Fintech Ecosystem Development Corp. - Quarter Report: 2023 March (Form 10-Q)
Table of Contents
| ☒ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware |
86-2438985 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| 100 Springhouse Drive, Suite 204 Collegeville , 19426 (610) 226-8101 |
19426 | |
(Address of principal executive offices) |
(Zip Code) | |
| 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, one right and one-half of one redeemable warrant |
FEXDU |
The Nasdaq Stock Market LLC | ||
Class A common stock, par value $0.0001 per share |
FEXD |
The Nasdaq Stock Market LLC | ||
Redeemable warrants, each whole warrant exercisable for one share of Class A common stock at an exercise price of $11.50 per share |
FEXDW |
The Nasdaq Stock Market LLC | ||
Rights included as part of the units |
FEXDR |
The Nasdaq Stock Market LLC |
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |||
Non-accelerated filer |
☒ | Smaller reporting company | ☒ | |||
| Emerging growth company | ☒ | |||||
Table of Contents
FINTECH ECOSYSTEM DEVELOPMENT CORP.
QUARTERLY REPORT ON FORM 10-Q
Table of Contents
| Item | 1. Unaudited Condensed Consolidated Financial Statements |
March 31, 2023 |
December 31, 2022 |
|||||||
| (Audited) | ||||||||
| ASSETS |
||||||||
| Current assets: |
||||||||
| Cash |
$ | 12,184 | $ | 10,335 | ||||
| Prepaid expenses |
35,755 | 38,951 | ||||||
| |
|
|
|
|||||
| Total current assets |
47,939 |
49,286 |
||||||
| Investments held in trust account |
121,227,252 | 118,985,048 | ||||||
| |
|
|
|
|||||
| Total assets |
$ |
121,275,191 |
$ |
119,034,334 |
||||
| |
|
|
|
|||||
| LIABILITIES, COMMON STOCK SUBJECT TO POSSIBLE REDEMPTION AND STOCKHOLDERS’ DEFICIT |
||||||||
| Current liabilities: |
||||||||
| Accounts payable and accrued liabilities |
$ | 1,279,076 | $ | 990,605 | ||||
| Income tax payable |
546,358 | 290,342 | ||||||
| Promissory notes from related parties |
669,957 | 519,957 | ||||||
| Promissory notes from related parties – accrued interest |
18,453 | 7,545 | ||||||
| |
|
|
|
|||||
| Total current liabilities |
2,513,844 |
1,808,449 |
||||||
| Derivative forward purchase liability |
291,011 | 285,567 | ||||||
| Derivative warrant liabilities |
478,010 | 756,018 | ||||||
| Deferred underwriter fee payable |
3,737,500 | 3,737,500 | ||||||
| |
|
|
|
|||||
| Total liabilities |
7,020,365 |
6,587,534 |
||||||
| |
|
|
|
|||||
| COMMITMENTS AND CONTINGENCIES (NOTE 6) |
||||||||
| Class A common stock subject to possible redemption; 11,500,000 shares at redemption value |
120,634,445 | 118,392,240 | ||||||
| Stockholders’ deficit: |
||||||||
| Preferred stock, $0.0001 par value; 1,000,000 shares authorized; none issued and outstanding |
— | — | ||||||
| Class A common stock, $0.0001 par value; 200,000,000 shares authorized; 57,500 shares issued and outstanding (excludes 11,500,000 shares subject to redemption) |
6 | 6 | ||||||
| Class B common stock, par value $0.0001; 20,000,000 shares authorized; 2,875,000 issued and outstanding |
288 | 288 | ||||||
| Additional paid-in capital |
— | — | ||||||
| Accumulated deficit |
(6,379,913 | ) | (5,945,734 | ) | ||||
| |
|
|
|
|||||
| Total stockholders’ deficit |
(6,379,619 |
) | (5,945,440 |
) | ||||
| |
|
|
|
|||||
| Total liabilities, common stock subject to possible redemption and stockholders’ deficit |
$ |
121,275,191 |
$ |
119,034,334 |
||||
| |
|
|
|
|||||
Three months ended March 31, 2023 |
Three months ended March 31, 2022 |
|||||||
Operating Expenses: |
||||||||
Formation and Operating Costs |
$ | 616,740 | $ | 205,943 | ||||
Total operating expenses |
616,740 |
205,943 |
||||||
Other Income (Expense): |
||||||||
Interest expense |
(10,908 | ) | — | |||||
Change in fair value of derivative warrant liabilities |
312,508 | 1,708,740 | ||||||
Change in fair value of derivative forward purchase liability |
(5,444 | ) | (161,031 | ) | ||||
Income from investments held in Trust Account |
1,269,126 | 11,696 | ||||||
Total other income (expense), net |
1,565,282 | 1,559,405 | ||||||
Income before income taxes |
$ |
948,542 |
$ |
1,353,462 |
||||
Income taxes |
256,016 |
— |
||||||
Net income |
$ |
692,526 |
$ |
1,353,462 |
||||
Basic & diluted net income per share (Class A) |
$ | 0.05 | $ | 0.09 | ||||
Weighted average number of common share-basic and diluted (Class A) |
11,557,500 |
11,557,500 |
||||||
Basic & diluted net income per share (Class B) |
$ | 0.05 | $ | 0.09 | ||||
Weighted average number of common shares-basic and diluted (Class B) |
2,875,000 |
2,875,000 |
||||||
Common Stock |
Additional |
|||||||||||||||||||||||||||
| Three months ended March 31, 2023 |
Class A |
Class B |
Paid-in |
Accumulated |
||||||||||||||||||||||||
Shares |
Amount |
Share |
Deficit |
Capital |
Deficit |
Total |
||||||||||||||||||||||
| Balance, January 1, 2023 |
57,500 |
$ |
6 |
2,875,000 |
$ |
288 |
$ |
— |
$ |
(5,945,734 |
) |
$ |
(5,945,440 |
) | ||||||||||||||
| Net Income |
— | — | — | — | — | 692,526 | 692,526 | |||||||||||||||||||||
| Sale of Private Placement Warrants |
— | — | — | — | 1,115,500 | — | 1,115,500 | |||||||||||||||||||||
| Remeasurement of Class A common stock subject to possible redemption |
— | — | — | — | (1,115,500 | ) | (1,126,705 | ) | (2,242,205 | ) | ||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Balance, March 31, 2023 |
57,500 |
$ |
6 |
2,875,000 |
$ |
288 |
$ |
— |
$ |
(6,379,913 |
) | $ |
(6,379,619 |
) | ||||||||||||||
Common Stock |
Additional |
|||||||||||||||||||||||||||
Three months ended March 31, 2022 |
Class A |
Class B |
Paid-in |
Accumulated |
||||||||||||||||||||||||
Shares |
Amount |
Share |
Amount |
Capital |
Deficit |
Total |
||||||||||||||||||||||
| Balance, January 1, 2022 |
57,500 |
$ |
6 |
2,875,000 |
$ |
288 |
$ |
— |
$ |
(8,610,118 |
) |
$ |
(8,609,824 |
) | ||||||||||||||
| Net Income |
— |
— |
— |
— |
1,353,462 |
1,353,462 |
||||||||||||||||||||||
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
| Balance, March 31, 2022 |
57,500 |
$ |
6 |
2,875,000 |
$ |
288 |
$ |
— |
$ |
(7,256,656 |
) |
$ |
(7,256,362 |
) | ||||||||||||||
Three months ended March 31, 2023 |
Three months ended March 31, 2022 |
|||||||
Cash flows from operating activities: |
||||||||
Net income |
$ | 692,526 | $ | 1,353,462 | ||||
Adjustments to reconcile net income to net cash used in operating activities: |
||||||||
Change in fair value of derivative forward purchase liability |
5,444 | 161,031 | ||||||
Change in fair value of warrant liabilities |
(312,508 | ) | (1,708,740 | ) | ||||
Income from investments held in trust account |
(1,269,126 | ) | (11,696 | ) | ||||
Changes in operating assets and liabilities: |
||||||||
Prepaid expenses |
3,196 | (39,712 | ) | |||||
Accounts payable and accrued liabilities |
288,471 | (168,971 | ) | |||||
Related party promissory note accrued interest |
10,908 | — | ||||||
Income tax payable |
256,016 | — | ||||||
Net cash used in operating activities |
$ | (325,073 | ) | $ | (414,626 | ) | ||
Cash flows from investing activities: |
||||||||
Cash deposited in Trust Account |
(1,150,000 | ) | — | |||||
Net cash used in investing activities |
(1,150,000 | ) | — | |||||
Cash flows from financing activities: |
||||||||
Proceeds from issuance of warrants to Sponsor |
1,150,000 | — | ||||||
Proceeds from promissory notes from related parties |
200,000 | — | ||||||
Repayment of related party promissory note |
(50,000 | ) | — | |||||
Proceeds from the sale of marketable securities |
176,922 | — | ||||||
Net cash provided by financing activities |
1,476,922 | — | ||||||
Net increase (decrease) in cash |
1,849 | (414,626 | ) | |||||
Cash, beginning of period |
10,335 | 612,750 | ||||||
Cash, end of period |
$ | 12,184 | $ | 198,124 | ||||
Supplemental Disclosures of Noncash Financing Activities |
||||||||
Remeasurement of Class A shares subject to redemption |
$ | 2,242,205 | $ | — | ||||
Share issuance obligation |
$ | 22,500 | $ | — | ||||
Cash paid for interest |
$ | — | $ | — | ||||
Cash paid for income tax |
$ | — | $ | — | ||||
Description |
Class A |
Class B |
||||||
Basic and diluted net income per common stock: |
||||||||
Numerator: |
||||||||
Allocation of net income |
$ | 554,573 | $ | 137,953 | ||||
Denominator: |
||||||||
Basic and diluted weighted average common stock outstanding |
11,557,500 | 2,875,000 | ||||||
Basic and diluted net income per common stock |
$ | 0.05 | $ | 0.05 | ||||
Description |
Class A |
Class B |
||||||
Basic and diluted net income per common stock: |
||||||||
Numerator: |
||||||||
Allocation of net income |
$ | 1,083,848 | $ | 269,614 | ||||
Denominator: |
||||||||
