Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
References to the “Company,” “us,” “our” or “we” refer to Fat Projects Acquisition Corp. The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our audited financial statements and related notes included herein.
Cautionary Note Regarding Forward-Looking Statements
All statements other than statements of historical fact included in this Report including, without limitation, statements under this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward- looking statements. When used in this Report, words such as “anticipate,” “believe,” “estimate,” “expect,” “intend” and similar expressions, as they relate to us or the Company’s management, identify forward-looking statements. Such forward-looking statements are based on the beliefs of management, as well as assumptions made by, and information currently available to, the Company’s management. Actual results could differ materially from those contemplated by the forward- looking statements as a result of certain factors detailed in our filings with the SEC. All subsequent written or oral forward-looking statements attributable to us or persons acting on the Company’s behalf are qualified in their entirety by this paragraph.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the 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.
Overview
We are a blank check company incorporated on April 16, 2021 as a Cayman Islands exempted company and formed for the purpose of entering into a merger, share exchange, asset acquisition, share purchase, recapitalization, reorganization or other similar business combination with one or more target businesses. While our efforts to identify a target business may span many industries and regions worldwide, we focus our search for prospects within the supply chain, transportation, logistics, finance, sustainability/ESG, food, agriculture, e-commerce, and/or big data sectors. We intend to effectuate our initial business combination using cash from the proceeds of our Initial Public Offering and the private placement of the private placement warrants, the proceeds of the sale of our shares in connection with our initial business combination, shares issued to the owners of the target, debt issued to bank or other lenders or the owners of the target, or a combination of the foregoing.
We expect to continue to incur significant costs in the pursuit of our initial business combination. We cannot assure you that our plans to complete our initial business combination will be successful.
Initial Public Offering.
On October 15, 2021 we consummated our initial public offering pursuant to which we issued 11,500,000 public units at a price of $10.00 per unit (after the exercise of the underwriters’ overallotment option). Each public unit is comprised of one of our Class A ordinary shares and one redeemable warrant exercisable for one of our Class A ordinary shares with an exercise price of $11.50 per share. Simultaneously with the consummation of our initial public offering, we issued 2,865,000 private placement warrants to our sponsor at a price of $1.00 per warrant. We also issued 115,000 of our Class A ordinary shares to EF Hutton, the lead underwriter for our initial public offering as compensation for serving as lead underwriter. We deposited $115,000,000 of the proceeds from the initial public offering and the private placement of the private placement warrants into our trust account with Continental for the benefit of the holders of our public shares.
Proposed Business Combination with Avanseus Holdings Pte. Ltd.
On August 26, 2022, we entered into a Business Combination Agreement with Avanseus Holdings Pte. Ltd., a Singapore private company limited by shares (“ Avanseus ”) (as may be amended and/or restated from time to time, the “ Business Combination Agreement ”). The Business Combination Agreement and the transactions contemplated thereby were approved by our board of directors and the Avanseus board of directors (other than the PIPE Investment as described below which will require further approval of the boards of directors), subject to the approval of our shareholders.
The Business Combination Agreement provides for a series of transactions, pursuant to which, among other things, Avanseus’ shareholders will exchange all of their outstanding Avanseus shares in consideration for newly issued Company Class A Ordinary Shares (the “ Share Exchange ”), subject to the conditions set forth in the Business Combination Agreement, with Avanseus thereby becoming our wholly owned subsidiary (the Share Exchange and the other transactions contemplated by the Business Combination Agreement, together, the “ Business Combination ” or the “ Proposed Transaction ”). In connection with the Business Combination, we will change our corporate name to “Avanseus Holdings Corporation” (“ New Avanseus ”).
The Business Combination Agreement, prior to the Second BCA Amendment described below, provided that the Company will use its commercially reasonable efforts to enter into and consummate subscription agreements in form and substance mutually acceptable to the Company and Avanseus with investors mutually reasonably acceptable to the Company and Avanseus pursuant to which such investors will agree to purchase up to an aggregate of $35 million of (i) the Company’s Series A Convertible Preference Shares, which shares will be convertible into the Company’s Class A Ordinary Shares, and/or (ii) the Company’s Class A Ordinary Shares, with such purchases to be consummated prior to or substantially currently with the closing of the Share Exchange (the “ PIPE Investment ”).
