included in interest earned on marketable securities held in Trust Account in the accompanying statements of operations. The estimated fair values of investments held in the Trust Account are determined using available market information.
Common Stock Subject to Possible Redemption
The Company accounts for its common stock subject to possible redemption in accordance with the guidance in FASB Accounting Standards Codification (“ASC”), Topic 480 “Distinguishing Liabilities from Equity.” Shares of Common stock subject to mandatory redemption is classified as a liability instrument and is measured at fair value. Conditionally redeemable common stock (including 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 the Company’s control) is classified as temporary equity. At all other times, common stock is classified as stockholders’ deficit. The Company’s Common stock features certain redemption rights that are considered to be outside of the Company’s control and subject to occurrence of uncertain future events.
In connection with the stockholders’ vote at the Special Meeting of Stockholders held by the Company on December 15, 2022 and June 22, 2023, and shares were tendered for redemption, respectively.
Accordingly, at September 30, 2023 and December 31, 2022, and common stock subject to possible redemption is presented at redemption value of $ per share as of September 30, 2023 and $ per share as of December 31, 2022 as temporary equity, outside of the stockholders’ deficit section of the Company’s condensed balance sheets.
The Company recognizes changes in redemption value immediately as they occur and adjusts the carrying value of redeemable common stocks to equal the redemption value at the end of each reporting period. Immediately upon the closing of the Initial Public Offering, the Company recognized the accretion from initial book value to redemption amount value. The change in the carrying value of redeemable common stocks resulted in charges against additional paid-in capital and accumulated deficit.
11
At September 30, 2023 and December 31, 2022, the common stock reflected in the condensed balance sheets are reconciled in the following table:
| Gross proceeds | $ | |||
| Less: | ||||
| Allocation of offering costs related to redeemable shares | ( |
) | ||
| Proceeds allocated to Public Rights | ( |
) | ||
| Redemptions of Common stock on December 15, 2022 | ( |
) | ||
| Plus: | ||||
| Accretion of carrying value to redemption value | ||||
| Common stock subject to possible redemption, December 31, 2022 | ||||
| Plus: | ||||
| Accretion of carrying value to redemption value | ||||
| Common stock subject to possible redemption, March 31, 2023 | ||||
| Less: | ||||
| Redemptions | ( |
) | ||
| Plus: | ||||
| Accretion of carrying value to redemption value | ||||
| Common stock subject to possible redemption, June 30, 2023 | ||||
| Plus: | ||||
| Accretion of carrying value to redemption value | ||||
| Common stock subject to possible redemption, September 30, 2023 | $ |
Offering Costs
Offering costs consisted of legal, accounting and other expenses incurred through the Initial Public Offering that were directly related to the Initial Public Offering. Offering costs were allocated to the separable financial instruments issued in the Initial Public Offering based on a relative fair value basis, compared to total proceeds received. Offering costs associated with the common stock issued were initially charged to temporary equity and then accreted to common stock subject to redemption upon the completion of the Initial Public Offering. Offering costs amounted to $
Income Taxes
The Company accounts for income taxes under ASC 740, “Income Taxes.” ASC 740, Income Taxes, requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the unaudited condensed financial statements and tax basis of assets and liabilities and for the expected future tax benefit to be derived from tax loss and tax credit carry forwards. ASC 740 additionally requires a valuation allowance to be established when it is more likely than not that all or a portion of deferred tax assets will not be realized. As of September 30, 2023 and December 31, 2022, the Company had a deferred tax asset of approximately $
12
ASC 740 -270-25-2 requires that an annual effective tax rate be determined, and such annual effective rate applied to year to date income in interim periods under ASC 740-270-30-5. The Company’s effective tax rate was (
ASC 740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not to be sustained upon examination by taxing authorities. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim period, disclosure and transition.
The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were
The Company has identified the United States as its only “major” tax jurisdiction. The Company is subject to income taxation by major taxing authorities since inception. These examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance with federal and state tax laws. The Company’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.
The Company complies with accounting and disclosure requirements of FASB ASC 260, Earnings Per Share. The statements of operations includes a presentation of net (loss) income per redeemable public share and loss per non-redeemable share following the two-class method of net (loss) income per share. In order to determine the net (loss) income attributable to both the public redeemable shares and non-redeemable shares, the Company first considered the total net (loss) income allocable to both sets of shares. This is calculated using the total net (loss) income less any dividends paid. For purposes of calculating net (loss) income per share, any remeasurement of the accretion to redemption value of the redeemable shares subject to possible redemption was considered to be dividends paid to the public stockholders. Subsequent to calculating the total loss allocable to both sets of shares, the Company split the amount to be allocated using a ratio of 45% and 59% for the redeemable Public Shares and 55% and 41% for the non-redeemable shares for the three and nine months ended September 30, 2023, respectively, and 76% for the redeemable Public Shares and 24% for the non-redeemable shares for the three and nine months ended September 30, 2022, respectively, and reflective of the respective participation rights.
The earnings per share presented in the condensed statements of operations is based on the following:
| For the Three Months Ended September 30, |
For the Nine Months Ended September 30, |
|||||||||||||||||||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||||||||||||||||||
| Redeemable | Non- redeemable |
Redeemable | Non- redeemable |
Redeemable | Non- redeemable |
Redeemable | Non- redeemable |
|||||||||||||||||||||||||
| Basic and diluted net income (loss) per share: | ||||||||||||||||||||||||||||||||
| Numerator: | ||||||||||||||||||||||||||||||||
| Allocation of net income (loss) including accretion of temporary equity | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||||||
| Accretion of temporary equity to redemption value | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||
| Allocation of net income (loss) | $ | ( |
) | $ | ( |
) | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||||||||||||||
| Denominator: | ||||||||||||||||||||||||||||||||
| Weighted-average shares outstanding | ||||||||||||||||||||||||||||||||
| Basic and diluted net income (loss) per share | $ | $ | ( |
) | $ | $ | ( |
) | $ | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||||||||||||
13
In connection with the underwriters’ full exercise of their over-allotment option on July 2, 2021, Founder Shares were no longer subject to forfeiture. These shares were excluded from the calculation of weighted average shares outstanding until they were no longer subject to forfeiture.
As of September 30, 2023 and December 31, 2022, the Company did t have any dilutive securities and other contracts that could, potentially, be exercised or converted into common shares and then share in the Company’s earnings. As a result, diluted (loss) income per share is the same as basic (loss) income per share for the periods presented.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of a cash account in a financial institution, which, at times, may exceed the Federal Depository Insurance Coverage of $
Fair value of Financial Instruments
The fair value of the Company’s assets and liabilities, which qualify as financial instruments under ASC 825, “Financial Instruments,” approximates the carrying amounts represented in the accompanying condensed balance sheets, primarily due to their short-term nature.
Recent Accounting Standards
In August 2020, the FASB issued ASU 2020-06, Debt -- Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”) to simplify accounting for certain financial instruments. ASU 2020-06 eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity. ASU 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments. ASU 2020-06 is effective December 15, 2023 and should be applied on a full or modified retrospective basis, with early adoption permitted beginning on January 1, 2021. The Company is currently assessing the impact, if any, that ASU 2020-06 would have on its financial position, results of operations or cash flows.
Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s condensed financial statements.
NOTE 3. INITIAL PUBLIC OFFERING
Pursuant to the Initial Public Offering, the Company sold Units, inclusive of Units sold to the underwriters on July 6, 2021 upon the underwriters’ election to fully exercise their over-allotment option, at a purchase price of $ per Unit. Each Unit consists of one share of common stock and one right (“Public Right”). Each Public Right entitles the holder to receive one-tenth of one share of common stock at the closing of a Business Combination (see Note 6).