Basic and diluted weighted average common stock outstanding |
11,557,500 | 2,875,000 | ||||||
Basic and diluted net income per common stock |
$ | 0.09 | $ | 0.09 | ||||
| • | Level 1, defined as observable inputs such as quoted prices (unadjusted) for identical instruments in active markets; |
| • | Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and |
| • | Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. |
Gross proceeds from IPO |
$ | 115,000,000 | ||
Less: |
||||
Proceeds allocated to Public Warrants |
(1,380,000 | ) | ||
Class A common share issuance costs |
(6,309,800 | ) | ||
Plus: |
||||
Accretion of carrying value to redemption value |
8,839,800 | |||
Class A common shares subject to redemption at December 31, 2021 |
$ |
116,150,000 |
||
Plus: |
||||
Remeasurement to common stock subject to possible redemption amount |
2,242,240 | |||
Class A common shares subject to redemption at December 31, 2022 |
$ |
118,392,240 |
||
Plus: |
||||
Remeasurement to common stock subject to possible redemption amount |
2,242,205 | |||
Class A common shares subject to redemption at March 31, 2023 |
$ |
120,634,445 |
||
| (a) | The transaction is structured as a reverse triangular merger. Pursuant to the Rana Business Combination Agreement, on the closing date, Merger Sub will be merged with and into Rana, with Rana surviving the Merger (together with the other transactions related thereto, the “Proposed Rana Transactions”) as a wholly-owned direct subsidiary of the Company (the “Surviving Company”). |
| (b) | At the effective time of the Merger (the “Effective Time”), the certificate of incorporation of Rana, as in effect immediately prior to the Effective Time, shall be the certificate of incorporation of the Surviving Company, until thereafter amended as provided by law and such certificate of incorporation. |
| (b) | At the Effective Time, the bylaws of Merger Sub, as in effect immediately prior to the Effective Time, shall be the bylaws of the Surviving Company until thereafter amended as provided by law, the certificate of incorporation of the Surviving Company and such bylaws, as applicable. |
| (c) | At the closing, the Company shall amend and restate, effective as of the Effective Time, its certificate of incorporation to be as set forth in the Rana Business Combination Agreement, pursuant to which the Company shall have a single class structure with shares of Class A common stock, par value $0.0001 per share, having voting rights of one vote per share (the “New Acquiror Class A Common Stock”). |
| (d) | The Company shall pay a combination of Rana Cash Consideration and Rana Equity Consideration for the Company Common Stock subject to adjustments for Working Capital and Debt, which adjustments shall be secured by an escrow amount equal to $5,711,662 (the “Rana Escrow Amount”). |
| (a) | the Acquiror Proposals have been approved and adopted by the requisite affirmative vote of the stockholders of Acquiror in accordance with the Proxy Statement, the Delaware General Corporation Law, the organizational documents of FEXD and the rules and regulations of Nasdaq; |
| (b) | no Governmental Authority has enacted, issued, promulgated, enforced or entered any Law, rule, regulation, judgment, decree, executive order or award which is then in effect and has the effect of making the Proposed Rana Transactions illegal or otherwise prohibiting consummation of the Proposed Rana Transactions, including the Merger; and |
| (c) | the shares of New Acquiror Class A Common Stock to be issued in connection with the Proposed Rana Transactions shall have been approved for listing on Nasdaq, and immediately following the Rana Closing Acquiror shall satisfy any applicable listing requirements of Nasdaq and Acquiror shall not have received any notice of non-compliance therewith. |
(a) |
the representations and warranties of Rana contained in the sections titled (i) Organization and Qualification; Subsidiaries, (ii) Capitalization, (iii) Authority Relative to this Business Combination Agreement and (iv) Brokers, are each true and correct in all material respects as of the Closing Date as though made on the Closing Date (without giving effect to any limitation as to “materiality” or “Company Material Adverse Effect” or any similar limitation set forth therein), except to the extent that any such representation and warranty expressly speaks as of an earlier date, in which case such representation and warranty shall be true and correct in all material respects as of such earlier date. All other representations and warranties of Rana contained in the Rana Business Combination Agreement shall be true and correct (without giving any effect to any limitation as to “materiality” or “Company Material Adverse Effect” or any similar limitation set forth therein) in all respects as of the Closing Date, as though made on and as of the Closing Date, except (i) to the extent that any such representation and warranty expressly speaks as of an earlier date, in which case such representation and warranty shall be true and correct as of such earlier date and (ii) where the failure of such representations and warranties to be true and correct (whether as of the Closing Date or such earlier date), taken as a whole, does not result in a Company Material Adverse Effect; |
(b) |
Rana, the Shareholders and the Shareholder Representative, as applicable, have performed or complied in all material respects with all agreements and covenants required by the Rana Business Combination Agreement to be performed or complied with by each of them on or prior to the Effective Time; |
(c) |
the Shareholder Representative has delivered to Acquiror the Escrow Agreement, duly executed by the Shareholder Representative; |
(d) |
Rana has delivered to FEXD a customary officer’s certificate, dated the date of the Rana Closing, certifying as to the satisfaction of certain conditions; |
(e) |
no Company Material Adverse Effect has occurred between the date of the Rana Business Combination Agreement and the Closing Date; |
(f) |
on or prior to the Rana Closing, Rana delivered to Acquiror a properly executed certification, in form and substance reasonably acceptable to Acquiror, that the Company Common Stock, capital stock of Enova and capital stock of Fama, as applicable, are not “U.S. real property interests” in accordance with the Treasury Regulations under Sections 897 and 1445 of the Code, together with a notice to the IRS (which will be filed by Acquiror with the IRS following the Rana Closing) in accordance with the provisions of Section 1.897-2(h)(2) of the Treasury Regulations; |
(g) |
Rana has delivered to Acquiror the PCAOB Financials together with an unqualified report therein of the auditors of the Company and its subsidiaries, if applicable, and the PCAOB Financials for periods covered by the Unaudited Financials and Latest Balance Sheet (and the related unaudited condensed consolidated statements of operations and comprehensive loss and cash flows of the Company and its subsidiaries for the six-month period then ended) do not differ from those disclosed on the Company Disclosure Schedule; |
(h) |
all conditions to consummation of the Afinoz Business Combination Agreement have been satisfied or waived by the applicable parties thereto; and |
(i) |
the Trust Fund contains funds sufficient to pay the Rana Cash Consideration and the Afinoz Cash Consideration (defined below), in full. |
| (a) | the representations and warranties of FEXD and Merger Sub contained in the sections titled (i) Corporation Organization (ii) Capitalization, (iii) Authority Relative to this Agreement and (iv) Brokers, are each true and correct in all material respects as of the Closing Date as though made on the Closing Date (without giving effect to any limitation as to “materiality” or “Company Material Adverse Effect” or any similar limitation set forth therein), except to the extent that any such representation and warranty expressly speaks as of an earlier date, in which case such representation and warranty shall be true and correct in all material respects as of such earlier date. All other representations and warranties of Acquiror and Merger Sub contained in the Rana Business Combination Agreement are true and correct (without giving any effect to any limitation as to “materiality” or “Acquiror Material Adverse Effect” or any similar limitation set forth therein) in all respects as of the Closing Date, as though made on and as of the Closing Date, except (i) to the extent that any such representation and warranty expressly speaks as of an earlier date, in which case such representation and warranty shall be true and correct as of such earlier date and (ii) where the failure of such representations and warranties to be true and correct (whether as of the Closing Date or such earlier date), taken as a whole, does not result in an Acquiror Material Adverse Effect; |
