The accompanying notes are an integral part of
the unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of
the unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of
the unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of
the unaudited condensed consolidated financial statements.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023
(Unaudited)
NOTE 1. DESCRIPTION OF ORGANIZATION AND BUSINESS
OPERATIONS
Nocturne Acquisition Corporation (the “Company”)
is a blank check company incorporated as a Cayman Islands exempted company on October 28, 2020. The Company was formed for the purpose
of effecting a merger, share exchange, asset acquisition, share purchase, reorganization or similar business combination with one or
more businesses (“Business Combination”). The Company is an early stage and emerging growth company and, as such, the Company
is subject to all of the risks associated with early stage and emerging growth companies.
On December 30, 2022, the Company entered into
an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) with Nocturne Merger Sub, Inc., a Delaware corporation
and a wholly-owned subsidiary of Nocturne (“Merger Sub”), and Cognos Therapeutics, Inc., a Delaware corporation (“Cognos”),
with respect to a proposed initial business combination which would involve a domestication of Nocturne as a Delaware corporation, in
connection with which Nocturne would also change its name to “Cognos Therapeutics Holdings, Inc.”, followed by a merger of
Merger Sub with and into Cognos (the “Merger”), with Cognos continuing as the surviving entity and a wholly-owned subsidiary
of Nocturne.
As of March 31, 2023, the Company had not commenced
any operations. All activity through March 31, 2023 relates to the Company’s formation and initial public offering (the “Initial
Public Offering”), which is described below, and subsequent to the Initial Public Offering, identifying a target company for a
Business Combination. The Company will not generate any operating revenues until after the completion of its initial Business Combination,
at the earliest. The Company generates non-operating income in the form of income from the marketable securities held in the Trust Account
(as defined below).
The Registration Statement for the Company’s
Initial Public Offering was declared effective on March 29, 2021. On April 5, 2021, the Company consummated the Initial Public Offering
of 10,000,000 units at $10.00 per unit (the “Units” and, with respect to the ordinary shares included in the Units sold,
the “Public Shares”), generating gross proceeds of $100,000,000, which is described in Note 3.
Simultaneously with the closing of the Initial
Public Offering, the Company consummated the sale of 450,000 units (the “Private Placement Units”) at a price of $10.00 per
Private Placement Unit in a private placement (the “Private Placement”) to Nocturne Sponsor, LLC (the “Sponsor”),
generating gross proceeds of $4,500,000, which is described in Note 4.
Following the closing of the Initial Public Offering
on April 5, 2021, an amount of $101,000,000 ($10.10 per Unit) from the net proceeds of the sale of the Units in the Initial Public Offering
and the sale of the Private Placement Units was placed in a trust account (the “Trust Account”) and invested in U.S. government
treasury securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act of 1940, as amended (the “Investment
Company Act”), with a maturity of 185 days or less, or in any open-ended investment company that holds itself out as a money market
fund meeting certain conditions of Rule 2a-7 of the Investment Company Act, as determined by the Company, until the earlier of: (i) the
completion of a Business Combination and (ii) the distribution of the funds in the Trust Account to the Company’s shareholders,
as described below. In order to mitigate the risk that the Company could be deemed to be operating as an unregistered investment company
under the Investment Company Act of 1940, as amended (as further described in the March Proxy Statement), the Company has instructed
Continental to liquidate the Company’s investments in money market funds invested primarily in U.S. government treasury securities
and thereafter to hold all funds in the trust account in cash or in U.S. government treasury securities.
On April 14, 2021, the underwriters exercised
their over-allotment option in full and purchased an additional 1,500,000 Units (the “Over-Allotment Units”), generating
gross proceeds of $15,000,000. In connection with the sale of the Over-Allotment Units, the underwriters agreed to waive the underwriting
commission equal to 2% of gross proceeds. On April 14, 2021, simultaneously with the sale of the Over-Allotment Units and in connection
with the underwriters’ waiver of the underwriting commission described above, the Company consummated a private sale of an additional
15,000 Private Placement Units to the Sponsor, generating gross proceeds of $150,000. The additional proceeds of $15,150,000 were placed
in the Trust Account, bringing the grand total placed in the Trust Account to $116,150,000.
Transaction costs amounted to $6,597,115, consisting
of $2,000,000 in underwriting fees, $4,025,000 in deferred underwriting fees and $572,115 in other offering costs.
The Company’s management has broad discretion
with respect to the specific application of the net proceeds of the Initial Public Offering and the sale of the Private Placement Units,
although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination. There
is no assurance that the Company will be able to complete a Business Combination with Cognos successfully. The Company must complete
its initial Business Combination with one or more target businesses that together have a fair market value equal to at least 80% of the
net assets held in the Trust Account (excluding any deferred underwriting commissions held in the Trust Account and taxes payable on
the interest earned on the Trust Account) at the time of the agreement to enter into a Business Combination. The Company will only complete
a Business Combination with Cognos if the combined company owns or acquires 50% or more of the issued and outstanding voting securities
of Cognos or otherwise acquires a controlling interest in Cognos sufficient for it not to be required to register as an investment company
under the Investment Company Act.
