Chain Bridge I Restates Q3, Reveals Material Weakness in Controls

TL;DR

**Chain Bridge I's restatement exposes a material weakness in financial controls and a deteriorating financial picture, making it a risky bet for investors.**

AI Summary

Chain Bridge I (CBGGF) filed a 10-Q/A to amend its Q3 2024 financial statements, correcting an understatement of liabilities and expenses by $200,000 related to a Bridge Financing Note payment and an overstatement of prepaid expenses by $97,500 due to unamortized retainer. The restatement revealed a net income of $326,476 for the three months ended September 30, 2024, a significant improvement from a net loss of $471,827 in the prior year period. However, for the nine months ended September 30, 2024, the company reported a net loss of $1,359,371, a sharp decline from a net income of $4,141,812 in the same period of 2023. Total liabilities increased substantially from $186,820 as of December 31, 2023, to $2,661,399 as of September 30, 2024, driven by new Exchange Note and Bridge Financing Note liabilities of $296,942 and $1,063,235, respectively. Cash increased from $3,898 to $428,625, while investments in the Trust Account decreased from $45,356,234 to $11,510,382, primarily due to redemptions. The CEO and CFO concluded that disclosure controls and procedures were not effective due to a material weakness in internal control over financial reporting.

Why It Matters

This restatement is critical for investors as it highlights significant internal control deficiencies at Chain Bridge I, specifically a material weakness in reviewing liabilities and prepaid expenses. The substantial increase in liabilities, including a new $1,063,235 Bridge Financing Note, and the sharp decline in nine-month net income from $4.14 million to a $1.36 million loss, signal potential financial instability and operational challenges. For employees and customers, such control weaknesses can erode confidence in management's ability to accurately report financial health, potentially impacting future business combinations and long-term viability. Competitively, this raises red flags, making Chain Bridge I a less attractive partner for potential target companies in the SPAC market.

Risk Assessment

Risk Level: high — The risk level is high due to the identified material weakness in internal control over financial reporting related to the adequate review and reconciliation of liabilities and prepaid expenses. This fundamental control failure led to a $200,000 understatement of liabilities and expenses and a $97,500 overstatement of prepaid expenses, indicating unreliable financial reporting. Furthermore, the company's accumulated deficit grew from $(943,675) to $(2,303,046) from December 31, 2023, to September 30, 2024, signaling ongoing operational losses.

Analyst Insight

Investors should exercise extreme caution and consider divesting from CBGGF. The material weakness in internal controls suggests a high risk of future financial misstatements, and the significant increase in liabilities combined with a substantial net loss for the nine months ended September 30, 2024, indicates a deteriorating financial position. Wait for clear evidence of remediated controls and sustained profitability before reconsidering an investment.

Financial Highlights

total Debt

$2,661,399

net Income

$326,476

cash Position

$428,625

Key Numbers

• $200,000 — Understated liabilities and expenses (Corrected payment to legal counsel for Bridge Financing Note)
• $97,500 — Overstated prepaid expenses (Corrected unamortized retainer)
• $326,476 — Net income for Q3 2024 (restated) (Improved from a net loss of $471,827 in Q3 2023)
• $(1,359,371) — Net loss for nine months ended Sept 30, 2024 (restated) (Significant decline from net income of $4,141,812 in the same period of 2023)
• $2,661,399 — Total Liabilities as of Sept 30, 2024 (restated) (Increased from $186,820 as of Dec 31, 2023)
• $1,063,235 — Bridge Financing Note liability (New liability as of Sept 30, 2024)
• $296,942 — Exchange Note liability (New liability as of Sept 30, 2024)
• $428,625 — Cash as of Sept 30, 2024 (Increased from $3,898 as of Dec 31, 2023)
• $11,510,382 — Investments held in Trust Account as of Sept 30, 2024 (Decreased from $45,356,234 as of Dec 31, 2023 due to redemptions)
• $(2,076,028) — Total shareholders' deficit as of Sept 30, 2024 (restated) (Increased from $(79,774) as of Dec 31, 2023)

Key Players & Entities

• Chain Bridge I (company) — Registrant filing the 10-Q/A
• SEC (regulator) — Securities and Exchange Commission
• Chain Bridge Group (company) — Private Placement participant and lender
• CB Co-Investment LLC (company) — Private Placement participant and lender
• David G. Brown (person) — Former Board of Directors member
• Roger Lazar (person) — Board of Directors member granted RSUs
• Continental Stock Transfer & Trust Company (company) — Trustee for the Trust Account
• Nasdaq (regulator) — Stock market that delisted company warrants