The Business Combination is expected to close in the first quarter of 2023, following the receipt of the required approval by our shareholders and the fulfillment of other customary closing conditions.
On October 3, 2022, Avanseus and we entered into the First BCA Amendment to amend the previously announced Original Business Combination Agreement. The First BCA Amendment amends the Original Business Combination Agreement to:
Add a mutual condition to the obligations of Avanseus and us to close the transactions contemplated in the Business Combination Agreement that holders of the Company’s Class A Ordinary Shares redeem an aggregate of at least 5,200,000 of such shares so that Avanseus will be the acquiror for accounting purposes at both the minimum and maximum redemption levels required to be disclosed in the Registration Statement on Form S-4 to be filed with the Commission pursuant to the Business Combination Agreement;
Replace the form of Incentive Equity Plan attached to the Original Business Combination Agreement with an amended Incentive Equity Plan to conform the eligible participants in the plan to the eligible participants listed in the Original Business Combination Agreement;
Improve the description of the Nasdaq listing process in the Business Combination Agreement for our Class A Ordinary Shares to be issued to Avanseus’ shareholders and pursuant to the Incentive Equity Plan; and
Provide that subscription agreements for PIPE investors be mutually reasonably acceptable to Avanseus as well as us.
On February 14, 2023, Avanseus and we entered into the Second BCA Amendment to further amend the Original Business Combination Agreement. The Second BCA Amendment further amends the Original Business Combination Agreement to:
Amend the definition of Acquiror Transaction Expenses to exclude expenses that are expressly deferred, waived or converted to equity by written agreement of the parties to which they are owed on terms satisfactory to Avanseus;
Delete provisions related to a PIPE offering by FATP and provisions related to a pool of one million FATP Class A Ordinary Shares to be issued for purposes mutually acceptable to FATP and Avanseus;
Delete a closing condition that required the combined companies to have at least $5,000,001 of net tangible assets at Closing;
Amend the minimum cash closing condition to reduce the amount of cash that the combined companies must have at Closing after the payment of their transaction expenses from $25 million to $4 million;
Add a new closing condition that FATP enter into one or more definitive financing agreements with terms mutually acceptable to FATP and Avanseus with one or more post-closing financing providers acceptable to both FATP and Avanseus, which may include the issuance of up to one millions FATP Class A ordinary shares as origination fees to the post-closing financing providers;
Extend the Agreement End Date, which is the date that either FATP or Avanseus may terminate the Business Combination Agreement without cause (provided that the terminating party is not itself in material breach of the Business Combination Agreement), from February 22, 2023 to July 15, 2023; and
Delete the closing condition added by the First BCA Amendment that holders of at least 5,200,000 publicly held Class A ordinary shares redeem such shares at the closing of the transactions contemplated in the Business Combination since the redemption of 6,058,262 Class A ordinary shares in connection with the January 13, 2023 Charter Amendment rendered such condition unnecessary.
Charter Amendment and Share Redemptions
In an extraordinary general meeting held on January 13, 2023, shareholders approved the Charter Amendment, changing the structure and cost of our right to extend the Termination Date by which we must either (i) consummate a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or similar business combination involving the Company and one or more businesses (a “business combination”), or else (ii) cease our operations if we fail to complete such business combination, and redeem or repurchase 100% of our public shares included as part of the units sold in our initial public offering.
The Charter Amendment allows us to extend the Termination Date by up to six (6) one-month Extensions to July 15, 2023, provided that if any Extended Deadline ends on a day that is not a business day, such Extended Deadline will be automatically extended to the next succeeding business day. To obtain each 1-month extension, we, our sponsor or any of their affiliates or designees must deposit into our Trust Account with Continental by the deadline applicable prior to the extension $0.0575 per share for each of our public shares outstanding as of the deadline prior to the extension (after giving effect to redemptions in connection with the approval of the Charter Amendment by our shareholders with respect to the first such extension).
