Washington, D.C. 20549
FORM
(Amendment No. 1)
(Mark One)
For the quarterly period ended
For the transition period from to
Commission File No.
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of Principal Executive Offices, Zip Code)
(Registrant’s telephone number, including area code)
N/A
(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(s) | Name of each exchange on which registered | ||
| Units, each consisting of one share of Class A common stock and three-quarters of one warrant | CENQU | The NASDAQ Stock Market LLC | ||
| The | ||||
| Warrants, each whole warrant exercisable for one share of Class A common stock at an exercise price of $11.50 per share | CENQW | The NASDAQ Stock Market LLC |
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, a 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 August 25, 2022, there were
EXPLANATORY NOTE
Background of Restatement
In connection with the preparation of the Company’s condensed financial statements for the quarterly period ended June 30, 2022, the Company’s management re-evaluated the Company’s accounting of accounts payable and accrued expenses and determined that the Company failed to recognize and accrue certain expenses in connection with its proposed initial business combination resulting in an understatement of the account payable and accrued expenses, which requires restatement of the Company’s condensed financial statements as of and for the quarterly period ended March 31, 2022. The impact of this error was that accounts payable/accrued expenses were understated as of March 31, 2022 and net loss was understated by $672,085 for the quarter ended March 31, 2022. The Company has decided to correct this error during the quarter ended March 31, 2022, concluding that these expenses are material to the balance sheet and the statement of operations as of and for the quarter ended March 31, 2022.
On August 22, 2022, the Audit Committee of the Board of Directors of the Company (the “Audit Committee”) concluded, after discussion with the Company’s management, that the Company’s previously issued unaudited interim financial statements as of and for the quarterly period ended March 31, 2022 included in the Company’s Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2022, filed with the SEC on May 12, 2022 (the “Affected Period”), should be restated to report a portion of the unbilled legal fees amounting to $672,085 in the balance sheet as of March 31, 2022 and in the statement of operations for the quarter ended March 31, 2022.
The restatement does not have an impact on the Company’s cash position and cash held in the trust account established in connection with the IPO (the “Trust Account”).
The financial information that has been previously filed or otherwise reported for the period ended March 31, 2022 is superseded by the information in this Amended Form 10-Q, and the financial statements and related financial information contained in the Original Quarterly Report, filed on May 12, 2022 should no longer be relied upon. On August 25, 2022, the Company filed a Current Report on Form 8-K disclosing the Audit Committee’s conclusion that the unaudited interim financial statements for the Affected Periods should no longer be relied upon.
In addition, as required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended, new certifications by the Company’s principal executive officer and principal financial officer are filed as exhibits to this Amendment under Item 6 of Part II hereof.
Internal Control Considerations
In connection with the restatement, management has re-evaluated the effectiveness of the Company’s disclosure controls and procedures and internal control over financial reporting as of March 31, 2022. The Company’s management has concluded that, in light of the errors described above, an additional material weakness exists in the Company’s internal control over financial reporting and that the Company’s disclosure controls and procedures were not effective as a result thereof. Management plans to enhance the system of evaluating and implementing the accounting standards that apply to our financial statements, including enhanced training of our personnel and increased communication among our personnel and third-party professionals with whom we consult regarding the proper recognition of accrued liabilities. For a discussion of management’s consideration of our disclosure controls and procedures, internal controls over financial reporting, and the material weaknesses identified, see Part I, Item 4, “Controls and Procedures” of this Amended Form 10-Q.
Items Amended In This Amendment
For the convenience of the reader, this Amendment sets forth the Original Quarterly Report in its entirety, as amended to reflect the restatement. No attempt has been made in this Amendment to update other disclosures presented in the Original Quarterly Report except as required to reflect the effects of the restatement. The following items have been amended as a result of the restatement:
| ● | Part I –Item 1. Condensed Financial Statements. |
| ● | Part I –Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
| ● | Part I –Item 4. Controls and Procedures. |
| ● | Part II –Item 1A. Risk Factors. |
| ● | Part II –Item 6. Exhibits. |
Except as described above, this Amendment does not amend, update or change any other items or disclosures contained in the Original Quarterly Report and accordingly, this Amendment does not reflect or purport to reflect any information or events occurring after the original filing date or modify or update those disclosures affected by subsequent events. Accordingly, this Amendment should be read in conjunction with the Original Quarterly Report and the Company’s other filings with the SEC. Capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Original Quarterly Report.
This Amendment does not reflect adjustments for events occurring after May 12, 2022, the date of the filing of the Original Quarterly Report except to the extent they are otherwise required to be included and discussed herein and did not substantively modify or update the disclosures herein other than as required to reflect the adjustments described above. This Amendment should be read in conjunction with the Company’s Current Reports on Form 8-K filed with the SEC since the date of filing of the Original Quarterly Report and all of the Company’s filings after the date hereof.
CENAQ ENERGY CORP.
QUARTERLY REPORT ON FORM 10-Q
Table of Contents
i
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CENAQ ENERGY CORP.
CONDENSED BALANCE SHEETS
| March 31, | December 31, | |||||||
| 2022 | 2021 | |||||||
| (Unaudited) (Restated–See Note 2) | ||||||||
| Assets: | ||||||||
| Current assets: | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Total current assets | ||||||||
| Marketable securities held in trust account | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities, Redeemable Common Stock and Stockholders’ Deficit | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Total current liabilities | ||||||||
| Deferred underwriters’ discount | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies (Note 7) | ||||||||
| Class A common stock subject to possible redemption, | ||||||||
| Stockholders’ Deficit: | ||||||||
| Preferred stock, $ | ||||||||
| Class A common stock, $ | ||||||||
| Class B common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Deficit | ( | ) | ( | ) | ||||
| Total Liabilities, Redeemable Common Stock and Stockholders’ Deficit | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
1
CENAQ ENERGY CORP.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the March 31, | ||||||||
2022 (Restated-See Note 2) | 2021 | |||||||
| General and administrative costs | $ | $ | ||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other income: | ||||||||
| Interest earned on marketable securities held in Trust Account | ||||||||
| Total other income | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| $ | ( | ) | $ | |||||
| $ | ( | ) | $ | ( | ) | |||
The accompanying notes are an integral part of these unaudited condensed financial statements.
