ConnectM Technology Solutions, Inc 10-Q for FY2022 Q3
ConnectM Technology Solutions, Inc. (CNTM)
About this 10-Q
ConnectM Technology Solutions, Inc filed this 10-Q on November 21, 2022, covering the quarter ended September 30, 2022 (FY2022 Q3).
Headline figures
Quarter ended September 30, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Net loss
- $180.72K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For the quarterly period ended
OR
For the transition period from to
(Exact name of registrant as specified in its charter)
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(State or other jurisdiction of incorporation or organization) |
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Registrant’s telephone number, including area code: (
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class: |
| Trading Symbol: |
| Name of Each Exchange on Which Registered: |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | ☐ | Accelerated filer | ☐ |
☒ | Smaller reporting company | ||
Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of November 14, 2022,
MONTEREY CAPITAL ACQUISITION CORPORATION QUARTERLY REPORT ON FORM 10-Q
Table of Contents
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Management’s Discussion and Analysis of Financial Condition and Results of Operations | 20 | |
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Unregistered Sales of Equity Securities and Use of Proceeds from Registered Securities | 26 | |
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PART I. FINANCIAL INFORMATION
Item 1. Condensed Financial Statements
MONTEREY CAPITAL ACQUISITION CORPORATION
CONDENSED BALANCE SHEETS
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| September 30, |
| December 31, | ||
| | 2022 | | 2021 | ||
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| (Unaudited) | | | | |
Assets | | | | | | |
Current assets | | | | | | |
Cash | | $ | | | $ | |
Deferred offering costs | |
| — | |
| |
Prepaid expenses | | | | | | — |
Total current assets | | | | | | |
Other assets | | | | | | |
Marketable securities held in Trust Account | | | | | | — |
Total Assets | | $ | | | $ | |
| | | | | | |
Liabilities and Stockholders’ Equity (Deficit) | |
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| |
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Current liabilities: | |
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| |
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Accrued offering costs | | $ | | | $ | |
Accrued expenses | |
| | |
| |
Promissory note – related party | |
| — | |
| |
Convertible note – related party | | | | | | — |
Due to Sponsor – related party | | | | | | — |
Income taxes payable | | | | | | — |
Total current liabilities | |
| | |
| |
Deferred underwriting fee payable | | | | | | — |
Total liabilities | | | | | | |
| | | | | | |
Commitments and Contingencies (Note 7) | |
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| |
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Class A common stock, $ | | | | | | — |
| | | | | | |
Stockholders’ Equity (Deficit): | |
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Preferred stock, $ | |
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Class A common stock, $ | |
| | |
| — |
Class B common stock; $ | |
| | |
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Additional paid-in-capital | |
| — | |
| |
Accumulated deficit | |
| ( | |
| ( |
Total stockholders’ (deficit) equity | |
| ( | |
| |
Total Liabilities and Stockholders’ Equity (Deficit) | | $ | | | $ | |
The accompanying notes are an integral part of these condensed financial statements.
2
MONTEREY CAPITAL ACQUISITION CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
| | For the three | | For the nine | | For the period from September | |||
| | months ended | | months ended | | 23, 2021 (inception) through | |||
| | September 30, | | September 30, | | September 30, | |||
|
| 2022 |
| 2022 | | 2021 | |||
General and administrative expenses | | $ | | | $ | | | $ | |
Loss from operations | | | ( | | | ( | | | ( |
Other income: | | | | | | | | | |
Dividend and interest income | | | | | | | | | — |
Other income | | | | | | | | | |
Loss before income taxes | | | ( | | | ( | | | ( |
Income tax provision | | | ( | | | ( | | | — |
Net loss | | $ | ( | | $ | ( | | $ | ( |
| | | | | | | | | |
Weighted average shares outstanding of Class A common stock subject to possible redemption | | | | | | | | | — |
| | | | | | | | | |
Basic and diluted net loss per share, Class A subject to possible redemption (see Note 2) | | ( | | ( | | $ | — | ||
| | | | | | | | | |
Weighted average shares outstanding of Class A common stock | | | | | | | | | — |
| | | | | | | | | |
Basic and diluted net loss per share, Class A (see Note 2) | | ( | | ( | | $ | — | ||
| | | | | | | | | |
Weighted average shares outstanding of Class B common stock | |
| | |
| | |
| — |
| | | | | | | | | |
Basic and diluted net loss per share, Class B (see Note 2) | | ( | | ( | | $ | — | ||
The accompanying notes are an integral part of these condensed financial statements.
3
MONTEREY CAPITAL ACQUISITION CORPORATION
Condensed Statements of Stockholders’ Equity (Deficit)
For the three and nine months ended September 30, 2022 and for the period from September 23, 2021 (inception) through September 30, 2021
(Unaudited)
| | Common Stock Subject to | | | | | | | | | | | | | | | | | | | | | |||
| | Possible Redemption | | | Common Stock | | Additional | | | | | Total | |||||||||||||
| | Class A | | | Class A | | Class B | | Paid-in | | Accumulated | | Stockholders’ | ||||||||||||
|
| Shares |
| Amount |
|
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Deficit |
| Equity (Deficit) | ||||||
Balance – January 1, 2022 | | — | | $ | — | | | — | | $ | — | | | (1) | $ | | | $ | | | $ | ( | | $ | |
Net loss | | — | |
| — | | | — | |
| — | | — | |
| — | |
| — | |
| ( | |
| ( |
Balance – March 31, 2022 | | — | | | — | | | — | | | — | | | | | | | | | | ( | | | ( | |
Issuance of private placement warrants | | — | | | — | | | — | | | — | | — | | | — | | | | | | — | | | |
Issuance of Class A Common stock, net of issuance costs of $ | | | | | | | | — | | | — | | — | | | — | | | — | | | — | | | — |
Issuance of Public Warrants, net of issuance costs of $ | | — | | | — | | | — | | | — | | — | | | — | | | | | | — | | | |
Issuance of Rights, net of issuance costs of $ | | — | | | — | | | — | | | — | | — | | | — | | | | | | — | | | |
Fair value of underwriter’s overallotment options exercised | | — | | | — | | | — | | | — | | — | | | — | | | | | | — | | | |
Deemed capital contribution by the Sponsor through transfer of Class B shares | | — | | | — | | | — | | | — | | — | | | — | | | | | | — | | | |
Issuance of Representative Shares | | — | | | — | | | | | | | | — | | | — | | | | | | — | | | |
Accretion to redemption value of Class A Common stock subject to possible redemption | | — | | | | | | — | | | — | | — | | | — | | | ( | | | ( | | | ( |
Net loss | | — | | | — | | | — | | | — | | — | | | — | | | — | | | ( | | | ( |
Balance – June 30, 2022 | | | | | | | | | | | | | | | | | | | — | | | ( | | | ( |
Net loss | | — | | | — | | | — | | | — | | — | | | — | | | — | | | ( | | | ( |
Accretion to redemption value of Class A Common stock subject to possible redemption due to dividend and interest income earned | | — | | | | | | — | | | — | | — | | | — | | | — | | | ( | | | ( |
Balance – September 30, 2022 | | | | $ | | | | | | $ | | | | | $ | | | | — | | $ | ( | | $ | ( |
| | Common Stock Subject to | | | | | | | | | | | | | | | | | | | | | |||
| | Possible Redemption | | | Common Stock | | Additional | | | | | Total | |||||||||||||
| | Class A | | | Class A | | Class B | | Paid-in | | Accumulated | | Stockholders’ | ||||||||||||
|
| Shares |
| Amount |
|
| Shares |
| Amount |
| Shares |
| Amount |
| Capital |
| Deficit |
| Equity (Deficit) | ||||||
Balance – September 23, 2021 (inception) | | | | $ | | | | | | $ | | | | | $ | | | $ | | | $ | | | $ | |
Net loss | | — | |
| — | | | — | |
| — | | — | |
| — | |
| — | |
| ( | |
| ( |
Balance – September 30, 2021 | | — | | $ | — | | | — | | $ | — | | — | | $ | — | | $ | — | | $ | ( | | $ | ( |
(1
The accompanying notes are an integral part of these condensed financial statements.
