UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
For the quarterly period ended
Commission File Number:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
+1
(Registrant’s telephone number, including area code)
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The | ||||
| The | ||||
| The | ||||
| The |
Indicate by check mark whether the issuer (1)
filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§
232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
Securities registered pursuant to Section 12(b) of the Act:
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:
As of August 15, 2023, there were
FINTECH ECOSYSTEM DEVELOPMENT CORP.
QUARTERLY REPORT ON FORM 10-Q
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PART I-FINANCIAL INFORMATION
Item 1. Unaudited Condensed Consolidated Financial Statements
FINTECH ECOSYSTEM DEVELOPMENT CORP.
CONDENSED CONSOLIDATED
BALANCE SHEETS (UNAUDITED)
| June 30, | December 31, | |||||||
| 2023 | 2022 | |||||||
| (Audited) | ||||||||
| ASSETS | ||||||||
| Current Assets: | ||||||||
| Cash | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Total Current Assets | ||||||||
| Investments held in trust account | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES, COMMON STOCK SUBJECT TO POSSIBLE REDEMPTION AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current Liabilities: | ||||||||
| Accounts payable and accrued liabilities | $ | $ | ||||||
| Income tax payable | ||||||||
| Excise tax payable | ||||||||
| Promissory notes and working capital loans from related parties | ||||||||
| Accrued interest – related parties | ||||||||
| Total Current Liabilities | ||||||||
| Long Term Liabilities: | ||||||||
| Derivative forward purchase liability | ||||||||
| Derivative warrant liability | ||||||||
| Deferred underwriter fee payable | ||||||||
| Total Liabilities | $ | $ | ||||||
| Commitments and Contingencies (Note 6) | ||||||||
| Class A common stock subject to redemption; | ||||||||
| Stockholders’ Deficit: | ||||||||
| Preferred stock, $ | ||||||||
| Class A common stock, $ | ||||||||
| Class B Common Stock, par value $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Deficit | ( | ) | ( | ) | ||||
| Total Liabilities, Common Stock Subject to Possible Redemption and Stockholders’ Deficit | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
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FINTECH ECOSYSTEM DEVELOPMENT CORP.
CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS (UNAUDITED)
| Three months ended June 30, | Six months ended June 30, | Three months ended June 30, | Six months ended June 30, | |||||||||||||
| 2023 | 2023 | 2022 | 2022 | |||||||||||||
| Operating expenses: | ||||||||||||||||
| Formation and operating expenses | $ | $ | $ | $ | ||||||||||||
| Total operating expenses | ||||||||||||||||
| Other income (expense) | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ||||||||||||
| Income from investments held in trust account | ||||||||||||||||
| Change in fair value of derivative forward purchase liability | ( | ) | ||||||||||||||
| Change in fair value of derivative warrant liabilities | ||||||||||||||||
| Total other income (expense), net | ||||||||||||||||
| (Loss) income before income taxes | $ | ( | ) | $ | $ | $ | ||||||||||
| Income tax expense | ||||||||||||||||
| Net (loss) income | $ | ( | ) | $ | $ | $ | ||||||||||
| Net (loss) income per common share | ||||||||||||||||
| Basic - Class A | $ | ( | ) | $ | $ | $ | ||||||||||
| Diluted - Class A | $ | ( | ) | $ | $ | $ | ||||||||||
| Basic - Class B | $ | ( | ) | $ | $ | $ | ||||||||||
| Diluted - Class B | $ | ( | ) | $ | $ | $ | ||||||||||
| Weighted average common shares outstanding | ||||||||||||||||
| Basic - Class A | ||||||||||||||||
| Diluted - Class A | ||||||||||||||||
| Basic - Class B | ||||||||||||||||
| Diluted - Class B | ||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
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FINTECH ECOSYSTEM DEVELOPMENT CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS’ DEFICIT (UNAUDITED)
Three and six months ended June 30, 2023
| Common stock | Shares amount | Additional paid-in | Accumulated | Total stockholder’s | ||||||||||||||||||||||||
| Class A | Class B | Class A | Class B | capital | deficit | deficit | ||||||||||||||||||||||
| Balance as of January 1, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Net income | - | - | - | - | - | |||||||||||||||||||||||
| Remeasurement of Class A common stock subject to possible redemption | - | - | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||
| Sale of Private Placement Warrants | - | - | - | - | - | |||||||||||||||||||||||
| Balance as of March 31, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
| Net loss | - | - | - | - | - | ( | ) | ( | ) | |||||||||||||||||||
| Remeasurement of Class A common stock subject to possible redemption | - | - | - | - | - | |||||||||||||||||||||||
| Balance as of June 30, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
Three and six months ended June 30, 2022
| Common stock | Shares amount | Additional paid-in | Accumulated | Total stockholder’s | ||||||||||||||||||||||||
| Class A | Class B | Class A | Class B | capital | Deficit | deficit | ||||||||||||||||||||||
| Balance as of January 1, 2022 | $ | | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||
| Net income | - | - | - | - | - | |||||||||||||||||||||||
| Balance as of March 31, 2022 | $ | $ | $ | - | $ | ( | ) | $ | ( | ) | ||||||||||||||||||
| Net income | - | - | - | - | - | |||||||||||||||||||||||
| Balance as of June 30, 2022 | $ | $ | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
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FINTECH ECOSYSTEM DEVELOPMENT CORP.
