References in this report (the "Quarterly Report") to "we," "us" or the
"Company" or "FGMC" refer to FG Merger Corp. References to our "management" or
our "management team" refer to our officers and directors, and references to the
"Sponsor" refer to FG Merger Investors LLC. The following discussion and
analysis of the Company's financial condition and results of operations should
be read in conjunction with the financial statements and the notes thereto
contained elsewhere in this Quarterly 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 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 Exchange Act that are not historical facts, and involve
risks and uncertainties that could cause actual results to differ materially
from those expected and projected. All statements, other than statements of
historical fact included in this Form 10-Q including, without limitation,
statements in 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. Words such as "expect," "believe," "anticipate,"
"intend," "estimate," "seek" and variations and similar words and expressions
are intended to identify such forward-looking statements. Such forward-looking
statements relate to future events or future performance, but reflect
management's current beliefs, based on information currently available. A number
of factors could cause actual events, performance or results to differ
materially from the events, performance and results discussed in the
forward-looking statements. For information identifying important factors that
could cause actual results to differ materially from those anticipated in the
forward-looking statements, please refer to our final prospectus filed in
connection with our IPO (as defined below), under Cautionary Note Regarding
Forward-Looking Statements and Risk Factors. The Company's securities filings
can be accessed on the EDGAR section of the U.S. Securities and Exchange
Commission's ("SEC") website at www.sec.gov. Except as expressly required by
applicable securities law, the Company disclaims any intention or obligation to
update or revise any forward-looking statements whether as a result of new
information, future events or otherwise.
Overview
FG Merger Corp. (the "Company") is a blank check company incorporated in
Delaware on December 23, 2020. The Company was formed for the purpose of merger,
share exchange, asset acquisition, stock purchase, recapitalization,
reorganization or other similar business combination with one or more businesses
or entities ("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 businesses in the financial services industry. 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.
As of September 30, 2022, the Company had not yet commenced any operations. All
activity through September 30, 2022 relates to the Company's formation, the
initial public offering ("IPO"). The Company will not generate any operating
revenues until after the completion of its initial Business Combination, at the
earliest. The Company will generate nonoperating income in the form of interest
income from the proceeds derived from the IPO. The Company has selected
December 31 as its fiscal year end.
The registration statement for the Company's Initial Public Offering was
declared effective on February 25, 2022. On March 1, 2022, the Company
consummated its IPO of 7,000,000 units (the "Units"). On March 3, 2022,
1,050,000 additional Units were issued pursuant to the underwriters' full
exercise of their over-allotment option. The Units were sold at a price of
$10.00 per Unit, generating gross proceeds to the Company of $80,500,000.
Each Unit consists of one common stock of the Company, par value $0.0001 per
share (the "Public Share") and three-quarters of one redeemable warrant (the
"Public Warrant"), each whole Public Warrant entitling the holder thereof to
purchase one share of common stock for $11.50 per share. The Units were sold at
a price of $10.00 per Unit, generating gross proceeds to the Company of
$80,500,000. The Public Warrants will become exercisable on the later of 30 days
after the completion of Business Combination and 12 months from the closing of
the IPO and will expire five years after the completion of Business Combination
or earlier upon the Company's liquidation.
13
Table of Contents
Simultaneously with the closing of the IPO, the Company consummated private
placements ( the "Private Placements") of i) 1,000,000 $15.00 exercise price
warrants (the "$15 Private Warrants") at a price of $0.10 per $15 Private
Warrant, ii) 3,950,000 $11.50 exercise price warrants (the "$11.50 Private
Warrants") at a price of $1.00 per $11.50 Private Warrant, and iii) 55,000 units
at $10.00 per unit (the "Private Units" and, together with the $15 Private
Warrants and $11.50 Private Warrants, the "Private Placement Securities") to the
Company's sponsor, FG Merger Investors LLC (the "Sponsor"), directors, and
officers, for the aggregate purchase price of $4,600,000.