4
MONTEREY CAPITAL ACQUISITION CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
|
| | | | For the period from | |
| | For the nine | | September 23, 2021 | ||
| | months ended | | (inception) through | ||
| | September 30, 2022 | | September 30, 2021 | ||
Cash Flows from Operating Activities | | | | | | |
Net loss | | $ | ( | | $ | ( |
Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | |
Interest earned in Trust Account | | | ( | | | |
Changes in current assets and liabilities: | | | | | | |
Prepaid expenses | | | ( | | | |
Accrued expenses | |
| | |
| |
Due to Sponsor – related party | | | | | | |
Income taxes payable | | | | | | |
Net cash used in operating activities | |
| ( | |
| |
| | | | | | |
Cash Flows from Investing Activities | | | | | | |
Investment of cash into Trust Account | | | ( | | | |
Net cash used in investing activities | | | ( | | | |
| | | | | | |
Cash Flows from Financing Activities | | | | | | |
Proceeds from promissory note | |
| | |
| |
Repayment of promissory note | | | ( | | | |
Gross proceeds from issuance of public units | | | | | | |
Proceeds from issuance of Private Warrants | | | | | | |
Payment of offering costs on Public Units | |
| ( | |
| |
Convertible note - related party | | | | | | |
Net cash provided by financing activities | |
| | |
| |
| | | | | | |
Net change in cash | | | | | | |
Cash – beginning of period | |
| | |
| |
Cash – end of period | | $ | | | $ | |
| | | | | | |
Supplemental disclosure of cash flow information: | | | | | | |
Offering costs included in accrued offering costs | | $ | — | | $ | |
Deferred underwriting commissions | | $ | | | $ | |
Issuance of Representative Shares for services | | $ | | | $ | |
Accretion to redemption value of Class A Common stock subject to possible redemption | | $ | | | $ | |
Deemed capital contribution by the Sponsor through transfer of Class B shares | | $ | | | $ | |
The accompanying notes are an integral part of these condensed financial statements.
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Note 1 — Organization, Business Operation and Going Concern
Monterey Capital Acquisition Corporation (the “Company”) is a blank check company incorporated as a Delaware company on September 23, 2021. The Company was formed 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
As of September 30, 2022, the Company had not commenced any operations. All activity for the period from September 23, 2021 (inception) through September 30, 2022 relates to the Company’s formation and the Initial Public Offering (as described below) and activities necessary to identify a potential target for a Business Combination. The Company will not generate any operating revenues until after the completion of its initial Business Combination, at the earliest. The Company will generate non-operating income in the form of interest income from the proceeds derived from the IPO (as defined below).
The Company has selected December 31 as its fiscal year end. The Company’s sponsor is Monterrey Acquisition Sponsor, LLC, a Delaware limited liability company (the “Sponsor”).
The registration statement for the Company’s initial public offering (the “IPO” or “Initial Public Offering”) was declared effective on May 10, 2022. On May 13, 2022 (the “IPO date”), the Company consummated its IPO of
Simultaneously with the consummation of the IPO and the sale of the Units, the Company consummated the private placement (“Private Placement”) of
Transaction costs amounted to $
At the IPO date, 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”), a total of
In conjunction with the Initial Public Offering, the Company issued to the underwriter
Of the total transaction costs of $
6
Following the closing of the Initial Public Offering on May 13, 2022, an amount of $
The Company’s management has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering and the Private Warrants, although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination. There is no assurance that the Company will be able to complete a Business Combination successfully. The Company must complete
In connection with any proposed initial business combination, the Company will either (1) seek stockholder approval of such initial business combination at a meeting called for such purpose at which stockholders may seek to convert their shares, regardless of whether they vote for or against the proposed business combination or do not vote at all, into their pro rata share of the aggregate amount then on deposit in the Trust Account (net of taxes payable), or (2) provide its stockholders with the opportunity to sell their shares to the Company by means of a tender offer (and thereby avoid the need for a stockholder vote) for an amount equal to their pro rata share of the aggregate amount then on deposit in the Trust Account (net of taxes payable), in each case subject to the limitations described herein.
If the Company determines to engage in a tender offer, such tender offer will be structured so that each stockholder may tender all of his, her or its shares rather than some pro rata portion of his, her or its shares. The decision as to whether the Company will seek stockholder approval of a proposed business combination or will allow stockholders to sell their shares to the Company in a tender offer will be made by the Company, solely in the Company’s discretion, and will be based on a variety of factors such as the timing of the transaction and whether the terms of the transaction would otherwise require us to seek stockholder approval. If the Company determines to allow stockholders to sell their shares to the Company in a tender offer, it will file tender offer documents with the U.S. Securities and Exchange Commission (“SEC”) which will contain substantially the same financial and other information about the initial business combination as is required under the SEC’s proxy rules.
The Company will proceed with a Business Combination if the Company has net tangible assets of at least $
If a stockholder vote is not required by law and the Company does not decide to hold a stockholder vote for business or other legal reasons, the Company will, pursuant to its Amended and Restated Certificate of Incorporation (the “Amended and Restated Certificate of Incorporation”), conduct the redemptions pursuant to the tender offer rules of the SEC and file tender offer documents with the SEC prior to completing a Business Combination.
If, however, stockholder approval of the transactions is required by law, or the Company decides to obtain stockholder approval for business or legal reasons, the Company will offer to redeem shares in conjunction with a proxy solicitation pursuant to the proxy rules and not pursuant to the tender offer rules. Additionally, each public stockholder may elect to redeem their public shares irrespective of whether they vote for or against the proposed transaction.