CONDENSED CONSOLIDATED STATEMENTS
OF CASH FLOWS (UNAUDITED)
| Six months ended June 30, 2023 | Six months ended June 30, 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net income | $ | $ | ||||||
| Adjustments to reconcile net income to net cash used in operating activities: | ||||||||
| Change in fair value of warrant liabilities | ( | ) | ( | ) | ||||
| Change in fair value of derivative forward purchase liability | ( | ) | ||||||
| Income from investments held in trust account | ( | ) | ( | ) | ||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses | ( | ) | ||||||
| Accounts payable and accrued liabilities | ( | ) | ||||||
| Related party accrued interest | ( | ) | ||||||
| Income tax payable | ||||||||
| Excise tax payable | ||||||||
| Net cash used in operating activities | $ | ( | ) | $ | ( | ) | ||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Cash withdrawal from trust account for redemption of Class A common stock | ||||||||
| Cash deposited in trust account | ( | ) | ||||||
| Net cash provided by investing activities | $ | $ | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from issuance of warrants to Sponsor | ||||||||
| Proceeds from working capital loans and promissory note from related parties* | ||||||||
| Repayment of promissory notes | ( | ) | ||||||
| Cash distributed to investors for redemption of Class A common stock | ( | ) | - | |||||
| Proceeds from sale of investments in trust account | ||||||||
| Net cash (used in) provided by financing activities | $ | ( | ) | $ | ||||
| NET DECREASE IN CASH | ( | ) | ( | ) | ||||
| CASH, BEGINNING OF PERIOD | ||||||||
| CASH, END OF PERIOD | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURES: | ||||||||
| Non-cash - investing and financing activities | ||||||||
| Share issuance obligation | $ | $ | ||||||
| Remeasurement of Class A common stock subject to possible redemption | $ | ( | ) | $ | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements
| * |
4
FINTECH ECOSYSTEM DEVELOPMENT CORP.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS AND GOING CONCERN
Fintech Ecosystem Development Corp. (the “Company” or “FEXD”) is a blank check company incorporated in the State of Delaware on March 5, 2021. The Company was formed for the purpose of acquiring, merging with, engaging in capital stock exchange with, purchasing all or substantially all of the assets of, engaging in contractual arrangements, or engaging in any other similar business combination with a single operating entity, or one or more related or unrelated operating entities operating in any sector (“Business Combination”). Although the Company is not limited to a particular industry or geographic region for purposes of consummating a Business Combination, the Company intends to focus on companies in the financial technology development industry.
On June 30, 2023, the Company had not yet commenced any operations. All activity through June 30, 2023, relates to the Company’s formation, general operating expenses, the search for a target business with which to consummate an initial business combination and the Initial Public Offering (the “Initial Public Offering” or “IPO”) as described below. The Company will not generate any operating revenues until after the completion of its initial Business Combination, at the earliest. The Company will generate non-operating income in the form of interest income on cash and cash equivalents from the proceeds derived from the Initial Public Offering. The Company has selected December 31 as its fiscal year-end. The Company is an early stage and emerging growth company, and, as such, the Company is subject to all of the risks associated with early-stage and emerging growth companies.
The Company’s sponsor is Revofast LLC,
a Wyoming limited liability company (the “Sponsor”). The registration statement for the Company’s Initial Public
Offering was declared effective on October 18, 2021. On October 21, 2021, the Company consummated its Initial Public Offering of
Simultaneously with the closing of the Initial
Public Offering, the Company consummated the private placement of an aggregate of
Following the closing of the Initial Public Offering
on October 21, 2021, an amount of $
The Company will provide its public stockholders
with the opportunity to redeem all or a portion of their Class A Common Shares upon the completion of a Business Combination either (i)
in connection with a stockholder meeting called to approve the Business Combination or (ii) by means of a tender offer. In connection
with a proposed Business Combination, the Company may seek stockholder approval of a Business Combination at a meeting called for such
purpose at which public stockholders may seek to redeem their shares, regardless of whether they vote for or against a Business Combination.
The Company will proceed with a Business Combination only if the Company has net tangible assets of at least $
If the Company seeks stockholder approval of a
Business Combination and it does not conduct redemptions pursuant to the tender offer rules, the Company’s Amended and Restated
Certificate of Incorporation provides that a stockholder, together with any affiliate of such stockholder or any other person with whom
such stockholder is acting in concert or as a “group” (as defined under Section 13 of the Securities Exchange Act of 1934,
as amended (the “Exchange Act”)), will be restricted from seeking redemption rights with respect to
5
The public stockholders will be entitled to
redeem their Class A Common Shares for a pro rata portion of the amount then in the Trust Account (initially $
If a stockholder vote is not required and the Company does not decide to hold a stockholder vote for business or other legal reasons, the Company will, pursuant to its Amended and Restated Certificate of Incorporation, offer such redemption pursuant to the tender offer rules of the Securities and Exchange Commission (“SEC”), and file tender offer documents containing substantially the same information as would be included in a proxy statement with the SEC prior to completing a Business Combination.
The Sponsor has agreed (a) to vote its Class B Common Stock, the Class A Common Shares underlying the Private Placement Warrants and any Class A Common Shares purchased during or after the Initial Public Offering in favor of a Business Combination, (b) not to propose an amendment to the Company’s Amended and Restated Certificate of Incorporation with respect to the Company’s pre-Business Combination activities prior to the consummation of a Business Combination unless the Company provides dissenting public stockholders with the opportunity to redeem their Class A Common Shares in conjunction with any such amendment; (c) not to redeem any shares (including the Class B Common Stock) and into the right to receive cash from the Trust Account in connection with a stockholder vote to approve a Business Combination (or to sell any shares in a tender offer in connection with a Business Combination if the Company does not seek stockholder approval in connection therewith) or a vote to amend the provisions of the Amended and Restated Certificate of Incorporation relating to stockholders’ rights of pre-Business Combination activity and (d) that the Class B Common Stock and Private Placement Warrants (including underlying Class A Common Shares) shall not participate in any liquidating distributions upon winding up if a Business Combination is not consummated. However, the Sponsor will be entitled to liquidating distributions from the Trust Account with respect to any Class A Common Shares purchased during or after the Initial Public Offering if the Company fails to complete its Business Combination.
The Company previously had 18 months until April 21, 2023, from the
effective date of the registration statement to consummate a Business Combination (the “Combination Period”). 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 months, from
April 21, 2023, to April 21, 2024, or such earlier date as determined by its board of directors (refer to Note 10). If the Company is
unable to complete a Business Combination by April 21, 2024, the Company will (i) cease all operations except for the purpose of winding
up, (ii) as promptly as reasonably possible but no more than five business days thereafter, redeem
6
The Sponsor has agreed that it will be liable to the Company, if and
to the extent any claims by a vendor for services rendered or products sold to the Company, or a prospective target business with which
the Company has discussed entering into a transaction agreement, reduce the amounts in the Trust Account to below $
Business Combinations and Extensions
On September 9, 2022, the Company entered into two business combination agreements. Refer to Note 6.