2
CENAQ ENERGY CORP.
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDER’S (DEFICIT) EQUITY
(UNAUDITED)
FOR THE THREE MONTHS ENDED MARCH 31, 2022 (Restated – See Note 2)
| Class A Common Stock |
Class B Common Stock |
Additional Paid-in |
Accumulated | Total Stockholder’s |
||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||||||||
| Balance as of January 1, 2022 | $ | $ | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||||||
| Net loss | — | — | ( |
) | ( |
) | ||||||||||||||||||||||
| Balance as of March 31, 2022 (restated) | $ | $ | $ | $ | ( |
) | $ | ( |
) | |||||||||||||||||||
FOR THE THREE MONTHS ENDED MARCH 31, 2021
| Class A Common Stock | Class B Common Stock | Additional Paid-in | Accumulated | Total Stockholder’s | ||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Equity | ||||||||||||||||||||||
| Balance as of January 1, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||
| Balance as of March 31, 2021 | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
3
CENAQ ENERGY CORP.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
Three Months Ended March 31, |
||||||||
|
2022 (Restated-See Note 2) |
2021 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net loss | $ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Interest earned on marketable securities held in Trust Account | ( |
) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses | ( |
) | ||||||
| Accounts payable and accrued expenses | ||||||||
| Net cash used in operating activities | ( |
) | ( |
) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from issuance of promissory note to related party | ||||||||
| Repayment of promissory note to related party | ( |
) | ||||||
| Payment of deferred offering costs | ( |
) | ||||||
| Net cash provided by financing activities | ||||||||
| Net change in cash | ( |
) | ||||||
| Cash, beginning of the period | ||||||||
| Cash, end of the period | $ | $ | ||||||
| Supplemental disclosure of noncash investing and financing activities: | ||||||||
| Accrued deferred offering costs | $ | $ | ||||||
| Deferred offering costs paid by Sponsor in promissory note | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed financial statements.
4
CENAQ ENERGY CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(AS RESTATED)
Note 1 — Organization and Business Operations
CENAQ Energy Corp. (the “Company”) is a newly organized blank check company incorporated as a Delaware corporation on June 24, 2020. The Company was incorporated 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”). The Company has not reached an agreement with any specific Business Combination target. The Company is focusing its search for a target business in the energy industry in North America.
As of March 31, 2022, the Company has neither engaged in any operations nor generated any revenues. All activity for the period from June 24, 2020 (inception) through March 31, 2022 relates to the Company’s formation and the initial public offering (“IPO”), described below. 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. The Company has selected December 31 as its fiscal year end.
The Company’s sponsor is CENAQ Sponsor, LLC, a Delaware limited liability company (the “Sponsor”).
The registration statement
for the Company’s IPO was declared effective on August 12, 2021 (the “Effective Date”). On August 17, 2021, Company
consummated its IPO of
Certain qualified institutional
buyers or institutional accredited investors which are not affiliated with any member of the Company’s management (the “Anchor
Investors”) have purchased up to
In connection with the closing
of the IPO, the Sponsor sold membership interest reflecting an allocation of
Simultaneously with the closing
of the IPO, the Company completed the private sale of an aggregate of
The underwriters had a 45-day
option from the date of the Company’s IPO (August 17,2021) to purchase up to an additional
5
CENAQ ENERGY CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(AS RESTATED)
Transaction costs of the
IPO and the over-allotment amounted to $
Following the closing of
the IPO on August 17, 2021 and over-allotment on August 19, 2021, $
The Company must complete
one or more initial Business Combinations having an aggregate fair market value of at least
The Company will provide
its public stockholders with the opportunity to redeem all or a portion of their public shares upon the completion of the initial Business
Combination either (i) in connection with a stockholder meeting called to approve the Business Combination or (ii) by means of a tender
offer. The decision as to whether the Company will seek stockholder approval of a proposed Business Combination or conduct a tender offer
will be made by the Company, solely in its discretion. The stockholders will be entitled to redeem all or a portion of their public shares
upon the completion of the initial Business Combination at a per-share price, payable in cash, equal to the aggregate amount then on deposit
in the Trust Account as of two business days prior to the consummation of the initial Business Combination, including interest earned
on the funds held in the Trust Account and not previously released to the Company to pay its franchise and income taxes as well as expenses
relating to the administration of the Trust Account, divided by the number of then outstanding public shares, subject to the limitations
described herein. The amount in the Trust Account was $
The shares of common stock
subject to redemption will be recorded at a redemption value and classified as temporary equity upon the completion of the IPO, in accordance
with Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” In such case,
the Company will proceed with a Business Combination if the Company has net tangible assets of at least $
6
CENAQ ENERGY CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(AS RESTATED)
The Company will have until
August 17, 2022, 12 months from the closing of the IPO, to complete the initial Business Combination (the “Combination Period”).
If the Company anticipates that it may not be able to consummate its initial Business Combination within the Combination Period, it may,
but not obligated to, extend the Combination Period two times by an additional three months each time (for a total of up to 18 months
to complete a Business Combination); provided that the Sponsor (or its designees) must deposit into the trust account funds equal to one
percent (
If the Company is unable
to complete the initial Business Combination within the Combination Period (or up to 18 months following extensions), 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 public shares, 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 and not previously released to the Company to pay its
franchise and income taxes as well as expenses relating to the administration of the Trust Account (less up to $
The Sponsor, officers and directors, as well as the Anchor Investors, have agreed to (i) waive their redemption rights with respect to any Founder Shares held by them in connection with the completion of the initial Business Combination, (ii) waive their rights to liquidating distributions from the Trust Account with respect to any Founder Shares hold by them if the Company fails to complete the initial Business Combination within the Combination Period (or within 18 months following extensions), and (iii) vote any Founder Shares held by them and any public shares purchased during or after the IPO in favor of the initial Business Combination.