Notwithstanding the foregoing redemption rights, if the Company seeks stockholder approval of its initial business combination and the Company does not conduct redemptions in connection with its initial business combination pursuant to the tender offer rules, the Amended and Restated Certificate of Incorporation will provide that a public stockholder, together with any affiliate of such
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stockholder or any other person with whom such stockholder is acting in concert or as a “group” (as defined under Section 13 of the Exchange Act), will be restricted from redeeming its shares with respect to more than an aggregate of
The Company’s sponsor, officers and directors (the “initial stockholders”) have agreed not to propose any amendment to the Amended and Restated Certificate of Incorporation that would affect the Company’s public stockholders’ ability to convert or sell their shares to the Company in connection with a business combination as described herein or affect the substance or timing of the Company’s obligation to redeem
If the Company is unable to complete its initial business combination within the Combination Period, the Company 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 Company’s initial stockholders agreed to waive their rights to liquidating distributions from the Trust Account with respect to any founder shares held by them if the Company fails to complete its initial business combination within the Combination Period. However, if the initial stockholders acquire public shares in or after the IPO date, they will be entitled to liquidating distributions from the Trust Account with respect to such public shares if the Company fails to complete a Business Combination within the prescribed time frame. The underwriter has agreed to waive their rights to their deferred underwriting commission (see Note 7) held in the Trust Account in the event the Company does not complete a Business Combination within the Combination Period and, in such event, such amounts will be included with the other funds held in the Trust Account that will be available to fund the redemption of the public shares. In the event of such distribution, it is possible that the per share value of the assets remaining available for distribution will be less than the Initial Public Offering price per Unit ($
In order to protect the amounts held in the Trust Account, the Sponsor has agreed to be liable to the Company if and to the extent any claims by a third party for services rendered or products sold to the Company, or a prospective target business with which the Company has discussed entering into a transaction agreement, reduce the amount of funds in the Trust Account to below (1) $
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Going Concern Consideration
As of September 30, 2022, the Company had $
These proceeds held outside of the Trust Account subsequent to the closing of the IPO 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 is required to complete a Business Combination within 12 months of the IPO date, absent any extensions available at the Company’s option up to two times by an additional three months each time, at $
The Company believes that the proceeds raised in the IPO 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.
Risks and Uncertainties
Results of operations and the Company’s ability to complete an Initial Business Combination may be adversely affected by various factors that could cause economic uncertainty and volatility in the financial markets, many of which are beyond its control. The business could be impacted by, among other things, downturns in the financial markets or in economic conditions, inflation, increases in interest rates, the ongoing effects of the COVID-19 pandemic, including resurgences and the emergence of new variants, and geopolitical instability, such as the military conflict in the Ukraine. The Company cannot at this time fully predict the likelihood of one or more of the above events, their duration or magnitude or the extent to which they may negatively impact the Company’s business and ability to complete an Initial Business Combination. The unaudited condensed financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Inflation Reduction Act of 2022
On August 16, 2022, the Inflation Reduction Act of 2022 (the “IR Act”) was signed into federal law. The IR Act provides for, among other things, a new U.S. federal 1% excise tax on certain repurchases of stock by publicly traded U.S. domestic corporations and certain U.S. domestic subsidiaries of publicly traded foreign corporations occurring on or after January 1, 2023. The excise tax is imposed on the repurchasing corporation itself, not its shareholders from which shares are repurchased. The amount of the excise tax is generally 1% of the fair market value of the shares repurchased at the time of the repurchase. However, for purposes of calculating
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the excise tax, repurchasing corporations are permitted to net the fair market value of certain new stock issuances against the fair market value of stock repurchases during the same taxable year. In addition, certain exceptions apply to the excise tax. The U.S. Department of the Treasury (the “Treasury”) has been given authority to provide regulations and other guidance to carry out and prevent the abuse or avoidance of the excise tax.
Any redemption or other repurchase that occurs after December 31, 2022, in connection with a Business Combination, extension vote or otherwise, may be subject to the excise tax. Whether and to what extent the Company would be subject to the excise tax in connection with a Business Combination, extension vote or otherwise would depend on a number of factors, including (i) the fair market value of the redemptions and repurchases in connection with the Business Combination, extension or otherwise, (ii) the structure of a Business Combination, (iii) the nature and amount of any “PIPE” or other equity issuances in connection with a Business Combination (or otherwise issued not in connection with a Business Combination but issued within the same taxable year of a Business Combination) and (iv) the content of regulations and other guidance from the Treasury. In addition, because the excise tax would be payable by the Company and not by the redeeming holder, the mechanics of any required payment of the excise tax have not been determined. The foregoing could cause a reduction in the cash available on hand to complete a Business Combination and in the Company’s ability to complete a Business Combination.
Note 2 — Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X of the SEC. Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a complete presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited condensed financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented.
The accompanying unaudited condensed financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto for the year ended December 31, 2021 included in the Company’s prospectus for its IPO as filed with the SEC on May 12, 2022. The interim results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022 or for any future periods.
Emerging Growth Company
The Company is an “emerging growth company”, as defined in Section 2(a) of the Securities Act of 1933, as amended, (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012, (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
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Offering Costs
Offering costs consist of underwriting, legal, accounting and other expenses incurred through the balance sheet date that are directly related to the IPO and were charged to temporary equity, equity and/or expense upon the completion of the Initial Public Offering. The fair value of the Representative Shares was accounted for as compensation under ASC 718, was included in the offering costs at the IPO date. In addition, under the guidance in Staff Accounting Bulletin 107 Topic 5T, Accounting for Expenses or Liabilities Paid by Principal Stockholder(s), the Company included in offering costs amounts incurred by the Sponsor through the sale of Founder Shares to Anchor Investors on behalf of the Company (Note 5). The excess of the fair value of the Founder Shares was deemed a contribution from the Sponsor for offering costs and working capital.
Business Combination Costs
Costs incurred in relation to a potential business combination may include legal, accounting, and other expenses. Any such costs are expensed as incurred.
Net Loss per 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 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
The Company’s 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 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) and Private Warrants (see Note 4) could, potentially, be exercised or converted into common stock and then share in the earnings of the Company. However, these warrants 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.
A reconciliation of net loss per share is as follows for the three months ended September 30, 2022:
| | Class A | | | | | | | |
| | subject to | | | | | | | |
Three months ended | | possible | | | | | |||
September 30, 2022 |
| redemption |
| Class A |
| Class B | |||
Allocation of undistributable losses | | | ( | | | ( | | | ( |
Net loss to common stock | | $ | ( | | $ | ( | | $ | ( |
| | | | | | | | | |
Weighted average shares outstanding, basic and diluted |
| | |
| | |
| | |
| | | | | | | | | |
Basic and diluted net loss per share | | ( | | ( | | ||||
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A reconciliation of net loss per share is as follows for the nine months ended September 30, 2022:
|
| Class A |
| | |
| | | |
| | subject to | | | | | | | |
Nine months ended | | possible | | | | | |||
September 30, 2022 | | redemption | | Class A | | Class B | |||
Allocation of undistributable losses | | | ( | | | ( | | | ( |
Net loss to common stock | | $ | ( | | $ | ( | | $ | ( |
| | | | | | | | | |
Weighted average shares outstanding, basic and diluted |
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Basic and diluted net loss per share | | ( | | ( | | ( | |||
Marketable Securities Held in Trust Account
At September 30, 2022, the assets held in the Trust Account were substantially held in U.S. Treasury Bills and U.S. Treasury Notes. These securities are presented on the condensed balance sheet at fair value at the end of each reporting period. Earnings on these securities are included in dividend and interest income in the accompanying Statement of Operations and are automatically reinvested. The fair value for these securities is determined using quoted market prices in active markets.
