UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 2022
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 001-40009
QUANTUM FINTECH ACQUISITION CORPORATION
(Exact Name of Registrant as Specified in Its Charter)
| Delaware | 85-3286402 | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
4221 W. Boy Scout Blvd., Suite 300
Tampa, FL 33607
(Address of principal executive offices)
(813) 257-9366
(Issuer’s telephone number)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Common stock, $0.0001 par value per share | QFTA | The New York Stock Exchange | ||
| Warrants to purchase one-half of one share of common stock | QFTA WS | The New York Stock Exchange | ||
| Units, each consisting of one share of common stock and one redeemable warrant | QFTA.U | The New York Stock Exchange |
Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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. Yes ☒ No ☐
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). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See 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 | ☐ | |
| Non-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 ☐
As of August 15, 2022, there were 25,156,250 shares of common stock, $0.0001 par value, issued and outstanding.
QUANTUM FINTECH ACQUISITION CORPORATION
FORM 10-Q FOR THE QUARTER ENDED JUNE 30, 2022
TABLE OF CONTENTS
i
PART I - FINANCIAL INFORMATION
Item 1. Interim Financial Statements.
QUANTUM FINTECH ACQUISITION CORPORATION
CONDENSED BALANCE SHEETS
| June 30, 2022 (Unaudited) | December 31, 2021 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | 75,934 | $ | 63,179 | ||||
| Prepaid expenses | 188,125 | 339,450 | ||||||
| Total Current Assets | 264,059 | 402,629 | ||||||
| Marketable securities held in Trust Account | 201,569,500 | 201,308,628 | ||||||
| TOTAL ASSETS | $ | 201,833,559 | $ | 201,711,257 | ||||
| LIABILITIES, REDEEMABLE COMMON STOCK AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued expenses | $ | 3,302,870 | $ | 2,642,531 | ||||
| Income taxes payable | 17,421 | — | ||||||
| PIPE derivative liability | 832,500 | 4,566,000 | ||||||
| Promissory note – related party | 392,101 | — | ||||||
| Total Current Liabilities | 4,544,892 | 7,208,531 | ||||||
| Warrant liability | 425,567 | 7,137,930 | ||||||
| Total Liabilities | 4,970,459 | 14,346,461 | ||||||
| Commitments and Contingencies | ||||||||
| Common stock subject to possible redemption; 20,125,000 shares at redemption value at June 30, 2022 and December 31, 2021 | 201,298,200 | 201,250,000 | ||||||
| Stockholders’ Deficit | ||||||||
| Preferred stock, $0.0001 par value; 1,000,000 shares authorized; none issued or outstanding | — | — | ||||||
| Common stock, $0.0001 par value; 100,000,000 shares authorized; 5,031,250 shares issued and outstanding (excluding 20,125,000 shares subject to possible redemption) at June 30, 2022 and December 31, 2021 | 503 | 503 | ||||||
| Additional paid-in capital | — | — | ||||||
| Accumulated deficit | (4,435,603 | ) | (13,885,707 | ) | ||||
| Total Stockholders’ Deficit | (4,435,100 | ) | (13,885,204 | ) | ||||
| TOTAL LIABILITIES, REDEEMABLE COMMON STOCK AND STOCKHOLDERS’ DEFICIT | $ | 201,833,559 | $ | 201,711,257 | ||||
The accompanying notes are an integral part of the unaudited condensed financial statements.
1
QUANTUM FINTECH ACQUISITION CORPORATION
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
| Three Months Ended June 30, | Six Months Ended June 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Formation and operational costs | $ | 566,616 | $ | 394,945 | $ | 1,255,510 | $ | 632,468 | ||||||||
| Loss from operations | (566,616 | ) | (394,945 | ) | (1,255,510 | ) | (632,468 | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Change in fair value of warrant liability | 6,053,521 | (2,215,125 | ) | 6,712,363 | (246,125 | ) | ||||||||||
| Change in fair value of PIPE derivative liability | 2,367,500 | — | 3,733,500 | — | ||||||||||||
| Income earned on marketable securities held in Trust Account | 304,373 | 19,530 | 325,372 | 19,530 | ||||||||||||
| Unrealized loss on marketable securities held in Trust Account | — | (20,486 | ) | — | (9,701 | ) | ||||||||||
| Total other income (expense), net | 8,725,394 | (2,216,081 | ) | 10,771,235 | (236,296 | ) | ||||||||||
| Income (loss) before provision for income taxes | 8,158,778 | (2,611,026 | ) | 9,515,725 | (868,764 | ) | ||||||||||
| Provision for income taxes | (17,421 | ) | — | (17,421 | ) | — | ||||||||||
| Net income (loss) | $ | 8,141,357 | $ | (2,611,026 | ) | $ | 9,498,304 | $ | (868,764 | ) | ||||||
| Basic and diluted weighted average shares outstanding, redeemable common stock | 20,125,000 | 20,125,000 | 20,125,000 | 15,633,978 | ||||||||||||
| Basic and diluted net income (loss) per share, redeemable common stock | $ | 0.32 | $ | (0.10 | ) | $ | 0.38 | $ | (0.04 | ) | ||||||
| Basic and diluted weighted average shares outstanding, non-redeemable common stock | 5,031,250 | 5,031,250 | 5,031,250 | 4,886,222 | ||||||||||||
| Basic and diluted net income (loss) per share, non-redeemable common stock | $ | 0.32 | $ | (0.10 | ) | $ | 0.38 | $ | (0.04 | ) | ||||||
The accompanying notes are an integral part of the unaudited condensed financial statements.
2
QUANTUM FINTECH ACQUISITION CORPORATION
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
(UNAUDITED)
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2022
| Common Stock | Additional Paid-in | Accumulated | Total Stockholders’ | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||
| Balance — January 1, 2022 | 5,031,250 | $ | 503 | $ | — | $ | (13,885,707 | ) | $ | (13,885,204 | ) | |||||||||
| Net income | — | — | — | 1,356,947 | 1,356,947 | |||||||||||||||
| Balance –March 31, 2022 | 5,031,250 | $ | 503 | $ | — | $ | (12,528,760 | ) | $ | (12,528,257 | ) | |||||||||
| Accretion of Common Stock subject to Possible Redemption | — | — | — | (48,200 | ) | (48,200 | ) | |||||||||||||
| Net income | — | — | — | 8,141,357 | 8,141,357 | |||||||||||||||
| Balance – June 30, 2022 | 5,031,250 | $ | 503 | $ | — | $ | (4,435,603 | ) | $ | (4,435,100 | ) | |||||||||
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2021
| Common Stock | Additional Paid-in | Accumulated | Total Stockholders’ Equity | |||||||||||||||||
| Shares | Amount | Capital | Deficit | (Deficit) | ||||||||||||||||
| Balance – January 1, 2021 | 5,031,250 | 503 | 24,497 | (5,420 | ) | 19,580 | ||||||||||||||
| Accretion of Common Stock subject to Possible Redemption | — | — | (8,500,809 | ) | (2,645,494 | ) | (11,146,303 | ) | ||||||||||||
| Fair value of Public Warrants at issuance | — | — | 6,138,125 | — | 6,138,125 | |||||||||||||||
| Cash paid in excess of fair value for Private Warrants | — | — | 2,338,187 | — | 2,338,187 | |||||||||||||||
| Net income | — | — | — | 1,742,262 | 1,742,262 | |||||||||||||||
| Balance – March 31, 2021 | 5,031,250 | $ | 503 | $ | — | $ | (908,652 | ) | $ | (908,149 | ) | |||||||||
| Net loss | — | — | — | (2,611,026 | ) | (2,611,026 | ) | |||||||||||||
| Balance – June 30, 2021 | 5,031,250 | $ | 503 | $ | — | $ | (3,519,678 | ) | $ | (3,519,175 | ) | |||||||||
The accompanying notes are an integral part of the unaudited condensed financial statements.
3
QUANTUM FINTECH ACQUISITION CORPORATION
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| For the Six Months Ended June 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net income (loss) | $ | 9,498,304 | $ | (868,764 | ) | |||
| Adjustments to reconcile net income (loss) to net cash used in in operating activities: | ||||||||
| Change in fair value of warrant liability | (6,712,363 | ) | 246,125 | |||||
| Change in fair value of PIPE derivative liability | (3,733,500 | ) | — | |||||
| Transaction costs incurred in connection with warrant liability | — | 9,348 | ||||||
| Unrealized loss on marketable securities held in Trust Account | — | 9,701 | ||||||
| Income earned on marketable securities held in Trust Account | (325,372 | ) | (19,530 | ) | ||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses | 151,325 | (498,084 | ) | |||||
| Accounts payable and accrued expenses | 660,339 | 272,720 | ||||||
| Income taxes payable | 17,421 | — | ||||||
| Net cash used in operating activities | (443,846 | ) | (848,484 | ) | ||||
| Cash Flows from Investing Activities: | ||||||||
| Investment of cash in Trust Account | — | (201,250,000 | ) | |||||
| Cash withdrawn from Trust Account to pay franchise and income taxes | 64,500 | — | ||||||
| Net cash provided by (used in) investing activities | 64,500 | (201,250,000 | ) | |||||
| Cash Flows from Financing Activities: | ||||||||
| Proceeds from sale of Units, net of underwriting discounts paid | — | 196,721,875 | ||||||
| Proceeds from promissory note - related party | 392,101 | 23,957 | ||||||
| Proceeds from sale of Private Placements Warrants | — | 6,153,125 | ||||||
| Repayment of promissory note - related party | — | (154,057 | ) | |||||
| Payment of offering costs | — | (361,032 | ) | |||||
| Net cash provided by financing activities | 392,101 | 202,383,868 | ||||||
| Net Change in Cash | 12,755 | 285,384 | ||||||
| Cash – Beginning | 63,179 | 21,868 | ||||||
| Cash – Ending | $ | 75,934 | $ | 307,252 | ||||
| Supplemental disclosure of non-cash investing and financing activities: | ||||||||
| Offering costs included in accrued offering costs | $ | — | $ | 15,450 | ||||
| Initial classification of common stock subject to possible redemption | $ | — | $ | 201,250,000 | ||||
| Initial classification of warrant liability | $ | — | $ | 3,814,938 | ||||
| Accretion of common stock subject to possible redemption | $ | 48,200 | $ | 11,146,303 | ||||
The accompanying notes are an integral part of the unaudited condensed financial statements.
4
QUANTUM FINTECH ACQUISITION CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
NOTE 1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS
Quantum FinTech Acquisition Corporation (the “Company”) was incorporated in Delaware on October 1, 2020. The Company is a blank check company formed for the purpose of entering into a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization or other similar business combination with one or more businesses or entities (the “Business Combination”). 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.
On November 4, 2021, the Company entered into a Merger Agreement by and among the Company, TradeStation, and Merger Sub. The Merger Agreement, as amended, and other parties thereto, are described in Note 6. On August 2, 2022, the Company received a notice from TradeStation that purported to terminate the Merger Agreement pursuant to Section 12.01(c) thereof (the “Purported Termination Notice”). Section 12.01(c) provides that the Merger Agreement may be terminated by either party if the merger of the Company with Merger Sub has not occurred on or before August 1, 2022 (the “Termination Date”); provided that such termination right is not available to any party whose breach of any provision of the Merger Agreement has been the primary cause of, or primarily resulted in, the failure of the closing of the Business Combination to occur on or before such date. On August 2, 2022, the Company sent a letter to TradeStation stating that TradeStation is not permitted to terminate the Merger Agreement pursuant to Section 12.01(c) because TradeStation’s breaches of, and failure to perform under, the Merger Agreement are the primary cause of the failure of the closing of the Business Combination to occur on or before the Termination Date. It is the Company’s position that the Purported Termination Notice is invalid and unenforceable, and that TradeStation continues to be bound to its obligations under the Merger Agreement in all respects. See Note 6.
