The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements.
NOTES TO RESTATED UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
NOTE 1. DESCRIPTION OF ORGANIZATION AND BUSINESS
OPERATIONS
Organization and General
East Stone Acquisition Corporation
(“East Stone” or the “Company”) is a blank check company incorporated in the British Virgin Islands on August
9, 2018. The Company was incorporated for the purpose of acquiring, engaging in a share exchange, share reconstruction and amalgamation
with, purchasing all or substantially all of the assets of, entering into contractual arrangements with, or engaging in any other similar
business combination with one or more businesses or entities (the “Business Combination”). Although the Company is not limited
to a particular industry or geographic region for purposes of consummating a Business Combination, the Company intends to focus on businesses
primarily operating in the financial services industry or businesses providing technological services to the financial industry, commonly
known as “fintech businesses” in the regions of North America and Asia-Pacific. The Company is an emerging growth company
and, as such, the Company is subject to all of the risks associated with emerging growth companies.
As of September 30, 2021,
the Company had not yet commenced any operations. All activity through September 30, 2021 relates to the Company’s formation, the
initial public offering (“Initial Public Offering” or “IPO”), which is described below, and since the closing
of IPO, the search for a target for its Business Combination and the potential acquisition, as more fully described below. The Company
will not generate any operating revenues until after the completion of its initial Business Combination, at the earliest. The Company
generates income in the form of interest income from the proceeds derived from the IPO and placed in Trust Account (as defined below)
as described below.
Initial Public Offering
The registration statement
for the Company’s IPO was declared effective on February 19, 2020 (“Effective Date”). On February 24, 2020, the Company
consummated the IPO of 13,800,000 units (the “Units” and, with respect to the ordinary shares underlying the Units sold, the
“Public Shares”), including 1,800,000 Units as a result of the underwriters’ full exercise of over-allotment option,
generating aggregate gross proceeds to the Company of $138,000,000.
Simultaneously with the closing
of the IPO, the Company consummated certain private placements of an aggregate of 350,000 Units (“Private Units”) at $10.00
per Private Unit, generating gross proceeds of $3,500,000. Pursuant to the unit subscription agreements entered into in connection with
the private placements, 167,000 Private Units were purchased by the Double Ventures Holdings Limited (“Sponsor”), 108,000
Private Units were purchased by Hua Mao and Cheng Zhao (“anchor investors”) separately and not together, and 75,000 Private
Units were purchased by I-Bankers Securities, Inc., the representative of the several underwriters in the IPO (“I-Bankers”).
In connection with the Company’s
IPO, the Company issued an aggregate of 103,500 ordinary shares of the Company (“Representative’s Shares”) to I-Bankers
and its designee, of which 90,562 Representative’s Shares were issued to I-Bankers and 12,938 Representative’s Shares were
issued to EarlyBird Capital, Inc. (“EarlyBird”) (see Note 7).
At the closing of the IPO,
the Company additionally granted to I-Bankers and its designee a total of 690,000 warrants, exercisable at $12.00 per full share (for
an aggregate exercise price of $8,280,000) (“Representative’s Warrants”), of which 601,500 Representative’s Warrants
were granted to I-Bankers and 88,500 Representative’s Warrants were granted to EarlyBird (see Note 7).
Total offering costs amounted
to $4,154,255, including value placed on the Representative’s Shares at $1,035,000, but excluding value placed Representative’s
Warrants at $1,640,028 which is accounted for as derivative warrant liability on the Company’s balance sheet. Of the total $4,154,255
transactions cost, the cash transaction costs amounted to $3,083,255, of which $2,415,000 of underwriting fees, including $402,500 of
deferred underwriting fees, payable at the consummation of the Business Combination (as described below), and $668,255 of other offering
costs of legal, accounting and other expenses incurred through the IPO that are directly related to the IPO. All of the transaction costs
were charged to the equity of the Company upon completion of IPO.