| (b) | FEXD and Merger Sub have performed or complied in all material respects with all agreements and covenants required by the Rana Business Combination Agreement to be performed or complied with by them on or prior to the Effective Time; |
| (c) | FEXD has delivered to the Shareholder Representative, the Escrow Agreement, duly executed by FEXD; and |
| (d) | FEXD has delivered to Rana a customary officer’s certificate dated the date of the Rana Closing, certifying as to the satisfaction of certain conditions. |
(a) |
by mutual written consent of Rana and the Company; |
(b) |
by either FEXD or Rana, if: (i) the Effective Time has not occurred prior to the twelve-month anniversary of the date of the Rana Business Combination Agreement (the “ Rana Outside Date ”); provided, however, that the Rana Business Combination Agreement may not be terminated by or on behalf of any party (A) that either directly or indirectly through its affiliates is in breach or violation of any representation, warranty, covenant, agreement or obligation contained in the Rana Business Combination Agreement and such breach or violation is the principal cause of the failure of a condition to the Proposed Rana Transactions on or prior to the Rana Outside Date, or (B) against which any legal proceeding is brought by a party to the Rana Business Combination Agreement for specific performance or injunctive or other forms of equitable relief in connection with the Rana Business Combination Agreement (which prohibition on such party’s right to terminate the Rana Business Combination Agreement continues throughout the pendency of such legal proceeding); (ii) any Governmental Authority in the United States has enacted, issued, promulgated, enforced or entered any permanent injunction, order, decree or ruling which has become final and non-appealable and has the effect of making consummation of the Proposed Rana Transactions, including the Merger, illegal or otherwise prevents or prohibits consummation of the Proposed Rana Transactions or the Merger; or (iii) any of the Acquiror Proposals fail to receive the requisite vote for approval at the Acquiror Stockholders’ Meeting; |
(c) |
by FEXD if (i) there is an occurrence of a breach of any representation, warranty, covenant or agreement on the part of the Company set forth in the Rana Business Combination Agreement, or if any representation or warranty of the Company has become untrue, in either case such that the closing conditions with respect to the accuracy of the representations and warranties and the performance of the agreements and covenants of the Company specified above would not be satisfied (“ Terminating Company Breach ”); provided, however, that FEXD has not waived such Terminating Company Breach and FEXD and Merger Sub are not then in material breach of their representations, warranties, covenants or agreements in the Rana Business Combination Agreement; provided further, however, that, if such Terminating Company Breach is curable by Rana, FEXD may not terminate the Rana Business Combination Agreement under this provision for so long as the Company continues to exercise its reasonable efforts to cure such breach, unless such breach is not cured within thirty days after notice of such breach is provided by FEXD to Rana; (ii) the PCAOB Financials (together with an unqualified report therein of the auditors of Rana and its subsidiaries, if applicable) are not delivered to FEXD by Rana on or before the dates required under the Rana Business Combination Agreement; or (iii) if the PCAOB Financials delivered to Acquiror by the Company for periods covered by the Unaudited Financials and Latest Balance Sheet (and the related unaudited condensed consolidated statements of operations and comprehensive loss and cash flows of the Company and its subsidiaries for the six-month period then ended) differ from those disclosed on the Company Disclosure Schedule; |
| (d) | by Rana if there is an occurrence of a breach of any representation, warranty, covenant or agreement on the part of FEXD and Merger Sub set forth in the Rana Business Combination Agreement, or if any representation or warranty of FEXD and Merger Sub has become untrue, in either case such that the closing conditions with respect to the accuracy of the representations and warranties and the performance of the agreements and covenants of FEXD and Merger Sub specified above would not be satisfied (“Terminating Acquiror/Merger Sub Breach”); provided, however, that Rana has not waived such Terminating Acquiror/Merger Sub Breach and Rana is not then in material breach of its representations, warranties, covenants or agreements in the Rana Business Combination Agreement; provided further, however, that, if such Terminating Acquiror/Merger Sub Breach is curable by FEXD and Merger Sub, Rana may not terminate the Rana Business Combination Agreement under this section for so long as FEXD and Merger Sub continue to exercise their reasonable efforts to cure such breach, unless such breach is not cured within thirty days after notice of such breach is provided by Rana to FEXD. |
| (a) | The transaction is structured as a purchase of limited liability company membership interests. Pursuant to the Afinoz Business Combination Agreement, on the closing date, the Company will purchase the limited liability company membership interests of Afinoz, with Afinoz continuing as a wholly-owned direct subsidiary of the Company (together with the other transactions related thereto, the “Proposed Afinoz Transactions”). |
| (b) | The Company shall pay a combination of Afinoz Cash Consideration and Afinoz Equity Consideration for the Company Membership Interests subject to adjustments for Working Capital and Debt, which adjustments shall be secured by an escrow amount equal to $700,000 (the “Afinoz Escrow Amount”). |
| (a) | the Acquiror Proposals have been approved and adopted by the requisite affirmative vote of the stockholders of Acquiror in accordance with the Proxy Statement, the Delaware General Corporation Law, the organizational documents of FEXD and the rules and regulations of Nasdaq; |
| (b) | no Governmental Authority has enacted, issued, promulgated, enforced or entered any Law, rule, regulation, judgment, decree, executive order or award which is then in effect and has the effect of making the Proposed Afinoz Transactions illegal or otherwise prohibiting consummation of the Proposed Afinoz Transactions; and |
| I | the shares of New Acquiror Class A Common Stock to be issued in connection with the Proposed Afinoz Transactions shall have been approved for listing on Nasdaq, and immediately following the Closing Acquiror shall satisfy any applicable listing requirements of Nasdaq and Acquiror shall not have received any notice of non-compliance therewith. |
| (a) | the representations and warranties of FEXD contained in the sections titled (i) Organization and Qualification; Subsidiaries, (ii) Capitalization, (iii) Authority Relative to this Business Combination Agreement and (iv) Brokers, are each true and correct in all material respects as of the Closing Date as though made on the Closing Date (without giving effect to any limitation as to “materiality” or “Company Material Adverse Effect” or any similar limitation set forth therein), except to the extent that any such representation and warranty expressly speaks as of an earlier date, in which case such representation and warranty shall be true and correct in all material respects as of such earlier date. All other representations and warranties of Afinoz contained in the Afinoz Business Combination Agreement shall be true and correct (without giving any effect to any limitation as to “materiality” or “Company Material Adverse Effect” or any similar limitation set forth therein) in all respects as of the Closing Date, as though made on and as of the Closing Date, except (i) to the extent that any such representation and warranty expressly speaks as of an earlier date, in which case such representation and warranty shall be true and correct as of such earlier date and (ii) where the failure of such representations and warranties to be true and correct (whether as of the Closing Date or such earlier date), taken as a whole, does not result in a Company Material Adverse Effect; |