As of June 30, 2022, the Company had not commenced any operations. All activity through June 30, 2022 relates to the Company’s formation, the initial public offering (“Initial Public Offering”), which is described below, and identifying a target company for a Business Combination. The Company will not generate any operating revenues until after the completion of a Business Combination, at the earliest. The Company will generate non-operating income and expenses in the form of investment income from the proceeds derived from the Initial Public Offering and change in fair value of PIPE liability and warrant liability.
The registration statements for the Company’s Initial Public Offering were declared effective on February 4, 2021. On February 9, 2021, the Company consummated the Initial Public Offering of 17,500,000 units (the “Units” and, with respect to the shares of common stock included in the Units sold, the “Public Shares”), at $10.00 per Unit, generating gross proceeds of $175,000,000, which is described in Note 3.
Simultaneously with the closing of the Initial Public Offering, the Company consummated the sale of 5,562,500 warrants (each, a “Private Warrant” and, collectively, the “Private Warrants”) at a price of $1.00 per Private Warrant in a private placement to Quantum Ventures LLC (“Quantum Ventures”), who purchased 4,450,000 Private Warrants and Chardan Quantum LLC (“Chardan Quantum” and together with Quantum Ventures, the “Co-Sponsors”) who purchased 1,112,500 Private Warrants, generating gross proceeds of $5,562,500, which is described in Note 4.
Following the closing of the Initial Public Offering on February 9, 2021, an amount of $175,000,000 ($10.00 per Unit) from the net proceeds of the sale of the Units in the Initial Public Offering and the sale of the Private Warrants was placed in a trust account (the “Trust Account”), invested in U.S. government treasury bills, notes or bonds having a maturity of 185 days or less and/or (ii) in money market funds meeting certain conditions under Rule 2a-7 of the Investment Company Act of 1940, as amended (the “Investment Company Act”), as determined by the Company, 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 stockholders, as described below.
On February 12, 2021, the underwriters fully exercised their over-allotment option, resulting in an additional 2,625,000 Units issued for an aggregate amount of $26,250,000. In connection with the underwriters’ full exercise of their over-allotment option, the Company also consummated the sale of an additional 590,625 Private Warrants at $1.00 per Private Warrant, generating total proceeds of $590,625. A total of $26,250,000 was deposited into the Trust Account, bringing the aggregate proceeds held in the Trust Account to $201,250,000.
Transaction costs amounted to $5,017,526, consisting of $4,528,125 of underwriting fees, and $489,401 of other offering costs. Offering costs amounting to $5,008,178 were charged to stockholders’ equity upon the completion of the Initial Public Offering, and $9,348 of the offering costs were related to the warrant liability and charged to the operating and formation costs in the statement of operations for the six months ended June 30, 2021.
The Company’s management has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering and the sale of the Private Warrants, although substantially all of the net proceeds are intended to be applied generally toward completing a Business Combination. The Company must complete a Business Combination having an aggregate fair market value of at least 80% of the assets held in the Trust Account (as defined below) (excluding the taxes payable on income earned on the Trust Account) at the time of the agreement to enter into an initial Business Combination. 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. There is no assurance that the Company will be able to complete a Business Combination successfully.
5
QUANTUM FINTECH ACQUISITION CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
The Company will provide its stockholders 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 stockholder meeting called to approve the Business Combination or (ii) by means of a tender offer. The decision as to whether the Company will seek stockholder approval of a Business Combination or conduct a tender offer will be made by the Company, solely in its discretion. The public stockholders will be entitled to redeem their Public Shares for a pro rata portion of the amount then in the Trust Account (initially anticipated to be $10.00 per Public Share, plus any pro rata income 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.
The Company will proceed with a Business Combination if the Company has net tangible assets of at least $5,000,001 immediately prior to or upon such consummation of a Business Combination and, if the Company seeks stockholder approval, a majority of the shares voted are voted in favor of the Business Combination. If a stockholder vote is not required by law 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 (the “Amended and Restated Certificate of Incorporation”), conduct the redemptions pursuant to the tender offer rules of the U.S. Securities and Exchange Commission (“SEC”) and file tender offer documents with the SEC containing substantially the same information as would be included in a proxy statement prior to completing a Business Combination. If, however, stockholder approval of the transaction is required by law, or the Company decides to obtain stockholder approval for business or legal reasons, the Company will offer to redeem shares in conjunction with a proxy solicitation pursuant to the proxy rules and not pursuant to the tender offer rules. If the Company seeks stockholder approval in connection with a Business Combination, the Co-Sponsors have agreed to vote their Founder Shares and any Public Shares purchased during or after the Initial Public Offering (a) in favor of approving a Business Combination and (b) not to redeem any shares in connection with a stockholder vote to approve a Business Combination or sell any shares to the Company in a tender offer in connection with a Business Combination. Additionally, each public stockholder may elect to redeem their Public Shares, without voting, if they do vote, irrespective of whether they vote for or against the proposed Business Combination.
At the time of the Initial Public Offering, the Co-Sponsors and the other holders of the Company’s shares prior to the Initial Public Offering (the “initial stockholders”) agreed (A) to vote their Founder Shares and any Public Shares in favor of a Business Combination, (B) not to propose, or vote in favor of, prior to and unrelated to a Business Combination, an amendment to the Company’s Amended and Restated Certificate of Incorporation that would affect the substance or timing of the Company’s redemption obligation to redeem all Public Shares if the Company cannot complete a Business Combination within 18 months (August 9, 2022) (or 24 months from the closing of the Initial Public Offering (February 9, 2023) if the Company has executed a letter of intent, agreement in principle or definitive agreement for a Business Combination by August 9, 2022) unless the Company provides public stockholders an opportunity to redeem their Public Shares in conjunction with any such amendment, (C) not to convert any shares (including the Founder Shares) into the right to receive cash from the Trust Account in connection with a stockholder vote to approve the Company’s Business Combination or sell any shares to the Company in a tender offer in connection with a Business Combination, and (D) that the Founder Shares shall not participate in any liquidating distribution upon winding up if a Business Combination is not consummated. As a result of the Company entering into a Merger Agreement on November 4, 2021, the Company has until February 9, 2023 to complete the Business Combination.
The Company has until February 9, 2023 to complete a Business Combination (the “Combination Period”). 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 not more than ten business days thereafter, redeem the Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account including income earned on the funds held in the Trust Account and not previously released to the Company to pay taxes and dissolution expenses up to $100,000, divided by the number of then outstanding Public Shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidating distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the Company’s remaining stockholders and the Company’s board of directors, dissolve and liquidate, subject in each case to the Company’s obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law. There will be no redemption rights or liquidating distributions with respect to the Company’s warrants, which will expire worthless if the Company fails to complete a Business Combination within the Combination Period.
At the time of the Initial Public Offering, the initial stockholders agreed to waive their liquidation rights with respect to the Founder Shares if the Company fails to complete a Business Combination within the Combination Period. However, if the initial stockholders acquire Public Shares in or after the Initial Public Offering, such Public Shares will be entitled to liquidating distributions from the Trust Account if the Company fails to complete a Business Combination within the Combination Period. In the event of such distribution, it is possible that the per share value of the assets remaining available for distribution will be less than the Initial Public Offering price per Unit ($10.00).
6
QUANTUM FINTECH ACQUISITION CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
In order to protect the amounts held in the Trust Account, Quantum Ventures has agreed to be liable to the Company if and to the extent any claims by a third party 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 amount of funds in the Trust Account to below $10.00 per Public Share, except as to any claims by a third party who executed a valid and enforceable agreement with the Company waiving any right, title, interest or claim of any kind they may have in or to any monies held in the Trust Account and except as to any claims under the Company’s indemnity of the underwriters of Initial Public Offering against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the “Securities Act”). Moreover, in the event that an executed waiver is deemed to be unenforceable against a third party, the insiders will not be responsible to the extent of any liability for such third-party claims. The Company has sought and will continue to seek to reduce the possibility that the insiders will have to indemnify the Trust Account due to claims of creditors by endeavoring to have all vendors, service providers (except the Company’s independent registered public accounting firm), 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.
Going Concern
As of June 30, 2022, the Company had $75,934 in its operating bank account ($64,500 of which is required to be used to pay taxes, as described below), $201,569,500 in marketable securities held in the Trust Account to be used for a Business Combination or to repurchase or redeem stock in connection therewith and a working capital deficit of $4,280,833. The working capital deficit includes $832,500 of a PIPE derivative liability. As of June 30, 2022, $319,500 of the amount on deposit in the Trust Account represented income on marketable securities, which is available to the Company to pay franchise and income taxes. During the six months ended June 30, 2022, the Company withdrew $64,500 from the Trust Account that will be used to pay franchise and income taxes.
In October 2021, Quantum Ventures committed to provide the Company an aggregate of $2,000,000 in loans in connection with the Working Capital Loans as described in Note 5. The Company may raise additional capital through loans or additional investments from Quantum Ventures or its stockholders, officers, directors, or third parties. The Company’s officers and directors and Quantum Ventures may, but are not obligated to (except as described above), loan the Company funds, from time to time, in whatever amount they deem reasonable in their sole discretion, to meet the Company’s working capital needs. The Company has drawn $392,101 on the promissory note, evidencing the Working Capital Loans, as of June 30, 2022 (see Note 5). In February 2022, Quantum Ventures committed to provide the Company an additional $1,000,000 for a total of $3,000,000 in loans in connection with the Working Capital Loans as described in Note 5. Pursuant to the Merger Agreement, the Company needs approval from TradeStation (as defined in Note 6) to borrow amounts over $500,000.
In connection with the Company’s assessment of going concern considerations in accordance with Financial Accounting Standard Board’s Accounting Standards Codification Subtopic 205-40, “Presentation of Financial Statements – Going Concern,” the liquidity and date for mandatory liquidation and dissolution raises substantial doubt about the Company’s ability to continue as a going concern through February 9, 2023 (the scheduled liquidation date of the Company if it does not complete a Business Combination prior to such date). Management’s plan is to complete a business combination prior to February 9, 2023. The Company entered into a definitive Merger Agreement on November 4, 2021 (as defined below in Note 6) and is in the process of completing this Business Combination. As described in Note 6 to the Company’s financial statements, on August 2, 2022, the Company received a notice from TradeStation that purported to terminate the Merger Agreement pursuant to Section 12.01(c) thereof (the “Purported Termination Notice”). Section 12.01(c) provides that the Merger Agreement may be terminated by either party if the merger of the Company with Merger Sub has not occurred on or before August 1, 2022 (the “Termination Date”); provided that such termination right is not available to any party whose breach of any provision of the Merger Agreement has been the primary cause of, or primarily resulted in, the failure of the closing of the Business Combination to occur on or before such date. Although it is the Company’s position that the Purported Termination Notice is invalid and unenforceable, and that TradeStation continues to be bound to its obligations under the Merger Agreement in all respects, it is Management’s position that it is uncertain whether it will be able to consummate the Business Combination pursuant to the Merger Agreement. See Note 6. On March 14, 2022, the Company issued an unsecured non-interest bearing promissory note, effective as of January 3, 2022, in the amount of up to $480,000 to Quantum Ventures to evidence the Working Capital Loans. Pursuant to the Merger Agreement, the Company needs approval from TradeStation to borrow amounts over $500,000, so the Company may not be able to utilize the Working Capital Loan commitments or obtain additional financing. If the Company is unable to raise additional capital, it may be required to take additional measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing operations, suspending the pursuit of a potential transaction, and reducing overhead expenses. The Company cannot provide any assurance that new financing will be available to it on commercially acceptable terms, if at all. These conditions raise substantial doubt about the Company’s ability to continue as a going concern for at least one year from the date that the financial statements are issued. No adjustments have been made to the carrying amounts of assets or liabilities should the Company be required to liquidate after February 9, 2023.