On October 21, 2022, the Company’s board of directors approved to extend the time by which the Company has to consummate a business combination from October 21, 2022 until January 21, 2023.
On January 20, 2023, the Company’s board of directors further approved to extend the time by which the Company has to consummate a business combination from January 21, 2023 to April 21, 2023.
On April 10, 2023, the Company sent a letter to Rana Financial, Inc. and David Kretzmer a letter notifying Rana Financial, Inc. of its failure to deliver audited financial statements pursuant to the business combination agreement dated September 9, 2022. The Company notified Rana of its intent to propose the termination of the agreement and abandonment of the contemplated business combination if the audited financial statements are not received by April 21, 2023. On May 12, 2023, the Company terminated the business combination agreement.
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 consider and vote upon (a) a 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 one month periods,
from April 21, 2023 to April 21, 2024, or such earlier date as determined by its board of directors. The Company or the Company’s
Sponsor deposited $
Liquidity and Capital Resources
As of June 30, 2023, the Company had $
The Company’s liquidity needs prior to the
consummation of the Initial Public Offering were satisfied through the payment of $
On January 20, 2023, the Company consummated the
private placement of
On January 20, 2023, the Company entered into
a $
On April 24, 2023, the Company entered into a
$
On June 21, 2023, the Company entered into a $
On July 18, 2023, the Company entered into a $
7
Based on the foregoing, management does not believe
that the Company will have sufficient working capital to meet its needs through the earlier of the consummation of a Business Combination
or one year from this filing. Over this time period, the Company will be using the funds held outside of the Trust Account for paying
existing accounts payable and accrued liabilities, identifying and evaluating prospective initial Business Combination candidates, performing
due diligence on prospective target businesses, paying for travel expenditures, selecting the target business to merge with or acquire,
and structuring, negotiating and consummating the Business Combination. In addition, the Company, Company’s Sponsor or its designees
will deposit $
In connection with the Company’s assessment of going concern considerations in accordance with Financial Accounting Standards Board’s Accounting Standards Codification Topic 205-40, “Presentation of Financial Statements – Going Concern,” 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. No adjustments have been made to the carrying amounts of assets or liabilities should the Company be required to liquidate after April 21, 2024.
Risks and Uncertainties
Management is currently evaluating the impact of the COVID-19 pandemic on the industry and has concluded that while it is reasonably possible that the virus could have a negative effect on the Company’s financial position, results of its operations, and/or search for a target company, the specific impact is not readily determinable as of the date of these condensed consolidated financial statements. The condensed consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
In February 2022, the Russian Federation and Belarus commenced a military action with the country of Ukraine. As a result of this action, various nations, including the United States of America, have instituted economic sanctions against the Russian Federation and Belarus. Further, the impact of this action and related sanctions on the world economy are not determinable as of the date of these condensed consolidated financial statements and the specific impact on the Company’s financial condition, results of operations, and cash flows is also not determinable as of the date of these financial statements.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X of the SEC. Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a complete presentation of financial position, results of operations, or cash flows. The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Current Report on Form 10-K as filed with the SEC on April 20, 2023.
In the opinion of the Company’s management, the unaudited interim condensed consolidated financial statements include all adjustments, which are only of a normal and recurring nature, necessary for a fair statement of the financial position of the Company as of June 30, 2023, and its results of operations and cash flows for the six-month period then ended.
8
Principles of consolidation
The unaudited condensed consolidated financial statements include the financial statements of the Company and its wholly-owned subsidiary, Fama Financial Services, Inc. (“Fama”), which was incorporated on August 23, 2022 in the State of Georgia. There were no material business activities in Fama for the period from its incorporation date to June 30, 2023. All transactions and balances among the Company and its subsidiaries have been eliminated upon consolidation.
Emerging growth company
The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act’’), and it may take advantage of certain exemptions from various reporting requirements that apply to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can opt-out of the extended transition period and comply with the requirements that apply to non-emerging growth companies, but any such election to opt-out is irrevocable. The Company has elected not to opt-out of such an extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make a comparison of the Company’s condensed consolidated financial statements with another public company that is neither an emerging growth company nor an emerging growth company that has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.
Use of estimates
The preparation of unaudited condensed consolidated financial statements in conformity with GAAP requires the Company’s management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclose contingent assets and liabilities at the date of the condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period.
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation, or set of circumstances that existed at the date of the unaudited condensed consolidated financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. Accordingly, the actual results could differ significantly from those estimates.
Cash and Cash Equivalents
The
Company considers all short-term investments with an original maturity of three months or less when purchased to be cash
equivalents. As a result, the Company had cash of $
Investments Held in Trust Account
As of June 30, 2023 and December 31, 2022, the Company had $
9
Income taxes
The Company complies with the accounting and reporting requirements of ASC Topic 740 “Income Taxes” (“ASC 740”) which requires an asset and liability approach to financial accounting and reporting for income taxes. Deferred income tax assets and liabilities are computed for differences between the financial statement and tax bases of assets and liabilities that will result in future taxable or deductible amounts, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. In addition, valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized.
ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as an income tax expense. There were unrecognized tax benefits and no amounts accrued for interest and penalties as of June 30, 2023 and December 31, 2022. The Company is currently not aware of any issues under review resulting in significant payments, accruals, or material deviation from its position.
The Company may be subject to potential examination by federal, state, and city taxing authorities in the areas of income taxes. These potential examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions, and compliance with federal, state, and city tax laws. The Company’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months. The Company has been subject to income tax examinations by major taxing authorities since its inception.
As of June 30, 2023 and December 31, 2022, the Company’s deferred
tax asset had a full valuation allowance recorded against it. The effective tax rate was
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
Net income (loss) per common share
The Company complies with accounting and disclosure requirements of ASC Topic 260, “Earnings Per Share.” (ASC 260”). The Company has two classes of shares, which are referred to as Class A Common Stock and Class B Common Stock. Income and losses are shared pro rata between the two classes of shares. Net income (loss) per common stock is calculated by dividing the net income (loss) by the weighted average shares of common stock outstanding for the respective period.