The Anchor Investors are not required to vote any of their public shares (as opposed to their Founder Shares) in favor of our initial business combination or for or against any other matter presented for a stockholder vote.
The Sponsor has agreed that
it will be liable to the Company if and to the extent any claims by a third party (other than the Company’s independent auditors)
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 the lesser of (i) $
Risks and Uncertainties
Management is continuing to evaluate the impact of the COVID-19 pandemic on the industry and has 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 this financial statement. The financial statement does not include any adjustments that might result from the outcome of this uncertainty.
7
CENAQ ENERGY CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(AS RESTATED)
Liquidity and Going Concern
As of March 31, 2022, the
Company had $
Until the consummation of a Business Combination, the Company will be using the funds not held in the Trust Account for identifying and evaluating prospective acquisition candidates, performing due diligence on prospective target businesses, paying for travel expenditures, selecting the target business to acquire, and structuring, negotiating and consummating the Business Combination.
In order to finance
transaction costs in connection with a Business Combination, the Company’s Sponsor or an affiliate of the Sponsor or certain
of the Company’s officers and directors committed to provide the Company with Working Capital Loans up to $
If the Company’s 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 Business Combination. Moreover, the Company may need to obtain additional financing either to complete its Business Combination or because it becomes obligated to redeem a significant number of its public shares upon consummation of the Business Combination, in which case the Company may issue additional securities or incur debt in connection with such Business Combination. Subject to compliance with applicable securities laws, the Company would only complete such financing simultaneously with the completion of the Business Combination. If the Company is unable to complete its Business Combination because it does not have sufficient funds available to it, the Company will be forced to cease operations and liquidate the Trust Account. In addition, following the Business Combination, if cash on hand is insufficient, the Company may need to obtain additional financing in order to meet its obligations.
We cannot assure you that our plans to raise capital or to consummate an initial business combination will be successful. These factors, among others, raise substantial doubt about our ability to continue as a going concern, which is considered to be one year from the issuance of the financial statements. The financial statements contained elsewhere in this Quarterly Report do not include any adjustments that might result from our inability to continue as a going concern.
In connection with the Company’s assessment of going concern considerations in accordance with FASB’s Accounting Standards Update (“ASU”) 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” management has determined that if the Company is unable to complete a Business Combination by August 17, 2022, then the Company will cease all operations except for the purpose of liquidating. The liquidity condition and date for mandatory liquidation and subsequent dissolution raise substantial doubt about the Company’s ability to continue as a going concern. No adjustments have been made to the carrying amounts of assets or liabilities should the Company be required to liquidate after August 17, 2022.
8
CENAQ ENERGY CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(AS RESTATED)
Note 2 — Restatement of previously issued Financial Statements
In connection with the preparation of the Company’s condensed financial statements for the quarterly period ended June 30, 2022, the Company’s management re-evaluated the Company’s accounting of accounts payable and accrued expenses and determined that the Company failed to recognize and accrue certain expenses in connection with its proposed initial business combination resulting in an understatement of the account payable and accrued expenses, which requires restatement of the Company’s condensed financial statements as of and for the quarterly period ended March 31, 2022. In accordance with SEC Staff Accounting Bulletin No. 99, “Materiality,” and SEC Staff Accounting Bulletin No. 108, “Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements;” the Company evaluated the errors and has determined that the related impacts did not affect any prior annual or 10-Q report, but that correcting the impact of such errors would be significant to the interim condensed financial statements as of and for the quarter ended March 31, 2022. Accordingly, the Company has corrected such material errors by adjusting its March 31, 2022 interim condensed financial statements as of and for the quarter ended March 31, 2022. The following summarizes the effect of the restatement on each financial statement line item.
| Condensed Balance Sheet as of March 31, 2022 (unaudited) | As Previously Reported | Adjustment | As Restated | |||||||||
| Accounts payable and accrued expenses | $ | $ | $ | |||||||||
| Total Liabilities | $ | $ | $ | |||||||||
| Accumulated deficit | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Total Stockholders’ Deficit | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Condensed Statement of Operations for the Three Months Ended March 31, 2022 (unaudited) | ||||||||||||
| General and administrative costs | $ | $ | $ | |||||||||
| Loss from operations | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Condensed Statement of Changes in Stockholders’ Deficit for the for the Three Months ended March 31, 2022 (unaudited) | ||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Accumulated deficit | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Total Stockholders’ Deficit | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Condensed Statement of Cashflows for the Three Months ended March 31, 2022 (unaudited) | ||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Accounts payable and accrued expenses | $ | ( | ) | $ | $ | |||||||
9
CENAQ ENERGY CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(AS RESTATED)
Note 3 — Significant Accounting Policies
Basis of Presentation
The accompanying unaudited condensed financial statements are presented in conformity with accounting principles generally accepted in the United States of America (“US GAAP”) and pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (“SEC”). Accordingly, they do not include all of the information and footnotes required by US GAAP. In the opinion of management, the unaudited condensed financial statements reflect all adjustments, which include only normal recurring adjustments necessary for the fair statement of the balances and results for the period presented. Operating results for the three months ended March 31, 2022 are not necessarily indicative of the results that may be expected through December 31, 2022.
The accompanying unaudited condensed financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Annual Report on Form 10-K filed by the Company with the SEC on March 30, 2022.
Emerging Growth Company Status
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, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding 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.
Use of Estimates
The preparation of unaudited condensed financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the unaudited condensed financial statements and the reported amounts of revenues and expenses during the reporting period.
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. The most significant estimates that affected the financial statements as of March 31, 2022 and December 31, 2021 are the calculations of the fair values of the over-allotment option, fair values of the representative shares and the fair values of the anchor shares. Such estimates may be subject to change as more current information becomes available. Accordingly, the actual results could differ significantly from those estimates.