In connection with the stockholders’ vote at the Special Meeting of Stockholders held by the Company on December 15, 2022 and June 22, 2023, and shares were tendered for redemption, respectively.
NOTE 4. PRIVATE PLACEMENT
Simultaneously with the closing of the Initial Public Offering, the Sponsor and Network 1 Financial Securities, Inc. (and/or their designees) purchased an aggregate of Private Units, at a price of $ per Private Unit, for an aggregate purchase price of $
14
NOTE 5. RELATED PARTY TRANSACTIONS
Founder Shares
On March 2, 2021, the Company issued shares of common stock (the “Founder Shares”) to the Sponsor for an aggregate purchase price of $. The Founder Shares included an aggregate of up to shares subject to forfeiture by the Sponsor to the extent that the underwriters’ over-allotment was not exercised in full or in part, so that the Sponsor would collectively own % of the Company’s issued and outstanding shares after the Initial Public Offering (assuming the Sponsor did not purchase any Public Shares in the Initial Public Offering and excluding the Private Shares). As a result of the underwriters’ election to fully exercise their over-allotment option on July 6, 2021, no Founder Shares are currently subject to forfeiture.
The Sponsor has agreed not to transfer, assign or sell any of the Founder Shares (except to certain permitted transferees) until, with respect to 50% of the Founder Shares, the earlier of six months after the date of the consummation of a Business Combination and the date on which the closing price of the Company’s common stock equals or exceeds $ per share for any 20 trading days within a 30-trading day period following the consummation of a Business Combination and, with respect to the remaining % of the Founder Shares, six months after the date of the consummation of a Business Combination, or earlier in each case if, subsequent to a Business Combination, the Company completes a liquidation, merger, stock exchange or other similar transaction which results in all of the stockholders having the right to exchange their shares of common stock for cash, securities or other property.
Administrative Support Agreement
The Company entered into an agreement, commencing on July 2, 2021 through the earlier of the Company’s consummation of a Business Combination and its liquidation, to pay the Sponsor a total of $10,000 per month for office space, utilities and secretarial and administrative support. However, pursuant to the terms of such agreement, the Company may delay payment of such monthly fee upon a determination by the Company’s Audit Committee that the Company lacks sufficient funds held outside the Trust Account to pay actual or anticipated expenses in connection with a Business Combination. For the three and nine months ended September 30, 2023, the Company incurred and paid $30,000 and $90,000, respectively, in fees for these services, of which such amount is included in operating and formation costs in the accompanying statements of operations. For the three and nine months ended September 30, 2022, the Company incurred and paid $30,000 and $90,000 in fees for these services, of which such amount is included in operating and formation costs in the accompanying statements of operations.
Promissory Notes — Related Parties
On March 3, 2021 the Company issued the Promissory Note to the Sponsor, pursuant to which the Company may borrow up to an aggregate amount of $
Convertible Note — Related Party
On August 26, 2022, the Company issued the Convertible Promissory Note to the Sponsor, pursuant to which the Company may borrow up to an aggregate amount of $
On October 24, 2022, the Company issued an unsecured promissory note in the aggregate principal amount up to $
15
Related Party Loans
In order to finance transaction costs in connection with a Business Combination, the Sponsor, an affiliate of the Sponsor, or the Company’s officers and directors may, but are not obligated to, loan the Company funds from time to time or at any time, as may be required (“Working Capital Loans”). Each Working Capital Loan would be evidenced by a promissory note. The Working Capital Loans would either be paid upon consummation of a Business Combination, without interest, or, at the holder’s discretion, up to $
NOTE 6. COMMITMENTS AND CONTINGENCIES
Registration Rights
The holders of the Founder Shares, the Private Units, and any shares that may be issued in payment of Working Capital Loans (and all underlying securities) will be entitled to registration rights pursuant to a registration rights agreement to be signed prior to or on the effective date of the Initial Public Offering requiring the Company to register such securities for resale. The holders of a majority of these securities are entitled to make up to two demands that the Company register such securities. The holders of the majority of the Founders Shares can elect to exercise these registration rights at any time commencing three months prior to the date on which these shares of common stock are to be released from escrow. The holders of a majority of the Private Units (and underlying securities) and securities issued in payment of Working Capital Loans can elect to exercise these registration rights at any time commencing on the date that the Company consummates a Business Combination. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to the consummation of a Business Combination. Notwithstanding the foregoing, Network 1 Securities, Inc. may not exercise its demand and “piggyback” registration rights after five (
Underwriting Agreement
The underwriters are entitled to a deferred fee of $
Contingent Fees
In connection with the closing of the initial business combination, the Company has agreed to pay $
The Merger Agreement
On April 30, 2022, the Company entered into that certain Agreement and Plan of Merger (as may be amended, supplemented or otherwise modified from time to time, the “Merger Agreement”), by and among the Company, CH AUTO Inc., a Cayman Islands exempted company (“Pubco”), Ch-Auto Merger Sub Corp., a Delaware corporation and wholly owned subsidiary of Pubco (“Merger Sub”) and CH-Auto Technology Corporation Ltd., a company organized under the laws of the People’s Republic of China (the “CH Auto”), pursuant to which, among other things, the Company, Pubco, Merger Sub and CH Auto intend to effect a merger of Merger Sub with and into the Company whereby the Company will be the surviving corporation (the “Surviving Corporation”) and a wholly owned subsidiary of Pubco (the “Merger”) in accordance with the Merger Agreement and the General Corporation Law of the State of Delaware (the “DGCL”). In connection with the Merger, the name of the Surviving Corporation shall be changed to CH Autotech USA, Inc. Following the Merger, Pubco expects its ordinary shares to be traded on the Nasdaq Stock Market. All capitalized terms used herein and not defined shall have the meanings ascribed to them in the Merger Agreement.
16
M&A Advisory Agreement
The Company engaged Beijing Haohan Tianyu Investment Consulting Co., Ltd. (“BHTIC”) to act as its M&A Advisor to conduct local due diligence for the Company on CH Auto by entering into the M&A Advisory Agreement on April 3, 2022. Pursuant to the M&A Advisory Agreement, the Company shall make a payment to BHTIC of an aggregate M&A Fee (the “M&A Fee”) equivalent to 1% of the post-money post-PIPE equity value of CH Auto in shares of the post-transaction combined company to be issued upon closing of the Transaction at $10 per share.
