Unless otherwise indicated or the context requires otherwise, the words "we,"
"us," "our," the "Company," "our Company" or "MCAC" refer to Monterey Capital
Acquisition Corporation, a Delaware corporation. The following discussion and
analysis of the Company's financial condition and results of operations should
be read in conjunction with the consolidated financial statements and the notes
thereto contained elsewhere in this report. Certain information contained in the
discussion and analysis set forth below includes forward-looking statements that
involve risks and uncertainties.
Cautionary Note Regarding Forward-Looking Statements
This Annual Report on Form 10-K 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"). We have based these forward-looking statements on
our current expectations and projections about future events. These
forward-looking statements are subject to known and unknown risks, uncertainties
and assumptions about us that may cause our actual results, levels of activity,
performance or achievements to be materially different from any future results,
levels of activity, performance or achievements expressed or implied by such
forward-looking statements. In some cases, you can identify forward-looking
statements by terminology
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such as "may," "should," "could," "would," "expect," "plan," "anticipate,"
"believe," "estimate," "continue," or the negative of such terms or other
similar expressions. Such statements include, but are not limited to, possible
business combinations and the financing thereof, and related matters, as well as
all other statements other than statements of historical fact included in this
Form 10-K. The Company's securities filings can be accessed on the EDGAR section
of the U.S. Securities and Exchange Commission's (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 incorporated in Delaware on September 23, 2021, for
the purpose of acquiring, merging with, engaging in capital stock exchange with,
purchasing all or substantially all of the assets of, engaging in contractual
arrangements, or engaging in any other similar business combination with a
single operating entity, or one or more related or unrelated operating entities
operating in any sector. We are an emerging growth company and, as such, are
subject to all the risks associated with emerging growth companies.
Our sponsor is Monterrey Acquisition Sponsor, LLC (the "Sponsor"), a Delaware
limited liability company. The registration statement for the initial public
offering (the "IPO" or "Initial Public Offering") was declared effective on
May 10, 2022. On May 13, 2022, we consummated the Initial Public Offering of
9,200,000 units (the "Units" and, with respect to the Class A Common Stock
included in the Units, the "Class A Common Stock"), inclusive of 1,200,000
Over-Allotment Units (defined below) resulting from the full exercise by the
underwriters of their over-allotment option, at $10.00 per Unit, generating
gross proceeds of $92 million, and incurring offering costs (inclusive of the
full exercise of the underwriter's over-allotment option on May 13, 2022) of
approximately $8.7 million, consisting of approximately $0.9 million of
underwriting fees, approximately $3.7 million of deferred underwriting fees that
will be paid only if a business combination is entered into, approximately $0.6
million representing the fair value of the 138,000 shares of Class A Common
Stock we issued to the underwriter of the Initial Public Offering (the
"Representative Shares"), approximately $2.5 million representing the fair value
of the 600,000 Founder Shares (the "Transferred Founder Shares") the Sponsor
sold to the group of ten qualified institutional buyers and institutional
accredited investors, which are not affiliated with the Company (the "Anchor
Investors"), and approximately $1.0 million of other offering costs.
At the IPO date, cash of approximately $0.9 million was held outside of the
Trust Account (as defined below) and was available for the payment of the
Note (see Note 3), payment of accrued offering costs and for working capital
purposes. Each Unit consists of one share of common stock, one redeemable
warrant ("Public Warrant"), with each Public Warrant exercisable into one share
of common stock at an exercise price of $11.50 per share, and one right
("Rights") to receive one-tenth of one share of common stock upon consummation
of the Company's initial business combination. The underwriter was granted a
45-day option from the date of the final prospectus relating to the Initial
Public Offering to purchase up to 1,200,000 additional Units (the
"Over-Allotment Units") to cover over-allotments, if any, at $10.00 per Unit. On
May 13, 2022, the underwriter exercised their over-allotment option in full to
purchase an additional 1,200,000 Units, resulting in incremental gross proceeds
of approximately $12 million.
