MOUNTAIN CREST ACQUISITION CORP. V MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (form 10-K) – Marketscreener.com

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.
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.
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.
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.
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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