Through September 30, 2022, the Company did not withdraw any of interest income from the Trust Account to pay its tax obligations.
Other Income
During the three and nine months ended September 30, 2022, the Company received a $
Fair Value of Financial Instruments
The fair value of the Company’s assets and liabilities, which qualify as financial instruments under ASC Topic 820, “Fair Value Measurement,” approximates the carrying amounts represented in the accompanying balance sheet, primarily due to their short-term nature.
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institution, which, at times, may exceed the Federal Depository Insurance Coverage of $250,000. The Company has not experienced losses on these accounts.
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.
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Class A Common Stock Subject to Possible Redemption
The Company accounts for its common stock subject to possible redemption in accordance with the guidance in ASC Topic 480, “Distinguishing Liabilities from Equity” (“ASC 480”). Common stock subject to mandatory redemption (if any) 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 the Company’s control) is classified as temporary equity. At all other times, common stock is classified as stockholders’ equity. The Company’s common stock sold as part of the Public Offering, features certain redemption rights that are considered to be outside of the Company’s control and subject to the occurrence of uncertain future events. Accordingly, all common stock subject to possible redemption is presented at redemption value as temporary equity, outside of the stockholders’ equity section of the Company’s balance sheet. The redemption value as of September 30, 2022 includes $100,000 that can be used to pay any dissolution expenses, should a dissolution event occur. The redemption value of the Class A common stock subject to possible redemption will be reduced by the estimated dissolution expenses to be paid from the interest earned in the trust account, up to $100,000, if and when a dissolution is deemed probable. The reconciliation of Class A common stock subject to possible redemption as of September 30, 2022 is as follows:
Gross proceeds from sale of Public Units |
| $ | |
Less: Proceeds allocated to Public Warrants (Note 3) | | | ( |
Less: Proceeds allocated to Rights (Note 3) | | | ( |
Less: Proceeds allocated to underwriter’s overallotment option (Note 7) | | | ( |
Less: Issuance costs allocated to Class A common stock subject to possible redemption | | | ( |
Accretion to redemption value of Class A common stock subject to possible redemption | | | |
Class A common stock subject to possible redemption | | $ |
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.
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.
Fair Value Measurements
Fair value is defined as the price that would be received for sale of an asset or paid for transfer of a liability, in an orderly transaction between market participants at the measurement date. GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:
| ● | Level 1, defined as observable inputs such as quoted prices (unadjusted) for identical instruments in active markets; |
| ● | Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and |
| ● | Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. |
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In some circumstances, the inputs used to measure fair value might be categorized within different levels of the fair value hierarchy. In those instances, the fair value measurement is categorized in its entirety in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement.
As of September 30, 2022, the Company held Level 1 financial instruments, which are the Company’s marketable securities held in the Trust Account.
The Representative Shares and Transferred Founder Shares were valued using the fair value of the Class A common stock, adjusted for the probability of consummation of the Business Combination and a discount for lack of marketability. As such, these are considered to be non-recurring Level 3 fair value measurements.
Working Capital Loan
The Working Capital Loans (Note 5) are issued in the form of convertible notes. The embedded feature to convert the Working Capital Loans into Private Warrants at a price of $1.00 per warrant (the “Embedded Feature”) does not meet the definition of a derivative under ASC 815-10-15-94 through 98 and is not required to be accounted for separately.
Due to Sponsor – related party
The Due to Sponsor balance as of September 30, 2022 includes cash collected on behalf of the Sponsor in connection with the sale of the Founder Shares to the Anchor Investors (Note 5). These funds will be remitted to the Sponsor in the normal course of business.
Income Taxes
The Company adopted ASC Topic 740, “Income Taxes” (“ASC 740”), at its inception. Under ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets, including tax loss and credit carry-forwards, and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Deferred income tax expense represents the change during the period in the deferred tax assets and deferred tax liabilities. The components of the deferred tax assets and liabilities are individually classified as current and non-current based on their characteristics. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized.
The Company recognizes the tax benefits of uncertain tax positions only when the positions are “more likely than not” to be sustained assuming examination by tax authorities and determined to be attributed to the Company. The determination of attribution, if any, applies for each jurisdiction where the Company is subject to income taxes on the basis of laws and regulations of the jurisdiction. The application of laws and regulations is subject to legal and factual interpretation, judgement, and uncertainty. Tax laws and regulations themselves are subject to change as a result of changes in fiscal policy, changes in legislation, the evolution of regulations, and court rulings. Therefore, the actual liability of the various jurisdictions may be materially different from management’s estimate. As of September 30, 2022 and December 31, 2021, the Company has
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.
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The Company does not expect any other recently issued standards to have a material impact on the Company’s financial statements.
Note 3 — Initial Public Offering
On May 13, 2022, the Company sold
Note 4 — Private Placement
On May 13, 2022, in the private placement that occurred simultaneously with the closing of the Initial Public Offering, the Sponsor purchased an aggregate of
Note 5 — Related Party Transactions
Founder Shares
In October 2021, the Sponsor paid $
On October 28, 2021, the Sponsor transferred
In addition, at the IPO date, the Sponsor sold
Promissory Note — Related Party
The Sponsor has agreed to loan the Company an aggregate of up to $
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
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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.
On September 12, 2022, the Sponsor loaned the Company $
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 $
Note 6 — Income Taxes
The Company’s effective tax rate (“ETR”) is calculated quarterly based upon current assumptions relating to the full year’s estimated operating results and various tax-related items. The Company’s ETR was
The Company has no uncertain tax positions related to federal and state income taxes. The 2021 federal tax return for the Company remains open for examination. In the event that the Company is assessed interest or penalties at some point in the future, it will be classified in the financial statements as tax expense.
Note 7 — Commitments and Contingencies
Registration Rights
The holders of the Founder Shares, Private Placement Warrants (as defined below) (including securities contained therein) issued in connection with the Initial Public Offering and Private Placement warrants (including securities contained therein) that may be issued upon conversion of Working Capital Loans (see Note 5), and any shares of Class A common stock issuable upon the exercise of the placement warrants and warrants (and underlying Class A common stock) that may be issued upon conversion of the Working Capital Loans and Class A common stock issuable upon conversion of the founder shares, are entitled to registration rights pursuant to a registration rights agreement to be signed at the effective date of the Initial Public Offering, requiring us to register such securities for resale (in the case of the Founder Shares, only after conversion of the Class A common stock). The holders of the majority of these securities are entitled to make up to three demands, excluding short form demands, that the Company register such securities. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to the completion of the initial business combination and rights to require us to register for resale such securities pursuant to Rule 415 under the Securities Act. The registration rights agreement does not contain liquidated damages or other cash settlement provisions resulting from delays in registering securities.
