References in this Quarterly Report on Form 10-Q (this "Quarterly Report") to
"we," "us" or the "Company" refer to Monterey Bio Acquisition Corporation.
References to our "management" or our "management team" refer to our officers
and directors. References to "Chardan Monterey" refer to our co-sponsor, Chardan
Monterey Investments LLC, an affiliate of Chardan Capital Markets LLC
("Chardan"), the representative of the underwriters in the initial public
offering. References to "NorthStar" refer to our co-sponsor, NorthStar Bio
Ventures, 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, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (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 Quarterly Report including, without limitation, statements in
this "Management's Discussion and Analysis of Financial Condition and Results of
Operations" regarding our financial position, business strategy and the plans
and objectives of management for future operations, are forward-looking
statements. Words such as "expect," "believe," "anticipate," "intend,"
"estimate," "seek" and variations and similar words and expressions are intended
to identify such forward-looking statements. Such forward-looking statements
relate to future events or future performance, but reflect management's current
beliefs, based on information currently available. A number of factors could
cause actual events, performance or results to differ materially from the
events, performance and results discussed in the forward-looking statements. For
information identifying important factors that could cause actual results to
differ materially from those anticipated in the forward-looking statements,
please refer to the Risk Factors section of this Quarterly Report and our Annual
Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the
"SEC") on March 29, 2022 and subsequent quarterly reports on Form 10-Q filed
with the SEC. Our 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, we disclaim 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 incorporated on July 23, 2020 as a Delaware
corporation and formed for the purpose of entering into a merger, share
exchange, asset acquisition, stock purchase, recapitalization, reorganization or
similar business combination with one or more businesses or entities. We intend
to effectuate our initial business combination using cash from the proceeds of
the initial public offering and the sale of the private warrants, 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.
On September 29, 2022, we held a special meeting of stockholders to (i) amend
our Amended and Restated Certificate of Incorporation (the "Charter Amendment"),
which became effective upon filing on September 29, 2022, and (ii) amend the
trust agreement entered into between the Company and Continental Stock Transfer
& Trust Company on September 30, 2021, as amended (the "Trust Agreement"), in
each case to allow us to extend the Combination Period for an additional three
months, from October 5, 2022 to January 5, 2023, by depositing into the trust
account $350,000 for the three-month extension, and thereafter to extend the
Combination Period up to six (6) times by an additional month each time (or up
to July 5, 2023) by depositing into the trust account $120,000 for each
additional month extension.
In connection with the vote on the Charter Amendment, our stockholders had the
right to redeem their shares of common stock. The holders of 9,480,616 shares of
common stock elected to redeem their shares at a per share redemption price of
$10.13. As a result, approximately $96.1 million was removed from the trust
account on October 3, 2022 to pay such holders, leaving approximately $20.5
million in the trust account.
On October 4, 2022, NorthStar deposited $350,000 into the trust account in
connection with the extension of the Combination Period to January 5, 2023.
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Results of Operations
Our only activities from July 23, 2020 (inception) through September 30, 2022
were organizational activities, those necessary to consummate 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
are incurring 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, 2022, we had net loss of $420,491,
which consisted of operating costs of $863,871 and provision for income taxes of
$80,843, offset by interest income on marketable securities held in the trust
account of $524,223.
For the nine months ended September 30, 2022, we had net loss of $966,755, which
consisted of operating costs of $1,575,797 and provision for income taxes of
$83,722, offset by interest income on marketable securities held in the trust
account of $692,764.
For the three months ended September 30, 2021, we had net loss $182, which
consisted of operating and formation costs.
For the nine months ended September 30, 2021, we had net loss $207, which
consisted of operating and formation costs.
Liquidity and Capital Resources
On October 5, 2021, we consummated the initial public offering of 10,000,000
units, at $10.00 per unit, generating total gross proceeds of $100,000,000.
Simultaneously with the closing of the initial public offering, we consummated
the sale of 5,000,000 private warrants at a price of $1.00 per private warrant
in private placements to Chardan Monterey and NorthStar, generating gross
proceeds of $5,000,000.