Each Private Unit consists of one Common Stock and three-quarters of one
non-redeemable warrant ("Private Unit Warrant"). Each whole Private Unit Warrant
will entitle the holder to purchase one share of common stock at an exercise
price of $11.50 per share.
Each $15 Private Warrant will entitle the holder to purchase one share of Common
Stock at an exercise price of $15.00 per each share, will be exercisable for a
period of 10 years from the date of Business Combination, will be
non-redeemable, and may be exercised on a cashless basis. Additionally, $15
Private Warrants and the shares issuable upon the exercise of the $15 Private
Warrants will not be transferable, assignable or salable until after the
completion of a Business Combination, subject to certain limited exceptions.
Each $11.50 Private Warrant will entitle the holder to purchase one common share
at an exercise price of $11.50 per each share, will be exercisable for a period
of five years from the date of Business Combination, will be non-redeemable, and
may be exercised on a cashless basis. Additionally, $11.50 Private Warrants and
the shares issuable upon the exercise of the $11.50 Private Warrants will not be
transferable, assignable or salable until after the completion of a Business
Combination, subject to certain limited exceptions.
The Company Units are listed on NASDAQ. The Company's management has broad
discretion with respect to the specific application of the net proceeds of the
IPO and Private Placement Securities, although substantially all of the net
proceeds are intended to be applied generally toward consummating a Business
Combination. NASDAQ rules provide that the Business Combination must be with one
or more target businesses that together have a fair market value equal to at
least 80% of the net assets held in the Trust Account (as defined below)
(excluding any taxes payable on interest earned on the trust account). The
Company will only complete a Business Combination if the post-Business
Combination company owns or acquires 50% or more of the outstanding voting
securities of the target or otherwise acquires a controlling interest in the
target sufficient for it not to be required to register as an investment company
under the Investment Company Act of 1940 as amended (the "Investment Company
Act"). There is no assurance that the Company will be able to successfully
effect a Business Combination.
Following the closing of the IPO on March 1, 2022, and subsequent closing of the
over-allotment on March 3, 2022, a total of $82,512,500 ($10.25 per unit) from
the net proceeds of the sale of Units in the IPO and the sale of Private
Placement Securities as well as the proceeds from the closing of the
over-allotment option were placed in a trust account ("Trust Account") and
invested in U.S. government securities, within the meaning set forth in
Section 2(a)(16) of the Investment Company Act, with a maturity of 185 days or
less, until the earlier of: (i) the consummation of a Business Combination or
(ii) the distribution of the funds in the Trust Account to the Company's
shareholders, as described below.
The Company will provide its shareholders with the opportunity to redeem all or
a portion of their Public Shares upon the completion of a Business Combination
either (i) in connection with a shareholder 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 shareholder approval of a
Business Combination at a meeting called for such purpose at which shareholders
may seek to redeem their shares, regardless of whether they vote for or against
the proposed Business Combination. The Company will proceed with a Business
Combination only if the Company has net tangible assets of at least $5,000,000
upon or immediately prior to such consummation of a Business Combination and, if
the Company seeks shareholder approval, a majority of the outstanding shares
voted are voted in favor of the Business Combination.
If the Company seeks shareholder 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 public
shareholder, together with any affiliate of such shareholder or any other person
with whom such shareholder is acting in concert or as a "group" (as defined
under Section 13 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act")), will be restricted from seeking redemption rights with respect
to 15% or more of the Public Shares without the Company's prior written consent.
The holders of Public Shares will be entitled to redeem their Public Shares for
a pro rata portion of the amount then in the Trust Account (including any pro
rata interest earned on the funds held in the Trust Account and not previously
released to the Company to pay its tax obligations). There will be no redemption
rights upon the completion of a Business Combination with respect to the
Company's warrants.