NOCTURNE ACQUISITION CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023
(Unaudited)
The Company expects to provide its holders of
the outstanding Public Shares (the “public shareholders”) with the opportunity to redeem all or a portion of their Public
Shares upon the completion of a Business Combination with Cognos in connection with a shareholder meeting called to approve the Business
Combination. The shareholders will be entitled to redeem their shares for a pro rata portion of the amount held in the Trust Account
(initially $10.10 per share), calculated as of two business days prior to the completion of a Business Combination, including any pro
rata interest earned on the funds held in the Trust Account and not previously released to the Company to pay its tax obligations.
The Company will proceed with a Business Combination
only if the Company has net tangible assets of at least $5,000,001 either immediately prior to or upon consummation of the initial Business
Combination and after payment of underwriters’ fees and commissions; furthermore, because the Company has decided to seek shareholder
approval in connection with a Business Combination with Cognos, it must receive an ordinary resolution under Cayman Islands law approving
a Business Combination, which requires the affirmative vote of a majority of the shareholders who vote at an extraordinary general meeting
of the Company, to proceed with the Business Combination. the Sponsor has agreed to vote its Founder Shares (as defined in Note 5), Private
Placement Shares (as defined in Note 4), and any Public Shares purchased in or after the Initial Public Offering in favor of approving
the Business Combination with Cognos and to waive its redemption rights with respect to any such shares in connection with the shareholder
vote to approve the Business Combination with Cognos. However, in no event will the Company redeem its Public Shares in an amount that
would cause its net tangible assets to be less than $5,000,001. Additionally, each public shareholder may elect to redeem its Public
Shares irrespective of whether he, she or it votes for or against a Business Combination.
Notwithstanding the foregoing, because the Company
has decided to not conduct redemptions pursuant to the tender offer rules in connection with shareholder approval of the Business Combination,
the Company’s Amended and Restated Memorandum and Articles of Association provides that a public shareholder, together with any
affiliate of such shareholder or any other person with whom such shareholder is acting in concert or as a “group” (as defined
under Section 13 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), will be restricted from redeeming
its shares with respect to more than an aggregate of 15% of the Public Shares without the Company’s prior written consent.
The Sponsor has agreed (a) to waive its redemption
rights with respect to any Founder Shares, Private Placement Shares and Public Shares held by it in connection with the completion of
a Business Combination and (b) not to propose an amendment to the Amended and Restated Memorandum and Articles of Association (i) to
modify the substance or timing of the Company’s obligation to redeem 100% of the Public Shares if the Company does not complete
a Business Combination within the Combination Period (as defined below) or (ii) with respect to any other provision relating to shareholders’
rights or pre-initial Business Combination activity, unless the Company provides the public shareholders with the opportunity to redeem
their Public Shares in conjunction with any such amendment and (iii) to waive its rights to liquidating distributions from the Trust
Account with respect to the Founder Shares if the Company fails to complete a Business Combination.
The Company will have until the De-SPAC Deadline,
currently October 5, 2023 (such period ending on the De-SPAC Deadline, as the same may be extended as further described in the March
Proxy Statement, the “Combination Period”), to complete a Business Combination. If the Company is unable to complete a Business
Combination within the Combination Period, the Company will (i) cease all operations except for the purpose of winding up, (ii) as promptly
as reasonably possible, but no more than 10 business days thereafter, redeem 100% of the outstanding Public Shares, at a per-share price,
payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest income earned (less up to $100,000
of interest income to pay dissolution expenses), divided by the number of then outstanding Public Shares, which redemption will completely
extinguish public shareholders’ rights as shareholders (including the right to receive further liquidation distributions, if any),
and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the remaining shareholders and the
Company’s board of directors, dissolve and liquidate, subject in each case to its obligations under Cayman Islands law to provide
for claims of creditors and the requirements of other applicable law.
Notwithstanding the foregoing, the De-SPAC Deadline
specified in the Company’s amended and restated memorandum and articles of association, after giving effect to all prior extensions,
was April 5, 2023. However, on April 3, 2023, the Company held an extraordinary general meeting of its shareholders to consider the Extension
Amendment Proposal (as further described in the March Proxy Statement). The Extension Amendment Proposal was approved by the Company’s
shareholders in order to allow the Company more time to complete its initial business combination with Cognos and, accordingly, the Company's
amended and restated memorandum and articles of association were amended to further extend the De-SPAC Deadline (as further described
in the March Proxy Statement). Currently, the Company’s De-SPAC Deadline is October 5, 2023.
The Sponsor has agreed to waive its liquidation
rights with respect to the Founder Shares and Private Placement Shares if the Company fails to complete a Business Combination within
the Combination Period. However, if the Sponsor acquires Public Shares in or after the Initial Public Offering, such Public Shares will
be entitled to liquidating distributions from the Trust Account if the Company fails to complete a Business Combination within the Combination
Period. The underwriters have agreed to waive their rights to their deferred underwriting commission (see Note 6) held in the Trust Account
in the event the Company does not complete a Business Combination within the Combination Period; in such event, such amounts will be
included with the funds held in the Trust Account that will be available to fund the redemption of the Public Shares. In the event of
such distribution, it is possible that the per share value of the assets remaining available for distribution will be less than the Initial
Public Offering price per Unit ($10.00).