Simultaneously with the closing of the Initial Public Offering, we consummated
the private placement ("Private Placement") of 3,040,000 warrants (each, a
"Private Placement Warrant" and collectively, the "Private Placement Warrants"),
which were purchased by our Sponsor, at a price of $1.00 per Private Placement
Warrant, generating gross proceeds to us of $3.04 million.
Upon the closing of the Initial Public Offering and the Private Placement
(including the additional Units sold in connection with the full exercise of the
underwriter's over-allotment option), $92,920,000 ($10.10 per Unit) of the net
proceeds of the sale of the Units in the Initial Public Offering and the Private
Placement were placed in the Trust Account.
If we are unable to complete an initial Business Combination within 12 months
(or up to 18 months if the Company extends the period of time to consummate a
Business Combination up to two times by an additional three months each time)
from the closing of the Initial Public Offering, or May 13, 2023 (or
November 13, 2023), we 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 shares of Class A Common stock subject to
possible redemption, 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 (less any income or franchise tax
obligations and up to $100,000 of interest to pay dissolution expenses), divided
by the number of then outstanding shares of common stock, which redemption will
completely extinguish public stockholders' rights as stockholders (including the
right to receive further liquidating distributions, if any), and (iii) as
promptly as reasonably possible following such redemption, subject to the
approval of the remaining stockholders and the board of
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directors, liquidate and dissolve, subject in each case to our obligations under
Delaware law to provide for claims of creditors and the requirements of other
applicable law.
Proposed Business Combination
On December 31, 2022, MCAC entered into the Merger Agreement by and among MCAC,
Merger Sub, and ConnectM. Pursuant to the terms and conditions of the Merger
Agreement, a business combination between MCAC and ConnectM will be effected
through the merger of Merger Sub with and into ConnectM, with ConnectM surviving
the Merger as a wholly owned subsidiary of MCAC. Refer to Note 1 for further
discussion of the Merger Agreement and related agreements.
Liquidity and Capital Resources
At December 31, 2022, we had cash of $5,938 and a working capital deficit of
$1,605,220, excluding the income and franchise tax liabilities, as these tax
liabilities will be paid using the dividend and interest income earned in the
Trust Account.
We have neither engaged in any operations nor generated any revenues to date.
Our only activities from September 23, 2021 (inception) to December 31, 2022
were organizational activities and those necessary to consummate the Initial
Public Offering 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 have generated and expected to generate
non-operating income in the form of dividend and interest income on marketable
securities held after the Initial Public Offering. We have incurred and expect
to 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.
The Company's liquidity needs prior to the consummation of the Initial Public
Offering were satisfied through the proceeds of $25,000 from the sale of the
Founder Shares (Note 5), and a loan amounting to $354,100 as of the IPO date,
which was repaid on May 16, 2022, under an unsecured and noninterest bearing
promissory note from the Sponsor. Subsequent to the consummation of the Initial
Public Offering, the Company's liquidity needs have been and will continue to be
satisfied through the net proceeds held outside of the Trust Account from the
consummation of the Initial Public Offering and the Private Placement. In
addition, in order to finance transaction costs in connection with an initial
business combination, the Sponsor, an affiliate of the Sponsor, or certain of
the Company's officers and directors or their affiliates may, but are not
obligated to, loan the Company funds as may be required ("Working Capital
Loans"). The Working Capital Loans are to be repaid upon consummation of a
business combination, without interest, or, at the lender's option, up to $1.5
million of the outstanding Working Capital Loans are convertible into warrants
at a price of $1.00 per warrant. Through December 31, 2022, the Company received
$157,000 in Working Capital Loans (Note 5).