Underwriting Agreement
At the IPO date, the Company granted the underwriter a
The underwriter received a cash discount of $
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commissions solely in the event that the Company completes a Business Combination, subject to the terms of the underwriting agreement.
In addition, in conjunction with the Initial Public Offering, the Company issued to the underwriter
Note 8 — Stockholders’ Equity (Deficit)
Preferred Stock — The Company is authorized to issue
Class A Common Stock — The Company is authorized to issue
Class B Common Stock — The Company is authorized to issue
Holders of Class A common stock and holders of Class B common stock vote together as a single class on all other matters submitted to a vote of the Company’s stockholders except as otherwise required by law.
The Class B common stock will automatically convert into Class A common stock at the time of a Business Combination at a ratio such that the number of shares of Class A common stock issuable upon conversion of all Founder Shares will equal, in the aggregate, on an as-converted basis,
Warrants — As of September 30, 2022,
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In addition, if (x) the Company issues additional shares of Class A common stock or equity-linked securities for capital raising purposes in connection with the closing of the initial business combination at a Newly Issued Price of less than $
The Warrants will become exercisable
The Warrants will expire
Once the warrants become exercisable, the Company may redeem the outstanding warrants:
| ● | in whole and not in part; |
| ● | at a price of $ |
| ● | upon not less than |
| ● | if, and only if, the reported last sale price of the Class A common stock equals or exceeds $ |
If the Company call the warrants for redemption as described above, the Company’s management will have the option to require all holders that wish to exercise warrants to do so on a “cashless basis.” In determining whether to require all holders to exercise their warrants on a “cashless basis,” the Company’s management will consider, among other factors, the cash position, the number of warrants that are outstanding and the dilutive effect on the Company’s stockholders of issuing the maximum number of shares of Class A common stock issuable upon the exercise of the warrants. In such event, each holder would pay the exercise price by surrendering the warrants for that number of shares of Class A common stock equal to the quotient obtained by dividing (x) the product of the number of shares of Class A common stock underlying the warrants, multiplied by the difference between the exercise price of the warrants and the “fair market value” (defined below) by (y) the fair market value. The “fair market value” for this purpose shall mean the average reported last sale price of the Class A common stock for the 10 trading days ending on the third day prior to the date on which the notice of redemption is sent to the holders of warrants.
Rights — As of September 30, 2022 and December 31, 2021,
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Note 9 — Stock-based Compensation
In October 2021, the Sponsor transferred
The fair value of the Founder Shares on the grant date was approximately $
Total unrecognized compensation expense related to unvested Founder Shares at September 30, 2022 amounted to approximately $
Note 10 — Subsequent Events
The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the financial statements were issued. Based upon this review, the Company did not identify any subsequent events that would have required adjustment or disclosure in the condensed financial statements, except as disclosed below.
On October 18, 2022, the Sponsor loaned the Company an additional $
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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.
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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 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 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 September 30, 2022, the Company had cash of $28,804 and working capital deficit of $615,347, 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. 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”). Through September 30, 2022, the Company received $50,000 in Working Capital Loans (Note 5). 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 September 30, 2022, the Company had $28,804 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. In addition, 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 (see Note 5). As of September 30, 2022, the Company held $50,000 in borrowings under a Working Capital Loans (Note 5) from the Sponsor. The IPO proceeds held outside of the Trust Account upon the closing of the Initial Public Offering and the Working Capital Loans 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.
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The Company is required to complete a Business Combination within 12 months of the IPO date, absent any extensions available at the Company’s option up to two times by an additional three months each time, at $0.10 per extension per Class A share subject to possible redemption paid into the Trust Account by the Sponsor (the “Extension Option”). Considering that the Sponsor’s ability to fund the Extension Option is uncertain, the Company may be required to dissolve within 12 months of the IPO date, should a Business Combination not be consummated within that timeframe. The Company may need to raise additional capital through loans or additional investments from its Sponsor, stockholders, officers, directors, or third parties. 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, 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, the funds received to date and additional 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. We will continue to generate non-operating income in the form of dividend and interest income on cash and cash equivalents held in the Trust Account. We may withdraw interest from the Trust Account to pay taxes, if any. As a result of being a public company, we have incurred, and will continue to incur, legal, financial reporting, accounting and auditing compliance expenses, as well as due diligence expenses related to potential targets.
For the three months ended September 30, 2022, we had net loss of $180,718, which consisted primarily of general and administrative expenses of $515,626 and $139,736 in current tax expense, offset by $419,178 in dividend and interest income and $55,466 of other income. For the nine months ended September 30, 2022, we had net loss of $668,818, which consisted primarily of general and administrative expenses of $1,058,528 and $169,952 in current tax expense, offset by $504,196 in dividend and interest income and $55,466 of other income related to expense reimbursements received from a potential target. General and administrative expenses increased during the three months ended September 30, 2022, as compared to previous quarters, primarily due to the costs related to operating as a public company, such as accounting, legal, and insurance costs. Dividend and interest income increased during the three months ended September 30, 2022, as compared to previous quarters, primarily due to the Trust Account being funded for the full three month period ended September 30, 2022, and due to rising interest rates.
For the period from September 23, 2021 (inception) through September 30, 2021, we had a net loss of $3,699, which consisted of formation costs.
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.
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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 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 $30,000 and $45,000 under the agreement during the three and nine months ended September 30, 2022, respectively. 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.
Net Loss Per Common Stock
The Company complies with accounting and disclosure requirements of ASC 260. 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 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.
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 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
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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 condensed 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 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information otherwise required under this item.
Item 4. Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Evaluation of Disclosure Controls and Procedures
As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2022. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that during the period covered by this report, our disclosure controls and procedures were not effective due to material weaknesses in internal controls over financial reporting related to the accounting for complex financial instruments and completeness and accuracy of financial data.
Management identified errors in the Form of Warrant Agreement between the Company and Continental Stock Transfer & Trust Company as filed with the Company’s registration statement on Form S-1 on April 22, 2022, and the Warrant Agreement, dated May 10, 2022, by and between the Company and Continental Stock Transfer & Trust Company, as filed with the Company’s Current Report on Form 8-K filed with the SEC on May 16, 2022 (the “Warrant Agreement”). The Warrant Agreement as filed was incorrect and inconsistent with the terms of the Company’s registration statement on Form S-1 filed with the SEC on April 22, 2022 and the terms of the Company’s prospectus filed with the SEC on May 12, 2022. On June 24, 2022, the Company filed a Current Report on Form 8-K including the Amended and Restated Warrant Agreement containing the correct provisions.