NOCTURNE ACQUISITION CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023
(Unaudited)
The Sponsor has agreed that it will be liable
to the Company if and to the extent any claims by a third party for services rendered or products sold to the Company, or by a prospective
target business with which the Company has discussed entering into a transaction agreement, reduce the amount of funds in the Trust Account
to below (1) $10.10 per Public Share or (2) such lesser amount per Public Share held in the Trust Account as of the date of the liquidation
of the Trust Account due to reductions in the value of trust assets, in each case net of the amount of income which may be withdrawn
to pay taxes. This liability will not apply with respect to any claims by a third party who executed a waiver of any and all rights to
seek access to the Trust Account, nor will it apply to any claims under the Company’s indemnity of the underwriters of the Initial
Public Offering against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the “Securities
Act”). Moreover, if an executed waiver is deemed to be unenforceable against a third party, the Sponsor will not be responsible
to the extent of any liability for such third-party claims. The Company will seek to reduce the possibility that the Sponsor will have
to indemnify the Trust Account due to claims of creditors by endeavoring to have all vendors, service providers (other than the Company’s
independent auditors), prospective target businesses or other entities with which the Company does business execute agreements with the
Company waiving any right, title, interest or claim of any kind in or to monies held in the Trust Account. Cognos has agreed to such
a waiver pursuant to the terms of the Merger Agreement.
Risks and Uncertainties
Management continues to evaluate the impact of
the COVID-19 pandemic and has concluded that, while it is reasonably possible that the COVID-19 virus, its variants, and any similar
virus could have a negative effect on the Company’s financial position and/or results of its operations, the specific impact is
not readily determinable as of the date of the financial statements. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
In February 2022, the Russian Federation commenced
a military action with the country of Ukraine. As a result of this action, various nations, including the United States, have instituted
economic sanctions against the Russian Federation and Belarus. Further, the impact of this action and related sanctions on the world
economy are not determinable as of the date of these financial statements, and the specific impact on the Company’s financial condition,
results of operations, and cash flows is also not determinable as of the date of these financial statements.
The Company is subject to other risks and uncertainties,
such as risks relating to rising interest rates and systemic bank failures in the United States and the possibility that the Company
will not be able to consummate the proposed initial business combination with Cognos, as further described in the sections titled “Risk
Factors” contained in our Registration Statement, our Quarterly Reports on Form 10-Q, and our Definitive Proxy Statements on Schedule
14A (including the March Proxy Statement), each of which is filed with the SEC, and the corresponding “Risk Factors” section
which will be contained in the proxy materials we file with the SEC and disseminate in connection with the approval of our initial business
combination with Cognos.
Liquidity and Going Concern
As of March 31, 2023, the Company had approximately
$12,000 in its operating bank account.
The Company’s liquidity needs to date have
been satisfied through a payment of $25,000 from the Sponsor to cover certain expenses on behalf of the Company in exchange for the issuance
of the Founder Shares and the proceeds from the consummation of the Private Placement not held in the Trust Account to provide working
capital needed to identify and seek to consummate a Business Combination.
On October 27, 2021, our Sponsor committed
to provide us with an aggregate of $150,000 in loans through April 5, 2023, which was the then-current De-SPAC Deadline (but which
was subsequently extended, as further described below). The loans, if issued, will be non-interest bearing, unsecured and will be
repaid upon the consummation of a Business Combination. If the Company does not consummate a Business Combination, all amounts
loaned to the Company will be forgiven except to the extent that the Company has funds available outside of the Trust Account to
repay such loans.
In order to finance transaction costs in connection
with a Business Combination, the Sponsor or an affiliate of the Sponsor, or certain of the Company’s officers and directors may,
but are not obligated to, provide the Company with Working Capital Loans (as defined in Note 5). As of March 31, 2023 and December 31,
2022, the Company had no borrowings under the 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 its initial Business Combination.
Moreover, the Company may need to obtain additional financing either to complete its Business Combination or because the Company has
become obligated to redeem a significant number of its Public Shares upon completion of its Business Combination, in which case the Company
may issue additional securities or incur debt in connection with such Business Combination.
In connection with the Company’s assessment
of going concern considerations in accordance with ASC Subtopic 205-40, “Presentation of Financial Statements – Going Concern,”
pursuant to its Amended and Restated Certificate of Incorporation, the Company has until the De-SPAC Deadline to consummate a Business
Combination. If a Business Combination is not consummated by the De-SPAC Deadline, there will be a mandatory liquidation and subsequent
dissolution of the Company. Although the Company intends to consummate a Business Combination on or before October 5, 2023, the
current De-SPAC Deadline (subject to any applicable extensions), it is uncertain that the Company will be able to consummate a Business
Combination in time. This uncertainty and the Company’s current liquidity condition 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 the De-SPAC Deadline.
NOCTURNE ACQUISITION CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023
(Unaudited)
Extension of the De-SPAC Deadline
The De-SPAC Deadline specified in the Company’s
amended and restated memorandum and articles of association, after giving effect to all prior extensions, was April 5, 2023. However,
on April 3, 2023, the Company held an extraordinary general meeting of its shareholders to consider the Extension Amendment Proposal
(as further described in the March Proxy Statement). The Extension Amendment Proposal was approved by the Company’s shareholders
in order to allow the Company more time to complete its initial business combination with Cognos and, accordingly, the Company's amended
and restated memorandum and articles of association were amended to further extend the De-SPAC Deadline (as further described in the
March Proxy Statement). Currently, the Company’s De-SPAC Deadline is October 5, 2023.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”)
for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X of the SEC. Certain
information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or
omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information
and footnotes necessary for a complete presentation of financial position, results of operations, or cash flows. In the opinion of management,
the accompanying unaudited condensed consolidated financial statements include all adjustments, consisting of a normal recurring nature,
that are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented.