Trust Account
Following the closing of the
IPO, a total of $138,000,000 of the net proceeds from the IPO and the sale of the Private Units was placed in a trust account (“Trust
Account”), which is invested only in U.S. government treasury bills, notes and bonds with a maturity of 185 days or less or in money
market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act of 1940, as amended (the “Investment
Company Act”) and which invest solely in U.S. Treasuries. Except for all interest income that may be released to the Company to
pay taxes, and up to $50,000 to pay dissolution expenses, none of the funds held in the Trust Account will be released until the earlier
of: (1) the completion of the initial Business Combination within the required time period; (2) the Company’s redemption of 100%
of the outstanding Public Shares if the Company has not completed an initial Business Combination in the required time period; and (3)
the redemption of any Public Shares properly tendered in connection with a shareholder vote to amend the Company’s Amended and Restated
Memorandum and Articles of Association (A) to modify the substance or timing of the Company’s obligation to redeem 100% of
the Public Shares if the Company does not complete its initial Business Combination within the required time period or (B) with respect
to any other provision relating to shareholders’ rights or pre-Business Combination activity.
Business Combination
The Company’s management
has broad discretion with respect to the specific application of the net proceeds of the IPO and the sale of the Private Units, although
substantially all of the net proceeds are intended to be applied generally towards consummating a Business Combination. The Company’s
initial Business Combination must be with one or more operating businesses or assets with a fair market value equal to at least 80% of
the net assets held in the Trust Account at the time the Company signs a definitive agreement in connection with the initial Business
Combination. However, the Company will only complete a Business Combination if the post-transaction 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 successfully effect a Business Combination.
The Company will proceed with
a Business Combination if the Company has net tangible assets of at least $5,000,001 prior to or upon such consummation of a Business
Combination and, if the Company seeks shareholder approval, a majority of the outstanding ordinary shares voted are voted in favor of
the Business Combination. If a shareholder vote is not required and the Company does not decide to hold a shareholder vote for business
or other legal reasons, the Company will, pursuant to its Amended and Restated Memorandum and Articles of Association, offer to redeem
the Public Shares pursuant to the tender offer rules of the Securities and Exchange Commission (“SEC”) and file tender offer
documents containing substantially the same information as would be included in a proxy statement with the SEC prior to consummating a
Business Combination.
Notwithstanding the foregoing,
if the Company seeks shareholder approval of the Business Combination and the Company does not conduct redemptions pursuant to the tender
offer rules, the Company’s Amended and Restated Memorandum and Articles of Association provides that a public shareholder, together
with any affiliate of such shareholder or any other person with whom such shareholder is acting in concert or as a “group”
(as defined in Section 13(d)(3) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), will be restricted
from redeeming its shares with respect to more than an aggregate of 15% of the Public Shares, without the prior consent of the Company.
The Sponsor and the other
initial shareholders (collectively, “initial shareholders”) have agreed (A) to vote their Founder Shares, shares underlying
the Private Units (“private shares”) and any Public Shares held by them in favor of any proposed initial Business Combination,
(B) not to propose any amendment to the Company’s memorandum and articles of association (i) to modify the substance or timing of
the Company’s obligation to redeem 100% of its Public Shares if the Company does not complete its initial Business Combination within
15 months (or up to 21 months) from the closing of the IPO or (ii) with respect to any other provision relating to shareholders’
rights or pre-initial Business Combination activity, unless the Company provides its public shareholders with the opportunity to
redeem their Public Shares upon approval of any such amendment at a per-share price, payable in cash, equal to the aggregate amount
then on deposit in the Trust Account, including interest (which interest shall be net of taxes payable), divided by the number of then
outstanding Public Shares, (C) not to redeem any shares (including the Founder Shares) and Private Units (and underlying securities) into
the right to receive cash from the Trust Account in connection with a shareholder vote to approve the proposed initial Business Combination
(or to sell any shares in a tender offer in connection with a proposed Business Combination if the Company does not seek shareholder approval
in connection therewith) or a vote to amend the provisions of the Company’s memorandum and articles of association relating to shareholders’
rights or pre-Business Combination activity and (D) that the Founder Shares and Private Units (and underlying securities) shall not
participate in any liquidating distribution upon winding up if a Business Combination is not consummated, until all of the claims of any
redeeming shareholders and creditors are fully satisfied (and then only from funds held outside the Trust Account).