Risks and Uncertainties
Management continues to evaluate the impact of the COVID-19 pandemic 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 the financial statements. These 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, 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 financial statements. 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.
7
QUANTUM FINTECH ACQUISITION CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited condensed 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. In the opinion of management, the accompanying unaudited condensed financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented.
The accompanying unaudited condensed financial statements should be read in conjunction with the Company’s Annual Report on Form 10-K/A for the period ended December 31, 2021, as filed with the SEC on April 11, 2022. The accompanying condensed balance sheet as of December 31, 2021 has been derived from the audited financial statements included in this Form 10-K/A. The interim results for the three months and six months ended June 30, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022 or for any future periods.
Emerging Growth Company
The Company is an “emerging growth company,” as defined in Section 2(a) of 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 are applicable 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 elect to 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 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 comparison of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which 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 the condensed 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 disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of 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 financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. The more significant accounting estimates included in these condensed financial statements is the determination of the fair value of the private warrant liabilities, fair value of the PIPE derivative liability, and fair value of the sale of the Founder Shares. Such estimates may be subject to change as more current information becomes available and 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. The Company did not have any cash equivalents as of June 30, 2022 and December 31, 2021.
Marketable Securities Held in Trust Account
At June 30, 2022 and December 31, 2021, substantially all of the assets held in the Trust Account were held in money market funds which are invested primarily in U.S. Treasury securities. All of the Company’s investments held in the Trust Account are classified as trading securities. Trading securities are presented on the condensed balance sheets at fair value at the end of each reporting period. Gains and losses resulting from the change in fair value of investments held in Trust Account are included in income earned on marketable securities held in Trust Account in the accompanying condensed statements of operations. The estimated fair values of investments held in Trust Account are determined using available market information.
8
QUANTUM FINTECH ACQUISITION CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
Offering Costs
Offering costs consisted of legal, and other expenses incurred through the Initial Public Offering that were directly related to the Initial Public Offering. Offering costs were 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 allocated to private warrant liabilities were expensed as incurred in the statements of operations. Offering costs associated with the common stock issued were initially charged to temporary equity and then accreted to common stock subject to redemption upon the completion of the Initial Public Offering. Offering costs amounting to $5,008,178 were charged to stockholders’ equity upon the completion of the Initial Public Offering, and $9,348 of the offering costs were related to the warrant liability and charged to the operating and formation costs in the condensed statement of operations for the six months ended June 30, 2021.
Warrant Liabilities
The Company accounts 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 Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity (“ASC 480”) and ASC 815, Derivatives and Hedging (“ASC 815”). The assessment considers whether the warrants are freestanding financial instruments pursuant to ASC 480, meet the definition of a liability pursuant to ASC 480, and whether the warrants meet all of the requirements for equity classification under ASC 815, including whether the warrants are indexed to the Company’s own common stock, among other conditions for equity classification. This assessment, which requires the use of professional judgment, is conducted at the time of warrant issuance and as of each subsequent quarterly 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 additional paid-in capital at the time of issuance. For issued or modified warrants that do not meet all 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. Changes in the estimated fair value of the warrants that do not meet all the criteria for equity classification are recognized as a non-cash gain or loss on the condensed statements of operations. The fair value of the private warrants was estimated using a Binomial lattice model approach (see Note 9).
Common Stock Subject to Possible Redemption
The Company accounts for its common stock subject to possible redemption in accordance with the guidance in ASC 480. Common stock subject to mandatory redemption are 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, all common stock subject to possible redemption is presented at redemption value as temporary equity, outside of the stockholders’ deficit section of the Company’s condensed balance sheets.
The Company recognizes changes in redemption value immediately as they occur and adjusts the carrying value of redeemable common stock to equal the redemption value at the end of each reporting period. The accretion of redeemable Class A common stock during the three and six months ended June 30, 2022 was an increase of $48,200, which represents cumulative earnings and withdrawals on the Trust Account through June 30, 2022, net of reimbursable income and franchise tax obligations as of June 30, 2022. The dissolution expense of $100,000 is not included in the redemption value of the common stock subject to redemption since it is only taken into account in the event of the Company’s liquidation. Immediately upon the closing of the Initial Public Offering, the Company recognized the accretion from initial book value to redemption amount value. The change in the carrying value of redeemable common stock resulted in charges against additional paid-in capital, to the extent available, and accumulated deficit.
At June 30, 2022 and December 31, 2021, the common stock reflected in the condensed balance sheets is reconciled in the following table:
| Gross proceeds | $ | 201,250,000 | ||
| Less: | ||||
| Proceeds allocated to Public Warrants | $ | (6,138,125 | ) | |
| Common stock issuance costs | (5,008,178 | ) | ||
| Plus: | ||||
| Accretion of carrying value to redemption value | $ | 11,146,303 | ||
| Common stock subject to possible redemption, December 31, 2021 | $ | 201,250,000 | ||
| Plus: | ||||
| Accretion of carrying value to redemption value | $ | 48,200 | ||
| Common stock subject to possible redemption, June 30, 2022 | $ | 201,298,200 |
9
QUANTUM FINTECH ACQUISITION CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
Income Taxes
The Company accounts for income taxes under ASC 740, “Income Taxes.” ASC 740, Income Taxes, requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the unaudited condensed financial statements and tax basis of assets and liabilities and for the expected future tax benefit to be derived from tax loss and tax credit carry forwards. ASC 740 additionally requires a valuation allowance to be established when it is more likely than not that all or a portion of deferred tax assets will not be realized. As of June 30, 2022 and December 31, 2021, the Company’s deferred tax asset had a full valuation allowance recorded against it.
ASC 740-270-25-2 requires that an annual effective tax rate be determined and such annual effective rate applied to year to date income in interim periods under ASC 740-270-30-5. Our effective tax rate was 0.21% and 0.00% for the three months ended June 30, 2022 and 2021, respectively, and 0.18% and 0.00% for the six months ended June 30, 2022 and 2021, respectively. The effective tax rate differs from the statutory tax rate of 21% for the three and 6 months ended June 30, 2022 and 2021, due to changes in fair value in warrant liability, changes in fair value in the PIPE derivative liability, neither of which are included in taxable income, and the valuation allowance on the deferred tax assets.
ASC 740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position 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. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim period, disclosure and transition.
The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of June 30, 2022 and December 31, 2021. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position.
The Company has identified the United States as its only “major” tax jurisdiction. The Company is subject to income taxation by major taxing authorities since inception. These examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance with federal and state 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.
10
QUANTUM FINTECH ACQUISITION CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
Net Income (Loss) per Common Stock
The Company complies with accounting and disclosure requirements of FASB ASC Topic 260, “Earnings Per Share”. Net income (loss) per share of common stock is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding for the period. Income (Loss) is allocated between redeemable and non-redeemable shares based on relative amounts of weighted average shares outstanding. Accretion associated with the redeemable shares of common stock is excluded from income (loss) per share as the redemption value approximates fair value.
The calculation of diluted net income (loss) per share does not consider the effect of the PIPE derivative liability nor the warrants issued in connection with the (i) Initial Public Offering, and (ii) the private placement. The calculation excludes the dilutive impact of these instruments because the issuance of the securities underlying the PIPE derivative liabilities and the exercise of the warrants are contingent upon the occurrence of future events. The warrants are exercisable to purchase 16,215,625 shares of common stock in the aggregate. As of June 30, 2022 and 2021, the Company did not have any dilutive securities or other contracts that could, potentially, be exercised or converted into common stocks and then share in the earnings of the Company. As a result, diluted net income (loss) per share of common stock is the same as basic net income (loss) per common stock for the periods presented.
The following table reflects the calculation of basic and diluted net income (loss) per share of common stock (in dollars, except share amounts):
| Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||
| June 30, 2022 | June 30, 2021 | June 30, 2022 | June 30, 2021 | |||||||||||||||||||||||||||||
| Class A | Class B | Class A | Class B | Class A | Class B | Class A | Class B | |||||||||||||||||||||||||
| Basic and diluted net income (loss) per common stock | ||||||||||||||||||||||||||||||||
| Numerator: | ||||||||||||||||||||||||||||||||
| Allocation of net income (loss), as adjusted | $ | 6,513,086 | $ | 1,628,271 | $ | (2,088,821 | ) | $ | (522,205 | ) | $ | 7,598,643 | $ | 1,899,661 | $ | (661,896 | ) | $ | (206,868 | ) | ||||||||||||
| Denominator: | ||||||||||||||||||||||||||||||||
| Basic and diluted weighted average common stock outstanding | 20,125,000 | 5,031,250 | 20,125,000 | 5,031,250 | 20,125,000 | 5,031,250 | 15,633,978 | 4,886,222 | ||||||||||||||||||||||||
| Basic and diluted net income (loss) per common stock | $ | 0.32 | $ | 0.32 | $ | (0.10 | ) | $ | (0.10 | ) | $ | 0.38 | $ | 0.38 | $ | (0.04 | ) | $ | (0.04 | ) | ||||||||||||
Concentration of Credit Risk
Financial instruments that potentially subject the Company to concentrations of credit risk consist of cash accounts in a financial institution, which, at times may exceed the Federal Deposit Insurance Coverage of $250,000. The Company has not experienced losses on these accounts and management believes the Company is not exposed to significant risks on such accounts.
Fair Value of Financial Instruments
The fair value of the Company’s assets and liabilities, which qualify as financial instruments under ASC Topic 820, “Fair Value Measurement,” approximates the carrying amounts represented in the accompanying condensed balance sheets, primarily due to their short-term nature, except for warrant liabilities (see Note 9).
Derivative Financial Instruments
The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC 815. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value on the issuance date and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative liabilities are classified in the balance sheet as current or non-current based on whether net-cash settlement or conversion of the instrument could be required within 12 months of the balance sheet date.
The PIPE Derivative is comprised of the Additional Shares (as defined in Note 6). The PIPE Derivative meets the criteria for derivative liability classification. As such, the PIPE derivative liability is recorded at its initial fair value on the date of issuance, and each balance sheet date thereafter. Changes in the estimated fair value of the derivative liability is recognized as a non-cash gain or loss on the condensed statements of operations. The fair value of the derivative liability is discussed in Note 9.
11
QUANTUM FINTECH ACQUISITION CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
Recent Accounting Standards
In August 2020, the FASB issued ASU No. 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”), which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, and it also simplifies the diluted earnings per share calculation in certain areas. ASU 2020-06 is effective for the Company for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, with early adoption permitted. The Company is currently assessing the impact, if any, that ASU 2020-06 would have on its financial position, results of operations or cash flows.
Management does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s condensed financial statements.
NOTE 3. PUBLIC OFFERING
Pursuant to the Initial Public Offering, the Company sold 20,125,000 Units, inclusive of 2,625,000 Units sold to the underwriters on February 12, 2021 upon the underwriters’ election to fully exercise their over-allotment option, at a purchase price of $10.00 per Unit. Each Unit will consist of one share of common stock and one redeemable warrant (“Public Warrant”). Each Public Warrant will entitle the holder to purchase one-half share of common stock at an exercise price of $11.50 per share (see Note 8).