The accompanying unaudited condensed consolidated
financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K as filed with the SEC on May 26,
2023. The interim results for the three months ended March 31, 2023, are not necessarily indicative of the results to be expected for
the year ending December 31, 2023, or for any future periods.
Emerging Growth Company
The Company is an “emerging growth company,”
as defined in Section 2(a) of the Securities Act, 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 shareholder
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 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; this means that, where an issued
or revised standard 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 that is neither an emerging growth company nor an emerging growth company that 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 the condensed consolidated
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 condensed consolidated
financial statements, as well as the reported amounts of revenues and expenses during the reporting periods.
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 condensed consolidated financial statements, which management considered in formulating its estimate,
could change in the near term due to one or more future confirming events. 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, 2023 and December 31, 2022.
NOCTURNE ACQUISITION CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023
(Unaudited)
Offering Costs
Offering costs consist of legal, accounting and
other expenses incurred through the Initial Public Offering that were directly related to the Initial Public Offering. Upon completion
of the Initial Public Offering, offering costs of $6,574,881 allocated to the Public Shares were initially charged to temporary equity
and then accreted to ordinary shares subject to redemption. Furthermore, offering costs of $22,234 allocated to the Private Placement
Units were charged to additional paid-in capital upon completion of the Initial Public Offering.
Marketable Securities Held in Trust Account
At March 31, 2023, and December 31, 2022, substantially
all of the assets held in the Trust Account were held in money market funds, which are invested primarily in U.S. Treasury securities.
The Company’s investments held in the Trust Account are classified as trading securities. Trading securities are presented on the
balance sheet at fair value at the end of each reporting period. Gains and losses resulting from the change in fair value of investments
held in the Trust Account are included in income earned on marketable securities held in Trust Account in the accompanying condensed
consolidated statements of operations. The estimated fair values of investments held in the Trust Account are determined using available
market information.
However, in order to mitigate the risk that the
Company could be deemed to be operating as an unregistered investment company under the Investment Company Act of 1940, as amended, the
Company has decided to instruct Continental to liquidate the Company’s investments in money market funds invested primarily in
U.S. government treasury securities and thereafter to hold all funds in the trust account in cash or in U.S. government treasury securities
until the earlier of consummation of the initial business combination or the Company’s liquidation.
Ordinary Shares Subject to Possible Redemption
The Company accounts for its ordinary shares
subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing
Liabilities from Equity.” Ordinary shares subject to mandatory redemption are classified as a liability instrument and are measured
at fair value. Conditionally redeemable ordinary shares (including ordinary shares featuring 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, ordinary shares are classified as shareholders’ deficit. The Company’s
ordinary shares feature certain redemption rights that are considered to be outside of the Company’s control and subject to the
occurrence of uncertain future events.
In connection with the extraordinary general
meeting in lieu of the 2022 Annual Meeting of Shareholders held by the Company on October 4, 2022, shareholders holding 9,515,920 public
shares exercised their right to redeem their shares for a pro rata portion of the funds in the Trust Account.
Accordingly, at March 31, 2023 and December 31,
2022, 1,984,080 ordinary shares subject to possible redemption are presented at $10.88 and $10.63 redemption value, respectively, as
temporary equity, outside of the shareholders’ deficit section of the Company’s condensed consolidated balance sheets.
The Company recognizes changes in redemption
value immediately as they occur and adjusts the carrying value of redeemable ordinary shares to equal the redemption value at the end
of each reporting period. Immediately upon the closing of the Initial Public Offering, the Company recognized the remeasurement from
initial book value to redemption value. The change in the carrying value of redeemable ordinary shares resulted in charges against additional
paid-in capital and accumulated deficit.
At March 31, 2023, and December 31, 2022, the
ordinary shares subject to redemption reflected in the condensed consolidated balance sheets are reconciled in the following table:
Ordinary shares subject to possible redemption, January 1, 2022 | |
$ | 116,157,607 | |
Less: | |
| | |
Redemption of Ordinary shares | |
| (98,596,479 | ) |
Plus: | |
| | |
Remeasurement of carrying value to redemption value | |
| 3,539,254 | |
Ordinary shares subject to possible redemption, December 31, 2022 | |
$ | 21,100,382 | |
Plus: | |
| | |
Remeasurement of carrying value to redemption value | |
| 476,660 | |
Ordinary shares subject to possible redemption, March 31, 2023 | |
$ | 21,577,042 | |
NOCTURNE ACQUISITION CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023
(Unaudited)
Income Taxes
The Company accounts for income taxes under ASC
740, “Income Taxes” (“ASC 740”). ASC 740 requires the recognition of deferred tax assets and liabilities
for both the expected impact of differences between the financial statement and tax basis of assets and liabilities and for the expected
future tax benefit to be derived from tax loss and tax credit carryforwards. ASC 740 additionally requires the establishment of a valuation
allowance when it is more likely than not that all or a portion of deferred tax assets will not be realized.
ASC 740 also clarifies the accounting for uncertainty
in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process
for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. For those benefits
to be recognized, it must be more likely than not that a tax position will not 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, 2023 and December 31, 2022. 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.
The Company is considered an exempted Cayman
Islands Company and is presently not subject to income taxes or income tax filing requirements in the Cayman Islands or the United States.
