The following discussion and analysis of our 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
March 2, 2021. The Company was formed for the purpose of entering into a merger,
share exchange, asset acquisition, stock purchase, reorganization or other
similar business transaction with one or more businesses that the Company has
not yet identified. 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
As previously disclosed in the Company's Current Report on Form 8-K, filed on
May 3, 2022, on April 30, 2022, the Company entered into that certain Agreement
and Plan of Merger (as may be amended, supplemented or otherwise modified from
time to time, the "Merger Agreement"), by and among the Company, CH AUTO Inc., a
Cayman Islands exempted company ("Pubco"), Ch-Auto Merger Sub Corp., a Delaware
corporation and wholly owned subsidiary of Pubco ("Merger Sub") and CH-Auto
Technology Corporation Ltd., a company organized under the laws of the People's
Republic of China (the "CH Auto"), pursuant to which, among other things, the
Company, Pubco, Merger Sub and CH Auto intend to effect a merger of Merger Sub
with and into the Company whereby the Company will be the surviving corporation
(the "Surviving Corporation") and a wholly owned subsidiary of Pubco (the
"Merger") in accordance with the Merger Agreement and the General Corporation
Law of the State of Delaware (the "DGCL"). In connection with the Merger, the
name of the Surviving Corporation shall be changed to CH Autotech USA, Inc.
Following the Merger, Pubco expects its ordinary shares to be traded on the
Nasdaq Stock Market. All capitalized terms used herein and not defined shall
have the meanings ascribed to them in the Merger Agreement.
19
Immediately after Pubco's Registration Statement on Form F-4 is declared
effective (the "Effective Date") but no later than five (5) Business Days prior
to the Effective Time, CH Auto shall deliver to Pubco and the Company a schedule
setting forth the names of each stockholder and such stockholder's respective
percentage interest in CH Auto Merger Consideration (the "Equityholder
Allocation Schedule"). Immediately after the delivery of the Equityholder
Allocation Schedule, Pubco shall conduct a reverse stock split (the "Pubco
Reverse Stock Split") of its then issued and outstanding Pubco Class A Ordinary
Shares. At the time the Pubco Reverse Stock Split is completed, each Pubco
Shareholder who holds Pubco Class A Ordinary Shares immediately before the Pubco
Reverse Stock Split (the "Pubco Reorganization Shareholder") shall automatically
receive the corresponding Company Merger Consideration as set forth in the
Equityholder Allocation Schedule, without any change in the par value of
$0.00001 per share, in exchange for all the Pubco Class A Ordinary Shares held
by such Pubco Reorganization Shareholder immediately prior to the Pubco Reverse
Stock Split. The corresponding Company Merger Consideration issued to each Pubco
Reorganization Shareholder shall be equal to the product of (1) the number of
Pubco Class A Ordinary Shares held by such Pubco Reorganization Shareholder
immediately prior to the delivery of the applicable Equityholder Allocation
Schedule multiplied by (2) the Conversion Ratio.
Concurrently with the Pubco Reverse Stock Split, by virtue of the Reorganization
and without any action on the part of the Company, Merger Sub, CH Auto, or their
respective stockholders, Pubco shall issue to each Company stockholder that
participates in the Reorganization or each's designee(s) (the "Company
Reorganization Stockholders," together with the Pubco Reorganization
Shareholders, the "Reorganization Shareholders") the corresponding Company
Merger Consideration as set forth in the Equityholder Allocation Schedule at par
value per share or other value as determined as part of the Reorganization by
the board of directors of Pubco. The corresponding Company Merger Consideration
issued to each Company Reorganization Stockholder shall be equal to the product
of (1) the number of shares of Company Common Stock held by such Company
Reorganization Stockholder on an as-converted and fully-diluted basis
immediately prior to the delivery of the applicable Equityholder Allocation
Schedule multiplied by (2) the Conversion Ratio. The Company Reorganization
Stockholders, other than the founders of CH Auto who shall receive Pubco Class B
Ordinary Shares, shall receive Pubco Class A Ordinary Shares. Company Merger
Consideration means the sum of all Pubco Class A Ordinary Shares and Pubco Class
B Ordinary Shares received by the Reorganization Shareholders.
Immediately after the issuance of CH Auto Merger Consideration, but before the
Closing of the Merger, Pubco's subsidiary, CH-Auto (Hong Kong) Limited ("CH-Auto
HK"), shall acquire all the shares of CH Auto's equity securities (the "Company
Common Stock") held by each Company Reorganization Stockholder at par value or
other value as agreed between CH-Auto HK and the CH Auto Reorganization
Stockholders (the "HK Share Purchase"). Upon the completion of the HK Share
Purchase, CH-Auto HK shall directly own no less than ninety percent (90%) of the
then-issued and outstanding equity interests in CH Auto representing no less
than ninety percent (90%) of the voting rights of all the outstanding equity
interest entitled to vote on matters CH Auto can submit to a vote of its
shareholders.