| (b) | Afinoz, the Members and Member Representative, as applicable, have performed or complied in all material respects with all agreements and covenants required by the Afinoz Business Combination Agreement to be performed or complied with by each of them on or prior to the Afinoz Closing; |
| (c) | the Member Representative has delivered to Acquiror the Escrow Agreement, duly executed by the Member Representative; |
| (d) | Afinoz has delivered to FEXD a customary officer’s certificate, dated the date of the Afinoz Closing, certifying as to the satisfaction of certain conditions; |
| (e) | no Company Material Adverse Effect has occurred between the date of the Rana Business Combination Agreement and the Closing Date; |
| (f) | on or prior to the Afinoz Closing, each of the Members shall deliver to Acquiror a properly executed and duly completed Internal Revenue Service Form W-8BEN; |
| (g) | on or prior to the Afinoz Closing, each of the Members delivered to Acquiror the relevant ‘Tax residency certificate’ or any other similar requirements/certifications or evidences, as mandated under any of the domestic tax laws of their respective jurisdiction or territory, in order to claim the benefits of the India-UAE Double Tax Avoidance Agreement and to establish that no Indian withholding Tax is required to be deducted or withheld from the payment of consideration to such Member; |
| (h) | Afinoz has delivered to Acquiror the PCAOB Financials required to be delivered under the Afinoz Business Combination Agreement; |
| (i) | Afinoz has delivered to Acquiror evidence that it has executed certain regulatory filings with either the free-zone authority in the Sharjah Media City Free-Zone of the United Arab Emirates or the United Arab Emirates Ministry of Economy, as required pursuant to the Afinoz Business Combination Agreement; |
| (j) | the Rana Business Combination Agreement has been consummated; |
| (k) | the Trust Fund contains funds sufficient to pay the Rana Cash Consideration and the Afinoz Cash Consideration, in full; and |
| (l) | Acquiror has completed its due diligence exercise on Afinoz and its subsidiaries, and Afinoz and its subsidiaries has resolved to Acquiror’s satisfaction any issues arising therefrom, including but not limited to, confirmation that each of the Members, Afinoz and its subsidiaries, have complied with certain conditions set forth in schedules to the Afinoz Business Combination Agreement. |
| (a) | the representations and warranties of FEXD contained in the sections titled (i) Corporation Organization (ii) Capitalization, (iii) Authority Relative to this Agreement and (iv) Brokers, are each true and correct in all material respects as of the Closing Date as though made on the Closing Date (without giving effect to any limitation as to “materiality” or “Company Material Adverse Effect” or any similar limitation set forth therein), except to the extent that any such representation and warranty expressly speaks as of an earlier date, in which case such representation and warranty shall be true and correct in all material respects as of such earlier date. All other representations and warranties of Acquiror contained in the Afinoz Business Combination Agreement are true and correct (without giving any effect to any limitation as to “materiality” or “Acquiror Material Adverse Effect” or any similar limitation set forth therein) in all respects as of the Closing Date, as though made on and as of the Closing Date, except (i) to the extent that any such representation and warranty expressly speaks as of an earlier date, in which case such representation and warranty shall be true and correct as of such earlier date and (ii) where the failure of such representations and warranties to be true and correct (whether as of the Closing Date or such earlier date), taken as a whole, does not result in an Acquiror Material Adverse Effect; |
| (b) | FEXD has performed or complied in all material respects with all agreements and covenants required by the Afinoz Business Combination Agreement to be performed or complied with by it on or prior to the Afinoz Closing; |
| (c) | FEXD has delivered to the Member Representative, the Escrow Agreement, duly executed by FEXD; and |
| (d) | FEXD has delivered to Afinoz a customary officer’s certificate dated the date of the Afinoz Closing, certifying as to the satisfaction of certain conditions. |
| (a) | by mutual written consent of the Acquiror and Member Representative; |
| (b) | by either FEXD or the Member Representative, if: (i) the Closing has not occurred prior to the twelve-month anniversary of the date of the Afinoz Business Combination Agreement (the “Afinoz Outside Date”); provided, however, that the Afinoz Business Combination Agreement may not be terminated by or on behalf of any party (A) that either directly or indirectly through its affiliates is in breach or violation of any representation, warranty, covenant, agreement or obligation contained in the Afinoz Business Combination Agreement and such breach or violation is the principal cause of the failure of a condition to the Proposed Afinoz Transactions on or prior to the Afinoz Outside Date, or (B) against which any legal proceeding is brought by a party to the Rana Business Combination Agreement for specific performance or injunctive or other forms of equitable relief in connection with the Afinoz Business Combination Agreement (which prohibition on such party’s right to terminate the Afinoz Business Combination Agreement continues throughout the pendency of such legal proceeding); (ii) any Governmental Authority in the United States has enacted, issued, promulgated, enforced or entered any permanent injunction, order, decree or ruling which has become final and non-appealable and has the effect of making consummation of the Proposed Afinoz Transactions, illegal or otherwise prevents or prohibits consummation of the Proposed Afinoz Transactions; or (iii) any of the Acquiror Proposals fail to receive the requisite vote for approval at the Acquiror Stockholders’ Meeting; |
| (c) | by FEXD if: (i) there is an occurrence of a breach of any representation, warranty, covenant or agreement on the part of any Member set forth in the Afinoz Business Combination Agreement, or if any representation or warranty of any Member has become untrue, in either case such that the closing conditions with respect to the accuracy of the representations and warranties and the performance of the agreements and covenants of the Members specified above would not be satisfied (“Terminating Member Breach”); provided, however, that FEXD has not waived such Terminating Member Breach and FEXD is not then in material breach of its representations, warranties, covenants or agreements in the Afinoz Business Combination Agreement; provided further, however, that, if such Terminating Member Breach is curable by the applicable Member, FEXD may not terminate the Afinoz Business Combination Agreement under this provision for so long as such Member continues to exercise its reasonable efforts to cure such breach, unless such breach is not cured within thirty days after notice of such breach is provided by FEXD to the applicable Member; (ii) the PCAOB Financials are not delivered to FEXD by the Member Representative on or before the dates required under the Afinoz Business Combination Agreement; (iii) the Rana Business Combination Agreement is terminated; or (iv) if Afinoz fails to comply, within thirty days of signing the Afinoz Business Combination Agreement, with certain specific conditions precedent set forth in schedules to the Afinoz Business Combination Agreement. |
| (d) | by the Member Representative if there is an occurrence of a breach of any representation, warranty, covenant or agreement on the part of FEXD set forth in the Afinoz Business Combination Agreement, or if any representation or warranty of FEXD has become untrue, in either case such that the closing conditions with respect to the accuracy of the representations and warranties and the performance of the agreements and covenants of FEXD specified above would not be satisfied (“ Terminating Acquiror Breach ”); provided, however, that Afinoz has not waived such Terminating Acquiror Breach and Afinoz is not then in material breach of its representations, warranties, covenants or agreements in the Afinoz Business Combination Agreement; provided further, however, that, if such Terminating Acquiror Breach is curable by FEXD, Afinoz may not terminate the Afinoz Business Combination Agreement under this section for so long as FEXD continues to exercise its reasonable efforts to cure such breach, unless such breach is not cured within thirty days after notice of such breach is provided by Afinoz to FEXD. |