A&R Merger Agreement
On December 23, 2022, the Company, Pubco, Merger Sub and CH Auto entered into an Amended and Restated Agreement and Plan of Merger (the “A&R Merger Agreement”). Specifically, the A&R Merger Agreement amended and modified the Merger Agreement to: (a) provide that all options issued by the Company prior to the Business Combination shall be included in Company Merger Consideration that will be issued in connection with the closing of the Business Combination, (b) extend the date by which Pubco shall secure subscription agreements with investors relating to a purchase of Pubco Class A Ordinary Shares through a private placement, in each case on terms consented by the Company, pursuant to which the aggregate amount of investment is no less than $
Amendment to the A&R Merger Agreement
On March 1, 2023, the Company, CH Auto, Pubco and Merger Sub entered an amendment (the “Amendment”) to the A&R Merger Agreement. The Amendment provides that (i) instead of acquiring at least 90% of the CH Auto, the Company would only need to acquire at least 71.2184% of CH Autoto consummate the Closing, (ii) immediately after the Closing, Pubco’s board of directors (the “Post-Closing Pubco Board”) will consist of five (5) members, among which one (1) person shall be designated by Sponsor, four (4) persons shall be designated by CH Autoand at least two (2) persons of the Post-Closing Pubco Board shall qualify as independent directors under the Securities Act and Nasdaq rules, (iii) modified the timing of CH Auto’s delivery of the Equityholder Allocation Schedule, (iv) simultaneously with and in exchange for the issuance of the CH Auto Merger Consideration, but before the Closing of the Merger, Pubco’s subsidiary, CH-Auto (Hong Kong) Limited (“CH-Auto HK”), or a then-established wholly-owned PRC subsidiary of CH-Auto HK (together with CH-Auto HK, the “Holding Company”, as the context may require), shall acquire all the shares of CH Auto’s equity securities (the “Company Common Stock”) held by each Company Reorganization Stockholder at par value or other value as agreed between the Holding Company and the Company Reorganization Stockholders (the “HK Share Purchase”); provided however, certain Company Reorganization Stockholders that are the directors, supervisors or senior executives of the Company (each a “DSO Stockholder” and together, the “DSO Stockholders”) shall each transfer up to 25% of the stocks of CH Auto held by him or her due to restrictions under the PRC laws. Each DSO Stockholder shall further enter into a voting rights proxy agreement (the “Voting Rights Proxy Agreement”) and an economic rights transfer agreement (the “Economic Rights Transfer Agreement”) with the Holding Company (the “HK Voting Rights Entrustment”), pursuant to which each DSO Stockholder shall transfer and assign to the Holding Company (i) all of their respective voting rights in connection with the remaining shares of Company Common Stock held by them (the “DSO’s Remaining Shares”) pursuant to the Voting Rights Proxy Agreement and (ii) all of their economic rights, including the right to receive dividends, in connection the DSO’s Remaining Shares, pursuant to the Economic Rights Transfer Agreement. The Pubco Ordinary Shares issued to each DSO Shareholder in exchange for such DSO’s Remaining Shares, shall be subject to restrictions on transfer, conveyance, assignment and further encumbrance until the DSO Shareholder transfers and conveys the underlying shares of Company Common Stock to the Holding Company. Upon the completion of the HK Share Purchase, and after giving effect to the HK Voting Right Entrustment (the “Reorganization Closing”), the Holding Company shall (1) have the ability to direct, directly or indirectly, at least 71.2184% of the voting rights of all outstanding equity securities of CH Auto entitled to vote, (2) own, directly or indirectly, at least 71.2184% of the economic rights of all the outstanding equity securities in CH Auto, and (3) own, directly or indirectly own at least 37.8426% of the then-issued and outstanding equity interests in CH Auto; (v) revised the definitions of Company Employee Option and Company FA Option, (vi) CH Auto shall advance the Company the aggregate amount of Seven Hundred and Fifty Thousand Dollars ($750,000) in two payments (the “Loans”) to fund the payment of the expenses incurred, in connection with two (2) extensions of the period of time for the Company to consummate a business combination and for working capital for the Company; (vi) in the event CH Auto funds the initial payment of the Loan, the Outside Date shall be extended from May 15, 2023 to July 2, 2023, (viii) revised the timing, steps and procedure for the Reorganization and (ix) permitted CH Auto to convert outstanding debt from a lender in the amount of RMB 39 million into 15.6 million shares of CH Auto, at a conversion price of RMB 2.5 per share. The transactions contemplated by the A&R Agreement and the Amendment are collectively referred to as the “Business Combination.”
17
CH
Auto Technology Corporation Ltd., the target company to the Company’s proposed business combination loaned the Company $
The proceeds of the CH Auto Note 2 have been used by the Company to make a deposit $
On June 22, 2023, the Company held the Special Meeting of Stockholders. The Company filed an amendment to its Amended and Restated Certificate of Incorporation with the Delaware Secretary of State on June 22, 2023 (the “Extension Amendment”), giving the Company the right to extend the time for the Company to complete its business combination (the “Business Combination Period”) from July 2, 2023 to January 2, 2024.
As previously disclosed, on June 7, 2023, the CH Auto advanced the Company $
NOTE 7. STOCKHOLDERS’ DEFICIT
Common Stock — The Company is authorized to issue shares of common stock with a par value of $ per share.
Rights — Except in cases where the Company is not the surviving company in a Business Combination, each holder of a Public Right will automatically receive
The Company will not issue fractional shares in connection with an exchange of Public Rights. Fractional shares will either be rounded down to the nearest whole share or otherwise addressed in accordance with the applicable provisions of the Delaware General Corporation Law. As a result, the holders of the Public Rights must hold rights in multiples of 10 in order to receive shares for all of the holders’ rights upon closing of a Business Combination. If the Company is unable to complete a Business Combination within the Combination Period and the Company liquidates the funds held in the Trust Account, holders of Public Rights will not receive any of such funds with respect to their Public Rights, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with respect to such Public Rights, and the Public Rights will expire worthless. Further, there are no contractual penalties for failure to deliver securities to the holders of the Public Rights upon consummation of a Business Combination. Additionally, in no event will the Company be required to net cash settle the rights. Accordingly, the rights may expire worthless.
18
Representative Shares
The Company issued to Network 1 Financial Securities, Inc. and/or its designees shares of common stock (the “Representative Shares”). The Company accounted for the Representative Shares as an offering cost related to the Initial Public Offering, resulting in a charge directly to stockholder’s equity. The Company estimates the fair value of Representative Shares to be $ based upon the offering price of the Units of $ per Unit. The holders of the Representative Shares have agreed not to transfer, assign or sell any such shares until the completion of a Business Combination. In addition, the holders have agreed (i) to waive their redemption rights with respect to such shares in connection with the completion of a Business Combination and (ii) to waive their rights to liquidating distributions from the Trust Account with respect to such shares if the Company fails to complete a Business Combination within the Combination Period.
The Representative Shares have been deemed compensation by Financial Industry Regulatory Authority (“FINRA”) and are therefore subject to a lock-up for a period of 180 days immediately following the effective date of the registration statement related to the Initial Public Offering pursuant to Rule 5110(g)(1) of FINRA’s National Association of Securities Dealers (“NASD”) Conduct Rules. Pursuant to FINRA Rule 5110(g)(1), these securities will not be the subject of any hedging, short sale, derivative, put or call transaction that would result in the economic disposition of the securities by any person for a period of 180 days immediately following the effective date of the registration statements related to the Initial Public Offering, nor may they be sold, transferred, assigned, pledged or hypothecated for a period of 180 days immediately following the effective date of the registration statements related to the Initial Public Offering except to any underwriter and selected dealer participating in the Initial Public Offering and their bona fide officers or partners.
NOTE 8. FAIR VALUE MEASUREMENTS
The fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:
| Level 1: | Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. | |
| Level 2: | Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active. | |
| Level 3: | Unobservable inputs based on our assessment of the assumptions that market participants would use in pricing the asset or liability. |
The Company classifies its securities in the Trust Account that are invested in funds, such as Mutual Funds or Money Market Funds, that primarily invest in U.S. Treasury and equivalent securities as Trading Securities in accordance with ASC Topic 320 “Investments — Debt and Equity Securities. Trading Securities are recorded at fair market value on the accompanying condensed balance sheets.