Cash and Cash Equivalents
The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. The Company did not have any cash equivalents as of March 31, 2022 and December 31, 2021.
10
CENAQ ENERGY CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(AS RESTATED)
Marketable Securities held in Trust Account
As of March 31, 2022, the
Company had $
Concentration of Credit Risk
Financial instruments that
potentially subject the Company to concentrations of credit risk consist of a cash account in a financial institution, which, at times,
may exceed the Federal Depository Insurance Corporation limit of $
Offering Costs associated with the Initial Public Offering
Offering costs consist of underwriting, legal, accounting and other expenses incurred through the balance sheet date that are directly related to the IPO. The Company complies with the requirements of the ASC 340-10-S99-1 and SEC Staff Accounting Bulletin (“SAB”) Topic 5A—“Expenses of Offering”. Offering costs are allocated to the separable financial instruments issued in the IPO based on a relative fair value basis compared to total proceeds received.
Fair Value of Financial Instruments
The fair value of the Company’s
assets and liabilities, other than the over-allotment option, which qualify as financial instruments under FASB ASC 820, “Fair Value
Measurements and Disclosures,” approximates the carrying amounts represented in the balance sheet, primarily due to its short-term
nature. The net asset value for the investments held in the trust account as of March 31, 2022 and December 31, 2021 was $
In determining fair value, the valuation techniques consistent with the market approach, income approach and cost approach shall be used to measure fair value. ASC 820 establishes a fair value hierarchy for inputs, which represent the assumptions used by the buyer and seller in pricing the asset or liability. These inputs are further defined as observable and unobservable inputs. Observable inputs are those that buyer and seller would use in pricing the asset or liability based on market data obtained from sources independent of the Company. Unobservable inputs reflect the Company’s assumptions about the inputs that the buyer and seller would use in pricing the asset or liability developed based on the best information available in the circumstances.
The fair value hierarchy is categorized into three levels based on the inputs as follows:
Level 1 — Valuations based on unadjusted quoted prices in active markets for identical assets or liabilities that the Company has the ability to access. Valuation adjustments and block discounts are not being applied. Since valuations are based on quoted prices that are readily and regularly available in an active market, valuation of these securities does not entail a significant degree of judgment.
11
CENAQ ENERGY CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(AS RESTATED)
Level 2 — Valuations based on (i) quoted prices in active markets for similar assets and liabilities, (ii) quoted prices in markets that are not active for identical or similar assets, (iii) inputs other than quoted prices for the assets or liabilities, or (iv) inputs that are derived principally from or corroborated by market through correlation or other means.
Level 3 — Valuations based on inputs that are unobservable and significant to the overall fair value measurement. The fair value of certain of the Company’s assets and liabilities, which qualify as financial instruments under ASC 820, approximates the carrying amounts represented in the balance sheet. The fair values of cash, prepaid expenses, and accrued expenses are estimated to approximate the carrying values as of March 31, 2022 and December 31, 2021 due to the short maturities of such instruments.
The Company valued the over-allotment
option using the Black Scholes model and the over-allotment option liability is recorded as a Level 3 financial instrument due to the
unobservable inputs. At August 17, 2021 the Company recorded $
Over-allotment Option Liability
The Company accounted for the over-allotment option (Note 7) in accordance with the guidance contained in ASC 480. The over-allotment is not considered indexed to the Company’s own ordinary shares, and as such, it does not meet the criteria for equity treatment and is recorded as a liability. The fair value changes of over-allotment option liability between IPO closing date and the option exercise date was recorded in operations.
Class A common stock Subject to Possible Redemption
The Company accounts for
its Class A common stock subject to possible redemption in accordance with the guidance in ASC Topic 480 “Distinguishing Liabilities
from Equity.” Common stock subject to mandatory redemption (if any) are classified as a liability instrument and measured at fair
value. Conditionally redeemable common stock (including common stock that feature redemption rights that are either within the control
of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) are classified
as temporary equity. At all other times, common stock is classified as stockholders’ equity. At March 31, 2022 and December 31,
2021,
All of the
The Class A common stock sold as part of the Units in the IPO is subject to ASC 480-10-S99. If it is probable that the equity instrument will become redeemable, the Company has the option to either accrete changes in the redemption value over the period from the date of issuance (or from the date that it becomes probable that the instrument will become redeemable, if later) to the earliest redemption date of the instrument or to recognize changes in the redemption value immediately as they occur and adjust the carrying amount of the instrument to equal the redemption value at the end of each reporting period. The Company recognizes changes in redemption value immediately as they occur. Immediately upon the closing of the IPO, the Company recognized the subsequent re-measurement under ASC 480-10-S99 from initial carrying amount to redemption value. The change in the carrying value of redeemable common stock resulted in charges against additional paid-in capital and accumulated deficit.
As the holders of representative shares and Class B common stock have agreed to waive their redemption rights per the letter agreement and the underwriting agreement, the representative shares and Class B common stock are non-redeemable.
12
CENAQ ENERGY CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(AS RESTATED)
Net Loss Per Common Stock
The Company has two classes
of common stock, which are referred to as Class A common stock and Class B common stock. Earnings and losses are shared pro rata between
the two classes of shares. The
| For the three months ended March 31, | ||||||||||||||||
| 2022 (Restated See Note 2) | 2021 | |||||||||||||||
| Redeemable common stock | Non- redeemable common stock | Redeemable common stock | Non- redeemable common stock | |||||||||||||
| Basic and diluted net loss per share: | ||||||||||||||||
| Numerator: | ||||||||||||||||
| Allocation of net loss | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
| Denominator: | ||||||||||||||||
| ( | ) | ( | ) | ( | ) | |||||||||||
Income Taxes
The Company follows the asset and liability method of accounting for income taxes under ASC 740, “Income Taxes.” Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets 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 included the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of March 31, 2022 and December 31, 2021. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position. The Company is subject to income tax examinations by major taxing authorities since inception.