The Pubco Reverse Stock Split, the HK Share Purchase and the issuance of CH Auto
Merger Consideration to the Reorganization Shareholders as described above are
collectively referred to herein as the "Reorganization." The Reorganization and
the Merger Agreement are collectively referred to herein as the "Business
Combination." The Merger Agreement, as amended, provides, that the outside date
for the closing of the Business Combination iis November 15, 2022 the "Outside
Date"). All capitalized terms used herein and not otherwise defined shall have
the meanings ascribed to them in the Merger Agreement.
Based upon the execution of the Merger Agreement, the period of time for the
Company to complete a business combination under its certificate of
incorporation is extended for a period of 6 months from July 2, 2022 to
January 2, 2023. Any extension beyond January 2, 2023, would require that the
Company stockholders approve an amendment to the Company Amended and Restated
Certificate of Incorporation to extend the period of time in which he Company
may consummate a business combination.
Subsequently, as approved by its stockholders at the special meeting of
Stockholders held on December 15, 2022 (the "Special Meeting"), the Company
entered into an amendment to the Investment Management Trust Agreement, dated as
of June 29, 2021, with Continental Stock Transfer & Trust Company, on
December 15, 2022 (the "Trust Amendment"). Pursuant to the Trust Amendment, the
Company has the right to extend the time for the Company to complete its initial
business combination (the "Business Combination Period") under the Trust
Agreement for a period of 3 months from January 2, 2023 to April 2, 2023, plus
an option for the Company to further extend such date to July 2, 2023 and to be
further extended to the extent the Company's Amended and Restated Certificate of
Incorporation is amended to extend the Business Combination Period. The Company
extended the time it has to complete its initial business combination from
January 2, 2023, to April 2, 2023 by depositing $581,000 into the trust account
on December 16, 2022.
20
In connection with the stockholders' vote at the Special Meeting of Stockholders
held by the Company on December 15, 2022, 2,432,520 shares were tendered for
redemption.
On December 23, 2022, the Company, Pubco, Merger Sub and CH Auto entered into an
Amended and Restated Agreement and Plan of Merger (the "A&R Merger Agreement").
Specifically, the A&R Merger Agreement amended and modified the Merger Agreement
to: (a) provide that all options issued by the Company prior to the Business
Combination shall be included in Company Merger Consideration that will be
issued in connection with the closing of the Business Combination, (b) extend
the date by which Pubco shall secure subscription agreements with investors
relating to a purchase of Pubco Class A Ordinary Shares through a private
placement, in each case on terms consented by the Company, pursuant to which the
aggregate amount of investment is no less than $100,000,000 at the Closing, and
(c) update and conform the terms of the Merger Agreement for the passage of time
and satisfaction of certain conditions to the Closing of the Merger.
As previously disclosed, on April 30, 2022, MCAF entered into that certain
Agreement and Plan of Merger (as may be amended, supplemented or otherwise
modified from time to time, the "Merger Agreement"), by and among MCAF, CH AUTO
Inc., a Cayman Islands exempted company ("CH AUTO" or "Pubco"), Ch-Auto Merger
Sub Corp., a Delaware corporation and wholly owned subsidiary of Pubco ("Merger
Sub") and CH-AUTO TECHNOLOGY CORPORATION LTD., a company organized under the
laws of the People's Republic of China (the "Company"), pursuant to which, among
other things, MCAF, Pubco, Merger Sub and the Company intend to effect a merger
of Merger Sub with and into MCAF whereby MCAF will be the surviving corporation
(the "Surviving Corporation") and a wholly owned subsidiary of Pubco (the
"Merger") in accordance with the Merger Agreement and the General Corporation
Law of the State of Delaware (the "DGCL"). In connection with the Merger, the
name of the Surviving Corporation shall be changed to CH Autotech USA, Inc.
Following the Merger, Pubco expects its ordinary shares to be traded on the
Nasdaq Stock Market. On December 23, 2022, MCAF disclosed that the parties to
the Merger Agreement amended the Merger Agreement by executing an Amended and
Restated Agreement and Plan of Merger, dated December 23, 2022 (the "A&R Merger
Agreement"). All capitalized terms used herein and not defined shall have the
meanings ascribed to them in the A&R Merger Agreement.