FAQ

Risk Factors

• Material Weakness in Internal Control [high — financial]: The company disclosed a material weakness in internal control over financial reporting, leading to the restatement of financial statements. This was due to an understatement of liabilities and expenses by $200,000 and an overstatement of prepaid expenses by $97,500. The CEO and CFO concluded that disclosure controls and procedures were not effective.
• Significant Increase in Liabilities [high — financial]: Total liabilities surged from $186,820 as of December 31, 2023, to $2,661,399 as of September 30, 2024. This increase is primarily driven by new Exchange Note and Bridge Financing Note liabilities totaling $1,360,177.
• Deteriorating Nine-Month Performance [medium — financial]: While Q3 2024 showed a net income of $326,476, the nine months ended September 30, 2024, resulted in a net loss of $1,359,371. This is a significant decline from a net income of $4,141,812 in the same period of 2023.
• Depletion of Trust Account Investments [medium — financial]: Investments held in the Trust Account decreased substantially from $45,356,234 as of December 31, 2023, to $11,510,382 as of September 30, 2024. This reduction is attributed to redemptions, impacting the company's liquid assets available for strategic initiatives.

Industry Context

Chain Bridge I operates in a sector that often involves special purpose acquisition companies (SPACs) or similar entities focused on mergers and acquisitions. The industry is characterized by significant capital deployment, reliance on financing instruments, and regulatory scrutiny. Recent trends include increased redemptions impacting SPAC liquidity and a focus on robust internal controls following a period of heightened SEC oversight.

Regulatory Implications

The restatement of financial statements and the disclosure of a material weakness in internal controls highlight potential regulatory risks. Investors and the SEC will closely monitor the company's remediation efforts to ensure compliance and the accuracy of future financial reporting. Failure to address these control deficiencies could lead to further scrutiny or sanctions.

What Investors Should Do

1. Monitor the company's progress in remediating the identified material weakness in internal controls over financial reporting.
2. Analyze the impact of the significant increase in liabilities ($2,661,399) and the nature of the Exchange and Bridge Financing Notes on future financial flexibility.
3. Evaluate the sustainability of the Q3 2024 net income in light of the substantial nine-month net loss ($1,359,371) and the decrease in Trust Account investments.
4. Assess the company's strategy for managing its cash position ($428,625) given the reduced liquid assets from the Trust Account.

Key Dates

• 2024-09-30: End of Q3 2024 — Financial statements for this period were restated due to accounting errors, revealing a net income of $326,476 but a significant year-to-date net loss of $1,359,371.
• 2023-12-31: End of Fiscal Year 2023 — Baseline for comparison of financial position, with total liabilities of $186,820 and significant investments in the Trust Account ($45,356,234).

Glossary

10-Q/A

An amended quarterly report filed with the SEC, used to correct previously filed information. (Chain Bridge I filed a 10-Q/A to amend its Q3 2024 financial statements.)

Bridge Financing Note

A short-term loan used to cover a gap in financing until a longer-term solution is found. (A $1,063,235 liability related to a Bridge Financing Note was a significant factor in the increase of total liabilities.)

Exchange Note

A debt instrument that can be exchanged for another security, often stock. (A $296,942 liability related to an Exchange Note contributed to the increased debt load.)

Prepaid Expenses

Expenses paid in advance for goods or services to be received in the future. (An overstatement of $97,500 in prepaid expenses was corrected in the restatement.)

Trust Account

An account holding funds, typically from an IPO, reserved for specific purposes such as redemptions or business combinations. (Investments in the Trust Account decreased significantly due to redemptions, impacting available capital.)

Material Weakness

A deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the company's annual or interim financial statements will not be prevented or detected on a timely basis. (The company identified a material weakness, leading to the ineffectiveness of its disclosure controls and procedures.)

Year-Over-Year Comparison

Compared to the prior year period, Chain Bridge I's Q3 2024 performance shows a positive swing to a net income of $326,476 from a net loss of $471,827. However, the nine-month period ending September 30, 2024, reveals a stark deterioration, with a net loss of $1,359,371 compared to a substantial net income of $4,141,812 in the same period of 2023. Total liabilities have dramatically increased from $186,820 to $2,661,399, while cash has grown from $3,898 to $428,625, offset by a significant reduction in Trust Account investments from $45,356,234 to $11,510,382.