On October 6, 2021, in connection with the underwriter's exercise of their
over-allotment option in full, we consummated the sale of an additional
1,500,000 units, at $10.00 per unit, and the sale of an additional 450,000
private warrants, at $1.00 per private warrant, generating total gross proceeds
of $15,450,000.
Following the initial public offering, the full exercise of the over-allotment
option, and the sale of private warrants, a total of $116,150,000 was placed in
the trust account. We incurred transaction costs of $2,822,084, consisting of
$2,300,000 of underwriting fees, and $522,084 of other offering costs.
For the nine months ended September 30, 2022, cash used in operating activities
was $616,992. Net loss of $966,755 was affected by interest earned on marketable
securities held in the trust account of $692,764. Changes in operating assets
and liabilities provided $1,042,527 of cash for operating activities.
For the nine months ended September 30, 2021, cash used in operating activities
was $294. Net loss of $207 was affected by the changes in operating assets and
liabilities which used $87 of cash for operating activities.
As of September 30, 2022, we had marketable securities held in the trust account
of $116,545,797 (including approximately $695,135 of interest income) consisting
of securities held in a money market fund that invests in U.S Treasury
securities with a maturity of 185 days or less. Interest income on the balance
in the trust account may be used by us to pay taxes. Through September 30, 2022,
we had withdrawn $299,338 of amounts from interest earned on the trust account
to pay our taxes. As discussed above, approximately $96.1 million was removed
from the trust account on October 3, 2022 to pay redeeming stockholders, leaving
approximately $20.5 million in the trust account. On October 4, 2022, NorthStar
deposited $350,000 into the trust account in connection with the extension of
the Combination Period to January 5, 2023.
We intend to use substantially all of the funds held in the trust account,
including any amount representing interest earned on the trust account (less
income taxes payable), to complete our business combination. To the extent that
our capital stock is used in whole or in part as consideration to effect a
business combination, the remaining funds held in the trust account will be used
as working capital to finance the operations of the target business. Such
working capital funds could be used in a variety of ways including continuing or
expanding the target business' operations, for strategic acquisitions and for
marketing, research and development of existing or new products. Such funds
could also be used to repay any operating expenses or finders' fees which we had
incurred prior to the completion of our business combination if the funds
available to us outside of the trust account were insufficient to cover such
expenses.
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As of September 30, 2022, we had cash of $544,301. We intend to use the funds
held outside the trust account for identifying and evaluating prospective
acquisition candidates, performing business due diligence on prospective target
businesses, traveling to and from the offices, plants or similar locations of
prospective target businesses, reviewing corporate documents and material
agreements of prospective target businesses, selecting the target business to
acquire and structuring, negotiating and consummating the business combination.
In order to fund working capital deficiencies or finance transaction costs in
connection with a business combination, the insiders, 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 our initial business combination, we would
repay such loaned amounts. In the event that our initial business combination
does not close, we may use a portion of the working capital held outside the
trust account to repay such loaned amounts but no proceeds from our trust
account would be used for such repayment. Up to $1,500,000 of such loans may be
convertible into private warrants at a price of $1.00 per private warrant at the
option of the lender. The private warrants would be identical to the public
warrants issued in the initial public offering.
In March 2022, NorthStar committed to provide us up to $500,000 in working
capital loans as described in Note 5. On October 7, 2022, the co-sponsors issued
unsecured promissory notes to evidence Working Capital Loans for an aggregate
principal balance of $700,000 (See Note 5). As of September 30, 2022, an
aggregate principal balance of $361,441 has been advanced to the Company under
the Working Capital Loans. We may raise additional capital through loans or
additional investments from our co-Sponsor, officers, directors, or their
affiliates.
We monitor the adequacy of our working capital in order to meet the expenditures
required for operating our business prior to our initial business combination.