Recent Accounting Pronouncements
In August 2020, the FASB issued Accounting Standards Update (“ASU”) No. 2020-06, Debt —debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging —Contracts in Entity’ Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’ Own Equity (“ASU 2020-06”), which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU also removes certain settlement conditions that are required for equity-linked contracts to qualify for the derivative scope exception, and it simplifies the diluted earnings per share calculation in certain areas. The Company is currently evaluating the impact of the ASU on its financial position, results of operations or cash flows.
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the FASB Emerging Issues Task Force). This guidance clarifies certain aspects of the current guidance to promote consistency among reporting of an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. The amendments in this update are effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. The guidance was adopted starting January 1, 2022. Adoption of the ASU did not impact the Company’s financial position, results of operations or cash flows.
13
CENAQ ENERGY CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(AS RESTATED)
The Company’s management does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying unaudited condensed financial statement.
Note 4 — Initial Public Offering
On August 17, 2021, Company
consummated its IPO of
The underwriters had a 45-day
option from the date of the Company’s IPO (August 17, 2021) to purchase up to an additional
Note 5 — Private Placement
Simultaneously with the closing
of the IPO, the Company’s Sponsor purchased an aggregate of
On August 19, 2021, simultaneously
with the closing of the over-allotments, the Sponsor purchased an additional
The Private Placement Warrants are identical to the warrants sold as part of the Units in the IPO. The Sponsor and the underwriters have agreed, subject to certain limited exceptions, that the Private Placement Warrants will not be transferred, assigned or sold until 30 days after the completion of the Company’s initial Business Combination and that they will be entitled to certain registration rights.
Note 6 — Related Party Transactions
Founder Shares
On December 31, 2020, the Sponsor
paid $
Additionally, upon consummation
of the IPO, the Sponsor sold
The
14
CENAQ ENERGY CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(AS RESTATED)
Working Capital Loans
In addition, in order to finance
transaction costs in connection with an intended Business Combination, on November 11, 2021 the Sponsor signed a commitment letter to
provide loans of up to an aggregate of $
Note 7 — Commitments and Contingencies
Registration Rights
The holders of the Founder
Shares, the Class A representative shares, Private Placement Warrants and warrants that may be issued upon conversion of Working Capital
Loans (and any shares of Class A 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 registration rights pursuant to a
registration rights agreement signed on the IPO closing date of the IPO, requiring the Company to use its best efforts to register such
securities for resale (in the case of the Founder Shares, only after conversion to the Company’s 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 registers
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 the Company to register for resale such securities
pursuant to Rule 415 under the Securities Act.
Underwriters Agreement
The Company granted the underwriters
a 45-day option from the date of this IPO to purchase up to an additional
Simultaneously with the closing
of the IPO and the over-allotment, the underwriters were paid an underwriting discount of two percent (
Representative Shares
Simultaneously with the closing
of the IPO, the Company issued to Imperial Capital LLC and/or its designees, 165,000 shares of Class A Common Stock (the “Representative
Shares”).
Imperial Capital LLC has agreed not to transfer, assign or sell any such shares of common stock until the completion of an initial business combination. In addition, Imperial Capital LLC has agreed (i) to waive its redemption rights with respect to such shares of common stock in connection with the completion of our initial business combination; and (ii) to waive its rights to liquidating distributions from the trust account with respect to such shares of common stock if the Company fails to complete an initial business combination within the Combination Period (or up to 18 months following extensions).
15
CENAQ ENERGY CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(AS RESTATED)
The representative shares may be deemed compensation by FINRA and are therefore subject to a lock-up for a period of 180 days immediately following the commencement of sales of the registration statement of which the IPO forms a part pursuant to Rule 5110(e)(1) of FINRA’s NASD Conduct Rules. Pursuant to FINRA Rule 5110(e)(1), these securities may not be sold, transferred, assigned, pledged or hypothecated or the subject of any hedging, short sale, derivative, put or call transaction that would result in the economic disposition of the securities by any person for a period of 180 days immediately following the effective date of the registration statement of which this prospectus forms a part, nor may they be sold, transferred, assigned, pledged or hypothecated for a period of 180 days immediately following the commencement of sales of the IPO except to any underwriter and selected dealer participating in the offering and their bona fide officers or partners, registered persons or affiliates or as otherwise permitted under Rule 5110(e)(2).
Note 8 — Stockholders’ Equity
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 will vote together as a single class on all matters submitted to a vote of the Company’s stockholders except as required by law. Unless specified in the Company’s amended and restated certificate of incorporation or bylaws, or as required by applicable provisions of the Delaware General Corporation Law (“DGCL”) or applicable stock exchange rules, the affirmative vote of a majority of the Company’s shares of common stock that are voted is required to approve any such matter voted on by its stockholders.
The Class B common stock will
automatically convert into Class A common stock at the time of the initial Business Combination on a one-for-one basis, subject to adjustment
for stock splits, stock dividends, reorganizations, recapitalizations and the like, and subject to further adjustment as provided herein.
In the case that additional shares of Class A common stock or equity-linked securities are issued or deemed issued in excess of the amounts
offered in this IPO and related to the closing of the Business Combination, including pursuant to a specified future issuance, the ratio
at which shares of Class B common stock shall convert into shares of Class A common stock will be adjusted (unless the holders of a majority
of the outstanding shares of Class B common stock agree to waive such adjustment with respect to any such issuance or deemed issuance,
including a specified future issuance) so that the number of shares of Class A common stock issuable upon conversion of all shares of
Class B common stock will equal, in the aggregate, on an as-converted basis,
16
CENAQ ENERGY CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
(AS RESTATED)
Warrants —
There are
We may call the warrants for redemption, in whole and not in part, at a price of $0.01 per warrant:
| ● | at any time after the warrants become exercisable; |
| ● | upon not less than 30 days’ prior written notice of redemption to each warrant holder; |
| ● | if, and only if, the reported last sale price of the shares of Class A common stock equals or exceeds $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations and recapitalizations), for any 20 trading days within a 30 trading day period commencing at any time after the warrants become exercisable and ending on the third business day prior to the notice of redemption to warrant holders; and |
| ● | if, and only if, there is a current registration statement in effect with respect to the shares of Class A common stock underlying such warrants. |
If and when the warrants become redeemable by the Company, the Company may exercise its redemption right even if it is unable to register or qualify the underlying securities for sale under all applicable state securities laws.