As of December 31, 2022, the Company had cash in the Trust Account of
$94,209,804. The Company intends to use substantially all of the funds held in
the Trust Account, including any amounts representing interest earned on the
Trust Account (less deferred underwriting commissions of $3,680,000 and $441,166
available to satisfy the Company's tax liabilities) to complete its initial
business combination. To the extent that the Company's capital stock or debt is
used, in whole or in part, as consideration to complete its initial business
combination.
Until the consummation of a business combination, we will be using the funds not
held in the Trust Account for identifying and evaluating prospective acquisition
candidates, performing due diligence on prospective target businesses, paying
for travel expenditures, selecting the target business to acquire, and
structuring, negotiating and consummating the business combination. We will need
to raise additional capital through loans or additional investments from our
Sponsor, stockholders, officers, directors, or third parties. The Company's
Sponsor, officers and directors may, but are not obligated to, loan the Company
funds from time to time or at any time, in whatever amount they deem reasonable
in their sole discretion, to meet the Company's working capital needs.
Accordingly, we may not be able to obtain additional financing. If the Company
is unable to raise additional capital, it may be required to take additional
measures to conserve liquidity, which could include, but not necessarily be
limited to, curtailing operations, suspending the pursuit of a potential
transaction, and reducing overhead expenses.
We cannot provide any assurance that new financing will be available to us on
commercially acceptable terms, if at all. These conditions raise substantial
doubt about the Company's ability to continue as a going concern until the
earlier of the consummation of the business combination or the date the Company
is required to liquidate, no later than 10 business days after May 13, 2023 (or
until November 13, 2023 if we decide to exercise the Extension Option). These
consolidated financial statements do not include any adjustments relating to
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the recovery of the recorded assets or the classification of the liabilities
that might be necessary should the Company be unable to continue as a going
concern.
Results of Operations
Our entire activity from inception through the IPO Date was in preparation for
our Initial Public Offering, and since our Initial Public Offering, our activity
has been limited to the search for a prospective initial business combination.
We will not generate any operating revenues until the closing and completion of
our initial business combination, at the earliest.
For the year ended December 31, 2022, we had a net loss of $3,763,638, which was
primarily related to $2,098,401 of general and administrative costs, $240,507 of
income tax expense, and $2,770,000 loss on the change in fair value of the
Forward Purchase Agreement liability, partially offset by $1,289,804 of dividend
and interest income earned in the Trust Account and $55,466 of other income
related to expense reimbursements received from a potential target. For the
period from September 23, 2021 (inception) through December 31, 2021 we had a
net loss of $19,889, which consisted of all formation and general and
administrative costs. The dividend and interest income during the year ended
December 31, 2022 represents the income earned in the Trust Account from the IPO
date through December 31, 2022. The income tax expense during the year ended
December 31, 2022 was primarily attributable to the dividend and interest income
earned in the Trust Account. General and administrative costs increased during
the year ended December 31, 2022 due to the Company's activities related to
operating as a public company and activities to identify a target for an initial
Business Combination, versus only formation-related expenses during the period
from September 23, 2021 (inception) through December 31, 2021.
Commitments and Contractual Obligations
Registration Rights
The holders of Founder Shares (as defined below), Private Placement Warrants and
the Private Placement Warrants that may be issued upon conversion of Working
Capital Loans, if any (and any shares of common stock issuable upon the exercise
of the Private Placement Warrants and warrants that may be issued upon
conversion of Working Capital Loans and upon conversion of the Founder Shares),
are entitled to certain registration rights pursuant to a registration rights
agreement. These holders will be entitled to certain demand and "piggyback"
registration rights. We will bear the expenses incurred in connection with the
filing of any such registration statements. See Note 1 for discussion of
amendments to the registration rights agreement to take effect upon the closing
of the Business Combination
Underwriting Agreement
$3,680,000 in the aggregate (reflecting the full exercise by the underwriter of
its over-allotment option), will be payable to the underwriter for deferred
underwriting commissions. The deferred fee will become payable to the
underwriter from the amounts held in the Trust Account solely in the event that
the Company completes an initial business combination, subject to the terms of
the underwriting agreement.