NOTE 4. PRIVATE PLACEMENT
Simultaneously with the closing of the Initial Public Offering, Quantum Ventures purchased 4,450,000 Private Warrants and Chardan Quantum purchased 1,112,500 Private Warrants, in each case, at a price of $1.00 per Private Warrant, for an aggregate purchase price of $5,562,500, in a private placement. On February 12, 2021, in connection with the underwriters’ election to fully exercise their over-allotment option, the Company sold an additional 590,625 Private Warrants to the Co-Sponsors, at a price of $1.00 per Private Warrant, generating gross proceeds of $590,625. Each Private Warrant entitles the holder to purchase one share of common stock at a price of $11.50 per full share, subject to adjustment (see Note 8). The proceeds from the Private Warrants were added to the proceeds from the Initial Public Offering to be held in the Trust Account. If the Company does not complete a Business Combination within the Combination Period, the proceeds from the sale of the Private Warrants will be used to fund the redemption of the Public Shares (subject to the requirements of applicable law).
NOTE 5. RELATED PARTY TRANSACTIONS
Founder Shares
On October 23, 2020, Quantum Ventures purchased 4,312,500 shares (the “Founder Shares”) of the Company’s common stock for an aggregate price of $25,000. In January 2021, Quantum Ventures sold 813,500 Founder Shares to Chardan Quantum and 35,000 Founder Shares to each of the Company’s directors and director nominees, in each case at the original price per share, resulting in Quantum Ventures holding a balance of 3,254,000 Founder Shares. On February 4, 2021, the Company effected a stock dividend of 718,750 shares with respect to its common stock, resulting in the initial stockholders holding an aggregate of 5,031,250 Founder Shares. The Founder Shares included an aggregate of up to 656,250 shares that were subject to forfeiture. As a result of the underwriters’ election to fully exercise their over-allotment option on February 12, 2021, no Founder Shares are currently subject to forfeiture.
At the time of the Initial Public Offering, the initial stockholders agreed, subject to certain limited exceptions, not to transfer, assign or sell any of the Founder Shares until (1) with respect to 50% of the Founder Shares, the earlier of nine months after the completion of a Business Combination and the date on which the closing price of the common stock equals or exceeds $12.50 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing after a Business Combination and (2) with respect to the remaining 50% of the Founder Shares, nine months after the completion of a Business Combination, or earlier, in either case, if, subsequent to a Business Combination, the Company completes a liquidation, merger, stock exchange or other similar transaction which results in all of the Company’s stockholders having the right to exchange their shares of common stock for cash, securities or other property. If the Company seeks stockholder approval in connection with a Business Combination, the Co-Sponsors have agreed to vote its their Founder Shares and any Public Shares purchased during or after the Initial Public Offering (a) in favor of approving a Business Combination and (b) not to redeem any shares in connection with a stockholder vote to approve a Business Combination or sell any shares to the Company in a tender offer in connection with a Business Combination.
When consummated, the Merger Agreement, as amended, will require the forfeiture of 1,460,554 founder shares (see Note 6).
12
QUANTUM FINTECH ACQUISITION CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
The sale of the Founders Shares to the Company’s directors and director nominees is in the scope of FASB ASC Topic 718, “Compensation-Stock Compensation” (“ASC 718”). Under ASC 718, stock-based compensation associated with equity-classified awards is measured at fair value upon the grant date. The fair value of the 245,000 shares granted to the Company’s directors and director nominees was $1,462,650 or $5.97 per share. The Founders Shares were granted subject to a performance condition (i.e., the occurrence of a Business Combination). Compensation expense related to the Founders Shares is recognized only when the performance condition is probable of occurrence under the applicable accounting literature in this circumstance. As of June 30, 2022, the Company determined that a Business Combination is not considered probable, and, therefore, no stock-based compensation expense has been recognized. Stock-based compensation would be recognized at the date a Business Combination is considered probable (i.e., upon consummation of a Business Combination) in an amount equal to the number of Founders Shares times the grant date fair value per share (unless subsequently modified) less the amount initially received for the purchase of the Founders Shares.
Administrative Services Agreement
The Company agreed, commencing on February 4, 2021, to pay Quantum Ventures a total of $10,000 per month for office space, utilities and secretarial support. Upon completion of the Business Combination or the Company’s liquidation, the Company will cease paying these monthly fees. For the three months and six months ended June 30, 2022, the Company incurred $30,000 and $60,000, respectively, in fees for these services, and for the three months and six months ended June 30, 2021, the Company incurred $30,000 and $50,000, respectively which are included in the operating and formation costs in the accompanying condensed statements of operations. As of June 30, 2022 and December 31, 2021, included in the accrued expenses in the accompanying balance sheets is $60,000 and $0, respectively, for these services.
Promissory Note – Related Party
On October 1, 2020, the Company issued an unsecured promissory note to Quantum Ventures (the “Promissory Note”), pursuant to which the Company may borrow up to an aggregate principal amount of $200,000. The Promissory Note is non-interest bearing and payable on the earlier of (i) January 31, 2021 and (ii) the completion of the Initial Public Offering. At June 30, 2022 and December 31, 2021, there was no balance under this Promissory Note. The outstanding amount of $154,057 was repaid at the closing of the Initial Public Offering on February 9, 2021.
Related Party Loans
In order to finance transaction costs in connection with a Business Combination, Quantum Ventures or an affiliate of Quantum Ventures, or certain of 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 may be repaid upon completion of a Business Combination, without interest, or, at the lender’s discretion, up to $1,500,000 of notes may be converted upon completion of a Business Combination into warrants at a price of $1.00 per warrant. Such warrants would be identical to the Private Warrants. In the event that a Business Combination does not close, the Company may use a portion of proceeds held outside the Trust Account to repay the Working Capital Loans but no proceeds held in the Trust Account would be used to repay the Working Capital Loans.
In October 2021, Quantum Ventures committed to provide the Company an aggregate of $2,000,000 in loans in connection with the Working Capital Loans. In February 2022, Quantum Ventures committed to provide the Company an additional $1,000,000 for a total of $3,000,000 in loans in connection with the Working Capital Loans. The Company needs approval from TradeStation (as defined in Note 6) to borrow amounts over $500,000.
On March 14, 2022, the Company issued an unsecured promissory note, effective as of January 3, 2022, in the amount of up to $480,000 to Quantum Ventures to evidence the Working Capital Loans. The note bears no interest and is payable in full upon the earlier (i) February 9, 2023 and (ii) the effective date of the consummation of our initial business combination. The note is required to be repaid in cash at the Closing and is not convertible into private warrants. As of June 30, 2022, a principal balance of $392,101 has been advanced.
NOTE 6. COMMITMENTS AND CONTINGENCIES
Registration Rights
Pursuant to a registration rights agreement entered into on February 4, 2021, the holders of the Founder Shares, as well as the holders of the Private Warrants (and underlying securities) and any warrants issued in payment of Working Capital Loans made to the Company (and underlying securities) will have registration and stockholder rights pursuant to an agreement to be signed prior to or on the effective date of the Initial Public Offering. The holders of a majority of these securities are entitled to make up to two demands that the Company register such securities. 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 shares of common stock are to be released from escrow. The holders of a majority of the Private Warrants (and underlying securities) can elect to exercise these registration rights at any time after the consummation of 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. The registration and stockholder rights agreement does not contain liquidating damages or other cash settlement provisions resulting from delays in registering the Company’s securities. The Company will bear the expenses incurred in connection with the filing of any such registration statements.
13
QUANTUM FINTECH ACQUISITION CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
Underwriting Agreement
The Company granted the underwriters a 45-day option to purchase up to 2,625,000 additional Units to cover over-allotments at the Initial Public Offering price, less the underwriting discounts and commissions. On February 12, 2021, the underwriter’s elected to fully exercise the over-allotment option to purchase an additional 2,625,000 Public Units at a price of $10.00 per Public Unit.
Business Combination Marketing Agreement
The Company engaged the underwriters as advisors in connection with a Business Combination to assist the Company in holding meetings with its stockholders to discuss the potential Business Combination and the target business’s attributes, introduce the Company to potential investors that are interested in purchasing the Company’s securities in connection with the potential Business Combination, assist the Company in obtaining stockholder approval for the Business Combination and assist the Company with its press releases and public filings in connection with the Business Combination. The Company will pay the underwriters the marketing fee for such services upon the consummation of our initial business combination in an amount equal to, in the aggregate, 3.5% of the gross proceeds of the Initial Public offering or $7,043,750.
Merger Agreement
On November 4, 2021, the Company entered into an Agreement and Plan of Merger (as amended, the “Merger Agreement”) by and among the Company, TradeStation Group, Inc., a Florida corporation (“TradeStation”), and TSG Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of TradeStation (“Merger Sub”). TradeStation provides a multi-asset trading platform on desktop, web and mobile as a self-clearing online broker for the equities, options, futures and cryptocurrency self-directed investor markets. The Merger Agreement was unanimously approved by the Company’s board of directors. If the Merger Agreement is approved by the Company’s stockholders, and the transactions contemplated by the Merger Agreement are consummated, Merger Sub will merge with and into the Company (the “Merger”), with the Company continuing as the surviving corporation and a wholly owned subsidiary of TradeStation (the “TradeStation Business Combination”).
On August 2, 2022, the Company received a notice from TradeStation that purported to terminate the Merger Agreement pursuant to Section 12.01(c) thereof (the “Purported Termination Notice”). Section 12.01(c) provides that the Merger Agreement may be terminated by either party if the merger of the Company with Merger Sub has not occurred on or before August 1, 2022 (the “Termination Date”); provided that such termination right is not available to any party whose breach of any provision of the Merger Agreement has been the primary cause of, or primarily resulted in, the failure of the closing of the Business Combination to occur on or before such date.
On August 2, 2022, the Company sent a letter to TradeStation stating that TradeStation is not permitted to terminate the Merger Agreement pursuant to Section 12.01(c) because TradeStation’s breaches of, and failure to perform under, the Merger Agreement are the primary cause of the failure of the closing of the Business Combination to occur on or before the Termination Date. It is the Company’s position that the Purported Termination Notice is invalid and unenforceable, and that TradeStation continues to be bound to its obligations under the Merger Agreement in all respects.
Prior to the closing of the TradeStation Business Combination (the “Closing”), TradeStation will undergo a pre-closing reorganization which will result in there being 163,898,232 shares of common stock of TradeStation (“TradeStation Common Stock”) issued and outstanding, all held by Monex Group, Inc. (“Monex”), the sole shareholder of TradeStation. At the Closing, Monex will retain 129,750,000 shares of TradeStation Common Stock and deliver 33,998,232 shares (as reflected in Second Merger Agreement Amendment defined below) of TradeStation Common Stock to an escrow agent (the “Monex Earn Out Shares”). The Monex Earn Out Shares will be released to Monex upon certain milestones (based on the achievement of certain price targets of TradeStation Common Stock following the Closing). In the event such milestones are not met within five years of the Closing, the Monex Earn Out Shares will be automatically released to TradeStation for cancellation. In addition, at the Closing, certain Co-Sponsors (as defined below) will deliver to the escrow agent an aggregate of 948,894 shares (as reflected in Second Merger Agreement Amendment defined below) of TradeStation Common Stock that such Co-Sponsors would otherwise receive as consideration in the Merger (the “Sponsor Earn Out Shares,” and together with the Monex Earn Out Shares, the “Earn Out Shares”). The Sponsor Earn Out Shares will be subject to the same milestones as the Monex Earn Out Shares. In the event such milestones are not met within five years of the Closing, the Sponsor Earn Out Shares will be automatically released to TradeStation for cancellation.