As such, the Company’s tax provision was zero for the periods presented.
Net Loss per Ordinary Share
The Company complies with accounting and disclosure
requirements of ASC Topic 260, “Earnings Per Share.” Net loss per ordinary share is computed by dividing net loss by the
weighted average number of ordinary shares outstanding for the period. The remeasurement associated with the redeemable ordinary shares
is excluded from loss per ordinary share as the redemption amount approximates fair value.
The calculation of diluted loss per ordinary
share does not consider the effect of the rights issued in connection with the (i) Initial Public Offering and (ii) the Private Placement,
which rights may convert into 1,196,500 ordinary shares, because the conversion of the rights into ordinary shares is contingent upon
the occurrence of future events. As of March 31, 2023 and 2022, the Company did not have any dilutive securities or other contracts that
could, potentially, be exercised or converted into ordinary shares and then share in the losses of the Company. As a result, diluted
net loss per ordinary share is the same as basic net loss per ordinary share for the periods presented.
The following table reflects the calculation
of basic and diluted net loss per ordinary share (in dollars, except per share amounts):
| |
Three Months Ended March 31, | |
| |
2023 | | |
2022 | |
Basic and diluted net loss per ordinary share | |
| | |
| |
Numerator: | |
| | |
| |
Allocation of net loss | |
$ | (308,711 | ) | |
$ | (193,922 | ) |
Denominator: | |
| | | |
| | |
Basic and diluted weighted average shares outstanding | |
| 5,324,080 | | |
| 14,840,000 | |
Basic and diluted net loss per ordinary share | |
$ | (0.06 | ) | |
$ | (0.01 | ) |
Concentration of Credit Risk
Financial instruments that potentially subject
the Company to concentrations of credit risk consist of cash accounts in a financial institution, which, at times may exceed the Federal
Depository Insurance Corporation coverage limit of $250,000. The Company has not experienced losses on these accounts.
Fair Value of Financial Instruments
The fair value of the Company’s assets
and liabilities, which qualify as financial instruments under ASC Topic 820, “Fair Value Measurement” (“ASC
820”), approximates the carrying amounts represented in the accompanying condensed consolidated balance sheets, primarily due to
their short-term nature.
NOCTURNE ACQUISITION CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023
(Unaudited)
Fair Value Measurements
The Company follows the guidance in ASC 820 for
its financial assets and liabilities that are re-measured and reported at fair value at each reporting period. The Company also follows
ASC 820 for non-financial assets and liabilities that are re-measured and reported at fair value at least annually.
The fair value of the Company’s financial
assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with the sale
of the assets or that the Company would have paid in connection with the transfer of the liabilities in an orderly transaction between
market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks
to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs
(internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to
classify assets and liabilities based on the observable inputs and unobservable inputs used to value the assets and liabilities:
Level 1: |
Quoted prices in active
markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the
asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. |
|
|
Level 2: |
Observable inputs other
than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities
and quoted prices for identical assets or liabilities in markets that are not active. |
|
|
Level 3: |
Unobservable inputs based
on our assessment of the assumptions that market participants would use in pricing the asset or liability. |
Recent Accounting Standards
In June 2016, the FASB issued Accounting Standards
Update (“ASU”) 2016-13 – Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on
Financial Instruments (“ASU 2016-13”). This update requires financial assets measured at amortized cost basis to be presented
at the net amount expected to be collected. The measurement of expected credit losses is based on relevant information about past events,
including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported
amount. Since June 2016, the FASB issued clarifying updates to the new standard including changing the effective date for smaller reporting
companies. The guidance is effective for fiscal years beginning after December 15, 2022, and interim periods within those fiscal
years, with early adoption permitted. The Company adopted ASU 2016-13 on January 1, 2023. The adoption of ASU 2016-13 did not have a
material impact on its financial statements.
Management does not believe that any recently
issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s condensed
consolidated financial statements.
NOTE 3. PUBLIC OFFERING
Pursuant to the Initial Public Offering, the
Company sold 11,500,000 Units, inclusive of 1,500,000 Units sold to underwriters on April 14, 2021, upon the underwriters’
election to fully exercise their over-allotment option, at a purchase price of $10.00 per Unit. Each Unit consists of one ordinary
share and one right (“Public Right”). Each Public Right entitles the holder to receive one-tenth (1/10) of one ordinary
share at the closing of a Business Combination (see Note 7).
NOTE 4. PRIVATE PLACEMENT
Simultaneously with the closings of the
Initial Public Offering and the sale over the Over-Allotment Units, the Sponsor purchased an aggregate of 465,000 Private Placement
Units at a price of $10.00 per Private Placement Unit, for an aggregate purchase price of $4,650,000. Each Private Placement Unit
consists of one ordinary share (“Private Placement Unit”) and one right (“Private Placement Right”). Each
Private Placement Right entitles the holder to receive one-tenth (1/10) of one ordinary share at the closing of a Business
Combination. A portion of the proceeds from the sale of the Private Placement Units were added to the net proceeds from the Initial
Public Offering held in the Trust Account. If the Company does not complete a Business Combination within the Combination Period,
the proceeds from the sale of the Private Units will be used to fund the redemption of the Public Shares (subject to the
requirements of applicable law), and the Private Placements Units and all underlying securities will expire worthless.