| • | in whole and not in part; |
| • | at a price of $0.01 per warrant; |
| • | upon a minimum of 30 days’ prior written notice of redemption, or the 30-day redemption period, to each warrant holder; and |
| • | if, and only if, the last reported sale price of Class A common stock equals or exceeds $18.00 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations, and the like and for certain issuances of Class A common stock and equity-linked securities as described above) for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which the Company sends the notice of redemption to the Public Warrant holders. |
Description |
Quoted Prices in Active Markets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Other Unobservable Inputs (Level 3) |
|||||||||
Public Warrants |
$ | 230,000 | $ | — | $ | — | ||||||
Private Placement Warrants |
— | 248,010 | — | |||||||||
Forward Purchase Agreement Liability |
— | — | 291,011 | |||||||||
Total |
$ | 230,000 | $ | 248,010 | $ | 291,011 | ||||||
Description |
Quoted Prices in Active Markets (Level 1) |
Significant Other Observable Inputs (Level 2) |
Significant Other Unobservable Inputs (Level 3) |
|||||||||
Public Warrants |
$ | 402,500 | $ | — | $ | — | ||||||
Private Placement Warrants |
— | 353,518 | — | |||||||||
Forward Purchase Agreement Liability |
— | — | 285,567 | |||||||||
Total |
$ | 402,500 | $ | 353,518 | $ | 285,567 | ||||||
Forward purchase agreement liability – level 3, at January 1, 2022 |
$ | 1,726,908 | ||
Change in fair value |
161,031 | |||
Forward purchase agreement liability – level 3, at March 31, 2022 |
$ | 1,887,939 | ||
Forward purchase agreement liability – level 3, at January 1, 2023 |
$ | 285,567 | ||
Change in fair value |
5,444 | |||
Forward purchase agreement liability – level 3, at March 31, 2023 |
$ | 291,011 | ||
Inputs |
Private Placement Warrants |
Forward Purchase Units |
||||||
Exercise price |
$ | 11.50 | $ | 10.00 | ||||
Volatility |
4.9 | % | N/A | |||||
Expected term |
6.06 years | 1.06 year | ||||||
Risk-free rate |
3.51 | % | 4.63 | % | ||||
Probability of acquisition |
3.0 | % | 3.0 | % | ||||
Dividend yield |
0 | % | 0 | % | ||||
Inputs |
Private Placement Warrants |
Forward Purchase Units |
||||||
Exercise price |
$ | 11.50 | $ | 10.00 | ||||
Volatility |
4.6 | % | N/A | |||||
Expected term |
5.06 years | 0.06 year | ||||||
Risk-free rate |
3.91 | % | 4.04 | % | ||||
Probability of acquisition |
7.5 | % | 7.5 | % | ||||
Dividend yield |
0 | % | 0 | % | ||||
Table of Contents
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
References to “we,” “us,” “company” or “our company” are to Fintech Ecosystem Development Corp. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited condensed consolidated financial statements and the notes thereto contained elsewhere in this report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
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 (the “Securities Act”), 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 U.S. Securities and Exchange Commission (“SEC”) filings.
Overview
We are a blank check company incorporated as a Delaware corporation and formed for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination with one or more businesses. We intend to effectuate our initial business combination using cash from the proceeds of this offering and the private placement of the private placement warrants, our capital stock, debt or a combination of cash, stock and debt. For additional detail regarding our initial public offering and related transactions, see “Note 1- Description Of Organization And Business Operations and Going Concern.”
The issuance of additional shares of our stock in a business combination:
| • | may significantly dilute the equity interest of investors in this offering; |
| • | may subordinate the rights of holders of common stock if preferred stock is issued with rights senior to those afforded our common stock; |
| • | could cause a change of control if a substantial number of shares of our common stock are issued, which may affect, among other things, our ability to use our net operating loss carry forwards, if any, and could result in the resignation or removal of our present officers and directors; |
| • | may have the effect of delaying or preventing a change of control of us by diluting the stock ownership or voting rights of a person seeking to obtain control of us; and |
| • | may adversely affect prevailing market prices for our common stock, rights and/or warrants. Similarly, if we issue debt securities, it could result in: |
| • | default and foreclosure on our assets if our operating revenues after an initial business combination are insufficient to repay our debt obligations; |
| • | acceleration of our obligations to repay the indebtedness even if we make all principal and interest payments when due if we breach certain covenants that require the maintenance of certain financial ratios or reserves without a waiver or renegotiation of such covenants; |
| • | our immediate payment of all principal and accrued interest, if any, if the debt security is payable on demand; |
| • | our inability to obtain necessary additional financing if the debt security contains covenants restricting our ability to obtain such financing while the debt security is outstanding; |
| • | our inability to pay dividends on our common stock; |
| • | using a substantial portion of our cash flow to pay principal and interest on our debt, which will reduce the funds available for dividends on our common stock if declared, expenses, capital expenditures, acquisitions and other general corporate purposes; |
| • | limitations on our flexibility in planning for and reacting to changes in our business and in the industry in which we operate; |
| • | increased vulnerability to adverse changes in general economic, industry, and competitive conditions and adverse changes in government regulation; and |
| • | limitations on our ability to borrow additional amounts for expenses, capital expenditures, acquisitions, debt service requirements, execution of our strategy and other purposes, and other disadvantages compared to our competitors who have less debt. |
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As indicated in the accompanying unaudited condensed consolidated financial statements, as of March 31, 2023, we had an accumulated deficit of $6,379,913. Further, we expect to incur significant costs in the pursuit of our acquisition plans. We cannot assure you that our plans to raise capital or to complete our initial business combination will be successful.
Initial Public Offering
On October 21, 2021, Fintech Ecosystem Development Corp. (the “Company”) consummated its initial public offering (the “IPO”) of 11,500,000 units (the “Units”), including the issuance of 1,500,000 Units as a result of the underwriters’ exercise of their over-allotment option. Each Unit consists of one share of Class A common stock of the Company, par value of $0.0001 per share (“Class A Common Stock”), one right of the Company (a “Right”) and one-half of one redeemable warrant of the Company (a “Warrant”). The Units were sold at a price of $10.00 per Unit, generating gross proceeds to the Company of $115,000,000.
Substantially concurrently with the closing of the IPO, the Company completed the sale, in a private placement, of 3,900,250 warrants (the “Private Placement Warrants”), to the Company’s sponsor, Revofast LLC, at an aggregate price of, and generating gross proceeds to the Company of $3,900,250, $2,923,400 of which was placed in a trust account. The Private Placement Warrants will not be transferable, assignable or salable until 30 days after the Company’s initial business combination, and will have certain registration rights.
On April 20, 2023, the Company held a special meeting of stockholders in lieu of its 2023 annual meeting. At the special meeting, the Company’s shareholders approved the extension proposal to amend the Company’s amended and restated certificate of incorporation to extend the date by which the Company has to consummate its initial business combination for a maximum of twelve (12) additional month periods, from April 21, 2023 to April 21, 2024, or such earlier date as determined by its board of directors.