On March 1, 2023, MCAF, CH-AUTO, Pubco and Merger Sub entered into an amendment
(the "Amendment") to the A&R Merger Agreement. The Amendment provides that (i)
instead of acquiring at least 90% of the CH AUTO, MCAF would only need to
acquire at least 71.2184% of CH AUTO to consummate the Closing, (ii) immediately
after the Closing, Pubco's board of directors (the "Post-Closing Pubco Board")
will consist of five (5) members, among which one (1) person shall be designated
by Sponsor, four (4) persons shall be designated by CH AUTO and at least two (2)
persons of the Post-Closing Pubco Board shall qualify as independent directors
under the Securities Act and Nasdaq rules, (iii) modified the timing of CH
AUTO's delivery of the Equityholder Allocation Schedule, (iv) simultaneously
with and in exchange for the issuance of the CH AUTO Merger Consideration, but
before the Closing of the Merger, Pubco's subsidiary, CH-Auto (Hong Kong)
Limited ("CH-Auto HK"), or a then-established wholly-owned PRC subsidiary of
CH-Auto HK (together with CH-Auto HK, the "Holding Company", as the context may
require), shall acquire all the shares of CH AUTO's equity securities (the
"Company Common Stock") held by each Company Reorganization Stockholder at par
value or other value as agreed between the Holding Company and the Company
Reorganization Stockholders (the "HK Share Purchase"); provided however, certain
Company Reorganization Stockholders that are the directors, supervisors or
senior executives of the Company (each a "DSO Stockholder" and together, the
"DSO Stockholders") shall each transfer up to 25% of the stocks of CH AUTO held
by him or her due to restrictions under the PRC laws. Each DSO Stockholder shall
further enter into a voting rights proxy agreement (the "Voting Rights Proxy
Agreement") and an economic rights transfer agreement (the "Economic Rights
Transfer Agreement") with the Holding Company (the "HK Voting Rights
Entrustment"), pursuant to which each DSO Stockholder shall transfer and assign
to the Holding Company (i) all of their respective voting rights in connection
with the remaining shares of Company Common Stock held by them (the "DSO's
Remaining Shares") pursuant to the Voting Rights Proxy Agreement and (ii) all of
their economic rights, including the right to receive dividends, in connection
the DSO's Remaining Shares, pursuant to the Economic Rights Transfer Agreement.
The Pubco Ordinary Shares issued to each DSO Shareholder in exchange for such
DSO's Remaining Shares, shall be subject to restrictions on transfer,
conveyance, assignment and further encumbrance until the DSO Shareholder
transfers and conveys the underlying shares of Company Common Stock to the
Holding Company. Upon the completion of the HK Share Purchase, and after giving
effect to the HK Voting Right Entrustment (the "Reorganization Closing"), the
Holding Company shall (1) have the ability to direct, directly or indirectly, at
least 71.2184% of the voting rights of all outstanding equity securities of CH
AUTO entitled to vote, (2) own, directly or indirectly, at least 71.2184% of the
economic rights of all the outstanding equity securities in CH AUTO, and (3)
own, directly or indirectly own at least 37.8426% of the then-issued and
outstanding equity interests in CH AUTO; (v) revised the definitions of Company
Employee Option and Company FA Option, (vi) CH AUTO shall advance MCAF the
aggregate amount of Seven Hundred and Fifty Thousand Dollars ($750,000) in two
payments (the "Loans") to fund the payment of the expenses incurred, in
connection with two (2) extensions of the period of time for MCAF to consummate
a business combination and for working capital for the Company; (vi) in the
event CH AUTO funds the initial payment of the Loan, the Outside Date shall be
extended from May 15, 2023 to July 2, 2023, (viii) revised the timing, steps and
procedure for the Reorganization and (ix) permitted CH AUTO to convert
outstanding debt from a lender in the amount of RMB 39 million into 15.6 million
shares of CH AUTO, at a conversion price of RMB 2.5 per share. The transactions
contemplated by the A&R Agreement and the Amendment are collectively referred to
as the "Business Combination."
21
On March 27, 2023, MCAF extended the time it has to complete its initial
business combination from April 2, 2023 to July 2, 2023 by depositing $343,936
in to MCAF's trust account on March 29, 2023 (the "Extension Payment"). CH Auto
Technology Corporation Ltd. (the "Target") loaned MCAF $350,000 to fund the
Extension Payment. On March 29, 2023, MCAF issued an unsecured promissory note
in the aggregate principal amount of $350,000 (the "Note") to the Target.
