The following discussion and analysis of the Company's financial condition and
results of operations should be read in conjunction with our audited financial
statements and the notes related thereto which are included in "Item 8.
Financial Statements and Supplementary Data" of this Annual Report on Form 10-K.
Certain information contained in the discussion and analysis set forth below
includes forward-looking statements. Our actual results may differ materially
from those anticipated in these forward-looking statements as a result of many
factors, including those set forth under "Special Note Regarding Forward-Looking
Statements," "Item 1A. Risk Factors" and elsewhere in this Annual Report on
Form 10-K.
Overview
We are a blank check company formed under the laws of the State of Delaware on
April 8, 2021 for the purpose of effecting a merger, capital stock exchange,
asset acquisition, stock purchase, reorganization or similar business
combination with one or more businesses. We intend to effectuate our Business
Combination using cash from the proceeds of the Initial Public Offering and the
sale of the Private 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
On October 19, 2022, the Company entered into a Business Combination Agreement
(as it may be amended, supplemented or otherwise modified from time to time, the
"Business Combination Agreement") with AUM Biosciences Pte. Ltd., a private
company limited by shares incorporated in Singapore, with company registration
201810204D (the "Target"). On January 27, 2023, AUM Biosciences Limited, a
Cayman Islands exempted company ("Holdco"), AUM Biosciences Subsidiary Pte.
Ltd., a private company limited by shares incorporated in Singapore, with
company registration number 202238778Z ("Amalgamation Sub") and AUM Biosciences
Delaware Merger Sub, Inc., a Delaware corporation ("Merger Sub") executed a
joinder agreement with Mountain Crest and AUM and joined the Business
Combination Agreement as parties, thereby committing to be legally bound by the
Business Combination Agreement. On February 10, 2023, AUM, Mountain Crest,
Holdco, Amalgamation Sub and Merger Sub signed an amendment to Business
Combination Agreement (the "Amendment") to extend the Outside Date from February
15, 2023 to May 15, 2023. Capitalized terms used but not defined herein shall
have the meanings ascribed to them in the Business Combination Agreement.
Further, on March 30, 2023, the Company, the Target, Holdco, Amalgamation Sub,
and Merger Sub entered into an amendment to Business Combination Agreement (the
"Amendment No. 2") to (1) consent to the termination of that certain stock
escrow agreement, dated as of November 21, 2021, as amended, restated or
otherwise modified from time to time, originally entered by and among the
Company, the initial shareholders listed on the signature pages thereto, and
Continental Stock Transfer & Trust Company, as escrow agent, (2) remove the
Closing condition that the Company shall have net tangible assets of at least
$5,000,001 on its pro forma consolidated balance sheet after giving effect to
the Closing, (3) eliminate the Company's right to designate a director of the
Holdco Board and (4) update the Target interests issued and paid-up as of the
Amalgamation Effective Time from 8,779,752 Target Ordinary Shares to 9,841,118
Target Ordinary Shares. No other changes were made to the Business Combination
Agreement.
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 One
Hundred Eight Thousand One Dollars and Ninety Cents ($108,001.90), plus interest
applied monthly on any un-paid balance at the rate of eight (8%) percent per
year until such sum is fully paid. If $108,001.90 is paid in full on this
promissory note no later than July 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.
Based upon the execution of the Business Combination Agreement, the period of
time for the Company to complete a business combination under its certificate of
incorporation is extended for a period of three months from November 16, 2022 to
February 16, 2023. As of the date of the filing of this Annual report on form
10-K, the Company extended the time it has to complete its initial business
combination from February 16, 2023, to May 16, 2023 by depositing $300,000 into
the trust account on February 15, 2023.