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In addition, in connection with the preparation of the financial statements as of and for the three and nine months ended September 30, 2022, we concluded that there was a material weakness in our internal control over financial reporting relating to ineffective internal controls with respect to the completeness and accuracy of financial data, specifically relating to a previously unrecorded liability for the professional fees of legal counsel.
To address these material weaknesses, management has devoted, and plans to continue to devote, significant effort and resources to the remediation and improvement of its internal control over financial reporting and to provide processes and controls over the internal communications within the Company, financial reporting advisors, legal advisors, and independent registered public accounting firm. The Company implemented additional procedures to ensure that all legal agreements are reviewed by management, third-party accounting advisors and legal advisors in their final drafts before such agreements are executed. In addition, the Company implemented additional review procedures to ensure completeness and accuracy of financial data and accrued liabilities. We can offer no assurance that these initiatives will ultimately have the intended effects. Other than these issues, our disclosure controls and procedures were effective at a reasonable assurance level and, accordingly, provided reasonable assurance that the information required to be disclosed by us in reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.
Changes in Internal Control Over Financial Reporting
Other than changes that have resulted from the material weakness remediation activities noted above, there has been no change in our internal control over financial reporting, during the most recently completed fiscal quarter, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II-OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide the information required by this Item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales
On October 6, 2021, our Sponsor purchased 2,875,000 shares of our Class B common stock, par value $0.0001 per share, (the “Founder Shares”) for an aggregate price of $25,000. On May 10, 2022, our Sponsor forfeited 575,000 Founder Shares for no consideration, which we cancelled, resulting in our Sponsor and directors holding an aggregate of 2,300,000 Founder Shares. Our Sponsor agreed to forfeit up to 300,000 Founder Shares to the extent that the over-allotment option is not exercised in full by the underwriter, so that the Founder Shares will represent 20.0% of our issued and outstanding shares after the Initial Public Offering. On May 13, 2022, the underwriter fully exercised the over-allotment option to purchase an additional 1,200,000 Units.
On May 13, 2022, our Sponsor purchased 3,040,000 Private Placement Warrants at a price of $1.00 per Private Placement Warrant, generating gross proceeds of $3.04 million. These issuances were made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act. No underwriting discounts or commissions were paid with respect to such sales.
Use of Proceeds
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 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, and approximately $1.0 million of other offering costs. After deducting the underwriting discounts and commissions (excluding the deferred portion, which amount will be payable upon consummation of the initial Business Combination, if consummated) and the Initial Public Offering expenses, $92,920,000 of the net proceeds from our Initial Public Offering and certain of the proceeds from the Private Placement (or $10.00 per Unit sold in the Initial Public Offering) was placed in the Trust Account.
There has been no material change in the planned use of the proceeds from the Initial Public Offering and Private Placement as is described in the final prospectus related to the Initial Public Offering.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
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Item 6. Exhibits.
Exhibit |
| Description |
10.1 | | Promissory Note, dated September 12, 2022, issued to Monterrey Acquisition Sponsor, LLC. |
10.2 | | Promissory Note, dated October 18, 2022, issued to Monterrey Acquisition Sponsor, LLC. |
31.1* | ||
31.2* | ||
32.1* | ||
32.2* | ||
101.INS | XBRL Instance Document | |
101.SCH | XBRL Taxonomy Extension Schema Document | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document | |
104 | | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
* These certifications are furnished to the SEC pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and are deemed not filed for purposes of Section 18 of the Securities Exchange Act, nor shall they be deemed incorporated by reference in any filing under the Securities Act, except as shall be expressly set forth by specific reference in such filing.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized on this 21st day of November 2022.
| MONTEREY CAPITAL ACQUISITION CORPORATION | |
|
|
|
| By: | /s/ Bala Padmakumar |
| Name: | Bala Padmakumar |
| Title: | Chief Executive Officer |
| By: | /s/ Daniel Davis |
| Name: | Daniel Davis |
| Title: | Chief Financial Officer |
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Exhibit 10.1
THIS PROMISSORY NOTE (“NOTE”) HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”). THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT ONLY AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF REGISTRATION OF THE RESALE THEREOF UNDER THE SECURITIES ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY IN FORM, SCOPE AND SUBSTANCE TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
PROMISSORY NOTE
Principal Amount: $50,000 | Dated as of September 12, 2022 |
| New York, New York |
Monterey Capital Acquisition Corporation, a Delaware corporation and blank check company (the “Maker”), promises to pay to the order of Monterrey Acquisition Sponsor, LLC, a Delaware limited liability company, or its registered assigns or successors in interest (the “Payee”), the principal amount of $50,000 (fifty thousand dollars) in lawful money of the United States of America, on the terms and conditions described below.
All payments on this Promissory Note (the “Note”) shall be made by check or wire transfer of immediately available funds or as otherwise determined by the Maker to such account as the Payee may from time to time designate by written notice in accordance with the provisions of this Note.
1. Principal. The principal balance of this Note shall be payable by the Maker on the date on which Maker consummates an initial business combination (the “Maturity Date”). The principal balance may be prepaid at any time. Under no circumstances shall any individual, including but not limited to any officer, director, employee or stockholder of the Maker, be obligated personally for any obligations or liabilities of the Maker hereunder.
2. Interest. No interest shall accrue on the unpaid principal balance of this Note.
3. Application of Payments. All payments shall be applied first to payment in full of any costs incurred in the collection of any sum due under this Note, including (without limitation) reasonable attorney’s fees, then to the payment in full of any late charges and finally to the reduction of the unpaid principal balance of this Note.
4. Conversion. On or before the Maturity Date, by providing written notice to Maker, any Payee may elect to convert any portion or all of such Payee’s amount outstanding under this Note into warrants to purchase shares of common stock of the Maker at a conversion price of $1.00 per warrant (the “Warrants”). Each Warrant shall contain terms identical to those of the warrants Maker issued in a private placement (the “Private Placement”) simultaneously with the closing of Maker’s initial public offering (the “IPO”) entitling the holder thereof to purchase one share of Class A common stock of Maker at an exercise price of $11.50 per share as more fully described in the prospectus filed with the Securities and Exchange Commission on May 12, 2022 in connection with the Maker’s IPO (the “Prospectus”).
5. Events of Default. The following shall constitute an event of default (“Event of Default”):
(a) Failure to Make Required Payments. Failure by Maker to pay the principal amount due pursuant to this Note within 5 (five) business days of the date specified above.
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(b) Voluntary Bankruptcy, Etc. The commencement by Maker of a voluntary case under any applicable bankruptcy, insolvency, reorganization, rehabilitation or other similar law, or the consent by it to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or other similar official) of Maker or for any substantial part of its property, or the making by it of any assignment for the benefit of creditors, or the failure of Maker generally to pay its debts as such debts become due, or the taking of corporate action by Maker in furtherance of any of the foregoing.
(c) Involuntary Bankruptcy, Etc. The entry of a decree or order for relief by a court having jurisdiction in the premises in respect of Maker in an involuntary case under any applicable bankruptcy, insolvency or other similar law, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of Maker or for any substantial part of its property, or ordering the winding-up or liquidation of its affairs, and the continuance of any such decree or order unstayed and in effect for a period of 60 (sixty) consecutive days.