In connection with the approval of the Charter Amendment, holders of 6,058,262 of our public shares exercised their right to redeem those shares for cash at an approximate price of $10.16 per share, for an aggregate of approximately $61.57 million, leaving 5,441,738 of our public shares outstanding.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date. Our only activities from inception through December 31, 2022, were organizational activities, those necessary to prepare for our Initial Public Offering, described below, and, after our Initial Public Offering, identifying a target company for an initial business combination, negotiating the Business Combination Agreement and the preparation and filing on October 5, 2022 with the SEC the Form S-4 with respect to the Business Combination and subsequent amendments thereto. We do not expect to generate any operating revenues until after the completion of our initial business combination. We generate non-operating income in the form of interest income on marketable securities held in the trust account. We incur expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses and expenses incurred in connection with negotiating the Business Combination Agreement and preparing and filing the Form S-4 and amendments thereto.
For the year ended December 31, 2022, we had a net loss of $736,161, which consisted of formation and operating costs of $2,488,328, partially offset by the interest earned on investments held in the trust account of $1,752,167.
For the period from April 16, 2021 (inception) through December 31, 2021, we had a net loss of $231,291, which consisted of formation and operating costs of $241,834 and interest earned on investments held in the trust account of $10,543.
Liquidity, Capital Resources and Going Concern
On October 15, 2021, we consummated our Initial Public Offering of 11,500,000 Units at a price of $10.00 per Unit, generating gross proceeds of $115,000,000. Simultaneously with the closing of our Initial Public Offering, we consummated the sale of 2,865,000 Placement Warrants to the Sponsor at a price of $1.00 per Warrant, generating gross proceeds of $2,865,000.
For the year ended December 31, 2022, cash used in operating activities was $822,093. Our net loss of $736,161 resulted from formation and operating costs of $2,488,328 partially offset by interest earned on investments held in the Trust Account of $1,752,167. Changes in operating assets and liabilities provided $1,666,235 of cash from operating activities.
For the year ended December 31, 2022, cash provided by financing activities was $140,000, which consisted of proceeds from issuance of promissory note to the Sponsor of $90,000 and proceeds from related party of $50,000.
For the year ended December 31, 2022, no cash was provided by or used in investing activities.
For period from April 16, 2021 (inception) through December 31, 2021, cash used in operating activities was $376,904. Our net loss of $231,291 resulted from interest earned on investments held in Trust Account of $10,543, partially offset by formation and operating costs paid by sponsor of $4,096. Changes in operating assets and liabilities used $139,166 of cash from operating activities.
For period from April 16, 2021 (inception) through December 31, 2021, cash provided by financing activities was $116,131,797. Proceeds from sale of Class B ordinary shares to our Sponsor of $25,000, proceeds from our IPO of $115,000,000, proceeds from the private placement of our private warrants of $2,865,000 and proceeds from the issuance of a promissory note to related party of $163,398 were partially offset by payments of the underwriting discount for the IPO of $1,150,000, repayment of the promissory note to the related party of $163,398, payments to a related party of $133,824 and payment of deferred offering costs of $474,379.
For period from April 16, 2021 (inception) through December 31, 2021, cash used in investing activities was $115,000,000, which consisted of investments held in trust account.
As of December 31, 2022, we had investments of $116,762,710 held in the trust account. As of February 28, 2023, we had investments of approximately $56.3 million held in the trust account after the redemption of public shares in connection with the Charter Amendment. We intend to use substantially all of the funds held in the trust account, including any amounts representing interest earned on the trust account (less taxes paid and deferred underwriting commissions) to complete our initial business combination. We may withdraw interest to pay taxes and we may use up to $100,000 from the trust account to pay liquidation expenses in the event we are unable to complete our initial business combination by the deadline in our charter and are required to dissolve the Company. During the year ended December 31, 2022, we did not withdraw any interest earned on the trust account. To the extent that our capital stock or debt is used, in whole or in part, as consideration to complete our initial business combination, the remaining proceeds held in the trust account will be used as working capital to finance the operations of the target business or businesses, make other acquisitions and pursue our growth strategies.