NOCTURNE ACQUISITION CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023
(Unaudited)
NOTE 5. RELATED PARTY TRANSACTIONS
Founder Shares
In November 2020, the Sponsor paid $25,000 to
cover certain offering costs of the Company in consideration for 2,875,000 of the Company’s ordinary shares (the “Founder
Shares”). The Founder Shares included an aggregate of up to 375,000 shares subject to forfeiture by the Sponsor to the extent that
the underwriters’ over-allotment was not exercised in full or in part, so that the Sponsor would collectively own 20% of the Company’s
issued and outstanding shares after the Initial Public Offering (assuming the Sponsor did not purchase any Public Shares in the Initial
Public Offering and excluding the Private Placement Shares). As a result of the underwriters’ election to fully exercise their
over-allotment option on April 14, 2021, no Founder Shares are currently subject to forfeiture.
The Sponsor has agreed not to transfer, assign
or sell any of the Founder Shares (except to certain permitted transferees) until, with respect to 50% of the Founder Shares, the earlier
of nine months after the date of the consummation of a Business Combination and the date on which the closing price of the Company’s
ordinary shares equals or exceeds $12.50 per share for any 20 trading days within a 30-trading day period following the consummation
of a Business Combination and, with respect to the remaining 50% of the Founder Shares, nine months after the date of the consummation
of a Business Combination, or earlier in each case if, subsequent to a Business Combination, the Company completes a liquidation, merger,
stock exchange or other similar transaction which results in all of the shareholders having the right to exchange their ordinary shares
for cash, securities or other property.
Administrative Services Agreement
The Company entered into an agreement, commencing
on March 30, 2021 through the earlier of the Company’s consummation of a Business Combination and its liquidation, to pay the Sponsor
a total of $10,000 per month for office space, administrative and support services. The accrued balance of these fees totaled $240,000 and $210,000 as of March 31, 2023 and December 31, 2022, respectively.
Promissory Note — Related Party
On November 16, 2020, the Company issued to the
Sponsor an unsecured promissory note (the “Promissory Note”) pursuant to which the Company could borrow up to an aggregate
principal amount of $300,000. The Promissory Note was non-interest bearing and payable on the earlier of (i) June 30, 2021, or (ii) the
consummation of the Initial Public Offering. The outstanding balance under the Promissory Note was repaid in its entirety at the closing
of the Initial Public Offering. Borrowings are no longer available under the Promissory Note.
On April 5, 2022, the Company issued a $1,150,000
promissory note (the “First Extension Note”) to Mindfulness Capital Management Limited, a Cayman Islands exempted company
(“Mindfulness”), in consideration for $1,150,000 being deposited in the Trust Account (the “First Extension Payment”)
for the purpose of extending the Combination Period to July 5, 2022 (the “First Extension”). The First Extension was the
first of the two three-month extensions permitted under the Company’s governing documents before they were amended to allow for
additional extensions. The First Extension Note is non-interest bearing and payable (subject to the waiver against trust provisions)
on the earlier of (i) the date on which the Business Combination is consummated and (ii) the date of the liquidation of the Company.
On July 5, 2022, an aggregate of $1,150,000 (the
“Second Extension Payment”) was deposited by Mindfulness into the Trust Account for the public shareholders, representing
$0.10 per public share, to enable the Company to extend the period of time it has to consummate its initial Business Combination by three
months, from July 5, 2022 to October 5, 2022 (the “Second Extension”). The Second Extension is the second of the two three-month
extensions permitted under the Company’s governing documents before they were amended to allow for additional extensions. In connection
with the Second Extension Payment and Second Extension, on July 5, 2022, the Company issued to Mindfulness an unsecured promissory note
(the “Second Extension Note”) having a principal amount equal to the amount of the Second Extension Payment. The Second Extension
Note is non-interest bearing and payable (subject to the waiver against trust provisions) on the earlier of (i) the date on which the
Business Combination is consummated and (ii) the date of the liquidation of the Company.
On July 6, 2022, the Company issued a $280,000
promissory note (the “Third Note” and, together with the Promissory Note, the First Extension Note, and the Second Extension
Note, the “Promissory Notes”) to Mindfulness. The Third Note is non-interest bearing and due upon the earlier of the consummation
of the Business Combination or the date of Company’s liquidation.
As of March 31, 2023 and December 31, 2022,
the Company had an outstanding balance of $2,579,979 under the Promissory Notes. It is expected that the Company may issue
additional instruments similar to the Promissory Notes in connection with any potential additional extensions of the De-SPAC
Deadline, as further described in the March Proxy Statement and the Company’s other filings with the SEC.
NOCTURNE ACQUISITION CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023
(Unaudited)
Advances from Related Party
The Sponsor advanced the Company $1,735,050 and
$1,040,050 as of March 31, 2023 and December 31, 2022, respectively, for working capital purposes. The advance is non-interest bearing
and is due on demand.
Related Party Loans
In order to finance transaction costs in connection
with a Business Combination, the Sponsor or an affiliate of the Sponsor or certain of the Company’s directors and officers may,
but are not obligated to, loan the Company funds as may be required (“Working Capital Loans”). If the Company completes a
Business Combination, the Company will repay the Working Capital Loans out of the proceeds of the Trust Account released to the Company.