Recent Developments
| • | Business Combinations |
Rana Business Combination Agreement
On September 11, 2022, the Company announced that it, with Fama Financial Services, Inc., a Georgia corporation and wholly-owned subsidiary of the Company (“Merger Sub”), Rana Financial Inc., a Georgia corporation (“Rana”) and David Kretzmer, as representative of the Shareholders (“Shareholder Representative”), had entered into a business combination agreement (the “Rana Business Combination Agreement”), dated September 9, 2022, pursuant to which, among other things, Merger Sub will be merged with and into Rana (the “Merger”). The Company shall pay a combination of Rana Cash Consideration and Rana Equity Consideration for the Company Common Stock subject to adjustments for Working Capital and Debt, which adjustments shall be secured by an escrow amount equal to $5,711,662 (the “Rana Escrow Amount”). The Rana Cash Consideration means $7,800,000 and the Rana Equity Consideration means 7,020,000 shares of New Acquiror Class A Common Stock. The closing of the Proposed Rana Transactions (the “Rana Closing”) will occur as promptly as practicable, but in no event later than three business days following the satisfaction or waiver of all of the closing conditions.
On May 12, 2023, the Company terminated the Rana Business Combination Agreement. The termination was with immediate effect pursuant to Section 9.01(h) of the Rana Agreement, which permits such termination if certain required financial statements (together with an unqualified report therein of the auditors of Rana and its subsidiaries, if applicable) are not delivered on or before the deadlines specified in the Rana Business Combination Agreement.
Afinoz Business Combination Agreement
On September 11, 2022, the Company, announced that it, Fama Financial Services, Inc., a Georgia corporation and wholly owned subsidiary of the Company (“Merger Sub”), Monisha Sahni, Rachna Suneja and Ritscapital, LLC (collectively the “Members”) and Monisha Sahni as representative of the Members (“Member Representative”), had entered into a business combination agreement (the “Afinoz Business Combination Agreement”), dated September 9, 2022, pursuant to which, among other things, Mobitech International LLC, a limited liability company organized in the United Arab Emirates (“Afinoz”) will become as a wholly-owned subsidiary of the Company. The Company shall pay a combination of Afinoz Cash Consideration and Afinoz Equity Consideration for the Company Membership Interests subject to adjustments for Working Capital and Debt, which adjustments shall be secured by an escrow amount equal to $700,000 (the “Afinoz Escrow Amount”). The Afinoz Cash Consideration means $5,000,000 and the Afinoz Equity Consideration means 11,500,000 shares of New Acquiror Class A Common Stock. The Afinoz Closing will occur as promptly as practicable, but in no event later than three business days following the satisfaction or waiver of all of the closing conditions. As of March 31, 2023, the Afinoz Business Combination has not been closed.
Extensions
On October 17, 2022, we extended the time by which we have to consummate a business combination by three months from October 21, 2022 to January 21, 2023. Furthermore, on January 20, 2023, we extended the time by which we have to consummate a business combination by three months from January 21, 2023 to April 21, 2023.
On April 20, 2023, the Company held a special meeting of stockholders in lieu of its 2023 annual meeting. At the special meeting, the Company’s shareholders approved the extension proposal to amend the Company’s amended and restated certificate of incorporation to extend the date by which the Company has to consummate its initial business combination for a maximum of twelve (12) additional month periods, from April 21, 2023 to April 21, 2024, or such earlier date as determined by its board of directors (the “Extended Date”). Pursuant to the Extension Amendment Proposal, the Sponsor has agreed to, or to cause a designee to, loan to the Company, pursuant to a promissory note (the “Extension Promissory Note”) an aggregate of $0.055 for each public share that is not redeemed, for each Extension Period (commencing on April 21, 2023, and on the 21st day of each subsequent month (or the next business day, if the 21st day of a calendar month falls on a day other than a business day)), until the Extended Date. Amounts due under the Promissory Note will not bear interest and will be repayable by the Company to the Sponsor or its designees upon consummation of the initial business combination. On April 21, 2023, the Sponsor deposited $110,000 under the Extension Promissory Note into the Company’s trust account for the first Extension Period to move liquidation date from April 21, 2023 to May 21, 2023. On May 19, 2023, the Sponsor deposited the second $110,000 into the Company’s trust account for the second Extension Period to move the liquidation date from May 21, 2023 to June 21, 2023.
| • | Private placements |
On October 21, 2022, the Company consummated a private placement of 1,150,000 warrants at a price of $1.00 per warrant (the “October 2022 Private Placement Warrants”), generating total proceeds of $1,150,000. The October 2022 Private Placement Warrants were purchased by Revofast LLC (the “Sponsor”), the Company’s sponsor, and are substantially similar to the private placement warrants issued to the Sponsor at the time of the Company’s IPO in October 2021.
On January 20, 2023, the Company consummated a private placement of 1,150,000 warrants at a price of $1.00 per warrant (the “January 2023 Private Placement Warrants”), generating total proceeds of $1,150,000. The January 2023 Private Placement Warrants were purchased by Revofast LLC and are substantially similar to the private placement warrants issued to the Sponsor at the time of the Company’s IPO in October 2021.
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Liquidity and Capital Resources
As of March 31, 2023, the Company had $12,184 in its operating bank account, $121,227,252 investments held in its trust account, and a working capital deficit of approximately $2,465,905.
On October 21, 2021, the Company consummated its IPO of 11,500,000 units at a price of $10.00 per unit, generating gross proceeds of $115,000,000.
Substantially concurrently with the closing of the IPO, the Company completed the sale, in a private placement, of 3,900,250 warrants and generating gross proceeds of $3,900,250.
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 Working Capital Loans (as defined in Note 5). As of March 31, 2023, there were no amounts outstanding under any Working Capital Loan.
On January 20, 2023, the Company consummated the private placement of 1,150,000 warrants at a price of $1.00 per warrant generating total proceeds of $1,150,000.
On January 20, 2023, the Company entered into a $200,000 promissory note with its Sponsor.
On May 4, 2023, certain stockholders exercised their redemption rights and demanded the Company to redeem 7,527,997 shares of their Class A common stock. The Company distributed a total payment of $78,939,613 based on a redemption price of $10.4861 per share from its trust account to these stockholders.
We may also need to obtain additional financing either to complete a business combination or because we become obligated to redeem a significant number of shares of our Class A common stock upon completion of the business combination, in which case we may issue additional securities or incur debt in connection with the business combination.
On April 20, 2023, the Company held a special meeting of stockholders in lieu of its 2023 annual meeting. At the special meeting, the Company’s shareholders approved an extension proposal (the “Extension Amendment Proposal”) to amend the Company’s amended and restated certificate of incorporation to extend the date by which the Company has to consummate its initial business combination for a maximum of twelve (12) additional month periods, from April 21, 2023 to April 21, 2024, or such earlier date as determined by its board of directors (the “Extended Date”). Pursuant to the Extension Amendment Proposal, the Sponsor has agreed to, or to cause a designee to, loan to the Company, pursuant to a promissory note (the “Extension Promissory Note”) an aggregate of $0.055 for each public share that is not redeemed, for each Extension Period (commencing on April 21, 2023, and on the 21st day of each subsequent month (or the next business day, if the 21st day of a calendar month falls on a day other than a business day)), until the Extended Date. Amounts due under the Promissory Note will not bear interest and will be repayable by the Company to the Sponsor or its designees upon consummation of the initial business combination. On April 21, 2023, the Sponsor deposited $110,000 under the Extension Promissory Note into the Company’s trust account for the first Extension Period to move the liquidation date from April 21, 2023 to May 21, 2023. On May 19, 2023, the Sponsor deposited the second $110,000 into the Company’s trust account for the second Extension Period to move the liquidation date from May 21, 2023 to June 21, 2023.
Based on the foregoing, management does not believe that we will have sufficient working capital to meet its needs through the earlier of the consummation of an initial business combination or the Extended Date.