As of December 31, 2022, we had cash of $72,800 outside of the trust account. We intend to use the funds held outside the trust account primarily to structure, negotiate and complete our initial business combination.
In order to fund working capital deficiencies or finance transaction costs in connection with our initial business combination, our Sponsor or an affiliate of our Sponsor or certain of our officers and directors may, but are not obligated to, loan us funds as may be required. If we complete our initial business combination, we would repay such loaned amounts. In the event that our initial business combination does not close, we may use a portion of the working capital held outside the trust account to repay such loaned amounts but no proceeds from our trust account would be used for such repayment. Up to $1,500,000 of such loans may be convertible into warrants identical to the Placement Warrants, at a price of $1.00 per warrant at the option of the lender. As of December 31, 2022, the Company borrowed $90,000 from Sponsor under the Working Capital Loans.
As described below, in January 2023, our board authorized us to issue up to $1 million in principal amount of non-interest-bearing notes to fund extensions of the deadline to complete our initial business combination and to issue up to $1,062,500 of 15% interest-bearing notes to non-affiliates of our Sponsor and our officers and directors to raise working capital. As of February 28, 2023, there was an aggregate principal amount of $200,260 of non-interest-bearing notes and $355,740 of interest-bearing notes outstanding
In connection with the Company’s assessment of going concern considerations in accordance with FASB Accounting Standards Update (“ ASU ”) 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” management has determined that the Company has and will continue to incur significant costs in pursuit of its acquisition plans which raises substantial doubt about the Company’s ability to continue as a going concern. Moreover, we may need to obtain additional financing either to complete our initial business combination or because we become obligated to redeem a significant number of our Public Shares upon consummation of our initial business combination, in which case we may issue additional securities or incur debt in connection with such Business Combination. Subject to compliance with applicable securities laws, we would only complete such financing simultaneously with the completion of our initial business combination. If we are unable to complete our initial business combination because we do not have sufficient funds available to us, we will be forced to cease operations and liquidate the trust account. In addition, following our initial business combination, if cash on hand is , we may need to obtain additional financing in order to meet our obligations.
In addition, management has determined that the mandatory liquidation and subsequent dissolution, should the Company be unable to complete a business combination, raises substantial doubt about the Company’s ability to continue as a going concern. The Company has until March 15, 2023 to consummate a Business Combination unless the Company further extends the period of time to consummate a business combination by depositing an aggregate of $312,900 (representing $0.0575 per public share) into the Company’s trust account for each of up to four monthly extensions remaining available after the Charter Amendment, or unless the Company’s shareholders approve of a further extension, in each case in accordance with the Company’s amended and restated memorandum and articles of association. It is uncertain that the Company will be able to consummate a Business Combination by this time. If a Business Combination is not consummated by this date, there will be a mandatory liquidation and subsequent dissolution unless there are further extensions as described above. No adjustments have been made to the carrying amounts of assets or liabilities should the Company be required to after March 15, 2023 (assuming no further extensions).
Off-Balance Sheet Financing Arrangements
We have no obligations, assets or liabilities, which would be considered off-balance sheet arrangements as of December 31, 2022. We do not participate in transactions that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets.
Contractual Obligations
We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities, other than an agreement to pay the Sponsor a monthly fee up to $10,000 for office space, utilities and secretarial and administrative support services. We began incurring these fees on October 12, 2021 and will continue to incur these fees monthly until the earlier of the completion of the Business Combination and our liquidation.
The underwriters are entitled to a deferred fee of $4,025,000 in the aggregate. The deferred fee will become payable to the underwriters from the amounts held in the Trust Account solely in the event that the Company completes a Business Combination, subject to the terms of the underwriting agreement.
On December 17, 2022, we issued a non-interest-bearing promissory note in the principal amount of $90,000 to our sponsor in consideration for a $90,000 working capital loan. The note is convertible at the option of the holder into warrants that are substantially identical to our private placement warrants upon the completion of our initial business combination.