At September 30, 2023, assets held in the Trust Account were comprised of $
At December 31, 2022, assets held in the Trust Account were comprised of $
19
The following table presents information about the Company’s assets that are measured at fair value on a recurring basis at September 30, 2023 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:
| Trading Securities | Level | Fair Value | |||||||
| September 30, 2023 | Marketable securities held in Trust Account — Mutual Fund | 1 | $ | ||||||
| December 31, 2022 | Marketable securities held in Trust Account — Mutual Fund | 1 | $ | ||||||
NOTE 9. SUBSEQUENT EVENTS
The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the unaudited condensed financial statements were issued. Based upon this review, other than as described below, the Company did not identify any other subsequent events that would have required adjustment or disclosure in the condensed financial statements.
On October 5, 2023, the Company filed a Proxy Statement seeking to obtain shareholder approval, among other things, approval of the Merger, the Merger Agreement and the Business Combination, which is referred to as the “Business Combination Proposal” or “Proposal No. 1”. The scheduled meeting of stockholders to vote on the proposals stated within the Proxy Statement will be held on October 30, 2023.
On October 30, 2023, the Company held a special meeting of stockholders. The only item of business presented at the meeting was a new proposal to adjourn the Meeting to Monday, November 20, 2023
On November 6, 2023, the Company paid the balance of the unsecured promissory note in full and both the Company and UHY agreed to cancel the note with no further force and effect.
20
On November 20, 2023, the Company held a Special Meeting of Stockholders (the “Special Meeting”) at which the Company’s stockholders approved: (1) The Business Combination Proposal to approve the Merger Agreement including the merger (the “Merger”) of Ch-Auto Merger Sub Corp., a Delaware corporation and subsidiary of CH AUTO Inc., a Cayman Islands exempted company, with and into the Company whereby the Company will be the surviving corporation and the Reorganization, which is a condition precedent to the Merger; (2) the Governance Proposals to approve, on a non-binding advisory basis, certain differences between the Company and Pubco including the governance provisions set forth in the Pubco’s Second Amended and Restated Memorandum and Articles of Association; (3) the CH AUTO Inc. 2023 Equity Incentive Plan; and (4) the NTA Requirement Amendment Proposal to approve an amendment to the MCAF Amended and Restated Certificate of Incorporation to expand the methods that the Company may employ to not become subject to the “penny stock” rules of the Securities and Exchange Commission.
In connection with the Company’s Special Meeting, an aggregate amount of 1,487,667 shares were tendered for redemption by public stockholders of the Company.
21
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 Mountain Crest Acquisition Corp. IV. References to our “management” or our “management team” refer to our officers and directors, and references to the “Sponsor” refer to Mountain Crest Holdings IV 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.
Special Note Regarding Forward-Looking Statements
This Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 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 completion of the Proposed Business Combination (as defined below), 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, including that the conditions of the Proposed Business Combination are not satisfied. 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”) on March 31, 2022. The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.
Overview
We are a blank check company formed under the laws of the State of Delaware on March 2, 2021. The Company was formed for the purpose of entering into a merger, share exchange, asset acquisition, stock purchase, reorganization or other similar business transaction with one or more businesses that the Company has not yet identified. We intend to effectuate our Business Combination using cash from the proceeds of the Initial Public Offering and the sale of the Private Units, our capital stock, debt or a combination of cash, stock 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 complete a Business Combination will be successful.
Recent Developments
As previously disclosed in the Company’s Current Report on Form 8-K, filed on May 3, 2022, on April 30, 2022, the Company entered into that certain Agreement and Plan of Merger (as may be amended, supplemented or otherwise modified from time to time, the “Merger Agreement”), by and among the Company, CH AUTO Inc., a Cayman Islands exempted company (“Pubco”), Ch-Auto Merger Sub Corp., a Delaware corporation and wholly owned subsidiary of Pubco (“Merger Sub”) and CH-Auto Technology Corporation Ltd., a company organized under the laws of the People’s Republic of China (the “CH Auto”), pursuant to which, among other things, the Company, Pubco, Merger Sub and CH Auto intend to effect a merger of Merger Sub with and into the Company whereby the Company will be the surviving corporation (the “Surviving Corporation”) and a wholly owned subsidiary of Pubco (the “Merger”) in accordance with the Merger Agreement and the General Corporation Law of the State of Delaware (the “DGCL”). In connection with the Merger, the name of the Surviving Corporation shall be changed to CH Autotech USA, Inc. Following the Merger, Pubco expects its ordinary shares to be traded on the Nasdaq Stock Market. All capitalized terms used herein and not defined shall have the meanings ascribed to them in the Merger Agreement.
22
Immediately after Pubco’s Registration Statement on Form F-4 is declared effective (the “Effective Date”) but no later than five (5) Business Days prior to the Effective Time, CH Auto shall deliver to Pubco and the Company a schedule setting forth the names of each stockholder and such stockholder’s respective percentage interest in CH Auto Merger Consideration (the “Equityholder Allocation Schedule”). Immediately after the delivery of the Equityholder Allocation Schedule, Pubco shall conduct a reverse stock split (the “Pubco Reverse Stock Split”) of its then issued and outstanding Pubco Class A Ordinary Shares. At the time the Pubco Reverse Stock Split is completed, each Pubco Shareholder who holds Pubco Class A Ordinary Shares immediately before the Pubco Reverse Stock Split (the “Pubco Reorganization Shareholder”) shall automatically receive the corresponding Company Merger Consideration as set forth in the Equityholder Allocation Schedule, without any change in the par value of $0.00001 per share, in exchange for all the Pubco Class A Ordinary Shares held by such Pubco Reorganization Shareholder immediately prior to the Pubco Reverse Stock Split. The corresponding Company Merger Consideration issued to each Pubco Reorganization Shareholder shall be equal to the product of (1) the number of Pubco Class A Ordinary Shares held by such Pubco Reorganization Shareholder immediately prior to the delivery of the applicable Equityholder Allocation Schedule multiplied by (2) the Conversion Ratio.
Concurrently with the Pubco Reverse Stock Split, by virtue of the Reorganization and without any action on the part of the Company, Merger Sub, CH Auto, or their respective stockholders, Pubco shall issue to each Company stockholder that participates in the Reorganization or each’s designee(s) (the “Company Reorganization Stockholders,” together with the Pubco Reorganization Shareholders, the “Reorganization Shareholders”) the corresponding Company Merger Consideration as set forth in the Equityholder Allocation Schedule at par value per share or other value as determined as part of the Reorganization by the board of directors of Pubco. The corresponding Company Merger Consideration issued to each Company Reorganization Stockholder shall be equal to the product of (1) the number of shares of Company Common Stock held by such Company Reorganization Stockholder on an as-converted and fully-diluted basis immediately prior to the delivery of the applicable Equityholder Allocation Schedule multiplied by (2) the Conversion Ratio. The Company Reorganization Stockholders, other than the founders of CH Auto who shall receive Pubco Class B Ordinary Shares, shall receive Pubco Class A Ordinary Shares. Company Merger Consideration means the sum of all Pubco Class A Ordinary Shares and Pubco Class B Ordinary Shares received by the Reorganization Shareholders.
Immediately after the issuance of CH Auto Merger Consideration, but before the Closing of the Merger, Pubco’s subsidiary, CH-Auto (Hong Kong) Limited (“CH-Auto HK”), shall acquire all the shares of CH Auto’s equity securities (the “Company Common Stock”) held by each Company Reorganization Stockholder at par value or other value as agreed between CH-Auto HK and the CH Auto Reorganization Stockholders (the “HK Share Purchase”). Upon the completion of the HK Share Purchase, CH-Auto HK shall directly own no less than ninety percent (90%) of the then-issued and outstanding equity interests in CH Auto representing no less than ninety percent (90%) of the voting rights of all the outstanding equity interest entitled to vote on matters CH Auto can submit to a vote of its shareholders.