Over this time period, we will be using the funds held outside of the trust account for paying existing accounts payable and accrued liabilities, performing due diligence on prospective target businesses, paying for travel expenditures, and structuring, negotiating and consummating the initial business combination. In addition, the Company’s Sponsor or its designees will deposit monthly deposits of $110,000 into the Company’s trust accounts in order to extend the liquidation date on a monthly basis until April 21, 2024. We believe we may need to raise additional funds in order to meet the expenditures required for operating the business. Furthermore, if our estimate of the costs of undertaking in-depth due diligence and negotiating an initial business combination are less than the actual amount necessary to do so, we may have insufficient funds available to operate the business prior to the initial business combination. Moreover, we may need to obtain additional financing either to complete the initial business combination or to redeem a significant number of our public shares upon completion of the initial business combination, in which case we may issue additional securities or incur debt in connection with such initial business combination. Our sponsor, officers and directors may, but are not obligated to, loan us funds from time to time or at any time, in whatever amount they deem reasonable in their sole discretion, to meet our working capital needs. Additionally, the Company has until April 21, 2024, to consummate an initial business combination. It is uncertain that the Company will be able to consummate an initial business combination by this time. If an initial business combination is not consummated by this date, there will be a mandatory liquidation and subsequent dissolution of the Company. Management has determined that the liquidity condition and the mandatory liquidation, should an initial business combination not occur, and potential subsequent dissolution raises substantial doubt about the Company’s ability to continue as a going concern. The unaudited condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Off-Balance Sheet Arrangements; Commitments and Contractual Obligations
We do not have any long-term debt obligations, capital lease obligations, operating lease obligations, purchase obligations, off-balance sheet arrangements or long-term liabilities, other than an agreement to pay our Sponsor a monthly fee of $5,000 for general and administrative services including office space, utilities, secretarial and administrative support. This arrangement will terminate upon completion of our initial business combination or the distribution of the Trust Account to the public shareholders.
In addition, the Company has entered into certain arrangements as follows:
Underwriter Advisory Fee
The underwriters are entitled to a deferred fee of $3,737,500, which will become payable only if the Company consummates a Business Combination.
De-SPAC Service Agreement
On December 12, 2022, the Company entered a service agreement, effective January 15, 2023, with a third-party de-SPAC service provider. Pursuant to the agreement, the service provider will provide investor relation services to the Company for an initial 12-month period. The service provider will receive compensation of $90,000 from the Company for its services covering the initial 12-month period. In addition, the service provider will receive $22,500 worth of shares in the de-SPAC company quarterly, with the value accruing from the effective date of the service agreement.
Employment Offer Letters
On December 20, 2022, the Company entered into a conditional offer letter with an individual for the position of Chief Marketing Officer of FEXD (the “CMO Offer Letter”). Pursuant to the CMO Offer Letter, the individual will become the Chief Marketing Officer of FEXD on June 1, 2023. The appointment is contingent upon the consummation of the business combination among FEXD, Afinoz and shareholder approval. Upon effectiveness, the Chief Marketing Officer will receive an annual salary of $400,000, up to $150,000 in performance bonuses with $15,000 guaranteed, $200,000 in FEXD stock vesting over three years with a 12-month cliff and standard benefits.
On December 20, 2022, the Company entered into a conditional offer letter with an individual for the position of Chief Executive Officer of Fama Financial Services (the “CEO Offer Letter”). Pursuant to the CEO Offer Letter, the individual will become the Chief Executive Officer of FEXD on June 1, 2023. The appointment is contingent upon the consummation of the business combination among FEXD, Afinoz and shareholder approval. Upon effectiveness, the Chief Executive Officer will receive an annual salary of $500,000, a minimum cash bonus of 30 percent of the annual salary year one, 20% percent on year two and 15% from year three onwards (subject to an objective based target bonus of up to 200% of prevailing salary which will be split equally with stocks vested over a period of three years and cash), $50,000 in FEXD stock vesting over three years with a 12-month cliff and standard benefits.
Registration Rights
The holders of shares Class B Common Stock, Private Placement Warrants (and underlying securities), and any securities issued in payment of working capital loans made to the Company will be entitled to registration rights pursuant to an agreement to be signed prior to or on the effective date of Proposed Public Offering. The majority of these securities holders are entitled to make up to two demands that the Company registers such securities.
Notwithstanding anything to the contrary, the underwriters (and/or their designees) may only make a demand registration (i) on one occasion and (ii) during the five-year period beginning on the effective date of the Proposed Public Offering. The holders of the majority of the insider shares can elect to exercise these registration rights at any time commencing three months prior to the date on which these Common Stock are to be released from escrow. The holders of a majority of the Private Placement Warrants (and underlying securities) and securities issued in payment of working capital loans (or underlying securities) can elect to exercise these registration rights at any time after the Company consummates a Business Combination. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to the consummation of a Business Combination. Notwithstanding anything to the contrary, the underwriters (and/or their designees) may participate in a “piggy-back” registration only during the seven year period beginning on the effective date of the Proposed Public Offering. The Company will bear the expenses incurred in connection with the filing of any such registration statements. Notwithstanding anything to the contrary, under FINRA Rule 5110, the underwriters and/or their designees may only make a demand registration (i) on one occasion and (ii) during the five-year period beginning on the effective date of the registration statement relating to the Proposed Public Offering, and the underwriters and/ or their designees may participate in a “piggy-back” registration only during the seven-year period beginning on the effective date of the registration statement relating to the Proposed Public Offering.
Promissory Notes
On March 8, 2021, the Sponsor issued an unsecured promissory note to the Company (the “Sponsor Note”), pursuant to which the Company may borrow up to an aggregate principal amount of $400,000, of which $141,768 was borrowed by the Company during 2021. The Sponsor Note was non-interest bearing and was fully repaid as of December 31, 2021.
On June 16, 2022, an affiliate of the Sponsor issued an unsecured promissory note (“June 2022 Note”) to the Company, pursuant to which the Company borrowed principal amount of $20,000. The June 2022 Note is non-interest bearing and previously had a maturity date on the earlier of: i) the consummation of the Company’s initial business combination; or ii) May 15, 2023. On May 8, 2023, the Company and the lender entered into an amendment agreement whereby the maturity date is amended to the Company’s initial business combination date. As of March 31, 2023, $19,957 remains outstanding on this June 2022 Note. The events of default related to the June 2022 Note include failure to make required payments, voluntary bankruptcy and involuntary bankruptcy. Upon the occurrence of an event of default, the June 2022 Note shall become immediately payable.
On August 2, 2022, a company owned by a director of our potential business combination target, issued an unsecured promissory note (“August 2022 Note”), pursuant to which the Company borrowed a principal amount of $200,000 with an interest rate of 9% per annum. The August 2022 Note matured on February 2, 2023. The balance due to the lender as of the maturity date of February 3, 2023 was $209,235, representing the unpaid principal and accrued interest under the August 2022 Note. The Company failed to pay the principal amount and accrued interest within five business days of the maturity date. Therefore, the Company is required to pay default interest at a rate of 20% per annum. As of March 31, 2023, principal of $200,000 and accrued interest of $18,453, which includes $6,420 accrued default interest, remain outstanding on this August 2022 Note. The Company subsequently settled the August 2022 Note. Refer to Note 10, Subsequent Events, in “Part 1 - Item 1. Unaudited Condensed Consolidated Financial Statements”.
On October 19, 2022, the Sponsor issued an unsecured promissory note (“October 2022 Note”), pursuant to which the Company borrowed principal amount of $300,000. The October 2022 Note is non-interest bearing and matures on May 15, 2023. On March 29, 2023, the Company made a repayment of $50,000 on the October 2022 Note. The events of default related to the October 2022 Note include failure to make required payments, voluntary bankruptcy and involuntary bankruptcy. Upon the occurrence of an event of default, the October 2022 Note shall become immediately payable. The Company subsequently renewed the October 2022 Note. Refer to Note 10, Subsequent Events, in “Part 1 - Item 1. Unaudited Condensed Consolidated Financial Statements”.