Otherwise, the Working Capital Loans will be repaid only out of funds held outside the Trust Account. In the event that a Business Combination
does not close, the Company may use a portion of proceeds held outside the Trust Account to repay the Working Capital Loans; but, no
proceeds held in the Trust Account would be used to repay the Working Capital Loans. Except for the foregoing, the terms of such Working
Capital Loans, if any, have not been determined and no written agreements exist with respect to such loans. The Working Capital Loans
would either be repaid upon consummation of a Business Combination, without interest, or, at the lender’s discretion, up to $1,500,000
of such Working Capital Loans may be convertible into units of the combined company at a price of $10.00 per unit. The units would be
identical to the Private Placement Units. As of March 31, 2023, and December 31, 2022, there were no amounts outstanding under the Working
Capital Loans.
On October 27, 2021, the Sponsor committed
to provide us with an aggregate of $150,000 in loans through April 5, 2023, the which was the then-current De-SPAC Deadline. These loans will be non-interest bearing, unsecured and will be repaid upon the consummation of a Business Combination. If the
Company does not consummate a Business Combination, all amounts loaned to the Company will be forgiven except to the extent that the
Company has funds available outside of the Trust Account to repay such loans. As of March 31, 2023, and December 31, 2022, there
were no loans issued under this commitment.
NOTE 6. COMMITMENTS AND CONTINGENCIES
Registration Rights
Pursuant to a registration rights agreement entered
into on March 30, 2021, the holders of the Founder Shares, Private Placement Units (and their underlying securities) and any Units that
may be issued upon conversion of the Working Capital Loans (and underlying securities) are entitled to registration rights requiring
the Company to register such securities for resale (in the case of the Founder Shares, only after conversion to the ordinary shares).
The holders of these securities are entitled to make up to three demands, excluding short form demands, that the Company register such
securities. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements
filed subsequent to the completion of a Business Combination, as well as rights to require the Company to register for resale such securities
pursuant to Rule 415 under the Securities Act. The registration rights agreement does not contain liquidated damages or other cash settlement
provisions resulting from delays in registering the Company’s securities. The Company will bear the expenses incurred in connection
with the filing of any such registration statements.
Underwriting Agreement
The Company granted the underwriters a 45-day
option to purchase up to 1,500,000 additional Units to cover over-allotment at the Initial Public Offering price, less the underwriter
discounts and commissions. On April 14, 2021, the underwriters elected to fully exercise the over-allotment option to purchase an additional
1,500,000 Units at a price of $10.00 per Unit.
NOCTURNE ACQUISITION CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023
(Unaudited)
Service Provider Agreements
From time to time the Company has entered into
and may enter into agreements with various services providers and advisors, including investment banks, to help identify potential target
businesses, negotiate terms of potential Business Combinations, consummate a Business Combination and/or provide other services. In connection
with these agreements, the Company may be required to pay such service providers and advisors fees in connection with their services
to the extent that certain conditions, including the closing of a potential Business Combination, are met. If a Business Combination
does not occur, the Company would not expect to be required to pay these contingent fees. There can be no assurance that the Company
will complete a Business Combination with Cognos or with another target business.
Right of First Refusal
Subject to certain conditions, the Company will
grant Chardan, for a period of 12 months after the date of the consummation of a Business Combination, a right of first refusal to act
as book running manager, with at least 30% of the economics, for any and all future public and private equity and debt offerings. In
accordance with FINRA Rule 5110(f)(2)(E)(i), such right of first refusal shall not have a duration of more than three years from the
effective date of the Registration Statement.
Merger Agreement
On December 30, 2022, the Company entered into
an Agreement and Plan of Merger and Reorganization (the “Merger Agreement”) with Nocturne Merger Sub, Inc., a Delaware corporation
and a wholly-owned subsidiary of the Company (“Merger Sub”), and Cognos Therapeutics, Inc., a Delaware corporation (“Cognos”),
with respect to a proposed initial business combination which would involve a domestication of the Company as a Delaware corporation,
in connection with which the Company would also change its name to “Cognos Therapeutics Holdings, Inc.”, followed by a merger
of Merger Sub with and into Cognos (the “Merger”), with Cognos continuing as the surviving entity and a wholly-owned subsidiary
of the Company.
In consideration for and in connection with the
Merger, the current holders of shares of Cognos’ common stock, par value $0.0001 per share, will have their shares canceled and
converted into the right to receive a certain number of shares of common stock of Nocturne (which will at the relevant time be a Delaware
corporation) as provided for in the Merger Agreement. The Company intends to call an extraordinary general meeting of the holders of
its ordinary shares, par value $0.0001 per share, to seek shareholder approval of the Company Shareholder Voting Matters (as defined
in the Merger Agreement), including the Merger.
Pursuant to the Merger Agreement, (i) the Company
will domesticate as a Delaware corporation and de-register as a Cayman Islands exempted company (the “Domestication”) and
(ii) Merger Sub will merge with and into Cognos with Cognos continuing as the surviving entity and a wholly-owned subsidiary of Nocturne
(the “Merger” and together with the Domestication and the other transactions contemplated by the Merger Agreement, the “Business
Combination”). In connection with the Domestication, the Company will change its name to “Cognos Therapeutics Holdings, Inc.”
We refer to the Company following the Business Combination as “Cognos Therapeutics.”
As a result of the Domestication, each issued
and outstanding ordinary share of the Company will be converted into an equal number of shares of common stock of Cognos Therapeutics,
par value $0.0001 per share (“Cognos Therapeutics Common Stock”), and each right to receive ordinary shares of the Company
(each, a “Right”) will convert into the right to receive one-tenth (1/10) of one share of Cognos Therapeutics Common Stock.
