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 Company Merger Sub Corp., a
Delaware corporation and wholly owned subsidiary of Pubco ("Company Merger Sub")
and CH-AUTO TECHNOLOGY CORPORATION LTD., a company organized under the law of
the People's Republic of China, pursuant to which, among other things, the
Company, Pubco, Company Merger Sub and CH-AUTO TECHNOLOGY CORPORATION LTD.
Intend to effect a merger of Company 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. The foregoing description of
the Merger Agreement does not purport to be complete and is qualified in its
entirety by the terms and conditions of the actual agreement, which is filed as
Exhibit 2.1 to the Current Report on Form 8-K filed with the SEC on May 3, 2022,
and incorporated by reference herein.
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.
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 MCAF
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.
The foregoing description of the SPAC Support Agreement does not purport to be
complete and is qualified in its entirety by the terms and conditions of the
actual agreement, a form of which is included as Exhibit A to the Merger
Agreement and as 10.1 to the Current Report on Form 8-K filed with the SEC on
May 3, 2022, and incorporated herein by reference.
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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.
The foregoing description of the Company Support Agreement does not purport to
be complete and is qualified in its entirety by the terms and conditions of the
actual agreement, a form of which is included as Exhibit B to the Merger
Agreement and as 10.2 to the Current Report on Form 8-K filed with the SEC on
May 3, 2022, and incorporated herein by reference.
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 June 30, 2022, 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 June 30, 2022, we had a net loss of $165,910, which
consists of operating and formation costs of $241,973 and a provision for income
tax of $1,581, offset by interest income on marketable securities held in the
Trust Account of $77,644.
For the six months ended June 30, 2022, we had a net loss of $286,738, which
consists of operating and formation costs of $368,591 and a provision for income
tax of $1,581, offset by interest income on marketable securities held in the
Trust Account of $83,434.
For the three months ended June 30, 2021, we had no business operations.
For the period from March 2, 2021 (inception) through June 30, 2021, we had a
net loss of $1,000, which consists of operating and formation costs.
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 six months ended June 30, 2022, cash used in operating activities was
$293,811. Net loss of $286,738 was affected by interest earned on investments
held in the Trust Account of $83,434. Changes in operating assets and
liabilities provided $76,361 of cash for operating activities.
For the period from March 2, 2021 (inception) through June 30, 2021, cash used
in operating activities was $0. Net loss of $1,000 was affected by changes in
operating liabilities which provided $1,000 of cash for operating activities.
As of June 30, 2022, we had investments held in the Trust Account of $57,583,185
(including $83,185 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 June 30, 2022, we have withdrawn an
amount of $2,163 to pay franchise and income taxes on interest earned from the
Trust Account.
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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 June 30, 2022, we had cash of $78,630. We intend to use the funds held
outside the Trust Account primarily to identify and evaluate target businesses,
perform business due diligence on prospective target businesses, travel to and
from the offices, plants or similar locations of prospective target businesses
or their representatives or owners, review corporate documents and material
agreements of prospective target businesses, and structure, negotiate and
complete a Business Combination.
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.
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, 2023 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
liquidation, should a Business Combination not occur, and potential subsequent
dissolution raises substantial doubt about our ability to continue as a going
concern. No adjustments have been made to the carrying amounts of assets or
liabilities should we be required to liquidate after January 2, 2023.
Off-Balance Sheet Arrangements
We have no obligations, assets or liabilities, which would be considered
off-balance sheet arrangements as of June 30, 2022. 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.
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:
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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' equity. 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 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 per redeemable public share and loss
per non-redeemable share. In order to determine the net loss attributable to
both the public redeemable shares and non-redeemable shares, we first considered
the total loss allocable to both sets of shares. This is calculated using the
total net loss less any dividends paid. For purposes of calculating net loss 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 allocable to both
sets of shares, we split the amount to be allocated using a ratio of 76% and 0%
for the Public Shares and 24% and 100% for the non-redeemable shares for the
three and six months ended June 30, 2022, for the three months ended June 30,
2021, for the three months ended June 30, 2021 and for the period from March 2,
2021 (inception) through June 30, 2021, respectively, reflective of the
respective participation rights.
As of June 30, 2022, 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 per share is the same
as basic loss 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.
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.
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CH AUTO INC. 