Pursuant to the terms of the Business Combination Agreement, the Target will
promptly incorporate a Cayman Islands exempted company as a direct wholly owned
subsidiary of the Target ("Holdco"). Holdco upon incorporation will form a
private company limited by shares incorporated in Singapore as a direct wholly
owned subsidiary of Holdco ("Amalgamation Sub") and a Delaware corporation as a
direct wholly owned subsidiary of Holdco ("Merger Sub" and, together with Holdco
and Amalgamation Sub, each, individually, an "Acquisition Entity" and,
collectively, the "Acquisition Entities"). Each Acquisition Entity upon
formation will become a party to the Business Combination Agreement as if a
party on the date of execution thereof by signing a joinder agreement.
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Pursuant to the Business Combination Agreement, subject to the terms and
conditions set forth therein, (i) Amalgamation Sub will amalgamate with and into
the Target (the "Amalgamation") whereby the separate existence of Amalgamation
Sub will cease and the Target will be the surviving corporation of the
Amalgamation and become a direct wholly owned subsidiary of Holdco, and (ii)
following confirmation of the effective filing of the Amalgamation but on the
same day, Merger Sub will merge with and into the Company (the "SPAC Merger" and
together with the Amalgamation, the "Mergers"), the separate existence of Merger
Sub will cease and the Company will be the surviving corporation of the SPAC
Merger and a direct wholly owned subsidiary of Holdco.
As a result of the Mergers, among other things, (i) all outstanding Company
Shares will be cancelled in exchange for approximately 40 million Holdco
Ordinary Shares valued at $10 per Holdco share, subject to closing adjustments,
(ii) each outstanding SPAC Unit will be automatically detached, (iii) each
unredeemed outstanding share of the Company's Common Stock will be cancelled in
exchange for the right to receive one (1) Holdco Ordinary Share, and (iv) every
ten (10) outstanding Company Rights will be cancelled and cease to exist in
exchange for one (1) Holdco Ordinary Share.
Additional Agreements Executed In Connection With the Business Combination
Agreement
Shareholder Support Agreement
Contemporaneously with the execution of the Business Combination Agreement, the
Company, the Target and Key Target Shareholders entered into a voting and
support agreement (the "Shareholder Support Agreement"), pursuant to which,
among other things, certain Target Shareholders agreed not to transfer and will
vote their Shares in the Target in favor of the Business Combination Agreement
(including by execution of written resolutions), the Mergers and the other
Transactions, effective at Closing. The Target Shareholders party to the
Shareholder Support Agreement collectively have a sufficient number of votes to
approve the Merger. The Shareholder Support Agreement and all of its provisions
will terminate and be of no further force or effect upon the earlier of the
Closing or the termination of the Business Combination Agreement.
Sponsor Support Agreement
Contemporaneously with the execution of the Business Combination Agreement, the
Company, Sponsor, and the Target entered into a Sponsor Support Agreement,
pursuant to which they agree that, among other things, Sponsor (i) will not
transfer and will vote its shares of the Company's Common Stock or any
additional shares of the Company's Common Stock it acquires prior to the Company
Stockholder Meeting in favor of the Business Combination Agreement, the Mergers
and the other Transactions and each of the Transaction Proposals, (ii) will not
redeem any shares of the Company's Common Stock in connection with the SPAC
Merger, and (iii) waives its anti-dilution rights under the Company Charter. The
Sponsor Support Agreement and all of its provisions will terminate and be of no
further force or effect upon the earlier of the Closing or the termination of
the Business Combination Agreement.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date.
Our only activities from April 8, 2021 (inception) through December 31, 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 year ended December 31, 2022, we had a net income of $4,471, which
consists of interest income on investment held in the Trust Account of $932,256,
offset by operating costs of $746,913 and provision for income taxes of
$180,872.
For the period from April 8, 2021 (inception) through December 31, 2021, we had
a net loss of $150,755, which consists of operating costs of $151,598, offset by
interest income on investment held in the Trust Account of $843.
20
Liquidity and Capital Resources
On November 16, 2021, we consummated the Initial Public Offering of 6,000,000
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
$60,000,000. Simultaneously with the closing of the Initial Public Offering, we
consummated the sale of 205,000 Private Units at a price of $10.00 per Private
Unit in a private placement to the Sponsor generating gross proceeds of
$2,050,000.