The calculation of diluted net income (loss) per
share of common stock does not consider the effect of the warrants issued in connection with the Initial Public Offering and the Private
Placement to purchase an aggregate of
10
Three months ended June 30, 2023
| Description | Class A | Class B | ||||||
| Basic and diluted net income per common stock: | ||||||||
| Numerator: | ||||||||
| Allocation of net loss | $ | ( | ) | $ | ( | ) | ||
| Denominator: | ||||||||
| $ | ( | ) | $ | ( | ) | |||
Six months ended June 30, 2023
| Description | Class A | Class B | ||||||
| Basic and diluted net income per common stock: | ||||||||
| Numerator: | ||||||||
| Allocation of net income | $ | $ | ||||||
| Denominator: | ||||||||
| $ | $ | |||||||
Three months ended June 30, 2022
| Description | Class A | Class B | ||||||
| Basic and diluted net income per common stock: | ||||||||
| Numerator: | ||||||||
| Allocation of net income | $ | $ | ||||||
| Denominator: | ||||||||
| $ | $ | |||||||
Six months ended June 30, 2022
| Description | Class A | Class B | ||||||
| Basic and diluted net income per common stock: | ||||||||
| Numerator: | ||||||||
| Allocation of net income | $ | $ | ||||||
| Denominator: | ||||||||
| $ | $ | |||||||
Concentration Of Credit Risk
Financial instruments that potentially subject
the Company to concentration of credit risk consist of a cash account in a financial institution which, at times, may exceed the Federal
depository insurance coverage of $
Fair Value Of Financial Instruments
The fair value of the Company’s assets and liabilities, which qualify as financial instruments under ASC 820, “Fair Value Measurements and Disclosures,” approximates the carrying amounts represented in the unaudited condensed consolidated balance sheets, primarily due to their short-term nature.
Fair Value Measurements
Fair value is defined as the price that would be received for sale of an asset or paid for transfer of a liability, in an orderly transaction between market participants at the measurement date. GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:
| ● | 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. |
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In some circumstances, the inputs used to measure fair value might be categorized within different levels of the fair value hierarchy. In those instances, the fair value measurement is categorized in its entirety in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement.
Derivative Financial Instruments
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its financial instruments, including issued stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives, pursuant to ASC 480 and ASC 815-15. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. In accordance with ASC 825-10 “Financial Instruments”, offering costs attributable to the issuance of the derivative warrant liabilities have been allocated based on their relative fair value of total proceeds and are recognized in the unaudited condensed consolidated statements of operations as incurred.
The
Offering Costs Associated with the Initial Public Offering
The Company complies with the requirements of ASC 340-10-S99-1 and SEC Staff Accounting Bulletin Topic 5A-Expenses of offering. Offering costs consisted of legal, accounting, underwriting fees and other costs incurred through the Initial Public Offering that were directly related to the Initial Public Offering. Offering costs are allocated to the separable financial instruments issued in the Initial Public Offering based on a relative fair value basis, compared to total proceeds received. Offering costs associated with derivative warrant liabilities are expensed as incurred, presented as non-operating expenses in the statements of operations. Offering costs associated with the Class A common stock were charged to stockholders’ deficit upon the completion of the Initial Public Offering.
Class A Common Stock Subject to Possible Redemption
All of the
On May 4, 2023, certain stockholders exercised
their redemption rights and demanded the Company to redeem
12
| Class A common shares subject to redemption at December 31, 2021 | $ | 116,150,000 | ||
| Plus | ||||
| Remeasurement to common stock subject to possible redemption amount | ||||
| Class A common shares subject to redemption at December 31, 2022 | $ | |||
| Plus | ||||
| Remeasurement to common stock subject to possible redemption amount | ||||
| Class A common shares subject to redemption at March 31, 2023 | $ | |||
| Less | ||||
| Redemption of common stock | ( | ) | ||
| Remeasurement to common stock subject to possible redemption amount | ( | ) | ||
| Class A common shares subject to redemption at June 30, 2023 | $ |
Issued and adopted accounting standards
Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s condensed consolidated financial statements.
NOTE 3. INITIAL PUBLIC OFFERING
On October 21, 2021, the Company consummated its
Initial Public Offering of
Each Unit consists of
The Company incurred offering costs related to
the Initial Public Offering of $
NOTE 4. PRIVATE PLACEMENT
Simultaneously with the closing of the Initial
Public Offering, the Sponsor has purchased an aggregate of
Each Private Placement Warrant is exercisable to purchase one share
of Class A Common Stock at a price of $
On October 21, 2022, the Company consummated the
private placement of
13
The proceeds received by the Company in connection with the issuance of the October 2022 Private Placement Warrants have been deposited in the trust account (the “Trust Account”) established at the time of the IPO. In accordance with the Company’s Amended and Restated Certificate of Incorporation, the deposit of such proceeds into the Trust Account on or prior to October 21, 2022 will extend by three months until January 21, 2023, which is the time the Company will have to consummate an initial business combination.
On January 20, 2023, the Company consummated the
private placement of
NOTE 5. RELATED PARTY TRANSACTIONS
Class B Common Stock
On March 8, 2021, the Company issued an aggregate of
On March 27, 2021, the Sponsor sold
Additionally, as consideration for financial advisory services rendered
in connection with this offering, on March 11, 2021, ARC Capital received
The initial stockholders have agreed not to transfer,
assign or sell any of the Class B common stock (except to certain permitted transferees) until, with respect to
Promissory Notes – Related Party
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 $
14
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 $
On August 2, 2022, a company owned by a director of our previous potential
business combination target, issued an unsecured promissory note (“August 2022 Note”), pursuant to which the Company borrowed
a principal amount of $
On October 19, 2022, the Sponsor issued an unsecured
promissory note (“October 2022 Note”), pursuant to which the Company borrowed principal amount of $
On January 20, 2023, the Sponsor issued an unsecured promissory note
(“January 2023 Note”), pursuant to which the Company borrowed principal amount of $
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 $
On April 24, 2023, the Sponsor loaned $
On June 21, 2023, the Sponsor loaned $
On July 18, 2023, subsequent to the balance sheet date, the Sponsor
loaned $
15
Administrative Services Agreement
The Company’s Sponsor has agreed, commencing
from the date that the Company’s securities are first listed on NASDAQ through the earlier of the Company’s consummation of
a Business Combination and its liquidation, to make available to the Company certain general and administrative services, including office
space, utilities and administrative services, as the Company may require from time to time. The Company has agreed to pay the Sponsor
$
Related Party Loans
To finance transaction costs in connection with a Business Combination,
the Company’s Sponsor or an affiliate of the Sponsor or the Company’s officers and directors may, but are not obligated to,
loan the Company funds as may be required (“Working Capital Loans”). Such Working Capital Loans would be evidenced by promissory
notes. The notes would either be repaid upon consummation of a Business Combination, without interest or, at the lender’s discretion,
up to $
Forward Purchase Agreement
In connection
with the IPO, the Company entered into a forward purchase agreement with Caltech Trading Corp., providing for the purchase by Caltech
Trading Corp. of an aggregate of
The terms and provisions of the forward purchase warrants to be issued as part of the forward purchase units are identical to those of the Private Placement Warrants.