The Private Placement Warrants, as well as any warrants the Company issues to the Sponsor, officers, directors, initial stockholders or their affiliates in payment of Working Capital Loans made to the Company, will be identical to the public warrants underlying the Units being offered in the Initial Public Offering.
Note 9 — Subsequent Events
The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the condensed financial statements were issued. The Company did not identify any subsequent events that would have required adjustment in these unaudited condensed financial statements.
17
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
References to “we”, “us”, “our” or the “Company” are to CENAQ Energy Corp., except where the context requires otherwise. The following discussion should be read in conjunction with our unaudited condensed financial statements and related notes thereto included elsewhere in this report.
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, 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. Factors that might cause or contribute to such a discrepancy include, but are not limited to, those described in our other Securities and Exchange Commission (“SEC”) filings.
Overview
We are a newly organized blank check company incorporated as a Delaware corporation on June 24, 2020, for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses.
Our sponsor is CENAQ Sponsor, LLC, a Delaware limited liability company. The registration statement for the initial public offering was declared effective on August 12, 2021. On August 17, 2021, we consummated our initial public offering of 15,000,000 units, at $10.00 per unit, generating gross proceeds of $150,000,000. 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 2,250,000 additional units to cover over-allotments, if any, at $10.00 per unit. On August 19, 2021, the underwriters exercised the overallotment in full, generating additional gross proceeds of $22,500,000. Transaction costs of our initial public offering and the over-allotment amounted to $17,771,253 consisting of $3,450,000 of underwriting discount, $6,037,500 of deferred underwriting discount, an excess of fair value of the founder shares acquired by the Anchor Investors of $6,265,215, fair value of the 189,750 representative shares of $1,442,100 and $576,438 of other cash offering costs were charged to additional paid in capital.
Simultaneously with the closing of the initial public offering, we consummated the private placement (“Private Placement”) of 6,000,000 warrants, at a price of $1.00 per warrant, generating gross proceeds to us of $6 million. On August 19, 2021, the underwriters exercised the overallotment in full and consummated the private placement of additional 675,000 warrants, at a price of $1.00 per warrant, generating gross proceeds to us of $675,000.
Upon the closing of the initial public offering and the Private Placement, $174,225,000 ($10.10 per share) 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 the Combination Period, 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 public shares, 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 and not previously released to us to pay its franchise and income taxes as well as expenses relating to the administration of the Trust Account (less up to $100,000 of interest released to us to pay dissolution expenses), divided by the number of then outstanding public shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidation distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of our remaining stockholders and our 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.
18
Results of Operations
As of March 31, 2022, we have not commenced any operations. All activity for the period from June 24, 2020 (inception) through March 31, 2022 relates to our formation and initial public offering (“Public Offering” or “IPO”), and, since the completion of the IPO, searching for a target to consummate a Business Combination. We will not generate any operating revenues until after the completion of a Business Combination, at the earliest. We will generate non-operating income in the form of interest income from the proceeds derived from the Public Offering and placed in the Trust Account (defined below).
For the three months ended March 31, 2022, we had a net loss of $935,406. We incurred $951,970 of general and administrative expenses which includes $672,085 in costs related to identifying a target business. We earned interest income of $16,564.
For the three months ended March 31, 2021, we had a net loss of $2,067, which consists of formation and operating costs.
Liquidity and Going Concern
As of March 31, 2022, we had $155,930 in our operating bank account, and working capital deficit of $464,887.
Until the consummation of a Business Combination, the Company will be using the funds not held in the Trust Account for identifying and evaluating prospective acquisition candidates, performing due diligence on prospective target businesses, paying for travel expenditures, selecting the target business to acquire, and structuring, negotiating and consummating the Business Combination.
In order to finance transaction costs in connection with a Business Combination, the Company’s Sponsor or an affiliate of the Sponsor or certain of the Company’s officers and directors committed to provide the Company with Working Capital Loans up to $1,500,000, as defined later (see Note 6). This commitment extends through August 17, 2022. To date, there were no amounts outstanding under any Working Capital Loans.
If the Company’s 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 Business Combination. Moreover, the Company may need to obtain additional financing either to complete its Business Combination or because it becomes obligated to redeem a significant number of its public shares upon consummation of the Business Combination, in which case the Company may issue additional securities or incur debt in connection with such Business Combination. Subject to compliance with applicable securities laws, the Company would only complete such financing simultaneously with the completion of the Business Combination. If the Company is unable to complete its Business Combination because it does not have sufficient funds available to it, the Company will be forced to cease operations and liquidate the Trust Account. In addition, following the Business Combination, if cash on hand is insufficient, the Company may need to obtain additional financing in order to meet its obligations.
We cannot assure you that our plans to raise capital or to consummate an initial business combination will be successful. These factors, among others, raise substantial doubt about our ability to continue as a going concern, which is considered to be one year from the issuance of the financial statements. The financial statements contained elsewhere in this Quarterly Report do not include any adjustments that might result from our inability to continue as a going concern.
In connection with the Company’s assessment of going concern considerations in accordance with FASB’s Accounting Standards Update (“ASU”) 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” management has determined that if the Company is unable to complete a Business Combination by August 17, 2022, then the Company will cease all operations except for the purpose of liquidating. The liquidity condition and date for mandatory liquidation and subsequent dissolution raise substantial doubt about the Company’s ability to continue as a going concern. No adjustments have been made to the carrying amounts of assets or liabilities should the Company be required to liquidate after August 17, 2022.
19
We granted the underwriters a 45-day option from the date of this initial public offering to purchase up to an additional 2,250,000 units to cover over-allotments, if any. On August 19, 2021, the over-allotments were exercised in full.