The Pubco Reverse Stock Split, the HK Share Purchase and the issuance of CH Auto Merger Consideration to the Reorganization Shareholders as described above are collectively referred to herein as the “Reorganization.” The Reorganization and the Merger Agreement are collectively referred to herein as the “Business Combination.” The Merger Agreement, as amended, provides, that the outside date for the closing of the Business Combination is November 15, 2022 the “Outside Date”). All capitalized terms used herein and not otherwise defined shall have the meanings ascribed to them in the Merger Agreement.
Based upon the execution of the Merger Agreement, the period of time for the Company to complete a business combination under its certificate of incorporation is extended for a period of 6 months from July 2, 2022 to January 2, 2023. Any extension beyond January 2, 2023, would require that MCAF stockholders approve an amendment to the MCAF Amended and Restated Certificate of Incorporation to extend the period of time in which MCAF may consummate a business combination.
Subsequently, as approved by its stockholders at the special meeting of Stockholders held on December 15, 2022 (the “Special Meeting”), the Company entered into an amendment to the Investment Management Trust Agreement, dated as of June 29, 2021, with Continental Stock Transfer & Trust Company, on December 15, 2022 (the “Trust Amendment”). Pursuant to the Trust Amendment, the Company has the right to extend the time for the Company to complete its initial business combination (the “Business Combination Period”) under the Trust Agreement for a period of 3 months from January 2, 2023 to April 2, 2023, plus an option for the Company to further extend such date to July 2, 2023 and to be further extended to the extent the Company’s Amended and Restated Certificate of Incorporation is amended to extend the Business Combination Period. The Company extended the time it has to complete its initial business combination from January 2, 2023, to April 2, 2023 by depositing $581,000 into the trust account on December 16, 2022.
In connection with the stockholders’ vote at the Special Meeting of Stockholders held by the Company on December 15, 2022, 2,432,520 shares were tendered for redemption.
23
On December 23, 2022, the Company, Pubco, Merger Sub and CH Auto entered into an Amended and Restated Agreement and Plan of Merger (the “A&R Merger Agreement”). Specifically, the A&R Merger Agreement amended and modified the Merger Agreement to: (a) provide that all options issued by the Company prior to the Business Combination shall be included in Company Merger Consideration that will be issued in connection with the closing of the Business Combination, (b) extend the date by which Pubco shall secure subscription agreements with investors relating to a purchase of Pubco Class A Ordinary Shares through a private placement, in each case on terms consented by the Company, pursuant to which the aggregate amount of investment is no less than $100,000,000 at the Closing, and (c) update and conform the terms of the Merger Agreement for the passage of time and satisfaction of certain conditions to the Closing of the Merger.
As previously disclosed, on April 30, 2022, MCAF entered into that certain Agreement and Plan of Merger (as may be amended, supplemented or otherwise modified from time to time, the “Merger Agreement”), by and among MCAF, CH AUTO Inc., a Cayman Islands exempted company (“Pubco”), Ch-Auto Merger Sub Corp., a Delaware corporation and wholly owned subsidiary of Pubco (“Merger Sub”) and CH-AUTO TECHNOLOGY CORPORATION LTD., a company organized under the laws of the People’s Republic of China (the “Company”), pursuant to which, among other things, MCAF, Pubco, Merger Sub and the Company intend to effect a merger of Merger Sub with and into MCAF whereby MCAF will be the surviving corporation (the “Surviving Corporation”) and a wholly owned subsidiary of Pubco (the “Merger”) in accordance with the Merger Agreement and the General Corporation Law of the State of Delaware (the “DGCL”). In connection with the Merger, the name of the Surviving Corporation shall be changed to CH Autotech USA, Inc. Following the Merger, Pubco expects its ordinary shares to be traded on the Nasdaq Stock Market. On December 23, 2022, MCAF disclosed that the parties to the Merger Agreement amended the Merger Agreement by executing an Amended and Restated Agreement and Plan of Merger, dated December 23, 2022 (the “A&R Merger Agreement”). All capitalized terms used herein and not defined shall have the meanings ascribed to them in the A&R Merger Agreement.
On March 1, 2023, MCAF, CH-Auto, Pubco and Merger Sub entered into an amendment (the “Amendment”) to the A&R Merger Agreement. The Amendment provides that (i) instead of acquiring at least 90% of the CH Auto, MCAF would only need to acquire at least 71.2184% of CH Auto to consummate the Closing, (ii) immediately after the Closing, Pubco’s board of directors (the “Post-Closing Pubco Board”) will consist of five (5) members, among which one (1) person shall be designated by Sponsor, four (4) persons shall be designated by CH Auto and at least two (2) persons of the Post-Closing Pubco Board shall qualify as independent directors under the Securities Act and Nasdaq rules, (iii) modified the timing of CH Auto’s delivery of the Equityholder Allocation Schedule, (iv) simultaneously with and in exchange for the issuance of the CH Auto Merger Consideration, but before the Closing of the Merger, Pubco’s subsidiary, CH-Auto (Hong Kong) Limited (“CH-Auto HK”), or a then-established wholly-owned PRC subsidiary of CH-Auto HK (together with CH-Auto HK, the “Holding Company”, as the context may require), shall acquire all the shares of CH Auto’s equity securities (the “Company Common Stock”) held by each Company Reorganization Stockholder at par value or other value as agreed between the Holding Company and the Company Reorganization Stockholders (the “HK Share Purchase”); provided however, certain Company Reorganization Stockholders that are the directors, supervisors or senior executives of the Company (each a “DSO Stockholder” and together, the “DSO Stockholders”) shall each transfer up to 25% of the stocks of CH Auto held by him or her due to restrictions under the PRC laws. Each DSO Stockholder shall further enter into a voting rights proxy agreement (the “Voting Rights Proxy Agreement”) and an economic rights transfer agreement (the “Economic Rights Transfer Agreement”) with the Holding Company (the “HK Voting Rights Entrustment”), pursuant to which each DSO Stockholder shall transfer and assign to the Holding Company (i) all of their respective voting rights in connection with the remaining shares of Company Common Stock held by them (the “DSO’s Remaining Shares”) pursuant to the Voting Rights Proxy Agreement and (ii) all of their economic rights, including the right to receive dividends, in connection the DSO’s Remaining Shares, pursuant to the Economic Rights Transfer Agreement. The Pubco Ordinary Shares issued to each DSO Shareholder in exchange for such DSO’s Remaining Shares, shall be subject to restrictions on transfer, conveyance, assignment and further encumbrance until the DSO Shareholder transfers and conveys the underlying shares of Company Common Stock to the Holding Company. Upon the completion of the HK Share Purchase, and after giving effect to the HK Voting Right Entrustment (the “Reorganization Closing”), the Holding Company shall (1) have the ability to direct, directly or indirectly, at least 71.2184% of the voting rights of all outstanding equity securities of CH Auto entitled to vote, (2) own, directly or indirectly, at least 71.2184% of the economic rights of all the outstanding equity securities in CH Auto, and (3) own, directly or indirectly own at least 37.8426% of the then-issued and outstanding equity interests in CH Auto; (v) revised the definitions of Company Employee Option and Company FA Option, (vi) CH Auto shall advance MCAF the aggregate amount of Seven Hundred and Fifty Thousand Dollars ($750,000) in two payments (the “Loans”) to fund the payment of the expenses incurred, in connection with two (2) extensions of the period of time for MCAF to consummate a business combination and for working capital for the Company; (vi) in the event CH Auto funds the initial payment of the Loan, the Outside Date shall be extended from May 15, 2023 to July 2, 2023, (viii) revised the timing, steps and procedure for the Reorganization and (ix) permitted CH Auto to convert outstanding debt from a lender in the amount of RMB 39 million into 15.6 million shares of CH Auto, at a conversion price of RMB 2.5 per share. The transactions contemplated by the A&R Agreement and the Amendment are collectively referred to as the “Business Combination.”