At the closing of the Business Combination, each Right will receive one-tenth (1/10) of one share of Cognos Therapeutics Common Stock.
The Merger Agreement contains customary representations
and warranties, covenants and indemnification provisions and is subject to customary closing conditions (including the receipt of shareholder
approval at the Company extraordinary general meeting described above). The foregoing description of the Merger Agreement and the transactions
and documents contemplated thereby is not complete and is subject to and qualified in its entirety by reference to the Merger Agreement,
a copy of which is filed with this Current Report on Form 8-K as Exhibit 2.1, and the terms of which are incorporated by reference herein.
In connection with the Business Combination,
the Company’s sponsor, Nocturne Sponsor, LLC (the “Sponsor”), agreed to forfeit certain equity securities of the Company
owned by it (collectively, the “Sponsor Shares”) under certain circumstances pursuant to the Sponsor Forfeiture Agreement,
as further described below under “Sponsor Forfeiture Agreement.”
For additional information, refer to the Company’s
Current Reports on Form 8-K, as filed with the SEC on January 4, 2023 and January 9, 2023, respectively.
NOCTURNE ACQUISITION
CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023
(Unaudited)
NOTE 7. SHAREHOLDERS’ DEFICIT
Preference Shares — The Company
is authorized to issue 5,000,000 preference shares with a par value of $0.0001 per share, with such designations, voting and other rights
and preferences as may be determined from time to time by the Company’s board of directors. As of March 31, 2023, and December
31, 2022, there were no preference shares issued or outstanding.
Ordinary Shares — The Company
is authorized to issue 500,000,000 ordinary shares, with a par value of $0.0001 per share. Holders of ordinary shares are entitled to
one vote for each share. At March 31, 2023 and December 31, 2022, there were 3,340,000 ordinary shares issued and outstanding, excluding
1,984,080 ordinary shares subject to possible redemption, which are presented as temporary equity.
Rights — Each holder of
a right will receive one-tenth (1/10) of one ordinary share upon consummation of a Business Combination, even if the holder of such
right redeemed all ordinary shares held by it in connection with a Business Combination. No additional consideration will be
required to be paid by a holder of Public Rights in order to receive its additional shares upon consummation of a Business
Combination, as the consideration related thereto was included in the unit purchase price paid for by investors in the Initial
Public Offering. If the Company enters into a definitive agreement for a Business Combination under which the Company will not be
the surviving entity, the definitive agreement will provide for the holders of Public Rights to receive the same per share
consideration that the holders of ordinary shares will receive in the transaction on an as-converted into ordinary share basis, and
each holder of a Public Right will be required to affirmatively convert its Public Rights in order to receive the one-tenth (1/10)
share underlying each Public Right (without paying any additional consideration) upon consummation of a Business Combination. More
specifically, the Public Right holder will be required to indicate its election to convert the Public Rights into underlying shares,
as well as to return the original rights certificates to the Company.
If the Company is unable to complete a Business
Combination within the Combination Period and the Company liquidates the funds held in the Trust Account, holders of Public Rights will
not receive any of such funds with respect to their Public Rights, nor will they receive any distribution from the Company’s assets
held outside of the Trust Account with respect to such Public Rights, and the Public Rights will expire worthless. Further, there are
no contractual penalties for failure to deliver securities to the holders of the Public Rights upon consummation of a Business Combination.
Additionally, in no event will the Company be required to net cash settle the rights. Accordingly, the rights may expire worthless.
NOTE 8. FAIR VALUE MEASUREMENTS
The following table presents information about
the Company’s assets that are measured at fair value on a recurring basis at March 31, 2023, and December 31, 2022 and indicates
the fair value hierarchy of the valuation inputs that the Company utilized to determine such fair value:
| |
| |
March 31, | | |
December 31, | |
Description | |
Level | |
2023 | | |
2022 | |
Assets: | |
| |
| | |
| |
Marketable securities held in Trust Account | |
1 | |
$ | 21,577,042 | | |
$ | 21,100,382 | |
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 consolidated financial statements were
issued and, other than described below, there were no other subsequent events identified that would have required adjustment or
disclosure in the condensed consolidated financial statements.
On April 3, 2023, the Company held an extraordinary
general meeting of its shareholders to consider the Extension Amendment Proposal (as further described in the March Proxy Statement).
The Extension Amendment Proposal was approved by the Company’s shareholders in order to allow the Company more time to complete
its initial business combination with Cognos and, accordingly, the Company's amended and restated memorandum and articles of association
were amended to further extend the De-SPAC Deadline (as further described in the March Proxy Statement). Currently, the Company’s
De-SPAC Deadline is October 5, 2023. In connection with the extraordinary general meeting, shareholders holding 132,664 public shares
exercised their right to redeem their shares for a prorate portion of the funds in the Trust Account.
On April 21, 2023 and May 24, 2023 respectively,
the Company received a notification from Nasdaq that it was in violation of a Nasdaq continued listing requirement as it had failed to
timely file its Annual Report on Form 10-K for the fiscal year ended December 31, 2022 (the “Form 10-K”). The notification
provided that the Company had until June 20, 2023 to submit a plan to regain compliance with this continued listing requirement. The
Company filed its Form 10-K on May 26, 2023.