References to the "Company," "our," "us" or "we" refer to Monterey Capital
Acquisition Corporation. The following discussion and analysis of the Company's
financial condition and results of operations should be read in conjunction with
the unaudited condensed 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 Quarterly Report on Form 10-Q 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 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-Q. 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.
Risks and uncertainties
We continue to evaluate the impact of the COVID-19 pandemic and have concluded
that while it is reasonably possible that the virus could have a negative effect
on the Company's financial position, results of its operations and/or search for
a target company, the specific impact is not readily determinable as of the date
of these financial statements. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Recent increases in inflation and interest rates in the United States and
elsewhere may lead to increased price volatility for publicly traded securities,
including ours, and may lead to other national, regional and international
economic disruptions, any of which could make it more difficult for us to
consummate an initial business combination.
Military conflict in Ukraine or elsewhere may lead to increased and price
volatility for publicly traded securities, including ours, and to other
national, regional and international economic disruptions and economic
uncertainty, any of which could make it more difficult for us to identify a
business combination target and consummate an initial business combination on
acceptable commercial terms or at all.
Overview
We are a blank check company incorporated in Delaware on September 23, 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 (the "Business Combination"). 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 our Initial Public Offering of
9,200,000 units (the "Units" and, with respect to the Class A common stock
included in the Units, the "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 Representative Shares, approximately
$2.5 million representing the fair value of the Transferred Founder Shares
(defined below), and approximately $1.0 million of other offering costs.
20
Table of Contents
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 5), payment of accrued offering costs and for working capital
purposes. Each Unit consists of one share of Common Stock, one redeemable
warrant ("Public Warrant"), 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 Common Stock, 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 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 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.
Liquidity and Capital Resources
At June 30, 2022, we had cash of $217,842 and working capital deficit of
$205,187, excluding the income and franchise tax liabilities. On May 13, 2022,
the Company closed its Initial Public Offering of 9,200,000 Units at $10.00 per
Unit, generating gross proceeds of $92 million. Simultaneously with the closing
of the Initial Public Offering, the Company consummated the Private Placement of
3,040,000 Private Placement Warrants at a purchase price of $1.00 per Private
Placement Warrant, generating gross proceeds of $3,040,000.
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 will 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"). To date, there are no
amounts outstanding under any Working Capital Loan.
As of June 30, 2022, the Company had $217,842 in cash. At the IPO date, cash of
$923,563 was held outside of the Trust Account and was available for the payment
of the Note (see Note 5), payment of accrued offering costs and for working
capital purposes. These IPO proceeds held outside of the Trust Account upon the
closing of the Initial Public Offering may not be sufficient to allow the
Company to operate for at least the next 12 months from the issuance of the
financial statements, assuming that a Business Combination is not consummated
during that time. The Company may need to raise additional capital through loans
or additional investments from its Sponsor, stockholders, officers, directors,
or third parties. The Company's officers, directors and the Sponsor 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, the Company 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
21
Table of Contents
transaction, and reducing overhead expenses. The Company cannot provide any
assurance that new financing will be available to it on commercially acceptable
terms, if at all.
These conditions raise substantial doubt about the Company's ability to continue
as a going concern, assuming a Business Combination is not consummated. These
financial statements do not include any adjustments relating to 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.
The Company believes that the proceeds raised in the Initial Public Offering and
the funds potentially available from loans from the Sponsor or any of their
affiliates will be sufficient to allow the Company to meet the expenditures
required for operating its business. However, if the 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, the Company may have insufficient funds available to operate its business
prior to the initial Business Combination. Moreover, the Company may need to
obtain additional financing either to complete the Business Combination or
because the Company becomes obligated to redeem a significant number of public
shares upon completion of the Business Combination, in which case the Company
may issue additional securities or incur debt in connection with such Business
Combination.
Results of Operations
Our entire activity since inception 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 three and six months ended June 30, 2022, we had net loss of $461,079
and $488,100, respectively, which consisted primarily of general and
administrative expenses and approximately $30,000 of current tax expense.
Commitments and Contractual Obligations
Registration Rights
The holders of Founder Shares (as defined below), Private Placement Warrants and
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.
Underwriting Agreement
The underwriter was entitled to an underwriting discount of $0.10 per Unit, or
$920,000 in the aggregate (reflecting the full exercise by the underwriter of
its over-allotment option), paid at the closing of the Initial Public Offering.
$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 will pay the Sponsor a total of $10,000 per
month, for up to 12 months, for office space, secretarial and administrative
services. Upon completion of the initial Business Combination or the Company's
liquidation, the Company will cease paying these monthly fees.
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 condensed financial statements, and income and
expenses during the periods reported. Actual results could materially differ
from those estimates. We have not identified any critical accounting policies.
22
Table of Contents
Net Loss Per Common Stock
The Company complies with accounting and disclosure requirements of ASC Topic
260, "Earnings Per Share." Net loss per share is computed by dividing net loss
by the weighted average number of Common Stock outstanding during the period.
Share-Based Payment Arrangements
The Company accounts for stock awards in accordance with ASC Topic 718,
"Compensation - Stock Compensation," 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.
Derivative Financial Instruments
The Company issues warrants to its investors and accounts for warrant
instruments as either equity-classified or liability-classified instruments
based on an assessment of the specific terms of the warrants and applicable
authoritative guidance in ASC 480 and ASC Topic 815, "Derivatives and Hedging"
("ASC 815"). The assessment considers whether the warrants 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 warrants are indexed to the Company's own
stock and whether the holders of the warrants could potentially require "net
cash settlement" in a circumstance outside of the Company's control, among other
conditions for equity classification.
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 unaudited condensed financial statements. The
Company does not expect any other recently issued standards to have a material
impact on the Company's financial statements.
JOBS Act
The Jumpstart Our Business Startups Act of 2012 (the "JOBS Act") contains
provisions that, among other things, relax certain reporting requirements for
qualifying public companies. We qualify as an "emerging growth company" and
under the JOBS Act are 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, the 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 auditor'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
Act, (iii) comply with any requirement that may be adopted by the PCAOB
regarding mandatory audit firm rotation or a supplement to the auditor's report
providing additional information about the audit and the financial statements
(auditor discussion and analysis) and (iv) disclose certain
23
Table of Contents
executive compensation related items such as the correlation between executive
compensation and performance and comparisons of the CEO's compensation to median
employee compensation. These exemptions will apply for a period of five years
following the completion of our Initial Public Offering or until we are no
longer an "emerging growth company," whichever is earlier.
© Edgar Online, source Glimpses