24
On March 27, 2023, MCAF extended the time it has to complete its initial business combination from April 2, 2023 to July 2, 2023 by depositing $343,936 in to MCAF’s trust account on March 29, 2023 (the “Extension Payment”). CH Auto Technology Corporation Ltd. (the “CH Auto”) loaned MCAF $350,000 to fund the Extension Payment. On March 29, 2023, MCAF issued an unsecured promissory note in the aggregate principal amount of $350,000 (the “ CH Auto Note 2”) to the CH Auto. Pursuant to the CH Auto Note 2, the CH Auto loaned MCAF an aggregate amount of $350,000 that is due and payable on the earlier of: (i) the date on which MCAF consummates an initial business combination with a target business, or (ii) the date MCAF liquidates if a business combination is not consummated. The CH Auto Note 2 does not bear interest. In the event that MCAF does not consummate a business combination, the CH Auto Note 2 will be forgiven, except to the extent of funds remaining outside of MCAF’s trust account, if any. In addition, the CH Auto Note 2 may be converted at the closing of a business combination by MCAF into the its common stock or ordinary shares, at the CH Auto’s option, at a price of $10.00 per share of common stock or ordinary share. The proceeds of the Note have been used by the Company to make a deposit $343,936 into the trust account to extend the time period for the Company to consummate its initial business combination from April 2, 2023 to July 2, 2023.
On March 31, 2023, the Company and UHY Advisors/UHY LLP, the Company’s independent registered public accounting firm, entered into an unsecured promissory note for services rendered and unpaid in the principal sum of Fifty Nine Thousand Seven Hundred Ten and 08/100 dollars ($59,710.08), plus interest applied monthly on any un-paid balance at the rate of eight (8%) percent per year until such sum is fully paid. On August 21, 2023, the Company and UHY Advisors/UHY LLP extended the due date of promissory note to October 31, 2023. If $59,710.08 is paid in full on this promissory note no later than October 31, 2023, all accrued finance charges on this promissory note will be forgiven. The promissory note is payable by the Company in advance without penalty. On November 6, 2023, the Company paid the balance of the unsecured promissory note in full and both the Company and UHY agreed to cancel the note with no further force and effect.
On June 22, 2023, the Company held the Special Meeting of Stockholders. The Company filed an amendment to its Amended and Restated Certificate of Incorporation with the Delaware Secretary of State on June 22, 2023 (the “Extension Amendment”), giving the Company the right to extend the time for the Company to complete its business combination (the “Business Combination Period”) from July 2, 2023 to January 2, 2024.
In connection with the stockholders’ vote at the Special Meeting of Stockholders held by the Company on June 22, 2023, 1,810,489 shares were tendered for redemption and $19,093,036 was paid out of the Trust Account to the redeeming stockholders.
As previously disclosed, on June 7, 2023, the CH Auto advanced the Company $400,000, pursuant to the March 1, 2023 Amendment to the A&R Merger Agreement, in exchange for a non-bearing promissory note in the principal amount of $400,000 (the “CH Auto Note 3”) from the Company to the CH Auto. On June 27, 2023, the Company used the proceeds from the CH Auto Note 3 to transfer $250,000 to Continental Stock Transfer and Trust Company to be deposited into the Trust Fund to extend the Business Combination Period from July 2, 2023 to January 2, 2024. Accordingly, the SPAC now has until January 2, 2024, to complete its initial business combination.
SPAC Support Agreement
Contemporaneously with the execution of the Merger Agreement, the Sponsor and the directors of the Company entered into a support agreement, dated April 30, 2022 (the “SPAC Support Agreement”), pursuant to which such holders agreed to, among other things, approve the Merger Agreement and the proposed business combination. Each such holder also agreed not to transfer any shares of the Company common stock owned by it unless the transferee executes a joinder agreement that provides that the transferee will become a party to the SPAC Support Agreement. The holders have also agreed not to seek redemption rights.
Company Support Agreement
Contemporaneously with the execution of the Merger Agreement, certain holders of Company common stock entered into a support agreement, dated April 30, 2022 (the “Company Support Agreement”), pursuant to which such holders agreed to, among other things, approve the Merger Agreement and the proposed business combination. The Company Support Agreement also covers any shares of Pubco common stock or of any successor entity of which ownership of record or the power to vote, directly or indirectly, is subsequently acquired by the stockholder prior to the termination of the Company Support Agreement. Each stockholder that executed the Company Support Agreement also agreed not to transfer any shares subject to the Company Support Agreement (with a limited exception in connection with the Reorganization) prior to the termination of the Company Support Agreement.
25
Results of Operations
We have neither engaged in any operations nor generated any revenues to date. Our only activities from March 2, 2021 (inception) through September 30, 2023, were organizational activities, those necessary to prepare for the Initial Public Offering, described below, and identifying a target company for a Business Combination. We do not expect to generate any operating revenues until after the completion of our Business Combination. We generate non-operating income in the form of interest income on marketable securities 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 for due diligence expenses.
For the three months ended September 30, 2023, we had a net loss of $7,697, which consists of interest income on marketable securities held in the Trust Account of $210,790, offset by operating and formation costs of $176,230, interest expense of $1,204 and a provision for income taxes of $41,053.
For the three months ended September 30, 2022, we had a net income of $25,381, which consists of interest income on marketable securities held in the Trust Account of $259,336, offset by operating and formation costs of $187,526 and a provision for income taxes of $46,429.
For the nine months ended September 30, 2023, we had a net income of $211,448, which consists of interest income on investments held in the Trust Account of $987,962, offset by operating and formation costs of $580,298, interest expense of $2,395 and a provision for income taxes of $193,821.
For the nine months ended September 30, 2022, we had a net loss of $261,357, which consists of operating and formation costs of $556,117 and a provision for income taxes of $48,010, offset by interest income on marketable securities held in the Trust Account of $342,770.
Liquidity and Capital Resources
The registration statement for our Initial Public Offering was declared effective on June 29, 2021. On July 2, 2021, we consummated the Initial Public Offering of 5,000,000 units and, with respect to the shares of common stock included in the Units sold, the Public Shares at $10.00 per Unit, generating gross proceeds of $50,000,000.
On July 6, 2021, in connection with the underwriters’ exercise of their over-allotment option in full, we consummated the sale of an additional 750,000 Units for an aggregate amount of $7,500,000. In connection with the underwriters’ full exercise of their over- allotment option, we also consummated the sale of an additional 15,000 Private Placement Units at $10.00 per Private Placement Units, generating total proceeds of $150,000. A total of $7,500,000 was deposited into the Trust Account.
Following the Initial Public Offering, the full exercise of the over-allotment option, and the sale of the Private Units, a total of $57,500,000 was placed in the Trust Account.
For the nine months ended September 30, 2023, cash used in operating activities was $302,699. Net income of $211,448 was affected by interest earned on marketable securities held in the Trust Account of $987,962 and interest expense of $2,395. Changes in operating assets and liabilities provided $471,420 of cash for operating activities.
For the nine months ended September 30, 2022, cash used in operating activities was $459,872. Net loss of $261,357 was affected by interest earned on marketable securities held in the Trust Account of $342,770. Changes in operating assets and liabilities provided $144,255 of cash for operating activities.