In connection with the Closing, (i) each share of the Company’s common stock (“Company Common Stock”) that (x) is held by Quantum Ventures LLC and Chardan Quantum LLC and the Company’s directors and officers (collectively, the “Co-Sponsors”) after taking into effect the forfeitures described below or (y) was acquired pursuant to the Subscription Agreements (as further described below), will be converted into one share of TradeStation Common Stock, (ii) each share of Company Common Stock (other than the shares referred to in clause (i)) that is outstanding and has not been redeemed will be converted into a number of shares of TradeStation Common Stock equal to (A) the sum of (1) the number of Public Shares outstanding for which holders have not elected redemption as of immediately prior to the Closing and (2) 750,000 divided by (B) the number of Public Shares outstanding for which holders have not elected redemption immediately prior to the Closing.
Each outstanding warrant to purchase Company Common Stock (“Company Warrant”) will become a warrant to purchase TradeStation Common Stock, with each such warrant exercisable for the number of shares of TradeStation Common Stock the holder of the Company Warrant would have received in the Merger if it exercised the Company Warrant immediately prior to the Merger.
14
QUANTUM FINTECH ACQUISITION CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
On December 17, 2021, the Company entered into an amendment (the “First Merger Agreement Amendment”) to the Merger Agreement.
The First Merger Agreement Amendment caps the exchange ratio for which Public Shares will be exchanged for shares of TradeStation common stock in the Merger. The parties considered the potentially dilutive effect of the Company’s warrants arising from the original exchange ratio in scenarios where more than 90% of the Public Shares are redeemed, and agreed to the addition of the cap to mitigate such potentially dilutive effect. The cap of 1.3727 shares is equivalent to the exchange ratio in scenarios where 90% of the Public Shares are redeemed.
On April 28, 2022, the Company entered into an amendment (the “Second Merger Agreement Amendment”) to the Merger Agreement. The Second Merger Agreement Amendment reduced the number of TradeStation Shares to be held by Monex following the Merger by 150,000 TradeStation Shares and reduced the number of Monex Earn Out Shares by 150,000 TradeStation Shares from 34,148,232 to 33,998,232 TradeStation Shares and increased the number of Sponsor Earn Out Shares by a corresponding amount from 798,894 to 948,894 TradeStation Shares. There will be no change in the number of Earn Out Shares in aggregate as a result of the Second Merger Agreement Amendment.
In connection with the Closing, each Public Share that is outstanding and has not been redeemed will be converted into a number of shares of TradeStation common stock equal to the lower of (A) 1.3727 and (B) (1) the sum of (x) the number of Public Shares outstanding for which holders have not elected redemption as of immediately prior to the close of the Business Combination plus (y) 750,000 divided by (2) the number of public shares outstanding for which holders have not elected redemption immediately prior to the close of the Business Combination.
In addition, the First Merger Agreement Amendment revises Exhibit B of the Original Agreement – the form of the Amended and Restated Charter of TradeStation following the Business Combination – to remove classes for the post-closing board of directors and to remove the right of Monex to appoint directors to vacancies on the post-closing board of directors of TradeStation. Following the Closing, each director shall serve for a term expiring at the first annual meeting of shareholders and shall be elected until the next annual meeting of shareholders and vacancies on the post-closing board of directors shall be filled by the affirmative vote of a majority of the directors then in office.
Subscription Agreements
Additionally, the Company and TradeStation entered into subscription agreements (collectively, the “Subscription Agreements”), each dated as of November 4, 2021, with certain investors (collectively, the “PIPE Investors”) pursuant to which, among other things, the Company agreed to issue and sell, in private placements to close immediately prior to the Closing, an aggregate of 12,500,000 shares of the Company’s common stock for $10.00 per share (the “Company PIPE Shares”), including 5,000,000 shares to Monex. The PIPE Investment will be consummated substantially concurrently with the Closing, subject to the terms and conditions contemplated by the Subscription Agreements. The Company PIPE Shares will be converted in the Merger into an equal number of shares of TradeStation Common Stock, subject to adjustment as described below. Pursuant to the terms of the Subscription Agreements, each PIPE Investor may, at its election, terminate its Subscription Agreement on or after August 1, 2022. The consummation of the investment by the PIPE Investors pursuant to the Subscription Agreements is not a condition to closing the Business Combination under the Merger Agreement.
Subject to limitations described below, in the event that the Adjustment Period VWAP (as defined below) is less than $10.00 per share of TradeStation common stock (as adjusted for any stock split, reverse stock split or similar adjustment following the Closing), each PIPE Investor, other than Monex, shall be entitled to receive from TradeStation a number of additional shares of TradeStation common stock equal to the product of (x) the number of Company PIPE Shares, excluding any Incentive Shares (as defined below) issued to such PIPE Investor at the Closing that such PIPE Investor holds through the Measurement Date (as defined below), multiplied by (y) a fraction, (A) the numerator of which is $10.00 (as adjusted for any stock split, reverse stock split or similar adjustment following the Closing) minus the Adjustment Period VWAP, and (B) the denominator of which is the Adjustment Period VWAP (such additional shares, the “Additional Shares”).
If (i) at any time from the Closing through the Measurement Date, a PIPE Investor is not the record and beneficial owner of or otherwise transfers the TradeStation common stock into which the Company PIPE Shares are converted at the Closing, other than ordinary course of business pledges as part of prime brokerage or other similar financing arrangements permitted under the Subscription Agreements; or (ii) at any time from the Closing through the Measurement Date, the PIPE Investor or any person or entity acting on its behalf, at its direction or pursuant to any understanding with the PIPE Investor directly or indirectly engages in any transaction in breach of the prohibition in the Subscription Agreements on “short sales,” the PIPE Investor will automatically and irrevocably forfeit any right to or interest in any Additional Shares.
Monex will participate in the PIPE Investment and has agreed to purchase 5,000,000 Company PIPE Shares pursuant to a Subscription Agreement on substantially the same terms and conditions as the other PIPE Investors; provided that it will not be entitled to receive any Additional Shares. The Company will issue to any PIPE Investor or group of PIPE Investors, other than Monex, whose aggregate subscription amount for Company PIPE Shares is equal to or greater than $5 million, an additional number of Company PIPE Shares (the “Incentive Shares”) equal to 10.0% of such aggregate subscribed-for Committed Shares for no additional consideration (which would result in the issuance of an aggregate of 750,000 additional Incentive Shares). The Incentive Shares are considered to be fixed and determinable and represent a discount on the per share price at issuance. No PIPE Investor will be entitled to receive any Additional Shares in respect of the Incentive Shares.
15
QUANTUM FINTECH ACQUISITION CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
For purposes of the Subscription Agreements: (i) the “Adjustment Period VWAP” means the higher of (x) the lower of (A) the average of the VWAP of a share of TradeStation common stock, determined for each of the successive 60 trading days of the Adjustment Period (as defined below) and (B) the average of the VWAP of a share of TradeStation common stock determined for each of the successive 10 trading days ending on and including the last day of the Adjustment Period and (y) $6.50; (ii) the “Adjustment Period” means the 60 Trading Day period beginning on and including the date a resale registration statement for the PIPE shares is declared effective; and (iii) the “Measurement Date” means the last day of the Adjustment Period.
TradeStation will assume upon Closing the Company’s obligation to file, within 15 calendar days of Closing (the “Filing Deadline”), a registration statement registering the resale of such common stock and will use commercially reasonable efforts to have such registration statement declared effective as soon as practicable after the filing thereof, but no later than the earlier of (i) forty-five (45) calendar days (or ninety (90) calendar days if the SEC notifies the Company that it will “review” the registration statement) following the Filing Deadline and (ii) the third (3rd) business day after the date the Company is notified (orally or in writing, whichever is earlier) by the SEC that the registration statement will not be “reviewed” or will not be subject to further review.
Sponsor Support Agreement
Additionally, the Company entered into a Sponsor Support Agreement (the “Sponsor Support Agreement”) with TradeStation, Monex and the initial stockholders, pursuant to which, among other things, each of the initial stockholders agreed to vote any of the shares of Company Common Stock held by them in favor of the TradeStation Business Combination and not to redeem any such shares at the special meeting of stockholders to be held in connection with the TradeStation Business Combination. In addition, the insiders agreed not to transfer (i) their TradeStation common stock following the Closing, subject to certain exceptions, until the earlier of (A) (1) in the case of Co-Sponsors, 12 months from Closing and (2) in the case of the Company’s directors and officers, 6 months from Closing and (B) subsequent to the Closing, the date on which the last reported sale price of TradeStation common stock exceeds $12.50 per share for 20 out of any 30 consecutive trading days and (ii) their TradeStation warrants following the Closing, subject to certain exceptions, until the later of (A) 30 days from Closing and (B) February 4, 2022. In addition, pursuant to the Sponsor Support Agreement, the Co-Sponsors have agreed to forfeit at Closing for no consideration an aggregate of 1,610,554 Founders Shares and the forfeited shares shall be deemed to be cancelled and no longer outstanding.
Concurrently with entry into the Second Merger Agreement Amendment, the Co-Sponsors delivered to the Company a Letter Agreement, dated April 28, 2022, which amends the Sponsor Support Agreement to reduce the number of Quantum Shares required to be forfeited by the Co-Sponsors by 150,000 from 1,610,554 to 1,460,554 Quantum Shares. In addition, pursuant to the Letter Agreement, the Co-Sponsors each agreed to forfeit, following the Merger, a number of Private Warrants as a result of which they will not benefit from the anti-dilution provisions contained in the Warrant Agreement that the Public Warrants will benefit from as a result of the issuance of up to 750,000 additional TradeStation Shares that TradeStation will be issuing to public stockholders of Quantum at Closing as an incentive not to redeem their Quantum Shares (subject to the cap on the exchange ratio included in the Merger Agreement). As a result, the Co-Sponsors will forfeit the number of Private Warrants such that the number of TradeStation Shares issuable upon exercise of the Private Warrants following the Merger shall equal the number of Quantum Shares for which the Private Warrants were exercisable prior to the Merger.
Vendor Agreement
On August 20, 2021, the Company entered into an agreement with a vendor for investment banking services related to the pending Business Combination. Specifically, the agreement relates to assisting in raising the funds as part of the PIPE financing. The agreement calls for the vendor to receive a contingent fee equal to 3% of the aggregate purchase price of the securities sold in the private placement. If the Company engages a co-placement agent in connection with the private placement the contingent fee will be 4% of the aggregate purchase price of the securities sold in the private placement. In addition, the vendor will receive reimbursement of out-of-pocket expenses that shall not exceed $50,000.
NOTE 7. STOCKHOLDERS’ EQUITY
Preferred Stock — The Company is authorized to issue 1,000,000 shares of preferred stock with a par value of $0.0001 per share with such designations, voting and other rights and preferences as may be determined from time to time by the Company’s board of directors. At June 30, 2022 and December 31, 2021, there were no shares of preferred stock issued or outstanding.
Common stock — The Company is authorized to issue 100,000,000 shares of common stock with a par value of $0.0001 per share. Holders of the Company’s common stock are entitled to one vote for each share. At June 30, 2022 and December 31, 2021, there were 25,156,250 shares of common stock issued and outstanding, including 20,125,000 shares of common stock subject to possible redemption which are presented as temporary equity.
16
QUANTUM FINTECH ACQUISITION CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
NOTE 8. WARRANTS
As of June 30, 2022 and December 31, 2021, there are 10,062,500 Public Warrants outstanding that are classified and accounted for as equity instruments. The Public Warrants will become exercisable on the later of (a) the completion of a Business Combination or (b) one year from the closing of the Initial Public Offering. No Public Warrants will be exercisable for cash unless the Company has an effective and current registration statement covering the shares of common stock issuable upon exercise of the warrants and a current prospectus relating to such shares of common stock. Notwithstanding the foregoing, if a registration statement covering the shares of common stock issuable upon exercise of the Public Warrants is not effective within 120 days from the closing of a Business Combination, warrant holders may, until such time as there is an effective registration statement and during any period when the Company shall have failed to maintain an effective registration statement, exercise warrants on a cashless basis pursuant to an available exemption from registration under the Securities Act. The Public Warrants will expire five years after the completion of a Business Combination or earlier upon redemption or liquidation.
