References in this Quarterly Report on Form 10-Q (this "Quarterly Report") to
"we," "us" or the "Company" refer to Monterey Bio Acquisition Corporation.
References to our "management" or our "management team" refer to our officers
and directors. References to "Chardan Monterey" refer to our co-sponsor, Chardan
Monterey Investments LLC, an affiliate of Chardan Capital Markets LLC
("Chardan"), the representative of the underwriters in the initial public
offering. References to "NorthStar" refer to our co-sponsor, NorthStar Bio
Ventures, LLC. The following discussion and analysis of the Company's financial
condition and results of operations should be read in conjunction with the
financial statements and the notes thereto contained elsewhere in this Quarterly
Report. Certain information contained in the discussion and analysis set forth
below includes forward-looking statements that involve risks and uncertainties.
Special Note Regarding Forward-Looking Statements
This Quarterly Report includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), that are not historical facts and involve risks and
uncertainties that could cause actual results to differ materially from those
expected and projected. All statements, other than statements of historical fact
included in this Quarterly Report including, without limitation, statements in
this "Management's Discussion and Analysis of Financial Condition and Results of
Operations" regarding our financial position, business strategy and the plans
and objectives of management for future operations, are forward-looking
statements. Words such as "expect," "believe," "anticipate," "intend,"
"estimate," "seek" and variations and similar words and expressions are intended
to identify such forward-looking statements. Such forward-looking statements
relate to future events or future performance, but reflect management's current
beliefs, based on information currently available. A number of factors could
cause actual events, performance or results to differ materially from the
events, performance and results discussed in the forward-looking statements. For
information identifying important factors that could cause actual results to
differ materially from those anticipated in the forward-looking statements,
please refer to the Risk Factors section of our Annual Report on Form 10-K filed
with the U.S. Securities and Exchange Commission (the "SEC") on March 29, 2022.
Our securities filings can be accessed on the EDGAR section of the SEC's website
at www.sec.gov. Except as expressly required by applicable securities law, we
disclaim any intention or obligation to update or revise any forward-looking
statements whether as a result of new information, future events or otherwise.
Overview
We are a blank check company incorporated on July 23, 2020 as a Delaware
corporation and formed for the purpose of entering into a merger, share
exchange, asset acquisition, stock purchase, recapitalization, reorganization or
similar business combination with one or more businesses or entities. We intend
to effectuate our initial business combination using cash from the proceeds of
the initial public offering and the sale of the private warrants, our capital
stock, debt or a combination of cash, stock and debt.
We expect to continue to incur significant costs in the pursuit of our
acquisition plans. We cannot assure you that our plans to complete a business
combination will be successful.
Results of Operations
Our only activities from July 23, 2020 (inception) through March 31, 2022 were
organizational activities, those necessary to consummate the initial public
offering, described below, and identifying a target company for a business
combination. We do not expect to generate any operating revenues until after the
completion of our business combination. We generate non-operating income in the
form of interest income on marketable securities held in the trust account. We
are incurring expenses as a result of being a public company (for legal,
financial reporting, accounting and auditing compliance), as well as for due
diligence expenses.
For the three months ended March 31, 2022, we had net loss of $357,398, which
consisted of operating costs of $369,094, offset by interest income on
marketable securities held in the trust account of $11,696.
There was no activity for the three months ended March 31, 2021.
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Liquidity and Capital Resources
On October 5, 2021, we consummated the initial public offering of 10,000,000
units, at $10.00 per unit, generating total gross proceeds of $100,000,000.
Simultaneously with the closing of the initial public offering, we consummated
the sale of 5,000,000 private warrants at a price of $1.00 per private warrant
in private placements to Chardan Monterey and NorthStar, generating gross
proceeds of $5,000,000.
On October 6, 2021, in connection with the underwriter's exercise of their
over-allotment option in full, we consummated the sale of an additional
1,500,000 units, at $10.00 per unit, and the sale of an additional 450,000
private warrants, at $1.00 per private warrant, generating total gross proceeds
of $15,450,000.
