The following discussion and analysis of the Company's financial condition and
results of operations should be read in conjunction with our audited financial
statements and the notes related thereto which are included in "Item 8.
Financial Statements and Supplementary Data" of this Annual Report on Form 10-K.
Certain information contained in the discussion and analysis set forth below
includes forward-looking statements. Our actual results may differ materially
from those anticipated in these forward-looking statements as a result of many
factors, including those set forth under "Special Note Regarding Forward-Looking
Statements," "Item 1A. Risk Factors" and elsewhere in this Annual Report on
Form 10-K.
Overview
We are a blank check company incorporated in the Cayman Islands on May 5, 2021
formed for the purpose of effecting a merger, share exchange, asset acquisition,
share purchase, reorganization or similar Business Combination with one or more
businesses. We intend to effectuate our Business Combination using cash derived
from the proceeds of the Initial Public Offering and the sale of the Private
Units, our shares, debt or a combination of cash, shares and debt.
We expect 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
We have neither engaged in any operations nor generated any operating revenues
to date. Our only activities from 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 after the Initial Public Offering. We do not expect to generate any
operating revenues until after the completion of our initial Business
Combination. We expect to generate non-operating income in the form of interest
income on marketable securities held after the Initial Public Offering. We
expect that we will incur increased expenses as a result of being a public
company (for legal, financial reporting, accounting and auditing compliance), as
well as for due diligence expenses in connection with searching for, and
completing, a Business Combination.
For the year ended December 31, 2022, we had net income of $1,274,669, which
consisted of interest income on marketable securities held in the Trust Account
of $1,295,815 and unrealized gain on marketable securities held in Trust Account
of $377,666, offset by expenses of $398,812.
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Liquidity and Capital Resources
On April 5, 2022, we consummated the Initial Public Offering of 11,500,000
Units, generating gross proceeds of $115,000,000. Simultaneously with the
closing of the Initial Public Offering, we consummated the sale of 330,000
Private Units to the Sponsor at a price of $10.00 per Private Unit generating
gross proceeds of $3,300,000.
Following the Initial Public Offering and the sale of the Private Units, a total
of $115,000,000 was placed in the Trust Account. We incurred $5,704,741 in
transaction costs, including $2,300,000 of underwriting fees, $2,875,000 of
deferred underwriting fees and $529,741 of other offering costs.
For the year ended December 31, 2022, net cash used in operating activities was
$87,585. Net income of $1,274,669 was mainly impacted by interest earned on
marketable securities held in trust account of $1,295,815 and unrealized gain on
marketable securities held in trust account of $377,666.
At December 31, 2022, we had investments held in the Trust Account of
$116,673,481. We intend to use substantially all of the funds held in the Trust
Account, including any amounts representing interest earned on the Trust
Account, excluding deferred underwriting commissions, to complete our Business
Combination. We may withdraw interest from the Trust Account to pay taxes, if
any. To the extent that our share capital or debt is used, in whole or in part,
as consideration to complete a 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.
At December 31, 2022, we had cash of $178,652 held outside of the Trust Account.
We intend to use the funds held outside the Trust Account primarily to identify
and evaluate target businesses, perform business due diligence on prospective
target businesses, travel to and from the offices, plants or similar locations
of prospective target businesses or their representatives or owners, review
corporate documents and material agreements of prospective target businesses,
and structure, negotiate and complete a Business Combination.
In order to fund working capital deficiencies or finance transaction costs in
connection with a Business Combination, our Sponsor or an affiliate of our
Sponsor or certain of our officers and directors may, but are not obligated to,
loan us funds as may be required. Such Working Capital Loans would be evidenced
by promissory notes. If we complete a Business Combination, we may repay such
notes out of the proceeds of the Trust Account released to us. 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 notes, but no proceeds from
our Trust Account would be used for such repayment. Up to $1,500,000 of notes
may be convertible into units, at a price of $10.00 per unit, at the option of
the lender. The units would be identical to the Private Units.
In order to complete a Business Combination, the Company will need to raise
additional capital through loans or additional investments from its Sponsor,
shareholders, officers, directors, or third parties. The Company's officers,
directors and 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
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 if a Business Combination is not
consummated.
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.
44
Contractual Obligations
We do not have any long-term debt, capital lease obligations, operating lease
obligations or long-term liabilities, other than an agreement to pay the Sponsor
a monthly fee of $10,000 for certain general and administrative services,
including office space, utilities and administrative services, provided to the
Company. We began incurring these fees on April 5, 2022 and will continue to
incur these fees monthly until the earlier of the completion of a Business
Combination or the Company's liquidation.
The underwriters are entitled to a deferred fee of two and one-half percent
(2.5%) of the gross proceeds of the Initial Public Offering, or $2,500,000. The
deferred fee will be paid in cash upon the closing of a Business Combination
from the amounts held in the Trust Account, subject to the terms of the
underwriting agreement.