Simultaneously with the closing of the initial public offering and the over-allotment, the underwriters were paid an underwriting discount of 2% of the gross proceeds of the initial public offering and the over-allotment, or $3,450,000. Additionally, the underwriters will be entitled to a deferred underwriting discount of 3.5% of the gross proceeds of the initial public offering and the over-allotment upon the completion of our initial Business Combination.
Contractual Obligations
As of March 31, 2022, we did not have any long-term debt, capital or operating lease obligations.
Critical Accounting Policies
Use of Estimates
The preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Making estimates requires management to exercise significant judgment. It is possible that the estimates management considered could possibly change due to one or more future events. The most significant estimates that affected the financial statements as of March 31, 2022 are the calculations of the fair values of the over-allotment option, fair values of the representative shares and the fair values of the anchor shares. These estimates are uncertain due to the assumptions used in the stock valuations. These estimates and assumptions have not changed significantly during the year. Actual results could materially differ from those estimates. We have identified the following as our critical accounting policies:
Offering Costs associated with the Initial Public Offering
Offering costs consist of underwriting, legal, accounting and other expenses incurred through the balance sheet date that are directly related to the IPO. We comply with the requirements of the ASC 340-10-S99-1 and SEC Staff Accounting Bulletin (“SAB”) Topic 5A “Expenses of Offering”. Offering costs are allocated to the separable financial instruments, if any, issued in the IPO based on a relative fair value basis compared to total proceeds received.
Class A Common Stock Subject to Possible Redemption
We account for the Class A common stock subject to possible redemption in accordance with the guidance in ASC Topic 480 “Distinguishing Liabilities from Equity.” Common stock subject to mandatory redemption (if any) are classified as a liability instrument and measured at fair value. Conditionally redeemable common stock (including common stock that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) are classified as temporary equity. At all other times, common stock is classified as stockholders’ equity.
We recognize changes in redemption value immediately as they occur. Immediately upon the closing of the IPO, we recognized the subsequent re-measurement under ASC 480-10-S99 from initial carrying amount to redemption value. The change in the carrying value of redeemable common stock resulted in charges against additional paid-in capital and accumulated deficit.
Net Loss Per Common stock
We have two classes of common stock, which are referred to as Class A common stock and Class B common stock. Income and losses are allocated on pro rata basis between redeemable and non-redeemable common stock. The 19,612,500 potential common shares for outstanding warrants to purchase our stock were excluded from diluted earnings per share for the three months ended March 31, 2022 and 2021 because the warrants are contingently exercisable, and the contingencies have not yet been met. As a result, diluted net loss per common share is the same as basic net loss per common share for the periods.
20
Recent Accounting Pronouncements
In August 2020, the FASB issued Accounting Standards Update (“ASU”) No. 2020-06, Debt —debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging —Contracts in Entity’ Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’ Own Equity (“ASU 2020-06”), which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU also removes certain settlement conditions that are required for equity-linked contracts to qualify for the derivative scope exception, and it simplifies the diluted earnings per share calculation in certain areas. We are currently evaluating the impact of the ASU on the financial position, results of operations or cash flows.
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt—Modifications and Extinguishments (Subtopic 470-50), Compensation—Stock Compensation (Topic 718), and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Issuer’s Accounting for Certain Modifications or Exchanges of Freestanding Equity-Classified Written Call Options (a consensus of the FASB Emerging Issues Task Force). This guidance clarifies certain aspects of the current guidance to promote consistency among reporting of an issuer’s accounting for modifications or exchanges of freestanding equity-classified written call options (for example, warrants) that remain equity classified after modification or exchange. The amendments in this update are effective for all entities for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted for all entities, including adoption in an interim period. The guidance was adopted starting January 1, 2022. Adoption of the ASU did not impact the Company’s financial position, results of operations or cash flows.
Our management does not believe that any other recently issued, but not yet effective, accounting standards if currently adopted would have a material effect on the accompanying unaudited condensed financial statement.
Off-Balance Sheet Arrangements; Commitments and Contractual Obligations
Registration Rights
The holders of the Founder Shares, Private Placement Warrants and warrants that may be issued upon conversion of Working Capital Loans (and any shares of Class A 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) will be entitled to registration rights pursuant to a registration rights agreement to be signed prior to or on 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 to our 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 we 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. However, the registration rights agreement provides that we will not permit any registration statement filed under the Securities Act to become effective until termination of the applicable lock-up period, which occurs (i) in the case of the Founder Shares, on the earlier of (A) six months after the completion of the initial Business Combination or (B) subsequent to the initial Business Combination, (x) if the last sale price of our Class A common stock equals or exceeds $12.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 75 days after the initial Business Combination, or (y) the date on which we complete a liquidation, merger, capital stock exchange, reorganization or other similar transaction that results in all of our stockholders having the right to exchange their shares of common stock for cash, securities or other property and (ii) in the case of the Private Placement Warrants and the respective Class A common stock underlying such warrants, 30 days after the completion of the initial Business Combination. We will bear the expenses incurred in connection with the filing of any such registration statements.
Underwriters Agreement
We granted the underwriters a 45-day option from the date of this initial public offering to purchase up to an additional 2,250,000 units to cover over-allotments, if any. On August 19, 2021, the over-allotments were exercised in full.
Simultaneously with the closing of the initial public offering and the over-allotment, the underwriters were paid an underwriting discount of 2% of the gross proceeds of the initial public offering and the over-allotment, or $3,450,000. Additionally, the underwriters will be entitled to a deferred underwriting discount of 3.5% of the gross proceeds of the initial public offering and the over-allotment upon the completion of our initial Business Combination.
21
JOBS Act
On April 5, 2012, the JOBS Act was signed into law. 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 will be allowed to comply with new or revised accounting pronouncements based on the effective date for private (not publicly traded) companies. We have elected to irrevocably 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, we will adopt the new or revised standard at the time public companies adopt the new or revised standard. This may make comparison of our financial statements with another emerging growth company that has not opted out of using the extended transition period difficult or impossible because of the potential differences in accountant standards used.