Administrative Support Agreement
In conjunction with the IPO closing, the Company entered into the administrative
support agreement under which it pays the Sponsor a total of $10,000 per month,
for up to 12 months, for office space, secretarial and administrative services.
The Company incurred $75,000 under the agreement during the year ended
December 31, 2022. Upon completion of the initial business combination or the
Company's liquidation, the Company will cease paying these monthly fees.
Critical Accounting Policies and Estimates
The preparation of consolidated 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 consolidated financial statements, and income and
expenses during the periods reported. Actual results could materially differ
from those estimates. Critical accounting policies and estimates are identified
below.
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Share-Based Payment Arrangements
The Company accounts for stock awards in accordance with ASC 718, which requires
that all equity awards be accounted for at their fair value. Fair value is
measured on the grant date and is equal to the underlying value of the stock.
Costs equal to these fair values are recognized ratably over the requisite
service period based on the number of awards that are expected to vest, or in
the period of grant for awards that vest immediately and have no future service
condition. For awards that vest over time, cumulative adjustments in later
periods are recorded to the extent actual forfeitures differ from the Company's
initial estimates; previously recognized compensation cost is reversed if the
service or performance conditions are not satisfied, and the award is forfeited.
Offering Costs Associated with the Initial Public Offering
Offering costs consisted of legal, accounting, underwriting and other costs
incurred that were directly related to the Initial Public Offering. Offering
costs are 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 issuance of Class A Common Stock
subject to possible redemption were charged to temporary equity upon the
completion of the Initial Public Offering. For the year ended December 31, 2022,
offering costs in the aggregate of $8,698,910 consisted of $920,000 of
underwriting commissions, $3,680,000 of deferred underwriter's commissions,
$622,882 representing the fair value of Representative Shares issued, $2,508,632
representing the fair value of Transferred Founder Shares and $967,396 of other
offering costs. Of the total offering costs, $8,139,659 was allocated to the
Class A common stock subject to possible redemption, $152,515 was allocated to
the Public Warrants (Note 8), and $406,736 was allocated to the Rights (Note 8).
Derivative Financial Instruments
The Company issued warrants and Rights (see Note 3) to its investors, the
overallotment option to the underwriter (see Note 7), and the Working Capital
Loans to the Sponsor (see Note 5). The Company accounts for financial
instruments as either equity-classified or liability-classified instruments
based on an assessment of the specific terms of the instruments and applicable
authoritative guidance in ASC 480 and ASC Topic 815, "Derivatives and Hedging"
("ASC 815"). The assessment considers whether the instruments are freestanding
financial instruments pursuant to ASC 480, meet the definition of a liability
pursuant to ASC 480, and meet all of the requirements for equity classification
under ASC 815, including whether the instruments are indexed to the Company's
own stock and whether the holders of the instruments could potentially require
"net cash settlement" in a circumstance outside of the Company's control, among
other conditions for equity classification.
At the IPO date, the Public Warrants and Rights (see Note 3) and Private
Warrants (see Note 4) were accounted for as equity instruments as they meet all
of the requirements for equity classification under ASC 815 based on current
expected terms, which are subject to change. At the IPO date, the underwriter's
overallotment option (see Note 7) met the definition of a liability under ASC
480.
The Forward Purchase Agreement with Meteora entered into on December 31, 2022
resulted in Meteora holding a put option on shares to be purchased pursuant to
the agreement, up to the maximum of 6,600,000. Pursuant to ASC 815, Derivatives
and Hedging, this instrument meets the definition of a derivative and
accordingly will be recognized at fair value. The fair value of this put option
liability was estimated at $2,770,000 at December 31, 2022, assuming Meteora
will purchase the maximum number of shares at the consummation of the Business
Combination. This Forward Purchase Agreement liability resulted in the
recognition of a $2,770,000 loss on the change in fair value of the Forward
Purchase Agreement liability in the Company's consolidated statement of
operations for the year ended December 31, 2022.