As of September 30, 2023, we had investments held in the Trust Account of $16,391,000 (including $650,918 of interest income) consisting of mutual funds which invests in U.S. Treasury securities. Interest income on the balance in the Trust Account may be used by us to pay taxes. Through September 30, 2023, we have withdrawn an amount of $182,779 to pay franchise and income taxes on interest earned from the Trust Account.
26
We intend to use substantially all of the funds held in the Trust Account, including any amounts representing interest earned on the Trust Account (less income taxes payable), to complete our Business Combination. To the extent that our capital stock 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, 2023, we had cash of $231,244. We intend to use the funds held outside the Trust Account primarily to evaluate target businesses, perform business due diligence on target businesses, travel to and from the offices, plants or similar locations of target businesses or their representatives or owners, review corporate documents and material agreements of target businesses, and structure, negotiate and complete the Merger.
In order to fund working capital deficiencies or finance transaction costs in connection with a Business Combination, the Sponsor, or certain of our officers and directors or their affiliates may, but are not obligated to, loan us funds as may be required. If we complete a Business Combination, we would repay such loaned amounts. In the event that a Business Combination does not close, we may use a portion of the working capital held outside the Trust Account to repay such loaned amounts but no proceeds from our Trust Account would be used for such repayment. Up to $1,500,000 of the Working Capital Loans may be converted into private units at a price of $10.00 per unit.
On August 26, 2022, the Company issued the Convertible Promissory Note to the Sponsor, pursuant to which the Company may borrow up to an aggregate amount of $100,000. The Convertible Promissory Note is non-interest bearing and payable on the earlier of (i) the date the Company completes its Business Combination or (ii) the date the Company liquidates if a Business Combination is not completed. On the maturity date, the Company shall pay in cash an amount equal to the outstanding amount, provided that the Sponsor, in its sole discretion, chose to convert the outstanding amount into Private Placement Units at a conversion price equal to $10.00 per Unit. The proceeds of the note will be used by the Company for working capital purposes. As of September 30, 2023 and December 31, 2022, there were $100,000 Working Capital Loans outstanding, respectively.
On October 24, 2022, the Company issued an unsecured promissory note in the aggregate principal amount up to $100,000 (the “Note”) to the “Sponsor. Pursuant to the Note, the Sponsor agreed to loan to the Company an aggregate amount up to $100,000 that may be drawn down from time to time and payable on the earlier of: (i) the date on which Company consummates an initial business combination with a target business, or (ii) the date the Company liquidates if a business combination is not consummated. The Note does not bear interest. In the event that the Company does not consummate a business combination, the Note will be repaid only from amounts remaining outside of the Company’s trust account, if any. In addition, at the written election of the Sponsor the principal amount due under the Note may be converted at the closing of a business combination into private units of the Company identical to the public units issued in the Company’s initial public offering at a price of $10.00 per unit. No amounts have been drawn on this promissory note as of September 30, 2023.
On December 21, 2022, the Company issued an unsecured promissory note in the aggregate principal amount up to $581,000 (the “CH Auto Note 1”) to the CH Auto. The CH Auto Note 1 is non-interest bearing and payable on the earlier the date on which Maker consummates a business combination with target businesses, or (ii) the date the Maker liquidates if a business combination is not consummated (the “Due Date”). The principal balance may be prepaid at any time. The principal balance shall be payable by the Maker either: (i) in cash, or (ii) in shares of Maker’s common stock (the “Conversion Shares”), par value $0.0001, at the Payee’s election in writing. Payee may elect to convert any outstanding principal balance into Conversion Shares, at any time when the CH Auto Note 1 remains outstanding, at a fixed conversion price of $10.00 per share. As of September 30, 2023 and December 31, 2022, there were $581,000 outstanding under the CH Auto Note 1.
On March 29, 2023, the Company issued an unsecured promissory note in the aggregate principal amount of $350,000 (the “CH Auto Note 2”) to CH Auto. Pursuant to the CH Auto Note 2, CH Auto loaned the Company an aggregate amount of $350,000 that is due and payable on the earlier of: (i) the date on which Company consummates an initial business combination with a target business, or (ii) the date the Company liquidates if a business combination is not consummated. The CH Auto Note 2 does not bear interest. In the event that the Company does not consummate a business combination, the CH Auto Note 2 will be forgiven, except to the extent of funds remaining outside of the Company’s trust account, if any. In addition, the CH Auto Note 2 may be converted at the closing of a business combination by the Company into the Company’s common stock or ordinary shares, at CH Auto’s option, at a price of $10.00 per share of common stock or ordinary share As of September 30, 2023 and December 31, 2022, there were $350,000 and $0 outstanding under the CH Auto Note 2, respectively.
27
On March 31, 2023, the Company and UHY Advisors/UHY LLP, the Company’s independent registered public accounting firm, entered into an unsecured promissory note for services rendered and unpaid in the principal sum of fifty-nine thousand seven hundred ten and 08/100 dollars ($59,710.08), plus interest applied monthly on any un-paid balance at the rate of eight (8%) percent per year until such sum is fully paid. On August 21, 2023, the Company and UHY Advisors/UHY LLP extended the due date of promissory note to October 31, 2023. If $59,710.08 is paid in full on this promissory note no later than October 31, 2023, all accrued finance charges on this promissory note will be forgiven. The promissory note is payable by the Company in advance without penalty. As of September 30, 2023 and December 31, 2022, there were $59,710 and $0 outstanding under this note, respectively. $2,395 of interest was accrued through September 30, 2023 which is presented as interest payable in the accompanying balance sheets. On November 6, 2023, the Company paid the balance of the unsecured promissory note in full and both the Company and UHY agreed to cancel the note with no further force and effect
On June 7, 2023, the Company issued an unsecured promissory note in the aggregate principal amount of $400,000 (the “CH Auto Note 3”) CH Auto. Pursuant to the CH Auto Note 3, CH Auto loaned the Company an aggregate amount of $400,000 that is due and payable by the Company on the earlier of: (i) the date on which Company consummates an initial business combination with a target business, or (ii) the date the Company liquidates if a business combination is not consummated. The CH Auto Note 3 does not bear interest. In the event that the Company does not consummate a business combination, the CH Auto Note 3 will be forgiven, except to the extent of funds remaining outside of the Company’s trust account, if any. In addition, the CH Auto Note 3 may be converted at the closing of a business combination by into the Company’s common stock or ordinary shares, at CH Auto’s option, at a price of $10.00 per share of common stock or ordinary share. As of September 30, 2023 and December 31, 2022, there were $400,000 and $0 outstanding under the CH Auto Note 3, respectively.
If our estimate of the costs of identifying a target business, undertaking in-depth due diligence and negotiating a Business Combination are less than the actual amount necessary to do so, we may have insufficient funds available to operate our business prior to our Business Combination. Moreover, we may need to obtain additional financing either to complete our Business Combination or because we become obligated to redeem a significant number of our Public Shares upon consummation of our Business Combination, in which case we may issue additional securities or incur debt in connection with such Business Combination.
Going Concern
We have until January 2, 2024 to consummate a Business Combination. It is uncertain that we will be able to consummate a Business Combination by this time. If a Business Combination is not consummated by this date, there will be a liquidation and subsequent dissolution. Management has determined that the liquidity condition, liquidation and subsequent dissolution raises substantial doubt about the Company’s ability to continue as a going concern. No adjustments have been made to the carrying amounts of assets or liabilities should the Company be required to liquidate after January 2, 2024.