Key Financial Figures

• $0.0001 — ed: Class A ordinary shares, par value $0.0001 per share CBRRF OTCQB Units, each cons
• $200,000 — ote 1), third parties made a collective $200,000 payment ("Payment") directly to the Com
• $97,500 — t had not fully amortized a retainer of $97,500, resulting in the Company overstating i
• $1 m — its outstanding warrants was less than $1 million, the Company was no longer in com
• $1 million — of its outstanding warrants of at least $1 million (the "Warrant Notice"). The Warrant Not

Filing Documents

• ea0248943-10qa1_chain1.htm (10-Q/A) — 877KB
• ea024894301ex31-1_chain1.htm (EX-31.1) — 9KB
• ea024894301ex31-2_chain1.htm (EX-31.2) — 9KB
• ea024894301ex32-1_chain1.htm (EX-32.1) — 4KB
• ea024894301ex32-2_chain1.htm (EX-32.2) — 4KB
• 0001213900-25-100839.txt ( ) — 6503KB
• cbrrf-20240930.xsd (EX-101.SCH) — 75KB
• cbrrf-20240930_cal.xml (EX-101.CAL) — 21KB
• cbrrf-20240930_def.xml (EX-101.DEF) — 360KB
• cbrrf-20240930_lab.xml (EX-101.LAB) — 561KB
• cbrrf-20240930_pre.xml (EX-101.PRE) — 358KB
• ea0248943-10qa1_chain1_htm.xml (XML) — 824KB

FINANCIAL INFORMATION

PART I. FINANCIAL INFORMATION Item 1. Condensed Interim Financial Statements 1 Condensed Balance Sheets as of September 30, 2024 (as restated) (unaudited) and December 31, 2023 1 Unaudited Condensed Statements of Operations for the three and nine months ended September 30, 2024 (as restated) and 2023 2 Unaudited Condensed Statements of Changes in Shareholders' Deficit for the three and nine months ended September 30, 2024 (as restated) and 2023 3 Unaudited Condensed Statements of Cash Flows for the nine months ended September 30, 2024 (as restated) and 2023 4 Notes to Unaudited Condensed Interim Financial Statements (as restated) 5 Item 2.

Management's Discussion and Analysis of Financial Condition and Results of Operations

Management's Discussion and Analysis of Financial Condition and Results of Operations 34 Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Quantitative and Qualitative Disclosures About Market Risk 37 Item 4.

Controls and Procedures (as restated)

Controls and Procedures (as restated) 37

OTHER INFORMATION

PART II. OTHER INFORMATION Item 1.

Legal Proceedings

Legal Proceedings 38 Item 1A. Risk Factors (as restated) 38 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds from Registered Securities 38 Item 3. Defaults Upon Senior Securities 38 Item 4. Mine Safety Disclosures 38 Item 5. Other Information 38 Item 6. Exhibits 39 ii

FINANCIAL INFORMATION

PART I. FINANCIAL INFORMATION

Condensed

Item 1. Condensed Interim Financial Statements CHAIN BRIDGE I CONDENSED BALANCE SHEETS September 30, December 31, 2024 2023 (Unaudited) (As Restated) Assets Current assets: Cash $ 428,625 $ 3,898 Prepaid expenses 56,746 3,148 Total current assets 485,371 7,046 Investments held in Trust Account 11,510,382 45,356,234 Total Assets $ 11,995,753 $ 45,363,280 Liabilities, Class A Ordinary Shares Subject to Possible Redemption and Shareholders' Deficit: Current liabilities: Accounts payable $ 457,951 $ 9,065 Accrued expenses 521,271 59,430 Accrued expenses – related party 90,000 — Total current liabilities 1,069,222 68,495 Exchange Note 296,942 — Bridge Financing Note 1,063,235 — Derivative liabilities 220,500 112,460 Contingently issuable private placement warrants 11,500 5,865 Total Liabilities 2,661,399 186,820 Commitments and Contingencies (Note 6) Class A ordinary shares subject to possible redemption; $ 0.0001 par value; 1,006,683 and 4,151,134 shares at redemption value of $ 11.335 and $ 10.902 per share at September 30, 2024 and December 31, 2023, respectively 11,410,382 45,256,234 Shareholders' deficit: Preference shares, $ 0.0001 par value 1,000,000 shares authorized none issued and outstanding — — Class A ordinary shares, $ 0.0001 par value; 479,000,000 shares authorized; 2,559,000 and no non-redeemable shares issued or outstanding as of September 30, 2024 and December 31, 2023, respectively 256 — Class B ordinary shares, $ 0.0001 par value; 20,000,000 shares authorized; 3,191,000 and 5,750,000 shares issued and outstanding as of September 30, 2024 and December 31, 2023, respectively 319 575 Additional paid-in capital 226,443 863,326 Accumulated deficit ( 2,303,046 ) ( 943,675 ) Total shareholders' deficit ( 2,076,028 ) ( 79,774 ) Total Liabilities, Class A Ordinary Shares Subject to Possible Redemption and Shareholders' Deficit $ 11,995,753 $ 45,363,28

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