Net Loss Per Share of Common Stock
The Company complies with accounting and disclosure requirements of ASC Topic
260, "Earnings Per Share" ("ASC 260"). Net loss per share is computed by
dividing net loss by the weighted average number of shares of Common Stock
outstanding during the period. The weighted average shares for the period from
September 23, 2021 (inception) through May 13, 2022 were reduced for the effect
of an aggregate of 300,000 Class B Common Stock that were subject to forfeiture
until the initial public offering.
The Company's consolidated statements of operations include a presentation of
net loss per share subject to redemption in a manner similar to the two-class
method of income per share. With respect to the accretion of the Class A Common
Stock subject to possible
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redemption and consistent with ASC 480-10-S99-3A, the Company deemed the fair
value of the Class A Common Stock subject to possible redemption to approximate
the contractual redemption value and the accretion has no impact on the
calculation of net loss per share.
The Company's Public Warrants (see Note 3), Private Warrants (see Note 4), and
Rights (see Note 3), could, potentially, be exercised or converted into common
stock and then share in the earnings of the Company. Additionally, the Embedded
Feature (see Note 2) allows for conversion of the convertible notes into Private
Warrants, which could, potentially, be exercised or converted into common stock
and then share in the earnings of the Company. However, these potentially
dilutive instruments were excluded when calculating diluted loss per share
because such inclusion would be anti-dilutive for the periods presented. As a
result, diluted loss per share is the same as basic loss per share for the
periods presented.
Redeemable Share Classification
All of the 9,200,000 shares of Class A Common Stock sold as part of the Units in
the Initial Public Offering contain a redemption feature which allows for the
redemption of such public shares in connection with the Company's liquidation,
if there is a stockholder vote or tender offer in connection with the business
combination and in connection with certain amendments to the Company's amended
and restated certificate of incorporation. In accordance with SEC and its
staff's guidance on redeemable equity instruments, which has been codified in
ASC 480-10-S99, redemption provisions not solely within the control of the
Company require common stock subject to redemption to be classified outside of
permanent equity.
Immediately upon the closing of the Initial Public Offering, the Company
recognized the accretion from initial book value to redemption amount of the
redeemable Class A Common Stock, which approximates fair value. The change in
the carrying value of Class A Common Stock subject to possible redemption
resulted in charges against additional paid-in capital (to the extent available)
and then against accumulated deficit. Subsequent to the Initial Public Offering
date, the Company accretes dividend and interest income earned in the Trust
Account in excess of income and franchise taxes.
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): Accounting for Convertible Instruments
and Contracts in an Entity's Own Equity. This guidance changes how entities
account for convertible instruments and contracts in an entity's own equity and
simplifies the accounting for convertible instruments by removing certain
separation models for convertible instruments. This guidance also modifies the
guidance on diluted earnings per share calculations. This new guidance is
effective for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2023, but allows for early adoption. The Company
adopted this standard effective January 1, 2022 and the adoption did not have
material impact on the Company's consolidated financial statements.
The Company does not expect any other recently issued standards to have a
material impact on the Company's consolidated financial statements.
JOBS Act
On April 5, 2012, the JOBS Act was signed into law. The JOBS Act contains
provisions that, among other things, relax certain reporting requirements for
qualifying public companies. We will qualify as an "emerging growth company" and
under the JOBS Act will be allowed to comply with new or revised accounting
pronouncements based on the effective date for private (not publicly traded)
companies. We are electing to delay the adoption of new or revised accounting
standards, and as a result, we may not comply with new or revised accounting
standards on the relevant dates on which adoption of such standards is required
for non-emerging growth companies. As a result, our consolidated financial
statements may not be comparable to companies that comply with new or revised
accounting pronouncements as of public company effective dates.