Our board of directors has authorized us (1) to raise up to $1 million of funds by the issuance of non-interest bearing notes to fund extensions of the deadline to complete our initial business combination and (2) to raise up to $1,062,500 of funds for working capital (which can also be used to fund extensions of the deadline to complete our initial business combination) through a private offering of promissory notes bearing simple interest at a rate of 15% per annum to prospective investors who are not our sponsor, directors or officers or any of their affiliates. As of February 28, 2023, there was an aggregate principal amount of $200,260 of non-interest-bearing notes and $355,740 of interest-bearing notes outstanding.
Critical Accounting Policies and Significant Estimates
This management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with United States generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the disclosure of contingent assets and liabilities in our financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to fair value of financial instruments and accrued expenses. We base our estimates on historical experience, known trends and events and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Offering Costs
We comply with the requirements of the ASC 340-10-S99-1. Offering costs consists of legal, accounting and underwriting fees and other costs incurred through the balance sheet date that are directly related to the Initial Public Offering, and fair value in excess of consideration paid with respect to the Founder Shares sold to the anchor investors. Offering costs are allocated to the separable financial instruments issued in the IPO based on a relative fair value basis, compared to total proceeds received. Upon closing of the IPO on October 15, 2021, offering costs associated with the Class A ordinary shares were charged to temporary equity. Offering costs associated with the warrants were changed to equity. The Sponsor sold 75,000 founder shares to each of ten anchor investors (750,000 founder shares in the aggregate) at approximately $0.009 per share. The Company accounted for the fair value in excess of consideration paid with respect to the number of Founder Shares sold to the anchor investors as an offering cost reflected as an increase to additional paid in capital offset by a reduction of the offering proceeds upon completion of the IPO. The fair value of each Founder Share was determined to be $6.75.
Ordinary Shares Subject to Possible Redemption
We account for our ordinary shares subject to possible redemption in accordance with the guidance in ASC Topic 480 “Distinguishing Liabilities from Equity.” Ordinary shares subject to mandatory redemption (if any) are classified as liability instruments and measured at fair value. Conditionally redeemable ordinary shares (including ordinary shares that feature redemption rights that are either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control) is classified as temporary equity. At all other times, ordinary shares are classified as shareholders’ equity. Our Class A ordinary shares feature certain redemption rights that are considered to be outside of our control and subject to the occurrence of uncertain future events. Accordingly, all Class A ordinary shares subject to possible redemption are presented at redemption value as temporary equity, outside of the shareholders’ equity section of our balance sheet.
Net Loss Per Ordinary Share
We comply with the accounting and disclosure requirements of ASC Topic 260, “Earnings Per Share.” Net loss per ordinary share is computed by dividing net loss by the weighted average number of ordinary shares outstanding during the period, excluding ordinary shares subject to forfeiture. At December 31, 2022 and 2021, we did not have any dilutive securities and other contracts that could, potentially, be exercised or converted into ordinary shares and then share in the earnings of us. As a result, diluted loss per ordinary share is the same as basic loss per ordinary share for the period presented.
Financial Instruments
We account for warrants as either equity-classified or liability-classified instruments based on an assessment of the warrant’s specific terms and applicable authoritative guidance in FASB ASC 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants (i) are freestanding financial instruments pursuant to ASC 480, (ii) meet the definition of a liability pursuant to ASC 480, and (iii) meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own ordinary shares and also considers whether the warrant holders could potentially require “net cash settlement” in a circumstance outside of the Company’s control, among other conditions for equity classification. This assessment is conducted at the time of warrant issuance and as of each subsequent annual period end date while the warrants are outstanding.
For issued or modified warrants that meet all of the criteria for equity classification, the warrants are required to be recorded as a component of equity at the time of issuance. For issued or modified warrants that do not meet all of the criteria for equity classification, the warrants are required to be recorded at their initial fair value on the date of issuance and each balance sheet date thereafter. The Company accounts for its outstanding warrants as equity-classified.
Recent Accounting Standards
Management does not believe that any recently issued, but not effective, accounting standards, if currently adopted, would have a material effect on the Company’s financial statements.