On November 18, 2021, the underwriters fully exercised their over-allotment
option, resulting in an additional 900,000 Units issued for an aggregate amount
of $9,000,000. In connection with the underwriters' full exercise of their
over-allotment option, the Company also consummated the sale of an additional
18,000 Private Units at $10.00 per Private Unit, generating total proceeds of
$180,000. A net total of $9,000,000 was deposited into the Trust Account,
bringing the aggregate proceeds held in the Trust Account to $69,000,000.
Following the full exercise of the over-allotment option, and the sale of the
Private Units, a total of $69,000,000 was placed in the Trust Account. We
incurred $5,090,361 consisting of $1,380,000 of underwriting fees, $2,070,000 of
deferred underwriting fees and $1,640,361 of other offering costs.
For the year ended December 31, 2022, cash used in operating activities was
$446,350. Net income of $4,471 was affected by interest earned on marketable
securities held in the Trust Account of $932,256. Changes in operating assets
and liabilities provided $481,435 of cash for operating activities.
For the period from April 8, 2021 (inception) through December 31, 2021, cash
used in operating activities was $151,016. Net loss of $150,755 was affected by
interest earned on marketable securities held in the Trust Account of $843.
Changes in operating assets and liabilities provided $582 of cash for operating
activities.
As of December 31, 2022, we had marketable securities held in the Trust Account
of $19,572,432 (including $231,352 of interest income) consisting of U.S.
Treasury Bills 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
December 31, 2022, we have withdrawn $231,220 of the interest earned on the
Trust Account to pay franchise and income taxes and $50,129,447 in connection
with the redemption of shares.
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 December 31, 2022, we had cash of $259,408 held outside the Trust Account
for general working capital purposes. 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.
We do not believe we will need to raise additional funds in order to meet the
expenditures required for operating our business. However, 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.
21
Going Concern
As of the date of the filing of this Annual report on form 10-K, the Company
extended the time it has to complete its initial business combination from
February 16, 2023, to May 16, 2023 by depositing $300,000 into the trust account
on February 15, 2023.
We have until May 16, 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 mandatory
liquidation and subsequent dissolution. Management has determined that the
mandatory 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 May 16, 2023.
Off-Balance Sheet Financing Arrangements
We have no obligations, assets or liabilities, which would be considered
off-balance sheet arrangements as of December 31, 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, capital lease obligations, operating lease
obligations or long-term liabilities, other than an agreement to pay an
affiliates, or advisors a total of up to $10,000 per month for office space,
utilities, out of pocket expenses, and secretarial and administrative support.
The arrangement will terminate upon the earlier of the Company's consummation of
a Business Combination or its liquidation.
The underwriters are entitled to a deferred fee of $0.30 per unit, or $2,070,000
in the aggregate will be payable to the underwriters for deferred underwriting
commissions. 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.
Critical Accounting Policies
The preparation of 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' 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' equity section of our balance sheets.
22
Net Income (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 income (loss) per redeemable public share
and income (loss) per non-redeemable share following the two-class method of
income (loss) per share. In order to determine the net income (loss)
attributable to both the public redeemable shares and non-redeemable shares, we
first considered the total income (loss) allocable to both sets of shares. This
is calculated using the total net income (loss) less any dividends paid. For
purposes of calculating net income (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 income (loss) allocable to both sets of
shares, we split the amount to be allocated using a ratio of 76% for the Public
Shares and 24% for the non-redeemable shares for the year ended December 31,
2022, reflective of the respective participation rights.
As of December 31, 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 income (loss) per
share is the same as basic income (loss) per share for the periods presented.
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 January 1, 2022 and should be applied on a full or
modified retrospective basis, with early adoption permitted beginning on
January 1, 2021. The Company has adopted the provisions of this guidance on
January 1, 2022. The adoption is not expected to have a material impact on the
Company's financial statements.
Management does not believe that any recently issued, but not yet effective,
accounting standards, if currently adopted, would have a material effect on our
financial statements.
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