Once the warrants become exercisable, the Company may redeem the Public Warrants:
| ● | in whole and not in part; | |
| ● | at a price of $0.01 per warrant; | |
| ● | at any time after the warrants become exercisable; | |
| ● | upon not less than 30 days’ prior written notice of redemption; | |
| ● | if, and only if, the reported last sale price of the shares of common stock equals or exceeds $16.50 per share (as adjusted for stock splits, stock dividends, reorganizations and recapitalizations), for any 20 trading days within a 30 trading day period ending on the third business day prior to the notice of redemption to warrant holders; and | |
| ● | if, and only if, there is a current registration statement in effect with respect to the shares of common stock underlying the warrants at the time of redemption and for the entire 30-day trading period referred to above and continuing each day thereafter until the date of redemption. |
If the Company calls the Public Warrants for redemption, 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 number of shares of common stock issuable upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, or recapitalization, reorganization, merger or consolidation. However, except as described below, the warrants will not be adjusted for issuance of common stock at a price below its exercise price. Additionally, in no event will the Company be required to net cash settle the warrants. If the Company is unable to complete a Business Combination within the Combination Period and the Company liquidates the funds held in the Trust Account, holders of warrants will not receive any of such funds with respect to their warrants, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with the respect to such warrants. Accordingly, the warrants may expire worthless.
In addition, if (x) the Company issues additional common stock or equity-linked securities for capital raising purposes in connection with the closing of a Business Combination at an issue price or effective issue price of less than $9.20 per share of common stock (with such issue price or effective issue price to be determined in good faith by the Company’s board of directors and, in the case of any such issuance to the initial stockholders or their affiliates, without taking into account any Founder Shares or Private Warrants held by the initial stockholders or their affiliates, as applicable, prior to such issuance) (the “Newly Issued Price”), (y) the aggregate gross proceeds from such issuances represent more than 60% of the total equity proceeds, and income thereon, available for the funding of a Business Combination on the date of the consummation of a Business Combination (net of redemptions), and (z) the volume weighted average trading price of its common stock during the 20 trading day period starting on the trading day prior to the day on which the Company consummates its Business Combination (such price, the “Market Value”) is below $9.50 per share, the exercise price of the warrants will be adjusted (to the nearest cent) to be equal to 115% of the higher of the Market Value and Newly Issued Price, and the $16.50 per share redemption trigger price will be adjusted (to the nearest cent) to be equal to 165% of the higher of the Market Value and the Newly Issued Price.
17
QUANTUM FINTECH ACQUISITION CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
As of June 30, 2022 and December 31, 2021, there are 6,153,125 Private Warrants to purchase an equal number of common shares that are outstanding that are classified and accounted for as derivative liabilities. Under this accounting treatment, the Company is required to measure the fair value of the Private Warrants at the end of each reporting period as well as re-evaluate the treatment of the Private Warrants and recognize changes in the fair value from the prior period in the Company’s operating results for the current period. The Private Warrants are identical to the Public Warrants underlying the Units sold in the Initial Public Offering, except that (i) each private warrant is exercisable for 1 share of common stock at an exercise price of $11.50 per share, the Private Warrants and the shares of common stock issuable upon the exercise of the Private Warrants will not be transferable, assignable or saleable until after the completion of a Business Combination, subject to certain limited exceptions. Additionally, the Private Warrants will be exercisable for cash or on a cashless basis, at the holder’s option, and will be non-redeemable so long as they are held by the initial purchasers or their permitted transferees. If the Private Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants.
NOTE 9. 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. |
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.
At June 30, 2022 and December 31, 2021, assets held in the Trust Account were comprised of $201,569,500 and $201,308,628, respectively, in money market funds which are primarily invested in U.S. Treasury securities. During the six months ended June 30, 2022, the Company withdrew an amount of $64,500 in income from the Trust Account that will be used to pay franchise and income taxes.
The following table presents information about the Company’s assets and liabilities that are measured at fair value on a recurring basis at June 30, 2022 and December 31, 2021, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:
| Description | Level | June 30, 2022 | December 31, 2021 | |||||||||
| Assets: | ||||||||||||
| Marketable securities held in Trust Account | 1 | $ | 201,569,500 | $ | 201,308,628 | |||||||
| Liabilities: | ||||||||||||
| PIPE derivative liability – Additional Shares | 3 | $ | 832,500 | $ | 4,566,000 | |||||||
| Warrant liability - Private Warrants | 3 | $ | 425,567 | $ | 7,137,930 | |||||||
The Private Warrants were accounted for as liabilities in accordance with ASC 815-40 and are presented within warrant liabilities on the condensed balance sheets. The warrant liabilities are measured at fair value at inception and on a recurring basis, with changes in fair value presented within change in fair value of warrant liability in the condensed statements of operations.
The Private Placement Warrants were initially and as of the end of each subsequent reporting period, valued using a lattice model, specifically a binomial lattice model incorporating the Cox-Ross-Rubenstein methodology, which is considered to be a Level 3 fair value measurement. The primary unobservable input utilized in determining the fair value of the Private Placement Warrants is the expected volatility of the Company’s common stock. The expected volatility of the Company’s common stock was determined based on the implied volatility of the publicly traded Public Warrants.
18
QUANTUM FINTECH ACQUISITION CORPORATION
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2022
(Unaudited)
The key inputs into the binomial lattice model for the Private Warrants were as follows:
| Input | June 30, 2022 | December 31, 2021 | ||||||
| Market price of public shares | $ | 9.83 | $ | 9.39 | ||||
| Risk-free rate | 2.98 | % | 1.27 | % | ||||
| Dividend yield | 0.00 | % | 0.00 | % | ||||
| Volatility | 2.6 | % | 9.5 | % | ||||
| Exercise price | $ | 11.50 | $ | 11.50 | ||||
| Effective expiration date | 08/09/27 | 02/25/27 | ||||||
The PIPE Derivative was accounted for as a liability in accordance with ASC 815-40 and presented within current liabilities on the condensed balance sheet as of June 30, 2022 and December 31, 2021. The PIPE derivative liability is measured at fair value at inception and on a recurring basis, with changes in fair value presented within change in fair value of PIPE derivative liability in the condensed statements of operations.
The Additional Shares were initially and as of June 30, 2022 and December 31, 2021, valued using a Monte Carlo model which is considered to be a Level 3 fair value measurement. The primary unobservable input utilized in determining the fair value of the PIPE Derivative Liability is the expected volatility of the Company’s common stock. The expected volatility of the Company’s common stock was determined based on the implied volatility of the publicly traded Public Warrants.
The key inputs into the Monte Carlo model for the PIPE Derivative Liability were as follows:
| Input | June 30, 2022 | December 31, 2021 | ||||||
| Market price of Public Shares as of measurement date | $ | 9.83 | $ | 9.89 | ||||
| Risk-free rate | 2.00 | % | 0.33 | % | ||||
| Dividend yield | 0.00 | % | 0.00 | % | ||||
| Volatility | 2.6 | % | 14.5 | % | ||||
| Term (in years) | 0.34 | 0.84 | ||||||
The following table presents the changes in the fair value of the PIPE Derivative Liability and the warrant liability:
| Private Placement | PIPE Derivative Liability | |||||||
| Fair value as of January 1, 2021 | $ | — | $ | — | ||||
| Initial measurement on February 9, 2021 | 3,448,750 | — | ||||||
| Exercising of underwriters’ over-allotment on February 12, 2021 | 366,188 | — | ||||||
| Initial measurement on November 4, 2021 | — | 5,532,000 | ||||||
| Change in valuation inputs or other assumptions | 3,322,992 | (966,000 | ) | |||||
| Fair value as of December 31, 2021 | 7,137,930 | 4,566,000 | ||||||
| Change in valuation inputs or other assumptions | (6,712,363 | ) | (3,733,500 | ) | ||||
| Fair value as of June 30, 2022 | $ | 425,567 | $ | 832,500 | ||||
There were no transfers between levels during the three months and six months ended June 30, 2022 and 2021, and the year ended December 31, 2021.
NOTE 10. SUBSEQUENT EVENTS
The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the condensed financial statements were issued. Based upon this review, other than described below, the Company did not identify any subsequent events that would have required adjustment or disclosure in the condensed financial statements.
On August 2, 2022, the Company borrowed an additional $15,000 from the Related Party Loan as described in Note 5. As of the date of this filing, the Related Party Loan aggregate outstanding principal balance is $407,101.
On August 2, 2022, the Company received a notice from TradeStation that purported to terminate the Merger Agreement. On August 2, 2022, the Company sent a letter to TradeStation stating that TradeStation is not permitted to terminate the Merger Agreement. See Note 6.
19
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
References in this quarterly report on Form 10-Q (the “Quarterly Report”) to “we,” “us” or the “Company” refer to Quantum FinTech Acquisition Corporation. References to our “management” or our “management team” refer to our officers and directors, and references to the “Co-Sponsors” refer to Quantum Ventures LLC (“Quantum Ventures”) and Chardan Quantum LLC (“Chardan Quantum”). 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. Certain defined terms used herein have the meaning ascribed to them in the notes to the financial statements.
Special 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 Securities Exchange Act of 1934, as amended (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 Quarterly Report 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 plans and objectives of management for future operations and the Company’s expectations regarding the TradeStation Business Combination, including TradeStation’s obligations under the Merger Agreement, 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 the Risk Factors section of this Quarterly Report and the Company’s Annual Report on Form 10-K/A for the fiscal year ended December 31, 2021 (“Annual Report on Form 10-K/A”) filed with the U.S. Securities and Exchange Commission (the “SEC”) on April 11, 2022 and the Company’s Form 10-Q for the period ended March 31, 2022 filed with the SEC on May 16, 2022. The Company’s securities filings can be accessed on the EDGAR section of the SEC’s 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
We are a blank check company formed under the laws of the State of Delaware on October 1, 2020, for the purpose of entering into a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization or other similar business combination with one or more businesses or entities. We intend to effectuate our business combination using cash from the proceeds of the initial public offering and the sale of the private warrants, our capital stock, debt or a combination of cash, stock and debt.
We expect to continue to incur significant costs in the pursuit of our acquisition plans. We cannot assure you that our plans to complete a business combination will be successful.
Significant Events and Transactions
We entered into the Original Merger Agreement with TradeStation on November 4, 2021, the First Merger Agreement Amendment with TradeStation on December 17, 2021 and the Second Merger Agreement Amendment with TradeStation on April 28, 2022. Pursuant to the Merger Agreement, and assuming the satisfaction or waiver of various closing conditions, including approval of the Merger Agreement by our stockholders, TSG Merger Sub, Inc. will merge with and into the Company, with the Company continuing as the surviving corporation and a wholly owned subsidiary of TradeStation.
On August 2, 2022, the Company received a notice from TradeStation that purported to terminate the Merger Agreement pursuant to Section 12.01(c) thereof (the “Purported Termination Notice”). Section 12.01(c) provides that the Merger Agreement may be terminated by either party if the merger of the Company with Merger Sub has not occurred on or before August 1, 2022 (the “Termination Date”); provided that such termination right is not available to any party whose breach of any provision of the Merger Agreement has been the primary cause of, or primarily resulted in, the failure of the closing of the Business Combination to occur on or before such date.