Representative Shares
In connection
with the IPO, the Company issued the
The Representative will not sell, transfer, assign, pledge or hypothecate the Representative Shares, or cause the Representative Shares to be the subject of any hedging, short sale, derivative, put, or call transaction that would result in the effective economic disposition of the Representative Shares by any person, for a period of 180 days (pursuant to Rule 5110(e)(1) of the Conduct Rules of FINRA) following the Effective Date to anyone other than (i) the Representative or an underwriter or selected dealer in connection with the Offering, or (ii) a bona fide officer or partner of the Representative or of any such underwriter or selected dealer. On and after the 181st day following the Effective Date, transfers to others may be made subject to compliance with or exemptions from applicable securities laws.
Private Placement Warrants
The Company consummated certain private placement warrants with its Sponsor. Refer to Note 4 for details.
Consulting Agreement
On May 15, 2023, FEXD entered into a consulting
agreement with Ritscapital Inc., the consulting company owned by Ritesh Suneja, the future Chief Financial Officer and Director of the
Company after the business combination of Afinoz (refer to Note 6 below), to provide accounting, audit, pro forma financial, and other
financial and accounting support in connection with the preparation of the Company’s proxy statement/prospectus and registration
statement on Form S-4. Ritscapital Inc. is also a member of Afinoz. The consulting agreement provides for payment of $
16
NOTE 6. COMMITMENTS AND CONTINGENCIES
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 signed prior to or on the effective date of Initial Public
Offering. The majority of these securities holders are entitled to make up to
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
Notwithstanding anything to the
contrary, the underwriters (and/or their designees) may participate in a “piggy-back” registration only during the
Underwriting Agreement
The Underwriter
purchased the
The underwriters
received a cash underwriting discount of one and one-quarter percent (
Right of First Refusal
For a period
beginning on the closing of this offering and ending on the earlier of the twelve (
Forward Purchase Agreement
On July 16, 2021, the Company entered into a forward purchase agreement with an anchor investor. Refer to Note 7 below for details.
17
Business Combination Agreements
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”), with Rana surviving the Merger as a wholly-owned subsidiary of the Company. The key terms of the Rana Business Combination Agreement are as follows:
Structure of the Rana Business Combination
| (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 $ |
| (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 $ |
The Rana
Cash Consideration means $
On May 12, 2023, the Company terminated the Rana Business Combination Agreement.
On July 3, 2023, Rana, filed a claim for injunctive and declaratory relief, among other things, in the Court of Chancery of the State of Delaware, requesting that the Court invalidate the previously disclosed termination by the Company of that the Rana Business Combination Agreement dated September 9, 2022, by and among the Company, Rana, and certain other parties thereto, require specific performance by the Company of its obligations under the Rana Business Combination Agreement, deliver to Rana certain requested financial information, and in the alternative, provide monetary damages. The dispute arises out of whether the Company properly exercised its right to terminate the Agreement pursuant to Section 9.01(h) of the 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 Agreement. The Company intends to defend this suit vigorously and believes that the claims asserted by Rana are without merit. However, there can be no assurance as to the ultimate outcome of this matter. As a result, this could affect the Company’s ability to consummate the initial business combination or another business combination in the future. As of to date, no amount of damage has been claimed by Rana and the first trial is estimated to occur in January 2024.
18
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 key terms of the Afinoz Business Combination Agreement are as follows:
| (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 $ |
The Afinoz Cash Consideration means $
As of June 30, 2023, the Afinoz Business Combination has not been closed.
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, Rana and Afinoz and shareholder approval.
Upon effectiveness, the Chief Marketing Officer will receive an annual salary of $
On February 16, 2023, the Company
entered into a consulting agreement with the previous Chief Marketing Officer for marketing service of $
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, Rana and Afinoz and
shareholder approval. Upon effectiveness, the Chief Executive Officer will receive an annual salary of $
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 $
19
NOTE 7. DERIVATIVE FINANCIAL INSTRUMENTS
Warrant Liability
Public Warrants may only be exercised for a whole number of shares. No fractional Public Warrants will be issued upon separation of the Units, and only whole Public Warrants will trade. The Public Warrants will become exercisable on the date that is 30 days after the completion of the initial Business Combination, provided that the Company has an effective registration statement under the Securities Act covering the issuance of the shares of common stock issuable upon exercise of the Public Warrants and a current prospectus relating to them is available and such shares are registered, qualified or exempt from registration under the securities, or blue sky, laws of the state of residence of the holder (or the Company permits holders to exercise their Public Warrants on a cashless basis under the circumstances specified in the warrant agreement). The Company will not be obligated to deliver any shares of Class A Common Stock pursuant to the exercise of a Public Warrant and will have no obligation to settle such Public Warrant exercise unless a registration statement under the Securities Act with respect to the shares of Class A Common Stock underlying the Public Warrants is then effective and a prospectus relating thereto is current, subject to the Company satisfying its obligations with respect to registration. No Public Warrant will be exercisable, and the Company will not be obligated to issue any shares of Class A common stock upon exercise of a Public Warrant unless Class A common stock issuable upon such Public Warrant exercise has been registered, qualified or deemed to be exempt under the securities laws of the state of residence of the registered holder of the Public Warrants.