On January 3, 2023, the Company issued a promissory note (the "Note") in the
principal amount of up to $1,000,000 to M-Star Management Corp. Pursuant to
which the Sponsor shall loan to the Company up to $1,000,000 to pay the
extension fee and transaction cost. On January 4, 2023, the Company requested to
draw the funds of $383,333 and deposited it into the trust account to extend the
period of time the Company has to consummate a business combination by one month
to February 5, 2023. The $383,333 extension fee represents approximately $0.033
per public share. The Notes bear no interest and are repayable in full upon the
earlier of (a) December 31, 2023 or (b) the date of the consummation of the
Company's initial business combination. The issuance of the Note was made
pursuant to the exemption from registration contained in Section 4(a)(2) of the
Securities Act of 1933, as amended.
In connection the shareholders meeting to vote for the proposal to amend the
Company's amended and restated memorandum and articles of association, the
public shares are entitled to exercise the redemption right and 5,885,324 public
shares tendered for redemption. As a result of the exercise of the redemption
right, 5,614,676 public shares remain unredeemed. Pursuant to the terms of our
memorandum and articles of association and the trust agreement entered into
between us and Wilmington Trust, National Association and Vstock Transfer LLC in
connection with our IPO, in order for the time available for us to consummate
our initial business combination to be extended, our sponsor or its affiliates
or designees, upon five days advance notice prior to the applicable deadline,
must deposit into the trust account $187,188 ($0.033 per public share) on or
prior to the date of the applicable deadline, for each monthly extension
starting from February 2023.
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:
Warrants
The Company accounts for warrants as either equity-classified or
liability-classified instruments based on an assessment of the warrant's
specific terms and applicable authoritative guidance in Financial Accounting
Standards Board ("FASB") Accounting Standards Codification ("ASC") 480,
Distinguishing Liabilities from Equity ("ASC 480") and ASC 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 whether the warrants meet all of the
requirements for equity classification under ASC 815, including whether the
warrants are indexed to the Company's own ordinary shares and whether the
warrant holders could potentially require "net cash settlement" in a
circumstance outside of the Company's control, among other conditions for equity
classification. This assessment, which requires the use of professional
judgment, is conducted at the time of warrant issuance and as of each subsequent
quarterly period end date while the warrants are outstanding.
For issued or modified warrants that meet all of the criteria for equity
classification, the warrants are required to be recorded as a component of
equity at the time of issuance. For issued or modified warrants that do not meet
all the criteria for equity classification, the warrants are required to be
recorded as liabilities at their initial fair value on the date of issuance, and
each balance sheet date thereafter. Changes in the estimated fair value of the
warrants are recognized as a non-cash gain or loss on the statements of
operations.
45
Ordinary Shares Subject to Redemption
We account for our ordinary shares subject to possible conversion in accordance
with the guidance in ASC Topic 480 "Distinguishing Liabilities from Equity."
Ordinary shares subject to mandatory redemption are classified as a liability
instrument and are measured at fair value. Conditionally redeemable ordinary
shares (including ordinary shares that feature 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) are classified as temporary
equity. At all other times, ordinary shares are classified as shareholders'
equity. Our ordinary shares feature certain redemption rights that are
considered to be outside of our control and subject to occurrence of uncertain
future events. Accordingly, ordinary shares subject to possible redemption are
presented at redemption value as commitments and contingencies, outside of the
shareholders' equity section of our balance sheets.
The Company recognizes changes in redemption value immediately as they occur and
adjusts the carrying value of redeemable ordinary shares to equal the redemption
value at the end of each reporting period. Increases or decreases in the
carrying amount of redeemable ordinary shares are affected by charges against
additional paid-in capital and accumulated deficit if additional paid in capital
equals to zero.
Net Loss Per Ordinary Share
Our statement of operations includes a presentation of income (loss) per share
for ordinary shares subject to possible redemption in a manner similar to the
two-class method of income (loss) per share. In order to determine the net
income (loss) attributable to both the redeemable shares and non-redeemable
shares, the Company first considered the undistributed income (loss) allocable
to both the redeemable shares and non-redeemable shares and the undistributed
income (loss) is calculated using the total net loss less any dividends paid.
The Company then allocated the undistributed income (loss) ratably based on the
weighted average number of shares outstanding between the redeemable and
non-redeemable shares. Any remeasurement of the accretion to redemption value of
the ordinary shares subject to possible redemption was considered to be
dividends paid to the public shareholders.
Offering Costs Associated with the Initial Public Offering
Offering costs consist of underwriting, legal, accounting, registration and
other expenses incurred through the balance sheet date that are directly related
to the IPO. As of December 31, 2022, offering costs amounted to $5,704,741
consisting of $2,300,000 of underwriting fees, $2,875,000 of deferred
underwriting fees, and $494,696 of other offering costs. The Company complies
with the requirements of ASC 340-10-S99-1 and SEC Staff Accounting Bulletin
Topic 5A "Expenses of Offering". The Company allocates offering costs between
public shares, public rights and public warrants based on the estimated fair
values of public shares, public warrants, and public rights at the date of
issuance.
Recent Accounting Standard
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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METAL SKY STAR ACQUISITION CORPORATION 