On August 2, 2022, the Company sent a letter to TradeStation stating that TradeStation is not permitted to terminate the Merger Agreement pursuant to Section 12.01(c) because TradeStation’s breaches of, and failure to perform under, the Merger Agreement are the primary cause of the failure of the closing of the Business Combination to occur on or before the Termination Date. It is the Company’s position that the Purported Termination Notice is invalid and unenforceable, and that TradeStation continues to be bound to its obligations under the Merger Agreement in all respects.
Additionally, we and TradeStation entered into Subscription Agreements, each dated as of November 4, 2021, with the PIPE Investors pursuant to which, among other things, we agreed to issue and sell, in private placements to close immediately prior to the Closing, an aggregate of 12,500,000 Company PIPE Shares, including 5,000,000 shares to Monex Group, Inc. The PIPE Investment will be consummated substantially concurrently with the Closing, subject to the terms and conditions contemplated by the Subscription Agreements. The Company PIPE Shares will be converted in the Merger into an equal number of shares of TradeStation common stock. Pursuant to the terms of the Subscription Agreements, each PIPE Investor may, at its election, terminate its Subscription Agreement on or after August 1, 2022. The consummation of the investment by the PIPE Investors pursuant to the Subscription Agreements is not a condition to closing the Business Combination under the Merger Agreement.
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Subject to limitations described above, in the event that the Adjustment Period VWAP is less than $10.00 per share of TradeStation common stock (as adjusted for any stock split, reverse stock split or similar adjustment following the Closing), each PIPE Investor, other than Monex, shall be entitled to receive from TradeStation a number of Additional Shares equal to the product of (x) the number of Company PIPE Shares, excluding any Incentive Shares issued to such PIPE Investor at the Closing that such PIPE Investor holds through the Measurement Date (as defined below), multiplied by (y) a fraction, (A) the numerator of which is $10.00 (as adjusted for any stock split, reverse stock split or similar adjustment following the Closing) minus the Adjustment Period VWAP, and (B) the denominator of which is the Adjustment Period VWAP (such additional shares, the “Additional Shares”). If (i) at any time from the Closing through the Measurement Date, a PIPE Investor is not the record and beneficial owner of or otherwise transfers the TradeStation common stock into which the Company PIPE Shares are converted at the Closing, other than ordinary course of business pledges as part of prime brokerage or other similar financing arrangements permitted under the Subscription Agreements; or (ii) at any time from the Closing through the Measurement Date, the PIPE Investor or any person or entity acting on its behalf, at its direction or pursuant to any understanding with the PIPE Investor directly or indirectly engages in any transaction in breach of the prohibition in the Subscription Agreements on “short sales,” the PIPE Investor will automatically and irrevocably forfeit any right to or interest in any Additional Shares.
For purposes of the Subscription Agreements: (i) the “Adjustment Period VWAP” means the higher of (x) the lower of (A) the average of the VWAP of a share of TradeStation common stock, determined for each of the successive 60 Trading Days of the Adjustment Period (as defined below) and (B) the average of the VWAP of a share of TradeStation common stock determined for each of the successive 10 trading days ending on and including the last day of the Adjustment Period and (y) $6.50; (ii) the “Adjustment Period” means the 60 trading day period beginning on and including the date a resale registration statement for the PIPE shares is declared effective; and (iii) the “Measurement Date” means the last day of the Adjustment Period.
Monex will participate in the PIPE Investment and has agreed to purchase 5,000,000 Company PIPE Shares pursuant to a Subscription Agreement on substantially the same terms and conditions as the other PIPE Investors; provided that it will not be entitled to receive any Additional Shares. The Company will issue to any PIPE Investor or group of PIPE investors, other than Monex, whose aggregate subscription amount for Company PIPE Shares is equal to or greater than $5 million, an additional number of Company PIPE Shares equal to 10.0% of such aggregate subscribed-for Committed Shares for no additional consideration (which will result in the issuance of an aggregate of 750,000 additional Incentive Shares). No PIPE Investor will be entitled to receive any Additional Shares in respect of the Incentive Shares.
Additionally, we entered into a Sponsor Support Agreement with TradeStation, Monex and the initial stockholders, pursuant to which, among other things, the initial stockholder agreed to vote any of the shares of Company Common Stock held by them in favor of the TradeStation Business Combination and not to redeem any such shares at the special meeting of stockholders to be held in connection with the TradeStation Business Combination. In addition, the insiders agreed not to transfer (i) their TradeStation common stock following the Closing, subject to certain exceptions, until the earlier of (A) (1) in the case of Co-Sponsors, 12 months from Closing and (2) in the case of our directors and officers, 6 months from Closing and (B) subsequent to the Closing, the date on which the last reported sale price of TradeStation common stock exceeds $12.50 per share for 20 out of any 30 consecutive trading days and (ii) their TradeStation warrants following the Closing, subject to certain exceptions, until the earlier of (A) 30 days from Closing and (B) February 4, 2022.
On December 17, 2021, we entered into the First Merger Agreement Amendment to the Merger Agreement.
The First Merger Agreement Amendment caps the exchange ratio for which shares of the Company’s public shares will be exchanged for shares of TradeStation common stock in the Merger. The parties considered the potentially dilutive effect of the Company’s warrants arising from the original exchange ratio in scenarios where more than 90% of the public shares are redeemed, and agreed to the addition of the cap to mitigate such potentially dilutive effect. The cap of 1.3727 shares is equivalent to the exchange ratio in scenarios where 90% of the public shares are redeemed.
In connection with the Closing, each public share that is outstanding and has not been redeemed will be converted into a number of shares of TradeStation common stock equal to the lower of (A) 1.3727 and (B) (1) the sum of (x) the number of public shares outstanding for which holders have not elected redemption as of immediately prior to the close of the Business Combination plus (y) 750,000 divided by (2) the number of public shares outstanding for which holders have not elected redemption immediately prior to the Closing.
In addition, the First Merger Agreement Amendment revises Exhibit B of the Original Agreement – the form of Amended and Restated Charter of TradeStation following the Business Combination – to remove classes for the post-closing board of directors and to remove the right of Monex to appoint directors to vacancies on the post-closing board of directors of TradeStation. Following the close of the Business Combination, each director shall serve for a term expiring at the first annual meeting of shareholders and shall be elected until the next annual meeting of shareholders and vacancies on the post-closing board of directors shall be filled by the affirmative vote of a majority of the directors then in office.
On April 28, 2022, the Company entered into an amendment (the “Second Merger Agreement Amendment”) to the Merger Agreement. The Second Merger Agreement Amendment reduced the number of TradeStation Shares to be held by Monex following the Merger by 150,000 TradeStation Shares and reduced the number of Monex Earn Out Shares by 150,000 TradeStation Shares from 34,148,232 to 33,998,232 TradeStation Shares and increased the number of Sponsor Earn Out Shares by a corresponding amount from 798,894 to 948,894 TradeStation Shares. There will be no change in the number of Earn Out Shares in aggregate as a result of the Second Merger Agreement Amendment.
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Concurrently with entry into the Second Merger Agreement Amendment, the Co-Sponsors delivered to the Company a Letter Agreement, dated April 28, 2022, which amends the Sponsor Support Agreement to reduce the number of Quantum Shares required to be forfeited by the Sponsors by 150,000 from 1,610,554 to 1,460,554 Quantum Shares. In addition, pursuant to the Letter Agreement, the Co-Sponsors each agreed to forfeit, following the Merger, a number of Private Warrants as a result of which they will not benefit from the anti-dilution provisions contained in the Warrant Agreement that the Public Warrants will benefit from as a result of the issuance of 750,000 additional TradeStation Shares that TradeStation will be issuing to public stockholders of Quantum at Closing as an incentive not to redeem their Quantum Shares (subject to the cap on the exchange ratio included in the Merger Agreement). As a result, the Co-Sponsors will forfeit the number of Private Warrants such that the number of TradeStation Shares issuable upon exercise of the Private Warrants following the Merger shall equal the number of Quantum Shares for which the Private Warrants were exercisable prior to the Merger.
Refer to Notes 6 and 10 of our condensed financial statements for further details on the TradeStation Business Combination, the Merger Agreement, the amendments to the Merger Agreement, the Sponsor Support Agreement as amended and the Subscription Agreements.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date. Our only activities through June 30, 2022 were organizational activities, the initial public offering, which is described below, and subsequent to the initial public offering, 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 income on marketable securities held in the trust account and change in fair value of PIPE derivative liability and warrant liability. 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.
For the three months ended June 30, 2022, we had a net income of $8,141,357, which consists of income earned on marketable securities held in trust account of $304,373, change in fair value of PIPE derivative liability of $2,367,500, and change in fair value of warrant liability of $6,053,521, partially offset by operating costs of $566,616 and provision for incomes taxes of $17,421.
For the six months ended June 30, 2022, we had a net income of $9,498,304, which consists of income earned on marketable securities held in trust account of $325,372, change in fair value of PIPE derivative liability of $3,733,500 and change in fair value of warrant liability of $6,712,363, partially offset by operating costs of $1,255,510 and provision for income taxes of $17,421.
For the three months ended June 30, 2021, we had a net loss of $2,611,026, which consists of formation and operational costs of $394,945, change in fair value of warrant liability of $2,215,125 and unrealized loss on marketable securities held in Trust Account of $20,486, partially offset by income earned on marketable securities held in Trust Account of $19,530.
For the six months ended June 30, 2021, we had a net loss of $868,764, which consists of formation and operational costs of $632,468, change in fair value of warrant liability of $246,125 and unrealized loss on marketable securities held in Trust Account of $9,701, partially offset by income earned on marketable securities held in Trust Account of $19,530.
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Liquidity and Capital Resources
On February 9, 2021, we consummated our initial public offering of 17,500,000 units, each unit consisting of one share of common stock, par value $0.0001 per share, and one warrant to purchase one-half of one share of common stock at an exercise price of $11.50, at $10.00 per unit, generating gross proceeds of $175,000,000. Simultaneously with the closing of our initial public offering, we consummated the sale of 5,562,500 private warrants at a price of $1.00 per private warrant in a private placement to the Co-Sponsors, generating gross proceeds of $5,562,500.
On February 12, 2021, in connection with the underwriters’ exercise of their over-allotment option in full, we consummated the sale of an additional 2,625,000 units at a price of $10.00 per unit, generating total gross proceeds of $26,250,000. In addition, we consummated the sale of an additional 590,625 private warrants at $1.00 per private warrant, generating gross proceeds of $590,625.
Following the initial public offering, the full exercise of the over-allotment option, and the sale of the private warrants, a total of $201,250,000 was placed in the trust account. We incurred $5,017,526 in initial public offering related costs, including $4,528,125 of underwriting fees and $489,401 of other costs.
For the six months ended June 30, 2022, cash used in operating activities was $443,846. Net income of $9,498,304 was affected by income earned on marketable securities held in the trust account of $325,372, change in fair value of PIPE derivative liability of $3,733,500 and the change in fair value of warrant liability of $6,712,363. Changes in operating assets and liabilities provided $829,085 of cash for operating activities.
For the six months ended June 30, 2021, cash used in operating activities was $848,484. Net loss of $868,764 was affected by unrealized gain on marketable securities held in the trust account of $9,701, change in fair value of warrant liability of $246,125 and transaction costs allocated to the warrant liabilities of $9,348, offset by income earned on marketable securities held in Trust Account of $19,530. Changes in operating assets and liabilities used $225,364 of cash for operating activities.