The Company has agreed that as soon as practicable, but in no event later than 20 business days, after the closing of a Business Combination, the Company will use its best efforts to file, and within 60 business days following a Business Combination to have declared effective, a registration statement for the registration, under the Securities Act, of the shares of Class A common stock issuable upon exercise of the Public Warrants. The Company will use its reasonable best efforts to maintain the effectiveness of such registration statement and a current prospectus relating thereto, until the expiration of the Public Warrants in accordance with the provisions of the Public Warrant agreement. Notwithstanding the above, if the Class A common stock is at the time of any exercise of a Public Warrant not listed on a national securities exchange such that it satisfies the definition of a “covered security” under Section 18(b)(1) of the Securities Act, the Company may, at its option, require holders of Public Warrants who exercise their Public Warrants to do so on a “cashless basis” in accordance with Section 3(a)(9) of the Securities Act and, in the event the Company so elects, the Company will not be required to file or maintain in effect a registration statement, but will be required to use its best efforts to register or qualify the shares under applicable blue sky laws to the extent an exemption is not available.
The Public
Warrants will expire
The Company may call the Public Warrants for redemption:
| ● | in whole and not in part; |
| ● | at a price of $ |
| ● | 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 $ |
20
If and when the Public Warrants become redeemable by the Company, the Company may exercise its redemption right even if it is unable to register or qualify the underlying securities for sale under all applicable state securities laws.
If the Company calls the Public Warrants for redemption for cash, management will have the option to require all holders that wish to exercise the Public Warrants to do so on a “cashless basis,” as described in the warrant agreement. The exercise price and the number of shares of Class A Common Stock issuable upon exercise of the Public Warrants may be adjusted in certain circumstances, including in the event of a stock dividend or recapitalization, reorganization, merger, or consolidation. However, the Public Warrants will not be adjusted for issuance of Class A Common Stock at a price below its exercise price. Additionally, in no event will the Company be required to net cash settle the Public Warrants. If the Company is unable to complete a Business Combination within the Combination Period or during any Extension Period, and the Company liquidates the funds held in the Trust Account, holders of Public Warrants will not receive any of such funds with respect to their Public Warrants, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with respect to such Public Warrants. Accordingly, the Public Warrants may expire worthless.
The Private Placement Warrants, including the October 2022 and January 2023 Private Placement Warrants, are identical to the Public Warrants underlying the Units sold in the Initial Public Offering, except that the Private Placement Warrants and the Class A Common Stock issuable upon the exercise of the Private Placement Warrants are not transferable, assignable or salable until 30 days after the completion of a Business Combination, subject to certain limited exceptions. Additionally, the Placement Warrants are exercisable on a cashless basis and are non-redeemable so long as they are held by the initial purchasers or their permitted transferees (except as set forth above). If the Private Placement Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Placement Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.
The Company
accounted for the
Such guidance
provides that because the warrants do not meet the criteria for equity treatment thereunder, each warrant must be recorded as a liability.
The warrant agreement contains an Alternative Issuance provision that if less than
The Company believes that the adjustments to the exercise price of the warrants are based on a variable that is not an input to the fair value of a “fixed-for-fixed” option as defined under FASB ASC Topic No. 815 - 40, and thus the warrants are not eligible for an exception from derivative accounting. The accounting treatment of derivative financial instruments requires that the Company record a derivative liability upon closing the Initial Public Offering. Accordingly, the Company will classify its Public Warrant, Private Placement Warrant as a liability at its fair value, and the warrants will be estimated using a valuation model prepared by an outside valuation firm. The valuation model uses inputs such as assumed share prices, volatility, discount factors, and other assumptions and may not reflect the price at which they can be settled. This liability is subject to remeasurement at each balance sheet date. With each such remeasurement, the warrant liability will be adjusted to fair value, with the change in fair value recognized in the Company’s statements of operations. The Company will reassess the classification at each balance sheet date. If the classification changes as a result of events during the period, the warrants will be reclassified as of the date of the event that causes the reclassification.
21
Forward Purchase Agreement
On July 16, 2021, the Company
entered into a forward purchase agreement (the “Forward Purchase Agreement”) with Caltech Trading Corp., an anchor investor.
Pursuant to the Forward Purchase Agreement, Caltech Trading Corp. will agree to purchase a minimum of
The Company accounted for the Forward Purchase Agreement in accordance with the guidance in ASC 815-40 and accounts for such agreement as a derivative liability. The liability is subject to re-measurement at each balance sheet date, with changes in fair value recognized in the statements of operations.
