10-Q Summary — Venus Acquisition Corporation (proposed MicroAlgo transaction)
Reporting period: Quarter and nine months ended September 30, 2022; filed November 21, 2022. The source filing identifies the registrant as Venus Acquisition Corporation, a Cayman Islands blank-check company, rather than Microalgo Inc. Venus had no operating revenue and remained a shell company focused on completing a business combination.
Business context
Venus was formed to pursue a merger or similar business combination. It had a pending agreement to combine with VIYI Algorithm Inc. and stated that, upon closing, the combined company would change its name to MicroAlgo Inc. The proposed transaction valued VIYI at approximately $400 million and contemplated issuing approximately 39.6 million shares to VIYI shareholders, representing approximately 85% of the combined company assuming no redemptions and conversion of outstanding rights.
Financial results and liquidity
| Metric | Three months ended September 30, 2022 | Nine months ended September 30, 2022 | Comparable 2021 period |
|---|---|---|---|
| Operating expenses | $100,064 | $358,222 | $334,341 and $631,892, respectively |
| Interest income | $123,378 | $194,110 | $714 and $1,802, respectively |
| Change in warrant fair value | $410,000 gain | $400,000 gain | No quarterly gain; $10,000 expense for nine months |
| Net income (loss) | $433,314 | $235,888 | $(333,627) and $(640,090), respectively |
| Cash used in operating activities | Not separately provided | $373,852 | $634,592 |
The reported earnings improvement was driven primarily by the non-cash increase in the fair value of warrant liabilities and higher interest income, rather than operating revenue. Comprehensive income was $524,960 for the quarter and $327,534 for the nine months, including a $91,646 unrealized gain on U.S. Treasury securities.
- Cash outside the trust account was $18,238 at September 30, 2022, down from $32,090 at December 31, 2021.
- Trust-account investments were $48.135 million, consisting of U.S. Treasury securities, compared with $46.469 million at December 31, 2021.
- Total assets were $48.168 million; total liabilities were $3.349 million; and shareholders’ deficit was $3.316 million.
- Working capital deficit was $2.156 million.
- Current liabilities included $733,421 of advances from a related party and $1.380 million of related-party notes payable. The notes payable balance was zero at December 31, 2021.
- The company had $1.150 million of deferred underwriting compensation payable only upon completion of a business combination.
- There was no operating margin or revenue-based profitability measure because the company had no operating revenue.
Material changes versus the prior comparable period
- Net income changed from a $333,627 loss in the third quarter of 2021 to $433,314 of income in the third quarter of 2022; nine-month results changed from a $640,090 loss to $235,888 of income.
- Operating expenses declined to $100,064 for the quarter and $358,222 for the nine months, from $334,341 and $631,892, respectively.
- Interest income increased substantially as trust-account investments generated $194,110 during the first nine months of 2022 versus $1,802 in the prior-year period.
- The warrant liability declined from $410,000 at December 31, 2021 to $10,000 at September 30, 2022, producing a $400,000 non-cash gain for the nine months.
- Trust-account assets increased by approximately $1.666 million, primarily reflecting interest and extension-related deposits.
- Cash used in operating activities decreased by approximately $261,000 year over year, while financing included $1.740 million of related-party funding, including $1.380 million of extension-related notes.
Business combination, outlook, and risks
- The VIYI merger remained subject to customary closing conditions, including Venus shareholder approval, VIYI shareholder approval, required governmental approvals, delivery of required financial statements, and minimum net tangible assets.
- The merger agreement was amended several times in 2022, including extensions of the outside termination date and changes concerning the backstop arrangement and financial statement requirements. The original backstop agreement was terminated, and a replacement arrangement with WiMi provided for purchases of up to $15 million, subject to its terms.
- As of the filing, the company had extended its business-combination deadline to December 11, 2022. If no transaction were completed, it would be required to redeem public shares and liquidate, subject to applicable creditor claims and available funds.
- After September 30, 2022, shareholders tendered 4,522,704 shares for redemption. The filing stated that 77,296 public shares remained subject to possible redemption after the October 19 redemption deadline.
- Management stated that the company’s limited cash outside the trust account and inability to assure additional financing raised substantial doubt about its ability to continue as a going concern if a business combination was not completed by the applicable deadline. The filing contains inconsistent references to November 11 and December 11, 2022; the notes and subsequent events identify December 11, 2022 as the extended deadline.
- The company had material weaknesses in internal control over financial reporting related to the accounting classification of warrants and redeemable ordinary shares. Management undertook remediation, but stated that it could not assure the remediation would be effective.
- COVID-19 effects on the company’s financial position, operations, and target search remained uncertain and were not quantifiable in the filing.
- The filing reported no legal proceedings, no unregistered equity sales during the quarter, no senior-securities defaults, and no off-balance-sheet financing arrangements.
Most important facts to verify
- Confirm the correct issuer identity and whether the requested Microalgo Inc. reference relates to the proposed post-merger company rather than the 10-Q registrant, Venus Acquisition Corporation.
- Verify whether the VIYI/MicroAlgo business combination closed, was further amended, or was terminated after the September 30, 2022 reporting date.
- Verify the final redemption count, remaining trust-account balance, and share count after the October 19, 2022 redemptions.
- Resolve the filing’s inconsistent references to the November 11 and December 11, 2022 business-combination deadlines.
- Assess the effect of the material weaknesses and any subsequent remediation or restatement disclosures.
- Review related-party advances and extension notes, including repayment or conversion terms and whether they were settled upon any subsequent transaction.
- Confirm that the reported quarterly and nine-month earnings were substantially driven by non-cash warrant fair-value gains and trust-account interest rather than operating performance.