As of June 30, 2022, we had marketable securities of $201,569,500 (including $319,500 of income) held in the trust account, invested in U.S. government treasury bills, notes or bonds having a maturity of 185 days or less and/or (ii) in money market funds meeting certain conditions under Rule 2a-7 of the Investment Company Act, as determined by us. Investment income on the balance in the trust account may be used by us to pay taxes and dissolution expenses up to $100,000. During the three months and six months ended June 30, 2022, we withdrew an amount of $64,500 in income earned from the trust account.
We intend to use substantially all of the funds held in the trust account, including any amounts representing income earned on the trust account (less income taxes payable), to complete our business combination. To the extent that our capital stock or debt is used, in whole or in part, as consideration to complete our 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.
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As of June 30, 2022, we had cash of $75,934 in our operating bank accounts, $201,569,500 in marketable securities held in the Trust Account to be used for a Business Combination or to repurchase or redeem stock in connection therewith and working capital deficit of $4,280,833. The working capital deficit includes the PIPE derivative liability of $832,500. As of June 30, 2022, $319,500 of the amount on deposit in the Trust Account represented income on marketable securities which is available to the Company to pay franchise and income taxes. During the six months ended June 30, 2022, we withdrew $64,500 from the Trust Account to pay franchise and income taxes.
In October 2021, Quantum Ventures committed to provide us up to $2,000,000 in working capital loans. In February 2022, Quantum Ventures committed to provide us up to an additional $1,000,000 for a total of $3,000,000 in working capital loans (the “Working Capital Loans”). Refer to Note 5 of our financial statements. On March 14, 2022, we issued an unsecured promissory note, effective as of January 3, 2022, in the amount of up to $480,000 to Quantum Ventures evidencing the Working Capital Loans. The note bears no interest and is payable in full upon the earlier (i) February 9, 2023 and (ii) the effective date of the consummation of our initial business combination. The note is required to be repaid in cash at the Closing and is not convertible into private warrants. Refer to Note 5 of our financial statements. We may raise additional capital through loans or additional investments from Quantum Ventures or its stockholders, officers, directors, or third parties, however, pursuant to the Merger Agreement, the Company needs approval from TradeStation to borrow amounts over $500,000. As of June 30, 2022, a principal balance of $392,101 has been advanced to the Company.
In connection with the Company’s assessment of going concern considerations in accordance with Financial Accounting Standard Board’s Accounting Standards Codification Subtopic 205-40, “Presentation of Financial Statements – Going Concern,” the liquidity and date for mandatory liquidation and dissolution raises substantial doubt about the Company’s ability to continue as a going concern through February 9, 2023, (the scheduled liquidation date of the Company if it does not complete a Business Combination prior to such date). Management’s plan is to complete a business combination prior to February 9, 2023. The Company entered into a definitive Merger Agreement on November 4, 2021 and is in the process of completing this Business Combination. As described in Note 6 to the Company’s financial statements, on August 2, 2022, the Company received a notice from TradeStation that purported to terminate the Merger Agreement pursuant to Section 12.01(c) thereof (the “Purported Termination Notice”). Section 12.01(c) provides that the Merger Agreement may be terminated by either party if the merger of the Company with Merger Sub has not occurred on or before August 1, 2022 (the “Termination Date”); provided that such termination right is not available to any party whose breach of any provision of the Merger Agreement has been the primarily cause of, or primarily resulted in, the failure of the closing of the Business Combination to occur on or before such date. Although it is the Company’s position that the Purported Termination Notice is invalid and unenforceable, and that TradeStation continues to be bound to its obligations under the Merger Agreement in all respects, it is Management’s position that it is uncertain whether it will be able to consummate the Business Combination pursuant to the Merger Agreement. As discussed above, on March 14, 2022, we issued an unsecured non-interest bearing promissory note, effective as of January 3, 2022, in the amount of up to $480,000 to Quantum Ventures evidencing the Working Capital Loans. Pursuant to the Merger Agreement, the Company needs approval from TradeStation to borrow amounts over $500,000 so, we may not be able to utilize the Working Capital Loan commitments or obtain additional financing. If we are unable to raise additional capital, we may be required to take additional measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing operations, suspending the pursuit of a potential transaction, and reducing overhead expenses. We cannot provide any assurance that new financing will be available to us on commercially acceptable terms, if at all. These conditions raise substantial doubt about our ability to continue as a going concern for at least one year from the date that the financial statements are issued. No adjustments have been made to the carrying amounts of assets or liabilities should we be required to liquidate after February 9, 2023.
Off-Balance Sheet Arrangements
We have no obligations, assets or liabilities, which would be considered off-balance sheet arrangements as of June 30, 2022.
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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 Quantum Ventures a monthly fee of $10,000 for office space, utilities and secretarial support. We began incurring these fees on February 4, 2021 and will continue to incur these fees monthly until the earlier of the completion of the business combination and our liquidation.
We engaged Chardan as an advisor in connection with a business combination to assist us in holding meetings with our stockholders to discuss the potential business combination and the target business’s attributes, introduce us to potential investors that are interested in purchasing our securities in connection with the potential business combination, assist us in obtaining stockholder approval for the business combination and assist us with our press releases and public filings in connection with the business combination. We will pay Chardan a marketing fee for such services upon the consummation of our initial business combination in an amount equal to, 7,043,750, or 3.5% of the gross proceeds of the initial public offering, including the proceeds from the full exercise of the over-allotment option.
Critical Accounting Policies
The preparation of condensed financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America 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 have determined that there have been no significant changes to our critical accounting policies during the three months and six months ended June 30, 2022 from the critical accounting policies described in our Form 10-K/A for the year ended December 31, 2021.
Recent Accounting Standards
In August 2020, the FASB issued ASU No. 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”), which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, and it also simplifies the diluted earnings per share calculation in certain areas. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, with early adoption permitted. We are currently assessing the impact, if any, that ASU 2020-06 would have on its financial position, results of operations or cash flows.
Management does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on our condensed financial statements.
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Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not required for smaller reporting companies.
Item 4. Controls and Procedures
Disclosure Controls and Procedures
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that such information is accumulated and communicated to the company’s management, including its chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
As of June 30, 2022, an evaluation of the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) was carried out by our management, with the participation of our Chief Executive Officer (CEO) and Chief Financial Officer (CFO). Based upon that evaluation, the CEO and CFO have concluded that as of the end of that fiscal quarter, our disclosure controls and procedures were not effective, due to the material weaknesses in our internal control over financial reporting related to our accounting for complex financial instruments and the material weaknesses described below.
Our management determined that our disclosure controls and procedures were not effective as of June 30, 2022 due to the material weaknesses with respect to compiling information to prepare our interim and annual financial statements in accordance with U.S. GAAP. The material weaknesses are due to the previously omitted subsequent event disclosure in the Form 10-K previously filed with the SEC on March 10, 2022, an advance from Quantum Ventures, the analysis and full disclosure of the Merger Agreement, the impact of the Merger Agreement on our going concern assessment and the impact of the Merger Agreement as it relates to the classification of our complex accounting instruments, as well as the related determination of the fair value of the PIPE derivative liability, accumulated deficit, net loss and related financial disclosures.
We performed additional analysis as deemed necessary to ensure that our condensed financial statements were prepared in accordance with U.S. GAAP. Accordingly, management believes that the condensed financial statements included in this Quarterly Report present fairly in all material respects our financial position, results of operations, and cash flows for the periods presented.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the fiscal quarter covered by this Quarterly Report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. In light of the material weaknesses described above, management has implemented remediation steps to improve our internal control over financial reporting. Specifically, we expanded and improved our review process for complex securities and related accounting standards. We plan to further improve this process by enhancing access to accounting literature, identification of third-party professionals with whom to consult regarding complex accounting applications and consideration of additional staff with the requisite experience and training to supplement existing accounting professionals.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors
Factors that could cause our actual results to differ materially from those in this report include the risk factors described in our Annual Report on Form 10-K/A filed with the SEC on April 11, 2022 and our Quarterly Report on Form 10-Q for the period ended March 31, 2022 filed with the SEC on May 16, 2022. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. As of the date of this Quarterly Report, there have been no material changes to the risk factors disclosed in our Annual Report on Form 10-K/A and our Quarterly Report on Form 10-Q for the period ended March 31, 2022, except for the following risk factor:
Because of TradeStation’s termination notice to us, we cannot assure you that we will be able to consummate our anticipated Business Combination with TradeStation.
On August 2, 2022, the Company received a notice from TradeStation that purported to terminate the Merger Agreement pursuant to Section 12.01(c) thereof (the “Purported Termination Notice”). Section 12.01(c) provides that the Merger Agreement may be terminated by either party if the merger of the Company with Merger Sub has not occurred on or before August 1, 2022 (the “Termination Date”); provided that such termination right is not available to any party whose breach of any provision of the Merger Agreement has been the primary cause of, or primarily resulted in, the failure of the closing of the Business Combination to occur on or before such date.
On August 2, 2022, the Company sent a letter to TradeStation stating that TradeStation is not permitted to terminate the Merger Agreement pursuant to Section 12.01(c) because TradeStation’s breaches of, and failure to perform under, the Merger Agreement are the primary cause of the failure of the closing of the Business Combination to occur on or before the Termination Date. It is the Company’s position that the Purported Termination Notice is invalid and unenforceable, and that TradeStation continues to be bound to its obligations under the Merger Agreement in all respects.
In the event TradeStation refuses to perform its obligations under the Merger Agreement, we may be unable to complete the Business Combination. Alternatively, we may have to engage in potentially protracted litigation and/or seek injunctive relief to cause TradeStation to specifically perform its obligations under the Merger Agreement and consummate the Closing in accordance with the terms of the Merger Agreement. Any such litigation or dispute, whether successful or not, could result in substantial costs and diversion of management’s attention and resources, which could have a material adverse effect on our business, results of operations and financial condition and our ability to complete a business combination with any target.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
On February 9, 2021, we consummated our initial public offering of 17,500,000 Units and on February 12, 2021, we issued an additional 2,625,000 units as a result of the exercise in full of the underwriters’ over-allotment option, in each case, at an offering price of $10.00 per Unit, generating aggregate gross proceeds of $201,250,000. The securities sold in our initial public offering were registered under the Securities Act on registration statements on Form S-1 (Nos. 333-252226 and 333-252761). The registration statements became effective on February 4, 2021. For a description of the use of the proceeds generated in our Initial Public Offering and private placement, see Part I, Item 2 of this Quarterly Report. There has been no material change in the planned use of the proceeds from the Initial Public Offering and private placement as is described in the Company’s final prospectus related to the initial public offering.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
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Item 6. Exhibits
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report.
| No. | Description of Exhibit | |
| 31.1* | Certification of Chief Executive Officer (Principal Executive Officer) required by Rule 13a-14(a) or Rule 15d-14(a). | |
| 31.2* | Certification of Chief Financial Officer (Principal Financial and Accounting Officer) required by Rule 13a-14(a) or Rule 15d-14(a). | |
| 32.1** | Certification of Chief Executive Officer required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350. | |
| 32.2** | Certification of Chief Financial Officer required by Rule 13a-14(b) or Rule 15d-14(b) and 18 U.S.C. 1350. | |
| 101.INS | Inline XBRL Instance Document. | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document. | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
| * | Filed herewith. |
| ** | Furnished herewith. |
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| QUANTUM FINTECH ACQUISITION CORPORATION | ||
| Date: August 15, 2022 | By: | /s/ John Schaible |
| Name: | John Schaible | |
| Title: | Chief Executive Officer | |
| (Principal Executive Officer) | ||
| Date: August 15, 2022 | By: | /s/ Miguel Leon |
| Name: | Miguel Leon | |
| Title: | Chief Financial Officer | |
| (Principal Financial and Accounting Officer) | ||
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