NOTE 8. FAIR VALUE OF FINANCIAL INSTRUMENTS
As of June 30, 2023
| Description | Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Other Unobservable Inputs (Level 3) | |||||||||
| Public Warrants | $ | $ | $ | |||||||||
| Private Placement Warrants | ||||||||||||
| Forward Purchase Agreement Liability | ||||||||||||
| Total | $ | $ | $ | |||||||||
As of December 31, 2022
| Description | Quoted Prices in Active Markets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Other Unobservable Inputs (Level 3) | |||||||||
| Public Warrants | $ | $ | $ | |||||||||
| Private Placement Warrants | ||||||||||||
| Forward Purchase Agreement Liability | ||||||||||||
| Total | $ | $ | $ | |||||||||
The fair value of the public
warrants is determined based on the publicly trading price on the valuation date. The fair value of the private warrants is determined
using Black-Scholes model based on Level 2 observable inputs. Inherent in the Black-Scholes simulation are assumptions related to expected
stock-price volatility, expected life, risk-free interest rate and dividend yield. The Company estimates the volatility of its common
stock based on historical volatility of select peer companies that matches the expected remaining life of the warrants. The risk-free
interest rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for a maturity similar to the expected remaining
life of the warrants. The expected life of the warrants is assumed to be equivalent to their remaining contractual term. The dividend
rate is based on the historical rate, which the Company anticipates remaining at zero. The fair value of the Forward Purchase Agreement
is estimated by determining the current value of the instruments to be purchased based on the $
22
| Forward purchase agreement liability – level 3, at January 1, 2022 | $ | |||
| Change in fair value | ||||
| Forward purchase agreement liability – level 3, at March 31, 2022 | $ | |||
| Change in fair value | ( | ) | ||
| Forward purchase agreement liability – level 3, at June 30, 2022 | $ | |||
| Forward purchase agreement liability – level 3, at January 1, 2023 | $ | |||
| Change in fair value | ||||
| Forward purchase agreement liability – level 3, at March 31, 2023 | $ | |||
| Change in fair value | ( | ) | ||
| Forward purchase agreement liability – level 3, at June 30, 2023 | $ |
| Inputs | Private Placement Warrants | Forward Purchase Units | ||||||
| Exercise price | $ | $ | ||||||
| Volatility | % | |||||||
| Expected term | ||||||||
| Risk-free rate | % | % | ||||||
| Probability of acquisition | % | % | ||||||
| Dividend yield | % | % | ||||||
The following table presents information about the Company’s liabilities that are measured at fair value on a recurring basis at December 31, 2022:
| Inputs | Private Placement Warrants | Forward Purchase Units | ||||||
| Exercise price | $ | $ | ||||||
| Volatility | % | |||||||
| Expected term | ||||||||
| Risk-free rate | % | % | ||||||
| Probability of acquisition | % | % | ||||||
| Dividend yield | % | % | ||||||
NOTE 9. STOCKHOLDER’S EQUITY
Preferred Shares
The Company
is authorized to issue
Class A Common Stock
The
Company is authorized to issue
Class B Common Stock
The Company
is authorized to issue
23
Public Rights
Each holder of a Public Right will be entitled to receive one-tenth (1/10) of one share of Class A Common Stock upon consummation of a Business Combination, even if the holder of such right redeemed all shares held by it in connection with a Business Combination. No fractional shares will be issued upon the exchange of the Public Rights. No additional consideration will be required to be paid by a holder of rights in order to receive its additional shares upon consummation of a Business Combination as the consideration related thereto has been included in the unit purchase price paid for by investors in the Initial Public Offering. If the Company enters into a definitive agreement for a Business Combination in which the Company will not be the surviving entity, the definitive agreement will provide for the holders of rights to receive the same per share consideration the holders of the Class A Common Stock will receive in the transaction on an as-converted into Class A Common Stock basis and each holder of a right will be required to affirmatively convert its rights in order to receive 1/10 share underlying each right (without paying additional consideration). The shares issuable upon exchange of the rights will be freely tradable (except to the extent held by affiliates of the Company).
NOTE 10. SUBSEQUENT EVENTS
In accordance with ASC Topic 855, “Subsequent Events”, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued. Based on this review, except the events below, the Company did not identify any subsequent events through the date of the issuance of the condensed consolidated financial statements that would have required disclosure or adjustment in the condensed consolidated financial statements:
On July 18, 2023, the Sponsor
loaned $
On July 3, 2023, Rana filed a claim for injunctive and declaratory relief, among other things, in the Court of Chancery of the State of Delaware, requesting that the Court invalidate the previously disclosed termination by the Company of that the Rana Business Combination Agreement dated September 9, 2022, by and among the Company, Rana, and certain other parties thereto, require specific performance by the Company of its obligations under the Rana Business Combination Agreement, deliver to Rana certain requested financial information, and in the alternative, provide monetary damages. The dispute arises out of whether the Company properly exercised its right to terminate the Agreement pursuant to Section 9.01(h) of the 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 Agreement. The Company intends to defend this suit vigorously and believes that the claims asserted by Rana are without merit. However, there can be no assurance as to the ultimate outcome of this matter. As a result, this could affect the Company’s ability to consummate the initial business combination or another business combination in the future. As of to date, no amount of damage has been claimed by Rana and the first trial is estimated to occur in January 2024.
24
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; |
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| ● | 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. |
As indicated in the accompanying unaudited condensed consolidated financial statements, as of June 30, 2023, we had an accumulated deficit of $6,820,782. 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. The Company or the Company’s Sponsor deposited $110,000 into the Company’s Trust Account during each of the months of April, May, June and July 2023 to extend the business combination date from April 21, 2023 to August 21, 2023.
Recent Developments
| ● | Business Combinations |
Rana Business Combination Agreement and termination
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.
On July 3, 2023, Rana filed a claim for injunctive and declaratory relief, among other things, in the Court of Chancery of the State of Delaware, requesting that the Court invalidate the previously disclosed termination by the Company of that the Rana Business Combination Agreement dated September 9, 2022, by and among the Company, Rana, and certain other parties thereto, require specific performance by the Company of its obligations under the Rana Business Combination Agreement, deliver to Rana certain requested financial information, and in the alternative, provide monetary damages. The dispute arises out of whether the Company properly exercised its right to terminate the Agreement pursuant to Section 9.01(h) of the 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 Agreement. The Company intends to defend this suit vigorously and believes that the claims asserted by Rana are without merit. However, there can be no assurance as to the ultimate outcome of this matter. As a result, this could affect the Company’s ability to consummate the initial business combination or another business combination in the future. As of to date, no amount of damage has been claimed by Rana and the first trial is estimated to occur in January 2024.
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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 June 30, 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”). The Company or the Company’s Sponsor deposited $110,000 into the Company’s Trust Account during each of the months of April, May, June and July 2023 to extend the business combination date from April 21, 2023 to August 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.
Liquidity and Capital Resources
As of June 30, 2023, the Company had $1,025 in its operating bank account, $42,583,196 investments held in its trust account, and a working capital deficit of approximately $3,745,949.
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.
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 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)) that a loan is required from the Company, until the Extended Date.
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On April 24, 2023, the Company entered into a $110,000 promissory note under the Extension 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 $10.49 per share from its trust account to these stockholders.
On June 21, 2023, the Company entered into a $127,000 promissory note, of which $110,000 is under the Extension Promissory Note with its Sponsor.
On July 18, 2023, the Company entered into a $120,000 promissory note, of which $110,000 is under the Extension Promissory Note with its Sponsor.
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.
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 or 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.
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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. Since the award of the $22,500 worth of share is an instrument that embodies an obligation that the Company must settle by issuing a variable number of its equity shares based on a fixed value known at inception, the instrument is classified as a liability. As of June 30, 2023, the Company accrued $45,000 worth of shares under the accounts payable and accrued liabilities.