However, if our estimates of the costs of identifying a target business,
undertaking in-depth due diligence and negotiating an initial 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 completion of our business
combination, in which case we may issue additional securities or incur debt in
connection with such business combination. If we are unable to complete our
initial business combination because we do not have sufficient funds available
to us, we will be forced to cease operations and liquidate the trust account.
Going Concern
In connection with the Company's assessment of going concern considerations in
accordance with Financial Accounting Standard Board's Accounting Standards
Codification Subtopic 205-40, "Presentation of Financial Statements - Going
Concern," we have until January 5, 2023 to consummate a business combination. We
have the option to extend the date for mandatory liquidation if our insiders or
their affiliates deposit into the trust account $120,000 for each month
extension up to July 5, 2023. We intend to complete a business combination
before the mandatory liquidation date or its extended liquidation date, if
applicable. 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 and an extension not requested by our insiders or their affiliates, there
will be a mandatory liquidation and subsequent dissolution of the Company.
Management has determined that the liquidity condition and mandatory
liquidation, should a business combination not occur and an extension is not
requested by our insiders or their affiliates, and potential subsequent
dissolution, raise substantial doubts 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 we be required to liquidate after January 5, 2023.
Off-Balance Sheet Arrangements
We have no obligations, assets or liabilities, which would be considered
off-balance sheet arrangements as of September 30, 2022.
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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 NorthStar a monthly fee of $10,000
for general and administrative services, including office space, utilities and
secretarial support and a consulting agreement to pay a consultant up successful
completion of a business combination. However, pursuant to the terms of such
agreement, we may delay payment of such monthly fee upon a determination by our
audit committee that we lack sufficient funds held outside the trust to pay
actual or anticipated expenses in connection with our initial business
combination. Any such unpaid amount will accrue without interest and be due and
payable no later than the date of the consummation of our initial business
combination. We began incurring these fees on September 30, 2021 and will
continue to incur these fees monthly until the earlier of the completion of our
initial business combination and our liquidation. We entered into a consulting
agreement, dated as of September 14, 2021, as amended, with a consultant to
assist us in facilitating a business combination with one or more targets,
subject to certain conditions. The consultant will receive a success fee of (i)
$100,000 or (ii) in the event our successful business combination is consummated
with an entity or target first introduced to us by the consultant, $150,000, in
either case, subject to, and payable upon, our successful consummation of an
initial business combination, provided that the consulting agreement is not
terminated prior to such date. Additionally, we will reimburse the consultant
for any out-of-pocket expenses and pre-approved travel-related expenses incurred
in connection with the provision of services under the consulting agreement.
Critical Accounting Policies
The preparation of condensed financial statements and related disclosures in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and income and expenses
during the periods reported. Actual results could materially differ from those
estimates. We have identified the following critical accounting policies:
Use of Estimates
The preparation of the condensed financial statements in conformity with 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 financial statements and the reported
amounts of expenses during the reporting period.
Making estimates requires management to exercise significant judgment. It is at
least reasonably possible that the estimate of the effect of a condition,
situation or set of circumstances that existed at the date of the 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.
Common Stock Subject to Possible Redemption
We account for our common stock subject to possible conversion 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 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, common stock subject to
possible redemption is presented at redemption value as temporary equity,
outside of the stockholders' equity section of our balance sheets.
Net Loss Per Common Stock
Net income (loss) per common stock is computed by dividing net income (loss) by
the weighted average number of common stock outstanding for the period.
Accretion associated with the redeemable shares of common stock is excluded from
earnings per share as the redemption value approximates fair value.
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Recent Accounting Standards
In August 2020, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update ("ASU") No. 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): Accounting for Convertible Instruments
and Contracts in an Entity's Own Equity" ("ASU 2020-06"), which simplifies
accounting for convertible instruments by removing major separation models
required under current GAAP. ASU 2020-06 removes certain settlement conditions
that are required for equity contracts to qualify for the derivative scope
exception, and it also simplifies the diluted earnings per share calculation in
certain areas. ASU 2020-06 is effective for the Company for fiscal years
beginning after December 15, 2023, including interim periods within those fiscal
years, with early adoption permitted. 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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