14
Table of Contents
If a shareholder vote is not required and the Company does not decide to hold a
shareholder 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, officers, directors and advisors (the "Initial Shareholders") have
agreed (a) to vote their Founder Shares (as defined in Note 5) as well as any
common shares underlying the Private Units, and any Public Shares purchased
during or after the IPO 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 shareholders with the opportunity to redeem their Public Shares in
conjunction with any such amendment; (c) not to redeem any shares (including the
Founder Shares as well as any common shares underlying the Private Units) into
the right to receive cash from the Trust Account in connection with a
shareholder 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 shareholder approval in connection therewith) or a vote to amend the
provisions of the amended and restated certificate of incorporation relating to
shareholders' rights of pre-Business Combination activity and (d) that the
Founder Shares, the Private Units and $15 and $11.50 Private Warrants (including
underlying securities) shall not participate in any liquidating distributions
upon winding up if a Business Combination is not consummated. However, the
Initial Shareholders will be entitled to liquidating distributions from the
Trust Account with respect to any Public Shares purchased during or after the
IPO if the Company fails to complete its Business Combination.
The Company will have until 15 months (or 18 months if the time to complete a
business combination is extended as described herein) from the closing of the
IPO to consummate a Business Combination. In addition, if the Company
anticipates that it may not be able to consummate an initial business
combination within 15 months, the Company's insiders or their affiliates may,
but are not obligated to, extend the period of time to consummate a business
combination by an additional three months (for a total of 18 months to complete
a business combination) (the "Combination Period"). In order to extend the time
available for the Company to consummate a Business Combination, the Sponsor or
its affiliate or designees must deposit into the Trust Account $805,000 ($0.10
per Public Share in either case), on or prior to the 15-month anniversary of the
closing of the IPO.
If the Company is unable to complete a Business Combination within the
Combination Period, the Company will (i) cease all operations except for the
purpose of winding up, (ii) as promptly as reasonably possible but no more than
ten business days thereafter, redeem 100% of the outstanding Public Shares, at a
per-share price, payable in cash, equal to the aggregate amount then on deposit
in the Trust Account, including interest earned (net of taxes payable and less
interest to pay dissolution expenses up to $100,000), divided by the number of
then outstanding Public Shares, which redemption will completely extinguish
public shareholders' rights as shareholders (including the right to receive
further liquidation distributions, if any), subject to applicable law, and
(iii) as promptly as reasonably possible following such redemption, subject to
the approval of the remaining shareholders and the Company's board of directors,
proceed to commence a voluntary liquidation and thereby a formal dissolution of
the Company, subject in each case to its obligations to provide for claims of
creditors and the requirements of applicable law. There will be no redemption
rights or liquidation distribution with respect to the Company's warrants, which
will expire worthless if the Company fails to complete its initial Business
Combination within the Combination period.
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 $10.25 per share, except as to any claims by a third party who executed
a waiver of any and all rights to seek access to the Trust Account and except as
to any claims under the Company's indemnity of the underwriters of the IPO
against certain liabilities, including liabilities under the Securities Act of
1933, as amended (the "Securities Act"). In the event that an executed waiver is
deemed to be unenforceable against a third party, the Sponsor will not be
responsible to the extent of any liability for such third-party claims. The
Company will seek to reduce the possibility that the Sponsor will have to
indemnify the Trust Account due to claims of creditors by endeavoring to have
all vendors, service providers, prospective target businesses or other entities
with which the Company does business, execute agreements with the Company
waiving any right, title, interest or claim of any kind in or to monies held in
the Trust Account.
15
Table of Contents
Results of Operations
We have neither engaged in any operations nor generated any revenues to date.
Our only activities through September 30, 2022 were organizational activities,
including those necessary to prepare for the IPO and identifying a target
company for a Business Combination. We do not expect to generate any operating
revenues until after the completion of our Business Combination. We generate
non-operating income in the form of interest income on marketable securities. 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 in connection with completing a Business Combination.
For the three months ended September 30, 2022, the Company reported net income
of $277,261, which consists of $95,132 general and administrative expenses,
offset by $372,393 investment income earned in Trust Account.
For the nine months ended September 30, 2022, the Company reported net income of
$90,506, which consists of $393,645 general and administrative expenses, offset
by $484,151 investment income earned in Trust Account.