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. Because the business combination has not been closed, the CMO Offer Letter has not come into effect as of June 30, 2023. On August 13, 2023, the Company terminated the CMO Offer Letter.
On February 16, 2023, the Company entered into a consulting agreement with the previous Chief Marketing Officer for marketing service of $5,000 per month. During the year, the Company has paid $15,000 for the marketing consulting services. The agreement terminated as of June 30, 2023.
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. Because the business combination has not been closed, the CEO Offer Letter has not come into effect as of June 30, 2023. On August 13, 2023, the Company terminated the CEO Offer Letter.
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 signed prior to or on the effective date of Initial 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 Initial 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 Initial 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 Initial 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 Initial Public Offering.
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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. On May 8, 2023, the Company entered into an amendment agreement with an affiliate of the Sponsor to renew the outstanding balance of $19,957 under the June 2022 Note, which will mature on May 15, 2023, to a new maturity date. Pursuant to the amendment agreement, the outstanding balance of the June 2022 Note will be payable on the initial business combination date.
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. On May 3, 2023, the Company entered into a settlement agreement (the “Settlement Agreement”) with HRT North America Ltd, LLC (“HRT”), the lender of the August 2022 Note 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 a 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. On May 3, 2023, the two parties filed a stipulation discontinuing the litigation with prejudice.
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. On May 17, 2023, the Company entered into an amendment agreement with the Sponsor to renew the outstanding balance of $250,000 under the October 2022 Note, which matured on May 15, 2023, to a new maturity date. Pursuant to the amendment agreement, the outstanding balance of the October 2022 Note will be payable on the earlier of: (i) the consummation of the initial business combination and (ii) April 21, 2024.
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. On July 14, 2023, the Company entered into an amendment agreement with the Sponsor to renew the outstanding balance of $200,000 to a new maturity date. Pursuant to the amendment agreement, the outstanding balance of the January 2023 Note will be payable on the earlier of: (i) the consummation of the initial business combination and (ii) January 15, 2024. The amended promissory note also added a new interest clause, which stipulates that an 8% interest per annum shall be accrued on the unpaid principal balance of the January 2023 Note from July 14, 2023.
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On April 24, 2023, the Sponsor loaned $110,000 under the Extension Promissory Note (“April 2023 Note”) to the Company for the first Extension Period to move the liquidation date from April 21, 2023 to May 21, 2023. The April 2023 Note bears an interest of 8% per annum and it is payable on the earlier to occur of (i) the consummation of the Company’s initial business combination and (ii) October 15, 2023.
On June 21, 2023, the Sponsor loaned $127,000, of which $17,000 is related to the Working Capital Loan and $110,000 is under the Extension Promissory Note (“June 2023 Note”), to the Company for the third Extension Period to move the liquidation date from June 21, 2023 to July 21, 2023. The June 2023 Note bears an interest of 8% per annum and it is payable on the earlier to occur of (i) the consummation of the Company initial business combination and (ii) November 15, 2023.
On July 18, 2023, the Sponsor loaned $120,000, of which $10,000 is related to the Working Capital Loan and $110,000 is under the Extension Promissory Note (“July 2023 Note”), to the Company for the third Extension Period to move the liquidation date from July 21, 2023 to August 21, 2023. The July 2023 Note bears an interest of 8% per annum and it is payable on the earlier to occur of (i) the consummation of the Company’s initial business combination and (ii) December 15, 2023.
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 and business combination. We will not be generating any operating revenues until the closing and completion of our initial business combination.
For the three-month period ended June 30, 2023, we had net loss of $577,758, which consisted of $239,005 non-operating income resulting from the change in fair value of warrant derivative liabilities, $167,724 non-operating income resulting from the change in fair value of forward purchase agreement and $871,211 interest income generated from the investments held in the trust account. These other incomes are offset by $1,667,031 in general and administrative expenses, $16,212 interest expense, and $172,455 income tax expense.
For the six-month period ended June 30, 2023, we had net income of $114,768, which consisted of $551,513 non-operating income resulting from the change in fair value of warrant derivative liabilities, $162,280 non-operating income resulting from the change in fair value of forward purchase agreement and $2,140,337 interest income generated from the investments held in the trust account. These other incomes are offset by $2,283,771 in general and administrative expenses, $27,120 interest expense, and $428,471 income tax expense.
For the three-month period ended June 30, 2022, we had net income of $819,950, which consisted of $876,323 non-operating income resulting from the change in fair value of derivative liabilities, $110,823 non-operating income resulting from the change in fair value of forward purchase agreement and $156,845 interest income generated from the cash held in the trust account. These other incomes are offset by $324,041 in general and administrative expenses.
For the six-month period ended June 30, 2022, we had net income of $2,173,412, which consisted of $2,585,063 non-operating income resulting from the change in fair value of derivative liabilities and $168,541 interest income generated from the cash held in the trust account. These other incomes are offset by $529,984 in general and administrative expenses, $50,208 non-operating loss resulting from the change in fair value of forward purchase agreement.
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.
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.
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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 June 30, 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 June 30, 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 June 30, 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, including related party transaction disclosures, to achieve complete, accurate and timely financial accounting, reporting and disclosures; (iii) lack of review controls over related party transactions, which resulted in certain related party agreements 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 June 30, 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 a 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. On May 3, 2023, the two parties filed a stipulation discontinuing the litigation with prejudice.
On July 3, 2023, Rana Financial, Inc. (“Rana”) filed a Verified Complaint against the Company in the Delaware Court of Chancery. In the action, Rana seeks specific performance and damages relating to a September 9, 2022 Business Combination Agreement (“BCA”) between FEXD and Rana (and certain related entities), which was terminated by FEXD. On July 26, 2023, FEXD filed an Answer, Defenses and Verified Counterclaims against Rana, seeking an order that FEXD lawfully terminated the BCA and is entitled to damages for Rana’s breach of contract. The trial on liability and specific performance is currently scheduled for January 4-5, 2024.
Item 1A. Risk Factors.
As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide the information required by this Item.
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.
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Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits.
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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: August 15, 2023 | By: |
/s/ Jenny Junkeer |
| Name: | Jenny Junkeer | |
| Title: | Chief Financial Officer and Duly Authorized Officer | |
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