Additionally, we are in the process of evaluating the benefits of relying on the
other reduced reporting requirements provided by the JOBS Act. Subject to
certain conditions set forth in the JOBS Act, if, as an "emerging growth
company", we choose to rely on such exemptions we may not be required to, among
other things, (i) provide an independent registered public accounting firm's
attestation report on our system of internal controls over financial reporting
pursuant to Section 404, (ii) provide all of the compensation disclosure that
may be required of non-emerging growth public companies under the Dodd-Frank
Wall Street Reform and Consumer Protection
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Act, (iii) comply with any requirement that may be adopted by the PCAOB
regarding mandatory audit firm rotation or a supplement to the report of
independent registered public accounting firm providing additional information
about the audit and the consolidated financial statements (auditor discussion
and analysis), and (iv) disclose certain executive compensation related items
such as the correlation between executive compensation and performance and
comparisons of the Chief Executive Officers' compensation to median employee
compensation. These exemptions will apply for a period of five years following
the completion of our IPO or until we are no longer an "emerging growth
company," whichever is earlier.
Related Party Transactions
Founder Shares
In October 2021, the Sponsor paid $25,000, or approximately $0.009 per share, to
cover certain offering costs in consideration for 2,875,000 shares of Class B
common stock, par value $0.0001 (the "Founder Shares"). On May 10, 2022, the
Sponsor surrendered 575,000 Founder Shares, for no consideration, resulting in
the Sponsor and directors continuing to hold 2,300,000 Founder Shares. Up to
300,000 Founder Shares were subject to forfeiture to the extent that the
over-allotment option (see Note 7) was not exercised in full by the underwriter.
As the Underwriters exercised their overallotment option in full at the IPO
date, the forfeiture provisions lapsed for 300,000 Founder Shares.
On October 28, 2021, the Sponsor transferred 25,000 Founder Shares to each of
Kathy Cuocolo, Leela Gray and Stephen Markscheid, the Board of Directors
nominees.
In addition, at the IPO date, the Sponsor sold 60,000 Founder Shares to each
Anchor Investor, or the aggregate of 600,000 Founders Shares to the group of ten
Anchor Investors (see Note 1). The proceeds of $4,860 from the sale were
collected by the Company on behalf of the Sponsor, and are included in Due to
Sponsor - related party on the accompanying consolidated balance sheet as of
December 31, 2022.
Promissory Note - Related Party
The Sponsor had agreed to loan the Company an aggregate of up to $400,000 to
cover expenses related to the Initial Public Offering pursuant to a promissory
note (the "Note"). This loan was non-interest bearing and payable on the earlier
of June 24, 2022 or the consummation of the Initial Public Offering. The
Note totaled $0 and $80,000 as of December 31, 2022 and 2021, respectively. The
Note balance of $354,100 as of the IPO date was repaid on May 16, 2022 from the
proceeds of the Initial Public Offering not placed in the Trust Account.
Working Capital Loans
In order to fund working capital deficiencies and 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, loan the Company funds as may be required ("Working Capital
Loans"). The Company will repay the Working Capital Loans upon the completion of
a Business Combination. In the event that a Business Combination does not close,
the Company may use a portion of proceeds held outside the Trust Account to
repay the Working Capital Loans but no proceeds held in the Trust Account would
be used to repay the Working Capital Loans.
During the year ended December 31, 2022, the Sponsor loaned the Company $157,000
in Working Capital Loans. The Working Capital Loans are to be repaid upon
consummation of a Business Combination, without interest, or, at the lender's
option, up to $1.5 million of the outstanding Working Capital Loans are
convertible into Private Warrants at a price of $1.00 per warrant. As of
December 31, 2022 and 2021, the Company had $157,000 and $0, respectively,
borrowed under the Working Capital Loans from the Sponsor included in
Convertible note - related party in the accompanying consolidated balance
sheets.
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