Liquidity and Capital Resources
On March 1, 2022, we consummated our IPO of 7,000,000 Units, generating gross
proceeds of $70,000,000. On March 3, 2022, 1,050,000 additional Units were
issued pursuant to the underwriters' full exercise of their over-allotment
option, generating additional gross proceeds of $10,500,000, for total proceeds
of $80,500,000.
Simultaneously with the closing of the IPO, we completed the private sale of i)
1,000,000 $15 Private Warrants generating total proceeds of $1,000,000, ii)
3,950,000 $11.50 Private Warrants generating total proceeds of $3,950,000, and
iii) 55,000 Private Units generating total proceeds of $55,000. From the
proceeds of the IPO and private placement of $15 Private Warrants, $11.50
Private Warrants, and Private Units, the Company retained approximately $900,000
for working capital needs after transfer of proceeds to the Trust Account and
payment of expenses related to the IPO and directors and officers insurance. As
of September 30, 2022, the Company held a cash balance of $772,121 outside of
the Trust Account.
For the nine months ended September 30, 2022, cash used in operating activities
was $115,491, consisting primarily of (i) net income of $90,506, and (ii) change
in operating assets and liabilities which include an increase in prepaid
expenses by $274,194 and an increase in accounts payable by $68,197.
In order to finance transaction costs in connection with a Business Combination,
the Sponsor or an affiliate of the Sponsor, or certain of our officers and
directors may, but are not obligated to, loan us funds as may be required
("Working Capital Loans"). As of September 30, 2022, there were no Working
Capital Loans under this arrangement.
We do not believe we will need to raise additional funds in order to meet the
expenditures required for operating our business. However, if our estimate of
the costs of identifying a target business, undertaking in-depth due diligence
and negotiating a Business Combination are less than the actual amount necessary
to do so, we may have insufficient funds available to operate our business prior
to our initial Business Combination.
Off-Balance Sheet Arrangement
We have no obligations, assets, or liabilities, which would be considered
off-balance sheet arrangements as of September 30, 2022.
Contractual Obligations
Registration Rights
Pursuant to a registration rights agreement entered into on February 25, 2022,
the holders of the Founder Shares (as defined below) and the Private Placement
Securities (and their underlying securities) are entitled to registration
rights. The Company will bear the expenses incurred in connection with the
filing of any registration statements pursuant to such registration rights.
16
Table of Contents
Underwriting Agreement
The Company granted the underwriters a 45-day option to purchase up to 1,050,000
additional Units to cover over-allotments at the Initial Public Offering price.
On March 2, 2022, the underwriters exercised the over-allotment in full, and the
closing of the issuance and sale of the additional Units occurred on March 3,
2022.
Related Party Transactions
Founder Shares
On January 10, 2022, the Company issued an aggregate of 2,012,500 shares of
common stock (the "Founder Shares") to the Sponsor for an aggregate purchase
price of $25,000 in cash. On January 11, 2022, the Sponsor transferred an
aggregate of 60,000 Founder Shares to members of the Company's management and
board of directors, resulting in the Sponsor holding 1,952,500 Founder Shares.
The Initial Shareholders have agreed not to transfer, assign or sell any of the
Founder Shares (except to certain permitted transferees) until, with respect to
50% of the Founder Shares, the earlier of (i) twelve months after the date of
the consummation of a Business Combination, or (ii) the date on which the
closing price of the Company's common stock equals or exceeds $12.00 per share
(as adjusted for stock splits, stock dividends, reorganizations and
recapitalizations) for any 20 trading days within any 30-trading day period
commencing after a Business Combination, with respect to the remaining 50% of
the Founder Shares, 12 months after the date of the consummation of a Business
Combination, or earlier, in each case, if, subsequent to a Business Combination,
the Company consummates a subsequent liquidation, merger, stock exchange or
other similar transaction which results in all of the Company's shareholders
having the right to exchange their Public Shares for cash, securities or other
property.
Administrative Services Agreement
We entered into an administrative services agreement (the "Administrative
Services Agreement") with the Sponsor on February 25, 2022 whereby the Sponsor
will perform certain services for the Company for a monthly fee of $10,000.