Pursuant to the Note, the Target loaned MCAF an aggregate amount of $350,000
that is due and payable on the earlier of: (i) the date on which MCAF
consummates an initial business combination with a target business, or (ii) the
date MCAF liquidates if a business combination is not consummated. The Note does
not bear interest. In the event that MCAF does not consummate a business
combination, the Note will be forgiven, except to the extent of funds remaining
outside of MCAF's trust account, if any. In addition, the Note may be converted
at the closing of a business combination by MCAF into the its common stock or
ordinary shares, at the Target's option, at a price of $10.00 per share of
common stock or ordinary share. The proceeds of the Note have been used by the
Company to make a deposit $343,936 into the trust account to extend the time
period for the Company to consummate its initial business combination from April
2, 2023 to July 2, 2023.
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 Fifty
Nine Thousand Seven Hundred Ten and 08/100 dollars ($59,710.08), 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 $59,710.08 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.
SPAC Support Agreement
Contemporaneously with the execution of the Merger Agreement, the Sponsor and
the directors of the Company entered into a support agreement, dated April 30,
2022 (the "SPAC Support Agreement"), pursuant to which such holders agreed to,
among other things, approve the Merger Agreement and the proposed business
combination. Each such holder also agreed not to transfer any shares of the
Company common stock owned by it unless the transferee executes a joinder
agreement that provides that the transferee will become a party to the SPAC
Support Agreement. The holders have also agreed not to seek redemption rights.
Company Support Agreement
Contemporaneously with the execution of the Merger Agreement, certain holders of
Company common stock entered into a support agreement, dated April 30, 2022 (the
"Company Support Agreement"), pursuant to which such holders agreed to, among
other things, approve the Merger Agreement and the proposed business
combination. The Company Support Agreement also covers any shares of Pubco
common stock or of any successor entity of which ownership of record or the
power to vote, directly or indirectly, is subsequently acquired by the
stockholder prior to the termination of the Company Support Agreement. Each
stockholder that executed the Company Support Agreement also agreed not to
transfer any shares subject to the Company Support Agreement (with a limited
exception in connection with the Reorganization) prior to the termination of the
Company Support Agreement.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date.
Our only activities from March 2, 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 loss of $111,447, which
consists of operating and formation costs of $749,746 and a provision for income
taxes of $136,619, offset by interest income on marketable securities held in
the Trust Account of $774,918.
For the period from March 2, 2021 (inception) through December 31, 2021, we had
a net loss of $290,431, which consists of operating costs of $292,345, offset by
interest income on investments held in the Trust Account of $1,914.
22
Liquidity and Capital Resources
The registration statement for our Initial Public Offering was declared
effective on June 29, 2021. On July 2, 2021, we consummated the Initial Public
Offering of 5,000,000 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 $50,000,000.
On July 6, 2021, in connection with the underwriters' exercise of their
over-allotment option in full, we consummated the sale of an additional 750,000
Units for an aggregate amount of $7,500,000. In connection with the
underwriters' full exercise of their over- allotment option, we also consummated
the sale of an additional 15,000 Private Placement Units at $10.00 per Private
Placement Units, generating total proceeds of $150,000. A total of $7,500,000
was deposited into the Trust Account.
Following the Initial Public Offering, the full exercise of the over-allotment
option, and the sale of the Private Units, a total of $57,500,000 was placed in
the Trust Account.
For the year ended December 31, 2022, cash used in operating activities was
$523,059. Net loss of $111,447 was affected by interest earned on marketable
securities held in the Trust Account of $774,918. Changes in operating assets
and liabilities provided $363,306 of cash for operating activities.
For the period from March 2, 2021 (inception) through December 31, 2021, cash
used in operating activities was $217,798. Net loss of $290,431 was affected by
interest earned on investments held in the Trust Account of $1,914. Changes in
operating assets and liabilities provided $74,547 of cash for operating
activities.
As of December 31, 2022, we had investments held in the Trust Account of $
34,084,917 (including $776,832 of interest income) consisting of mutual funds
which invests in U.S. Treasury securities. Interest income on the balance in the
Trust Account may be used by us to pay taxes. Through December 31, 2022, we have
withdrawn an amount of $247,881 to pay franchise and income taxes on interest
earned from the Trust Account.
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 $195,100. We intend to use the funds
held outside the Trust Account primarily to evaluate target businesses, perform
business due diligence on target businesses, travel to and from the offices,
plants or similar locations of target businesses or their representatives or
owners, review corporate documents and material agreements of target businesses,
and structure, negotiate and complete the Merger.
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. Up to $1,500,000 of the Working Capital Loans may be converted
into private units at a price of $10.00 per unit.
