Business Context and Reporting Period
The filing is Venus Acquisition Corporation’s unaudited Form 10-Q for the quarter and nine months ended September 30, 2021, filed November 12, 2021. The provided metadata identifies “Microalgo Inc.,” but the filing’s registrant is Venus Acquisition Corporation, a Cayman Islands blank-check company and SPAC. The company had no operating business or revenue and was formed to complete a business combination.
On June 10, 2021, Venus entered into a merger agreement with VIYI Algorithm Inc. and related parties. The proposed transaction contemplated aggregate consideration of $400 million in newly issued shares valued at $10.10 per share. The SEC was reviewing the related Form S-4/proxy statement as of the filing date.
Key Financial Metrics
| Metric | Three Months Ended September 30, 2021 | Nine Months Ended September 30, 2021 |
|---|---|---|
| Revenue | $0 | $0 |
| Operating expenses | $334,341 | $631,892 |
| Net loss | $333,627 | $640,090 |
| Interest income | $714 | $1,802 |
| Cash flow from operating activities | Not separately disclosed | $(634,592) |
| Cash flow from investing activities | Not separately disclosed | $(46,466,500) |
| Cash flow from financing activities | Not separately disclosed | $47,103,496 |
At September 30, 2021, cash outside the trust account was $2,643, total assets were $46.5 million, and investments held in the trust account were $46,468,302, principally U.S. Treasury securities. Current liabilities were $309,478, including $233,420 owed to the sponsor, and total liabilities were $1,849,478. Deferred underwriting compensation was $1,150,000, and private warrant liabilities were $390,000.
Shares subject to possible redemption totaled 4,600,000 shares with a carrying value of $46,460,000. Shareholders’ deficit was $1,796,444. The company reported no long-term debt, capital lease obligations, or long-term operating lease obligations. It pays an affiliate of the sponsor $10,000 per month for administrative services.
The company had a working-capital deficit of $264,968 and stated that it expected available cash and potential sponsor financing to be sufficient to fund its needs through the anticipated business combination process.
Material Changes Versus the Prior Comparable Period
- Net loss increased to $333,627 for the quarter from $34,189 in the prior-year quarter and to $640,090 for the nine-month period from $47,644.
- Operating expenses increased materially, reflecting public-company costs, transaction-related activity, and business-combination efforts.
- The company completed its February 2021 IPO of 4,600,000 units for gross proceeds of $46 million and a simultaneous private placement of 225,000 units for $2.25 million. Most proceeds were placed in the trust account.
- Cash and trust investments increased substantially from December 31, 2020, when the company had $239 of cash and no trust-account investments.
- The company revised previously issued financial statements to classify public shares subject to redemption as temporary equity and to classify private warrants as derivative liabilities. Public warrants were classified as equity.
- Management concluded that disclosure controls and procedures were ineffective because of the accounting revisions and related misapplication of warrant and redeemable-share guidance. The revisions did not affect previously reported cash or total assets.
Guidance, Outlook, Risks, and Unusual Items
- Venus had until February 11, 2022 to complete a business combination, with up to nine one-month extensions, potentially extending the deadline to 21 months. Each extension requires a sponsor loan of $153,333, up to an aggregate of $1.38 million; the sponsor is not obligated to provide the funding.
- If no business combination is completed within the permitted period, the company expects to redeem the public shares and liquidate. Public shareholders may receive the pro rata trust-account balance, while founder shares, private units, rights, and warrants may become worthless.
- Completion of the VIYI transaction remained subject to SEC review, effectiveness of the Form S-4/proxy statement, shareholder approval, satisfaction of transaction conditions, and possible shareholder redemptions. There was no assurance that the transaction would close.
- The company may require additional capital if transaction and due-diligence costs exceed estimates or trust-account interest is insufficient. Sponsor and management loans are discretionary and generally cannot be repaid from trust funds if the transaction fails.
- COVID-19 could adversely affect the company’s financial position, operations, or search for a target, although management reported no significant impact through the reporting date.
- The company identified reduced availability and higher costs of directors’ and officers’ liability insurance as an additional risk to completing a business combination and retaining qualified directors and officers.
- The private warrant liability is a Level 3 fair-value measurement based on valuation models and unobservable inputs; changes in its value can affect reported earnings without affecting cash.
- The filing states that no legal proceedings were pending and no material risk-factor changes occurred other than the insurance-market risk described above.
Most Important Facts to Verify
- Confirm the correct registrant: the supplied metadata says Microalgo Inc., while the filing is for Venus Acquisition Corporation.
- Verify the status, SEC effectiveness, shareholder approval, closing conditions, and final terms of the proposed VIYI Algorithm Inc. business combination.
- Assess the company’s ability to fund operations with only $2,643 of unrestricted cash and a $264,968 working-capital deficit.
- Review the accounting revisions, ineffective disclosure controls, and any remediation of internal control deficiencies.
- Confirm the February 11, 2022 business-combination deadline and whether sponsor extension funding is available.
- Evaluate redemption risk, the $46.46 million trust balance, the $1.15 million deferred underwriting fee, and the potential dilution from rights, warrants, and merger consideration.