Following the initial public offering, the full exercise of the over-allotment
option, and the sale of private warrants, a total of $116,150,000 was placed in
the trust account. We incurred transaction costs of $2,822,084, consisting of
$2,300,000 of underwriting fees, and $522,084 of other offering costs.
For the three months ended March 31, 2022, cash used in operating activities was
$326,920. Net loss of $357,398 was affected by interest earned on marketable
securities held in the trust account of $11,696. Changes in operating assets and
liabilities provided $42,174 of cash for operating activities.
There was no cash used in or provided by operating activities for the three
months ended March 31, 2021.
As of March 31, 2022, we had marketable securities held in the trust account of
$116,164,067 (including approximately $14,067 of interest income) consisting of
securities held in a money market fund that invests in U.S Treasury securities
with a maturity of 185 days or less. Interest income on the balance in the trust
account may be used by us to pay taxes. Through March 31, 2022, we did not
withdraw any interest earned on the trust account to pay our taxes. We intend to
use substantially all of the funds held in the trust account, including any
amount representing interest earned on the trust account (less income taxes
payable), to complete our business combination. To the extent that our capital
stock is used in whole or in part as consideration to effect a business
combination, the remaining funds held in the trust account will be used as
working capital to finance the operations of the target business. Such working
capital funds could be used in a variety of ways including continuing or
expanding the target business' operations, for strategic acquisitions and for
marketing, research and development of existing or new products. Such funds
could also be used to repay any operating expenses or finders' fees which we had
incurred prior to the completion of our business combination if the funds
available to us outside of the trust account were insufficient to cover such
expenses.
As of March 31, 2022, we had cash of $173,594. We intend to use the funds held
outside the trust account for identifying and evaluating prospective acquisition
candidates, performing business due diligence on prospective target businesses,
traveling to and from the offices, plants or similar locations of prospective
target businesses, reviewing corporate documents and material agreements of
prospective target businesses, selecting the target business to acquire and
structuring, negotiating and consummating the business combination.
In order to fund working capital deficiencies or finance transaction costs in
connection with a business combination, the insiders, or certain of our officers
and directors or their affiliates may, but are not obligated to, loan us funds
as may be required. If we complete our initial business combination, we would
repay such loaned amounts. In the event that our initial business combination
does not close, we may use a portion of the working capital held outside the
trust account to repay such loaned amounts but no proceeds from our trust
account would be used for such repayment. Up to $1,500,000 of such loans may be
convertible into private warrants at a price of $1.00 per private warrant at the
option of the lender. The private warrants would be identical to the public
warrants issued in the initial public offering.
In March 2022, the sponsor committed to provide us up to $500,000 in working
capital loans as described in Note 5. As of March 31, 2022, there have been no
amounts advanced to us under the working capital loans. We may raise additional
capital through loans or additional investments from the Sponsor or its
stockholders, officers, directors, or third parties.
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We monitor the adequacy of our working capital in order to meet the expenditures
required for operating our business prior to our initial business combination.
However, if our estimates of the costs of identifying a target business,
undertaking in-depth due diligence and negotiating an initial business
combination are less than the actual amount necessary to do so, we may have
insufficient funds available to operate our business prior to our business
combination. Moreover, we may need to obtain additional financing either to
complete our business combination or because we become obligated to redeem a
significant number of our public shares upon completion of our business
combination, in which case we may issue additional securities or incur debt in
connection with such business combination. If we are unable to complete our
initial business combination because we do not have sufficient funds available
to us, we will be forced to cease operations and liquidate the trust account.
Going Concern
In connection with the Company's assessment of going concern considerations in
accordance with Financial Accounting Standard Board's Accounting Standards
Codification Subtopic 205-40, "Presentation of Financial Statements - Going
Concern," the Company has until October 5, 2022 to consummate a Business
Combination. The Company has the option to extend the date for mandatory
liquidation if the Sponsors or it affiliates deposit into the trust account
$1,150,000 for each 3 month extension up to July 5, 2023. The Company intends to
complete a Business Combination before the mandatory liquidation date or its
extended liquidation date if applicable. It is uncertain that the Company will
be able to consummate a Business Combination by this time. If a Business
Combination is not consummated by this date and an extension not requested by
the Sponsor, there will be a mandatory liquidation and subsequent dissolution of
the Company. Management has determined that the mandatory liquidation, should a
Business Combination not occur and an extension is not requested by the Sponsor,
and potential subsequent dissolution raises substantial doubt about the
Company's ability to continue as a going concern. No adjustments have been made
to the carrying amounts of assets or liabilities should the Company be required
to liquidate after October 5, 2022.