Off-Balance Sheet Arrangements
We have no obligations, assets or liabilities, which would be considered off-balance sheet arrangements as of September 30, 2023. 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 obligations, capital lease obligations, operating lease obligations, purchase obligations or other long-term liabilities, other than an agreement to pay an affiliate of the Sponsor a monthly fee of $10,000 for office space, utilities and secretarial and administrative support. We began incurring these fees on July 2, 2021, and will continue to incur these fees monthly until the earlier of the completion of our initial Business Combination and our liquidation.
The underwriters are entitled to a deferred fee of $0.35 per Unit, $2,012,500. The deferred fee will become payable to the underwriters from the amounts held in the Trust Account solely in the event that the Company completes a Business Combination, subject to the terms of the underwriting agreement. Of the $0.35 per Unit, $0.30 will be paid in cash and $0.05 will be paid in an equivalent value of shares.
28
The Company engaged BHTIC to act as its M&A Advisor to conduct local due diligence for the Company on CH Auto by entering into the M&A Advisory Agreement on April 3, 2022. Pursuant to the M&A Advisory Agreement, the Company shall make a payment to BHTIC of an aggregate M&A Fee equivalent to 1% of the post-money post-PIPE equity value of CH Auto in shares of the post-transaction combined company to be issued upon closing of the Transaction at $10 per share.
Critical Accounting Policies
The preparation of condensed financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following critical accounting policies:
Common Stock Subject to Possible Redemption
We account for our common stock subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” Common stock subject to mandatory redemption is classified as a liability instrument and is measured at fair value. Conditionally redeemable common stock (including 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, common stock is classified as stockholders’ deficit. Our common stock features certain redemption rights that are considered to be outside of our control and subject to occurrence of uncertain future events. Accordingly, the common stock subject to possible redemption is presented as temporary equity, outside of the stockholders’ deficit section of our condensed balance sheets.
Net (Loss) Income per Common Share
We comply with accounting and disclosure requirements of Financial Accounting Standards Board (“FASB”) ASC 260, Earnings Per Share. The statements of operations include a presentation of (loss) income per redeemable public share and loss per non-redeemable share. In order to determine the net (loss) income attributable to both the public redeemable shares and non-redeemable shares, we first considered the total (loss) income allocable to both sets of shares. This is calculated using the total net (loss) income less any dividends paid. For purposes of calculating net (loss) income per share, any remeasurement of the accretion to redemption value of the common shares subject to possible redemption was considered to be dividends paid to our public stockholders. Subsequent to calculating the total (loss) income allocable to both sets of shares, we split the amount to be allocated using a ratio of 45% and 59% for the redeemable Public Shares and 55% and 41% for the non-redeemable shares for the three and nine months ended September 30, 2023, respectively, and 76% for the redeemable Public Shares and 24% for the non-redeemable shares for the three and nine months ended September 30, 2022, respectively, and reflective of the respective participation rights.
As of September 30, 2023, the Company did not have any dilutive securities and other contracts that could, potentially, be exercised or converted into common shares and then share in our earnings. As a result, diluted (loss) income per share is the same as basic (loss) income per share for the periods presented.
Offering Costs
Offering costs consisted of legal, accounting and other expenses incurred through the Initial Public Offering that were directly related to the Initial Public Offering. Offering costs were allocated to the separable financial instruments issued in the Initial Public Offering based on a relative fair value basis, compared to total proceeds received. Offering costs associated with the common stock issued were initially charged to temporary equity and then accreted to common stock subject to redemption upon the completion of the Initial Public Offering. Offering costs amounted to $4,773,824 consisting of $1,150,000 of underwriting fees, $2,012,500 of deferred underwriting fees and $1,611,324 of other offering costs. $4,368,049 was allocated to Public Shares and charged to temporary equity, and $405,775 was allocated to public rights and charged to stockholders’ deficit.
29
Recent Accounting Standards
In August 2020, the FASB issued ASU 2020-06, Debt -- Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40) (“ASU 2020-06”) to simplify accounting for certain financial instruments. ASU 2020-06 eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity. ASU 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments. ASU 2020-06 is effective December 15, 2023 and should be applied on a full or modified retrospective basis, with early adoption permitted beginning on January 1, 2021. The Company is currently assessing the impact, if any, that ASU 2020-06 would have on its financial position, results of operations or cash flows.
Management does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on our condensed financial statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not required for smaller reporting companies.
Item 4. Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Evaluation of Disclosure Controls and Procedures
As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2023. Based upon his evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15 (e) and 15d-15 (e) under the Exchange Act) were effective.
Changes in Internal Control Over Financial Reporting
There have been no changes in our internal controls over financial reporting that has materially affected, or is reasonably likely to affect, our internal control over financial reporting.
30
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 1A. RISK FACTORS
Factors that could cause our actual results to differ materially from those in this Quarterly Report are any of the risks described in our Annual Report on Form 10-K filed with the SEC on April 3, 2023. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. As of the date of this Quarterly Report, other than as described below, there have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K filed with the SEC on April 3, 2023.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On July 2, 2021, the Company consummated its initial public offering (the “IPO”) of 5,000,000 units (the “Units”). Each Unit consists of one share of common stock, $0.0001 par value (“Common Stock”), and one right (“Right”) to receive one-tenth (1/10) of a share of common stock upon the consummation of an initial business combination. The Units were sold at an offering price of $10.00 per Unit, generating gross proceeds of $50,000,000. The Company granted the underwriters a 45-day option to purchase up to 750,000 additional Units to cover over-allotments (the “Over-Allotment Option Units”). Network 1 Financial Securities, Inc. acted as the sole book running managers of the offering. The securities sold in the offering were registered under the Securities Act on a registration statement on Form S-1 (No. 333-256449). The SEC declared the registration statement effective on June 29, 2021. Simultaneously with the closing of the IPO, the Company consummated the private placement (“Private Placement”) with Mountain Crest Holdings IV LLC of 195,000 units (the “Private Units”), generating total proceeds of $1,950,000.
On July 6, 2021, the underwriters exercised the over-allotment option in full and the Company issued the Over-Allotment Option Units to the underwriters. The total aggregate issuance by the Company of the Over-Allotment Option Units at a price of $10.00 per unit resulted in total gross proceeds of $7,500,000. On July 6, 2021, simultaneously with the sale of the Over-Allotment Option Units, the Company consummated the private sale of an additional 15,000 Private Units, generating gross proceeds of $150,000. The Private Units were issued pursuant to Section 4(a)(2) of the Securities Act of 1933, as amended, as the transactions did not involve a public offering. The Private Units are identical to the Public Units sold in the Initial Public Offering.
A total of $57,500,000 of the net proceeds from the sale of Units in the IPO (including the Over-Allotment Option Units) and the Private Placements on July 2, 2021 and July 6, 2021, were placed in a trust account established for the benefit of the Company’s public shareholders.
We paid a total of $1,150,000 underwriting discounts and commissions and $1,611,324 for other offering costs and expenses (which includes $1,244,400 of representative shares) related to the Initial Public Offering. In addition, the underwriters agreed to defer $2,012,500 in underwriting discounts and commissions.
For a description of the use of the proceeds generated in our Initial Public Offering, see Part I, Item 2 of this Quarterly Report.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
31
ITEM 6. EXHIBITS
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
| * | Filed herewith. |
| ** | Furnished herewith. |
32
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| MOUNTAIN CREST ACQUISITION CORP. IV | ||
| Date: November 20, 2023 | By: | /s/ Suying Liu |
| Name: | Suying Liu | |
| Title: | Chief Executive Officer and Chief Financial Officer | |
| (Principal Executive Officer, Principal Financial and Accounting Officer) | ||
33