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 this offering or until we are no longer an “emerging growth company,” whichever is earlier.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not required for smaller reporting companies.
Item 4. Controls and Procedures
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 March 31, 2022. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were not effective, due to the material weaknesses in our internal control over financial reporting related to the Company’s accounting for complex financial instruments, specifically common stock subject to redemption and the improper recording of accrued liabilities. As a result, we performed additional analysis as deemed necessary to ensure that our financial statements were prepared in accordance with U.S. generally accepted accounting principles. Accordingly, management believes that the financial statements included in this Form 10-Q present fairly in all material respects our financial position, results of operations and cash flows for the period presented. Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
Management identified material weaknesses in internal control related to the Company’s accounting for complex financial instruments and improper recording of accrued liabilities. As of September 30, 2021, management identified a material weakness in internal control relating to the classification of common stock subject to redemption and additionally as of March 31, 2022 a material weakness relating to the improper recording of accrued liabilities which material weaknesses continued to exist during the most recent fiscal quarter ended March 31, 2022. While we have processes to identify and appropriately apply applicable accounting requirements, we plan to enhance our system of evaluating and implementing the accounting standards that apply to our financial statements, including through enhanced analyses by our personnel and third-party professionals with whom we consult regarding complex accounting applications. The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 1A. Risk Factors.
As of the date of this Quarterly Report on Form 10-Q, there have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K filed with the SEC on March 30, 2022, except for the following.
We have identified material weaknesses in our internal control over financial reporting. If we are unable to develop and maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financial results in a timely manner, which may adversely affect investor confidence in us and materially and adversely affect our business and operating results, and we may face litigation as a result.
In connection with the preparation of our financial statements as of September 30, 2021, we reevaluated the classification of the Class A common stock subject to possible redemption. This revaluation was due to a recent notification from the SEC that SPAC’s must not report possible redemption of stock as permanent equity. After consultation with the chairman of our audit committee, our management concluded that the previously issued audited balance sheet dated as of August 17, 2021 related to the consummation of our initial public offering, which should be restated to report all Class A common stock subject to possible redemption as temporary equity. As part of such process, we identified a material weakness in our internal control over financial reporting related to the lack of ability to account for complex financial instruments. During the quarter ended December 31, 2021, management identified a material weakness in internal control relating to the over-allotment option. During the quarter ended June 30, 2022, management identified a material weakness for improper recording of accrued liabilities which affected the quarter ended March 31, 2022. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented, or detected and corrected, on a timely basis. Effective internal controls are necessary for us to provide reliable financial reports and prevent fraud, and material weakness could limit our ability to prevent or detect a misstatement of our accounts or disclosures that could result in a material misstatement of our annual or interim financial statements. In such a case, we may be unable to maintain compliance with securities law requirements regarding timely filing of periodic reports in addition to applicable stock exchange listing requirements, investors may lose confidence in our financial reporting, our securities price may decline and we may face litigation as a result. We continue to evaluate steps to remediate the material weaknesses. These remediation measures may be time consuming and costly and there is no assurance that these initiatives will ultimately have the intended effects. However, we cannot assure you that the measures we have taken to date, or any measures we may take in the future, will be sufficient to avoid potential future material weaknesses.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On August 17, 2021, we consummated our initial public offering of 15,000,000 Units. Each Unit consists of one share of Class A common stock, par value $0.0001 per share, and three-quarters of one redeemable warrant, each whole warrant entitling the holder thereof to purchase one whole share of Class A Common Stock at an exercise price of $11.50 per share. The Units were sold at a price of $10.00 per unit, generating gross proceeds of $150,000,000.
The securities sold in the offering were registered under the Securities Act on a registration statement on Form S-1 (No. 333-253695). The SEC declared the registration statement effective on August 12, 2021.
On August 17, 2021, simultaneously with the consummation of the IPO, we completed the private sale of 6,000,000 warrants at a purchase price of $1.00 per Private Placement Warrant, to our sponsor, CENAQ Sponsor, LLC, and the Underwriters, generating gross proceeds to the Company of $6,000,000.
A total of $ 151,500,000 of the proceeds from the IPO and the Private Placement were placed in a U.S.-based trust account at J.P. Morgan Chase Bank, N.A. maintained by Continental Stock Transfer & Trust Company, acting as trustee.
On August 19, 2021, we consummated the sale of additional 2,250,000 Units that were subject to the underwriters’ over-allotment option at $10.00 per Unit, generating gross proceeds of $22,500,000. Simultaneously with the closing of the sale of additional units, we consummated the sale of an additional 675,000 private Warrants, generating total proceeds of $675,000. Following the closing of the over-allotment option and sale of additional private Warrants, an aggregate amount of $174,225,000 has been placed in the trust account established in connection with the IPO.
The net proceeds of the Initial Public Offering (including the Over-Allotment) and certain proceeds from the sale of the Private Placement Warrants may be invested in U.S. government treasury bills with a maturity of 185 days or less and in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act which invest only in direct U.S. government treasury obligations.
The proceeds are after deducting $3,450,000 in underwriting discounts and commissions and an aggregate amount of $1,500,000 to pay fees and expenses in connection with the closing of the IPO and for working capital following the closing of the IPO.
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Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not Applicable.
Item 5. Other Information.
None.
Item 6. Exhibits
The following exhibits are filed as part of, or incorporated by reference into, this restated Quarterly Report on Form 10-Q/A.
| * | Filed herewith. |
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| CENAQ Energy Corp. | ||
| Date: August 25, 2022 | By: | /s/ J. Russell Porter |
| Name: | J. Russell Porter | |
| Title: | Chief Executive Officer and Director | |
| (Principal Executive Officer) | ||
| Date: August 25, 2022 | By: | /s/ Michael J. Mayell |
| Name: | Michael J. Mayell | |
| Title: | Chief Financial Officer, Treasurer and Director | |
| (Principal Financial and Accounting Officer) | ||
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