On August 26, 2022, the Company issued the Convertible Promissory Note to the
Sponsor, pursuant to which the Company may borrow up to an aggregate amount of
$100,000. The Convertible Promissory Note is non-interest bearing and payable on
the earlier of (i) the date the Company completes its Business Combination or
(ii) the date the Company liquidates if a Business Combination is not completed.
On the maturity date, the Company shall pay in cash an amount equal to the
outstanding amount, provided that the Sponsor, in its sole discretion, chose to
convert the outstanding amount into Private Placement Units at a conversion
price equal to $10.00 per Unit. The proceeds of the note will be used by the
Company for working capital purposes. As of December 31, 2022 and 2021 there
were $100,000 and no Working Capital Loans outstanding, respectively.
23
On October 24, 2022, the Company issued an unsecured promissory note in the
aggregate principal amount up to $100,000 (the "Note") to the "Sponsor. Pursuant
to the Note, the Sponsor agreed to loan to the Company an aggregate amount up to
$100,000 that may be drawn down from time to time and payable on the earlier of:
(i) the date on which Company consummates an initial business combination with a
target business, or (ii) the date the Company liquidates if a business
combination is not consummated. The Note does not bear interest. In the event
that the Company does not consummate a business combination, the Note will be
repaid only from amounts remaining outside of the Company's trust account, if
any. In addition, at the written election of the Sponsor the principal amount
due under the Note may be converted at the closing of a business combination
into private units of the Company identical to the public units issued in the
Company's initial public offering at a price of $10.00 per unit. No amounts have
been drawn on this promissory note as of December 31, 2022.
On December 21, 2022, the Company issued an unsecured promissory note in the
aggregate principal amount up to $581,000 (the "Note") to the Target. The
Promissory Note is non-interest bearing and payable on the earlier the date on
which Maker consummates a business combination with target businesses, or (ii)
the date the Maker liquidates if a business combination is not consummated (the
"Due Date"). The principal balance may be prepaid at any time. The principal
balance shall be payable by the Maker either: (i) in cash, or (ii) in shares of
Maker's common stock (the "Conversion Shares"), par value $0.0001, at the
Payee's election in writing. Payee may elect to convert any outstanding
principal balance into Conversion Shares, at any time when this Note remains
outstanding, at a fixed conversion price of $10.00 per share. No amounts have
been drawn on this promissory note as of December 31, 2022.
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.
Going Concern
We have until July 2, 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
liquidation and subsequent dissolution. Management has determined that the
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 July 2, 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 obligations, capital lease obligations,
operating lease obligations, purchase obligations or other long-term
liabilities, other than an agreement to pay an affiliate of the Sponsor a
monthly fee of $10,000 for office space, utilities and secretarial and
administrative support. We began incurring these fees on July 2 2021, and will
continue to incur these fees monthly until the earlier of the completion of our
initial Business Combination and our liquidation.
The underwriters are entitled to a deferred fee of $0.35 per Unit, $2,012,500.
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. Of the $0.35
per Unit, $0.30 will be paid in cash and $0.05 will be paid in an equivalent
value of shares.
24
The Company engaged BHTIC to act as its M&A Advisor to conduct local due
diligence for the Company on CH AUTO by entering into the M&A Advisory Agreement
on April 3, 2022. Pursuant to the M&A Advisory Agreement, the Company shall make
a payment to BHTIC of an aggregate M&A Fee equivalent to 1% of the post-money
post-PIPE equity value of CH AUTO in shares of the post-transaction combined
company to be issued upon closing of the Transaction at $10 per share.
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' deficit. 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' deficit 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 loss per non-redeemable 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% and 68% for the
Public Shares and 24% and 32% for the non-redeemable shares for the year ended
December 31, 2022 and for the period from March 2, 2021 (inception) through
December 31, 2021, respectively, 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.
Offering Costs
Offering costs consisted of legal, accounting and other expenses incurred
through the Initial Public Offering that were directly related to the Initial
Public Offering. Offering costs were 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
common stock issued were initially charged to temporary equity and then accreted
to common stock subject to redemption upon the completion of the Initial Public
Offering. Offering costs amounted to $4,773,824 consisting of $1,150,000 of
underwriting fees, $2,012,500 of deferred underwriting fees and $1,611,324 of
other offering costs. $4,368,049 was allocated to Public Shares and charged to
temporary equity, and $405,775 was allocated to public rights and charged to
stockholders' deficit.
25
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 December 15, 2023 and should be applied on a full or
modified retrospective basis, with early adoption permitted beginning on
January 1, 2021. 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 financial statements.
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