6. Remedies.
(a) Upon the occurrence of an Event of Default specified in Section 5(a) hereof, Payee may, by written notice to Maker, declare this Note to be due immediately and payable, whereupon the unpaid principal amount of this Note, and all other amounts payable hereunder, shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived, anything contained herein or in the documents evidencing the same to the contrary notwithstanding.
(b) Upon the occurrence of an Event of Default specified in Sections 5(b) and 5(c), the unpaid principal balance of this Note, and all other sums payable with regard to this Note, shall automatically and immediately become due and payable, in all cases without any action on the part of Payee.
7. Waivers. Maker and all endorsers and guarantors of, and sureties for, this Note waive presentment for payment, demand, notice of dishonor, protest, and notice of protest with regard to the Note, all errors, defects and imperfections in any proceedings instituted by Payee under the terms of this Note, and all benefits that might accrue to Maker by virtue of any present or future laws exempting any property, real or personal, or any part of the proceeds arising from any sale of any such property, from attachment, levy or sale under execution, or providing for any stay of execution, exemption from civil process, or extension of time for payment; and Maker agrees that any real estate that may be levied upon pursuant to a judgment obtained by virtue hereof or any writ of execution issued hereon, may be sold upon any such writ in whole or in part in any order desired by Payee.
8. Unconditional Liability. Maker hereby waives all notices in connection with the delivery, acceptance, performance, default, or enforcement of the payment of this Note, and agrees that its liability shall be unconditional, without regard to the liability of any other party, and shall not be affected in any manner by any indulgence, extension of time, renewal, waiver or modification granted or consented to by Payee, and consents to any and all extensions of time, renewals, waivers, or modifications that may be granted by Payee with respect to the payment or other provisions of this Note, and agrees that additional makers, endorsers, guarantors, or sureties may become parties hereto without notice to Maker or affecting Maker’s liability hereunder.
9. Notices. All notices, statements or other documents which are required or contemplated by this Note shall be made in writing and delivered: (i) personally or sent by first class registered or certified mail, overnight courier service or electronic transmission to the address designated in writing, or (ii) by electronic mail, to the electronic mail address most recently provided to such party or such other electronic mail address as may be designated in writing by such party. Any notice or other
2
communication so transmitted shall be deemed to have been given on the day of delivery, if delivered personally, on the business day following receipt of written confirmation, if sent by electronic transmission, 1 (one) business day after delivery to an overnight courier service or 5 (five) days after mailing if sent by mail.
10. Construction. This Note shall be construed and enforced in accordance with the laws of Delaware, without regard to conflict of law provisions thereof.
11. Severability. Any provision contained in this Note which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.
12. Trust Waiver. Notwithstanding anything herein to the contrary, the Payee hereby waives any and all right, title, interest or claim of any kind (“Claim”) in or to any distribution of or from the trust account established in which the proceeds of the IPO, through which shares of the Maker were sold to the public (the “Public Shares”) (including the deferred underwriters discounts and commissions) and the proceeds of the sale of the warrants issued in a private placement which occurred prior to the closing of the IPO were deposited, except for redemption, liquidation, and other rights, if any, the Payee may have in respect of Public Shares held by it, as described in greater detail in the Prospectus, and hereby agrees not to seek recourse, reimbursement, payment or satisfaction for any Claim relating to this Note against the trust account for any reason whatsoever.
13. Amendment; Waiver. Any amendment hereto or waiver of any provision hereof may be made with, and only with, the written consent of the Maker and the Payee.
14. Assignment. No assignment or transfer of this Note or any rights or obligations hereunder may be made by any party hereto (by operation of law or otherwise) without the prior written consent of the other party hereto and any attempted assignment without the required consent shall be void.
[Signature page follows]
3
IN WITNESS WHEREOF, Maker, intending to be legally bound hereby, has caused this Note to be duly executed by the undersigned as of the day and year first above written.
Monterey Capital Acquisition Corporation | ||
By: | /s/ Bala Padmakumar | |
Name: Bala Padmakumar | ||
Title: Chief Executive Officer | ||
4
Exhibit 10.2
THIS PROMISSORY NOTE (“NOTE”) HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”). THIS NOTE HAS BEEN ACQUIRED FOR INVESTMENT ONLY AND MAY NOT BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF REGISTRATION OF THE RESALE THEREOF UNDER THE SECURITIES ACT OR AN OPINION OF COUNSEL REASONABLY SATISFACTORY IN FORM, SCOPE AND SUBSTANCE TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.
PROMISSORY NOTE
Principal Amount: $52,000 | Dated as of October 18, 2022 |
| New York, New York |
Monterey Capital Acquisition Corporation, a Delaware corporation and blank check company (the “Maker”), promises to pay to the order of Monterrey Acquisition Sponsor, LLC, a Delaware limited liability company, or its registered assigns or successors in interest (the “Payee”), the principal amount of $52,000 (fifty-two thousand dollars) in lawful money of the United States of America, on the terms and conditions described below.
All payments on this Promissory Note (the “Note”) shall be made by check or wire transfer of immediately available funds or as otherwise determined by the Maker to such account as the Payee may from time to time designate by written notice in accordance with the provisions of this Note.
1. Principal. The principal balance of this Note shall be payable by the Maker on the date on which Maker consummates an initial business combination (the “Maturity Date”). The principal balance may be prepaid at any time. Under no circumstances shall any individual, including but not limited to any officer, director, employee or stockholder of the Maker, be obligated personally for any obligations or liabilities of the Maker hereunder.
2. Interest. No interest shall accrue on the unpaid principal balance of this Note.
3. Application of Payments. All payments shall be applied first to payment in full of any costs incurred in the collection of any sum due under this Note, including (without limitation) reasonable attorney’s fees, then to the payment in full of any late charges and finally to the reduction of the unpaid principal balance of this Note.
4. Conversion. On or before the Maturity Date, by providing written notice to Maker, any Payee may elect to convert any portion or all of such Payee’s amount outstanding under this Note into warrants to purchase shares of common stock of the Maker at a conversion price of $1.00 per warrant (the “Warrants”). Each Warrant shall contain terms identical to those of the warrants Maker issued in a private placement (the “Private Placement”) simultaneously with the closing of Maker’s initial public offering (the “IPO”) entitling the holder thereof to purchase one share of Class A common stock of Maker at an exercise price of $11.50 per share as more fully described in the prospectus filed with the Securities and Exchange Commission on May 12, 2022 in connection with the Maker’s IPO (the “Prospectus”).
5. Events of Default. The following shall constitute an event of default (“Event of Default”):
(a) Failure to Make Required Payments. Failure by Maker to pay the principal amount due pursuant to this Note within 5 (five) business days of the date specified above.