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity
with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities, disclosure of contingent assets and liabilities at the
date of the financial statements, and income and expenses during the periods
reported. Actual results could materially differ from those estimates. We had
identified the following as its critical accounting policies:
Basis of presentation
The accompanying financial statements are presented in U.S. Dollars and
conformity with accounting principles generally accepted in the United States of
America ("GAAP") and pursuant to the rules and regulations of the SEC.
Common stock subject to possible redemption
The Company accounts for its common stock subject to possible redemption in
accordance with the guidance in Accounting Standards Codification ("ASC") Topic
480 "Distinguishing Liabilities from Equity." Common stock subject to mandatory
redemption is classified as a liability instrument and is measured at fair
value. Conditionally redeemable common stock (including common stock that
features redemption rights that is either within the control of the holder or
subject to redemption upon the occurrence of uncertain events not solely within
the Company's control) is classified as temporary equity. At all other times,
common stock is classified as stockholders' equity. The Company's common stock
features certain redemption rights that are considered to be outside of the
Company's control and subject to occurrence of uncertain future events.
Accordingly, at September 30, 2022, common stock subject to possible redemption
is presented as temporary equity at redemption value, outside of the
stockholders' equity section of the Company's balance sheet.
17
Table of Contents
The Company recognizes changes in redemption value using the "at redemption
value" method and accordingly recognizes changes in redemption value immediately
as they occur and adjusts the carrying value of redeemable shares to equal the
redemption value at the end of each reporting period. Such changes are reflected
in additional paid-in-capital. During the three months ended September 30, 2022,
the Company recorded charges of $372,393 against additional paid-in-capital
(during the nine months ended September 30, 2022, the Company recorded charges
of $3,737,488 against paid-in-capital).
Warrants
The Company accounts for the 6,037,500 Public Warrants, 41,250 Private Unit
Warrants, 3,950,000 $11.50 Private Warrant, 1,000,000 $15.00 Private Warrant and
30,188 Underwriter Warrants issued in connection with the IPO and the Private
Placements in accordance with the guidance contained in ASC 815-40 "Contracts in
Entity's Own Equity" and ASC 480, "Distinguishing Liabilities from Equity". Such
guidance provides that the Company's warrants meet the criteria for equity
treatment thereunder, each Company's warrants is recorded as equity.
Deferred offering costs
Deferred offering costs consist of underwriting, legal, accounting and other
expenses incurred through the balance sheet date that are directly related to
the IPO and that are charged to shareholders equity upon the completion of the
IPO. Offering costs amounting to $1,240,837 (including $750,000 of underwriting
fees) were charged to shareholders' equity upon the completion of IPO. In
addition, all deferred offering costs were recorded in additional
paid-in-capital due to the IPO. Furthermore, underwriters also received 40,250
Units ("Underwriter Units"), with such Units restricted from sale until the
closing of the Business Combination and with no redemption rights from the Trust
Account. Each Underwriter Unit consists of one share of common stock of the
Company, par value $0.0001 per share and three-quarters of one redeemable
warrant ("Underwriter Warrant"), each whole Underwriter Warrant entitling the
holder thereof to purchase one share of common stock for $11.50 per share.
Net income (loss) per share
The Company complies with accounting and disclosure requirements of ASC 260,
Earnings Per Share. The Company has redeemable and nonredeemable shares of
common stock. Income and losses are shared pro rata between the redeemable and
nonredeemable shares of common stock. Net income (loss) per share of common
stock is calculated by dividing the net income (loss) by the weighted average
shares of common stock outstanding for the respective period. Net loss for the
period from January 1, 2022 to IPO was allocated fully to the nonredeemable
shares of common stock. Diluted net income (loss) per share attributable to
stockholders adjusts the basic net income (loss) per share attributable to
stockholders and the weighted-average shares of common stock outstanding for the
potentially dilutive impact of outstanding warrants. However, because the
warrants are anti-dilutive, diluted income (loss) per share of common stock is
the same as basic income (loss) per share of common stock for the period
presented.
© Edgar Online, source Glimpses
FG MERGPAR 