Off-Balance Sheet Arrangements
We have no obligations, assets or liabilities, which would be considered
off-balance sheet arrangements as of March 31, 2022.
Contractual Obligations
We do not have any long-term debt obligations, capital lease obligations,
operating lease obligations, purchase obligations or other long-term
liabilities, other than an agreement to pay NorthStar a monthly fee of $10,000
for general and administrative services, including office space, utilities and
secretarial support. However, pursuant to the terms of such agreement, we may
delay payment of such monthly fee upon a determination by our audit committee
that we lack sufficient funds held outside the trust to pay actual or
anticipated expenses in connection with our initial business combination. Any
such unpaid amount will accrue without interest and be due and payable no later
than the date of the consummation of our initial business combination. We began
incurring these fees on September 30, 2021 and will continue to incur these fees
monthly until the earlier of the completion of our initial business combination
and our liquidation.
Critical Accounting Policies
The preparation of condensed financial statements and related disclosures in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and income and expenses
during the periods reported. Actual results could materially differ from those
estimates. We have identified the following critical accounting policies:
Use of Estimates
The preparation of the condensed financial statements in conformity with GAAP
requires the Company's management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amounts of expenses during the reporting period.
Making estimates requires management to exercise significant judgment. It is at
least reasonably possible that the estimate of the effect of a condition,
situation or set of circumstances that existed at the date of the financial
statements, which management considered in formulating its estimate, could
change in the near term due to one or more future confirming events.
Accordingly, the actual results could differ significantly from those estimates.
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Common Stock Subject to Possible Redemption
We account for our common stock subject to possible conversion in accordance
with the guidance in Accounting Standards Codification ("ASC") Topic 480
"Distinguishing Liabilities from Equity." Common stock subject to mandatory
redemption is classified as a liability instrument and measured at fair value.
Conditionally redeemable common stock (including common stock that features
redemption rights that are either within the control of the holder or subject to
redemption upon the occurrence of uncertain events not solely within our
control) is classified as temporary equity. At all other times, common stock is
classified as stockholders' equity. Our common stock features certain redemption
rights that are considered to be outside of our control and subject to
occurrence of uncertain future events. Accordingly, common stock subject to
possible redemption is presented at redemption value as temporary equity,
outside of the stockholders' equity section of our balance sheets.
Net Loss Per Common Stock
Net income (loss) per common stock is computed by dividing net income (loss) by
the weighted average number of common stock outstanding for the period.
Accretion associated with the redeemable shares of common stock is excluded from
earnings per share as the redemption value approximates fair value.
Recent Accounting Standards
In August 2020, the Financial Accounting Standards Board ("FASB") issued
Accounting Standards Update ("ASU") No. 2020-06, "Debt-Debt with Conversion and
Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in
Entity's Own Equity (Subtopic 815-40): Accounting for Convertible Instruments
and Contracts in an Entity's Own Equity" ("ASU 2020-06"), which simplifies
accounting for convertible instruments by removing major separation models
required under current GAAP. ASU 2020-06 removes certain settlement conditions
that are required for equity contracts to qualify for the derivative scope
exception, and it also simplifies the diluted earnings per share calculation in
certain areas. ASU 2020-06 is effective for the Company for fiscal years
beginning after December 15, 2023, including interim periods within those fiscal
years, with early adoption permitted. The Company is currently assessing the
impact, if any, that ASU 2020-06 would have on its financial position, results
of operations or cash flows.
Management does not believe that any other recently issued, but not yet
effective, accounting standards, if currently adopted, would have a material
effect on our condensed financial statements.
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