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(b) Voluntary Bankruptcy, Etc. The commencement by Maker of a voluntary case under any applicable bankruptcy, insolvency, reorganization, rehabilitation or other similar law, or the consent by it to the appointment of or taking possession by a receiver, liquidator, assignee, trustee, custodian, sequestrator (or other similar official) of Maker or for any substantial part of its property, or the making by it of any assignment for the benefit of creditors, or the failure of Maker generally to pay its debts as such debts become due, or the taking of corporate action by Maker in furtherance of any of the foregoing.
(c) Involuntary Bankruptcy, Etc. The entry of a decree or order for relief by a court having jurisdiction in the premises in respect of Maker in an involuntary case under any applicable bankruptcy, insolvency or other similar law, or appointing a receiver, liquidator, assignee, custodian, trustee, sequestrator (or similar official) of Maker or for any substantial part of its property, or ordering the winding-up or liquidation of its affairs, and the continuance of any such decree or order unstayed and in effect for a period of 60 (sixty) consecutive days.
6. Remedies.
(a) Upon the occurrence of an Event of Default specified in Section 5(a) hereof, Payee may, by written notice to Maker, declare this Note to be due immediately and payable, whereupon the unpaid principal amount of this Note, and all other amounts payable hereunder, shall become immediately due and payable without presentment, demand, protest or other notice of any kind, all of which are hereby expressly waived, anything contained herein or in the documents evidencing the same to the contrary notwithstanding.
(b) Upon the occurrence of an Event of Default specified in Sections 5(b) and 5(c), the unpaid principal balance of this Note, and all other sums payable with regard to this Note, shall automatically and immediately become due and payable, in all cases without any action on the part of Payee.
7. Waivers. Maker and all endorsers and guarantors of, and sureties for, this Note waive presentment for payment, demand, notice of dishonor, protest, and notice of protest with regard to the Note, all errors, defects and imperfections in any proceedings instituted by Payee under the terms of this Note, and all benefits that might accrue to Maker by virtue of any present or future laws exempting any property, real or personal, or any part of the proceeds arising from any sale of any such property, from attachment, levy or sale under execution, or providing for any stay of execution, exemption from civil process, or extension of time for payment; and Maker agrees that any real estate that may be levied upon pursuant to a judgment obtained by virtue hereof or any writ of execution issued hereon, may be sold upon any such writ in whole or in part in any order desired by Payee.
8. Unconditional Liability. Maker hereby waives all notices in connection with the delivery, acceptance, performance, default, or enforcement of the payment of this Note, and agrees that its liability shall be unconditional, without regard to the liability of any other party, and shall not be affected in any manner by any indulgence, extension of time, renewal, waiver or modification granted or consented to by Payee, and consents to any and all extensions of time, renewals, waivers, or modifications that may be granted by Payee with respect to the payment or other provisions of this Note, and agrees that additional makers, endorsers, guarantors, or sureties may become parties hereto without notice to Maker or affecting Maker’s liability hereunder.
9. Notices. All notices, statements or other documents which are required or contemplated by this Note shall be made in writing and delivered: (i) personally or sent by first class registered or certified mail, overnight courier service or electronic transmission to the address designated in writing, or (ii) by electronic mail, to the electronic mail address most recently provided to such party or such other electronic mail address as may be designated in writing by such party. Any notice or other
2
communication so transmitted shall be deemed to have been given on the day of delivery, if delivered personally, on the business day following receipt of written confirmation, if sent by electronic transmission, 1 (one) business day after delivery to an overnight courier service or 5 (five) days after mailing if sent by mail.
10. Construction. This Note shall be construed and enforced in accordance with the laws of Delaware, without regard to conflict of law provisions thereof.
11. Severability. Any provision contained in this Note which is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall not invalidate or render unenforceable such provision in any other jurisdiction.
12. Trust Waiver. Notwithstanding anything herein to the contrary, the Payee hereby waives any and all right, title, interest or claim of any kind (“Claim”) in or to any distribution of or from the trust account established in which the proceeds of the IPO, through which shares of the Maker were sold to the public (the “Public Shares”) (including the deferred underwriters discounts and commissions) and the proceeds of the sale of the warrants issued in a private placement which occurred prior to the closing of the IPO were deposited, except for redemption, liquidation, and other rights, if any, the Payee may have in respect of Public Shares held by it, as described in greater detail in the Prospectus, and hereby agrees not to seek recourse, reimbursement, payment or satisfaction for any Claim relating to this Note against the trust account for any reason whatsoever.
13. Amendment; Waiver. Any amendment hereto or waiver of any provision hereof may be made with, and only with, the written consent of the Maker and the Payee.
14. Assignment. No assignment or transfer of this Note or any rights or obligations hereunder may be made by any party hereto (by operation of law or otherwise) without the prior written consent of the other party hereto and any attempted assignment without the required consent shall be void.
[Signature page follows]
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IN WITNESS WHEREOF, Maker, intending to be legally bound hereby, has caused this Note to be duly executed by the undersigned as of the day and year first above written.
| Monterey Capital Acquisition Corporation | |
| | |
| | |
| By: | /s/ Bala Padmakumar |
| | Name: Bala Padmakumar |
| | Title: Chief Executive Officer |
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EXHIBIT 31.1
CERTIFICATION
PURSUANT TO RULES 13a-14(a) AND 15d-14(a)
UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Bala Padmakumar, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q for the quarter ended September 30, 2022 of Monterey Capital Acquisition Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and internal control over financial reporting (as defined in the Exchange Act Rules 13a-15(f) and 15d-15(f)) and 15d-15(e)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | [Intentionally omitted]; |
c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting. |
By: | /s/ Bala Padmakumar | |
| | Bala Padmakumar |
| | Chief Executive Officer |
| | (Principal Executive Officer) |
EXHIBIT 31.2
CERTIFICATION
PURSUANT TO RULES 13a-14(a) AND 15d-14(a)
UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Daniel Davis, certify that:
1. | I have reviewed this Quarterly Report on Form 10-Q for the quarter ended September 30, 2022 of Monterey Capital Acquisition Corporation; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in the Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | [Intentionally omitted]; |
c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting. |
Date: November 21, 2022 | By: | /s/ Daniel Davis |
| | Daniel Davis |
| | Chief Financial Officer |
| | (Principal Financial and Accounting Officer) |
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Monterey Capital Acquisition Corporation (the “Company”) on Form 10-Q for the quarter ended September 30, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Bala Padmakumar, Chief Executive Officer of the Company, do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
(1) | the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: November 21, 2022 | /s/ Bala Padmakumar | |
| Name: | Bala Padmakumar |
| Title: | Chief Executive Officer |
| | (Principal Executive Officer) |
EXHIBIT 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Monterey Capital Acquisition Corporation (the “Company”) on Form 10-Q for the quarter ended September 30, 2022, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Daniel Davis, Chief Financial Officer of the Company, do hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:
(1) | the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
(2) | the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
/s/ Daniel Davis | ||
| Name: | Daniel Davis |
| Title: | Chief Financial Officer |
| | (Principal Financial and Accounting Officer) |