On January 20, 2023, the Sponsor issued an unsecured promissory note (“January 2023 Note”), pursuant to which the Company borrowed principal amount of $200,000. The January 2023 Note is non-interest bearing and matures on July 15, 2023. The events of default related to the January 2023 Note include failure to make required payments, voluntary bankruptcy and involuntary bankruptcy. Upon the occurrence of an event of default, the January 2023 Note shall become immediately payable.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date. Our only activities since inception have been organizational activities and those necessary to prepare for our initial public offering. We will not be generating any operating revenues until the closing and completion of our initial business combination.
For the quarterly period ended March 31, 2023, we had net income of $692,526, which consisted of $312,508 non-operating income resulting from the change in fair value of derivative liabilities and $1,269,126 interest income generated from the investments held in the trust account. These other incomes are offset by $616,740 in general and administrative expenses, $10,908 interest expense, $5,444 non-operating loss resulting from the change in fair value of forward purchase agreement and $256,016 income tax expense.
For the three-month period ended March 31, 2022, we had net income of $1,353,462, which consisted of $1,547,709 non-operating income resulting from the change in fair value of derivative liabilities and forward purchase agreement and $11,696 interest income generated from the cash held in the trust account. These other incomes are offset by $205,943 in general and administrative expenses.
Related Party Transactions
Please refer to Note 5, Related Party Transactions, in “Part 1 - Item 1. Unaudited Condensed Consolidated Financial Statements” for a discussion of our related party transactions.
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Critical Accounting Policies and Estimates
Our management makes a number of significant estimates, assumptions and judgments in the preparation of our unaudited condensed consolidated financial statements. See Note 2, Summary of Significant Accounting Policies, in “Part 1 - Item 1. Unaudited Condensed Consolidated Financial Statements” for a discussion of the estimates and judgments necessary in our accounting for common stock subject to possible redemption, and net income (loss) per common share. Any new accounting policies or updates to existing accounting policies as a result of new accounting pronouncements have been included in the notes to our unaudited condensed consolidated financial statements contained in this Quarterly Report on Form 10-Q. The application of our critical accounting policies may require management to make judgments and estimates about the amounts reflected in the unaudited condensed consolidated financial statements. Management uses historical experience and all available information to make these estimates and judgments. Different amounts could be reported using different assumptions and estimates.
Recent Accounting Standards
Please refer to Note 2, Summary of Significant Accounting Policies, in “Part 1 - Item 1. Unaudited Condensed Consolidated Financial Statements” for a discussion of recent accounting pronouncements and their anticipated effect on our business.
JOBS Act
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 are allowed to comply with new or revised accounting pronouncements based on the effective date for private (not publicly traded) companies. We are electing to delay the adoption of new or revised accounting standards, and as a result, we may not comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. As a result, our unaudited condensed consolidated financial statements may not be comparable to companies that comply with new or revised accounting pronouncements as of public company effective dates.
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 control over financial reporting pursuant to Section 404 of the Sarbanes Oxley Act, (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 the PCAOB may adopt regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the consolidated 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 five years following the completion of our initial public offering or until we are no longer an “emerging growth company,” whichever is earlier.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
As of March 31, 2023, we were not subject to any significant market or interest rate risk. The net proceeds of our initial public offering and the sale of the private placement warrants held in the trust account are invested in U.S. government treasury bills with a maturity of 180 days or less or 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. Due to the short-term nature of these investments, we believe there will be no associated material exposure to interest rate risk.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the fiscal quarter ended March 31, 2023, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures were ineffective during the period covered by this report due to several material weaknesses in internal control over financial reporting we identified during the fiscal year ended December 31, 2022. These material weaknesses remain un-remediated as of March 31, 2023, which include: (i) lack of proper segregation of duties due to the Chief Executive Officer’s ability to approve invoices and prepare and approve payments; (ii) lack of review controls over financial reporting, including formal accounting policies, procedures and controls over significant financial statement accounts and disclosures to achieve complete, accurate and timely financial accounting, reporting and disclosures; (iii) lack of review controls over related party transactions, which resulted in related party loans not being approved by the board of directors; and (iv) ineffective oversight on the part of our audit committee.
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
There was no change in our internal control over financial reporting that occurred during the fiscal quarter ended March 31, 2023 covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, the Company is subject to various claims and contingencies which are in the scope of ordinary and routine litigation incidental to its business, including those related to regulation, business transactions, employee-related matters and taxes, among others. When the Company becomes aware of a claim or potential claim, the likelihood of any loss or exposure is assessed. If it is probable that a loss will result and the amount or range of the loss can be reasonably estimated, the Company records a liability for the loss and discloses the possible loss in the unaudited condensed consolidated financial statements. Legal costs are expensed as incurred.
On April 19, 2023, HRT North America Ltd, LLC (“HRT”) filed a motion for summary judgment in lieu of complaint with the Supreme Court of the state of New York, County of New York for the unpaid principal and accrued interest of a promissory note executed by the Company on August 2, 2022 (the “August 2022 Note”). On May 3, 2023, the Company entered into a settlement agreement (the “Settlement Agreement”) with HRT whereby the Company agreed to settle: i) the unpaid principal and accrued interest in the total amount of $209,235 as of the February 3, 2023 maturity date; ii) default interest of $10,794; and iii) $38,185 of costs, expenses and attorney’s fees that were incurred by HRT for filing a litigation against the Company to request for payment through legal proceeding. On May 4, 2023, the Company paid the total of $258,214 (the “Payment”) based on the settlement amount agreed with HRT in the Settlement Agreement. The Company and HRT agreed that, upon execution of this Settlement Agreement and upon receipt by HRT of the Payment, the August 2022 Note will be terminated and extinguished. Upon receipt of the Payment, the two parties will also file a stipulation discontinuing the litigation with prejudice.
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 April 20, 2023.
On August 16, 2022, the Inflation Reduction Act of 2022 (the “IR Act”) was signed into federal law. The IR Act provides for, among other things, a new U.S. federal 1% excise tax on certain repurchases of stock by publicly traded U.S. domestic corporations and certain U.S. domestic subsidiaries of publicly traded foreign corporations occurring on or after January 1, 2023. The excise tax is imposed on the repurchasing corporation itself, not its shareholders from which shares are repurchased. The amount of the excise tax is generally 1% of the fair market value of the shares repurchased at the time of the repurchase. However, for purposes of calculating the excise tax, repurchasing corporations are permitted to net the fair market value of certain new stock issuances against the fair market value of stock repurchases during the same taxable year. In addition, certain exceptions apply to the excise tax. The U.S. Department of the Treasury (the “Treasury”) has been given authority to provide regulations and other guidance to carry out and prevent the abuse or avoidance of the excise tax.
Any redemption or other repurchase that occurs after December 31, 2022, in connection with a Business Combination, extension vote or otherwise, may be subject to the excise tax. Whether and to what extent the Company would be subject to the excise tax in connection with a Business Combination, extension vote or otherwise would depend on a number of factors, including (i) the fair market value of the redemptions and repurchases in connection with the Business Combination, extension or otherwise, (ii) the structure of a Business Combination, (iii) the nature and amount of any “PIPE” or other equity issuances in connection with a Business Combination (or otherwise issued not in connection with a Business Combination but issued within the same taxable year of a Business Combination) and (iv) the content of regulations and other guidance from the Treasury. In addition, because the excise tax would be payable by the Company and not by the redeeming holder, the mechanics of any required payment of the excise tax have not been determined. The foregoing could cause a reduction in the cash available on hand to complete a Business combination and in the Company’s ability to complete a Business Combination.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The information contained under the heading “Private Placement” in Note 4 to our unaudited condensed consolidated financial statements included in this Quarterly Report on Form 10-Q is incorporated by reference into this Item.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
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Item 6. Exhibits.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| FINTECH ECOSYSTEM DEVELOPMENT CORP. | ||||||
| Date: May 24, 2023 | By: | /s/ Jenny Junkeer | ||||
| Name: | Jenny Junkeer | |||||
| Title: | Chief Financial Officer and Duly Authorized Officer | |||||
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