The Company had 15 months
from the closing of the IPO (or until May 24, 2021) to consummate a Business Combination (“Business Combination Date”). However,
if the Company is not able to consummate a Business Combination on or before the Business Combination Date, the Company, by resolutions
of the board of the Company, at the request of the initial shareholders, may extend the period of time to consummate a Business Combination
up to two times, each by an additional three months (for a total of up to 21 months to complete a Business Combination) (the “Combination
Period”), subject to the Company’s initial shareholders depositing additional funds into the Trust Account as set out below.
Pursuant to the terms of the Company’s Amended and Restated Memorandum and Articles of Association and the Investment Management
Trust Agreement entered into between the Company and Continental Stock Transfer & Trust Company, in order for the time available for
the Company to consummate a Business Combination to be extended, the Company’s initial shareholders and their affiliates or designees,
upon five days advance notice prior to the applicable deadline, must deposit into the Trust Account up to $1,380,000 ($0.10 per share),
up to an aggregate of $2,760,000 or approximately $0.20 per share, on or prior to the date of the applicable deadline, for each three
month extension. In the event that the Company receives notice from the initial shareholders five days prior to the applicable deadline
to effect an extension, the Company intends to issue a press release announcing such intention at least three days prior to the applicable
deadline. In addition, the Company intends to issue a press release the day after the applicable deadline announcing whether or not the
funds had been timely deposited. However, the Company’s initial shareholders and their affiliates or designees are not obligated
to fund the Trust Account to extend the time to consummate a Business Combination.
On May 21, 2021, an aggregate
of $1,380,000 was deposited by JHD Holdings (Cayman) Limited, a Cayman Islands company (“JHD”), into the Trust Account of
the Company for the Company’s public shareholders, representing $0.10 per public share, which enables the Company to extend the
period of time it has to consummate its Business Combination by three months to August 24, 2021. JHD loaned the extension payment to the
Company on the Sponsor’s behalf in order to support the extension, in accordance with the Business Combination Agreement (as defined
below). In connection with the extension payment, the Company issued to JHD an unsecured promissory note having a principal amount equal
to the amount of the extension payment. The note bears no interest and will be due and payable (subject to the waiver against trust provisions)
on the earlier of (i) the date on which the Business Combination is consummated and (ii) the date of the liquidation of the Company.
On November 15, 2021,
the Company filed an amendment to the definitive proxy statement to report the terms of the Backstop Arrangements described above. On
November 24, 2021, the Company held a special meeting of shareholders and approved to amend the Company’s amended and restated
memorandum and articles of association to extend the date by which the Company has to consummate an initial business combination from
November 24, 2021 to February 24, 2022. In connection with the approval of the extension, shareholders elected to redeem an aggregate
of 10,534,895 ordinary shares, of which the Company paid cash from the trust account in the aggregate amount of approximately $108.1
million (approximately $10.26 per share) to redeeming shareholders.
If the Company is unable to complete
a Business Combination by November 24, 2021 and if the Company fails to receive an extension requested by the Company’s initial
shareholders by or before November 24, 2021, the Company will (i) cease all operations except for the purpose of winding up, (ii) as promptly
as reasonably possible but no more than five business days thereafter, redeem 100% of the outstanding Public Shares which redemption will
completely extinguish public shareholders’ rights as shareholders (including the right to receive further liquidation distributions,
if any), subject to applicable law and (iii) as promptly as reasonably possible following such redemption, subject to the approval
of the remaining holders of ordinary shares and the Company’s board of directors, proceed to commence a voluntary liquidation
and thereby a formal dissolution of the Company, subject (in the case of (ii) and (iii) above) to its obligations to provide for claims
of creditors and the requirements of applicable law.
In connection with the redemption
of 100% of the Company’s outstanding Public Shares for a portion of the funds held in the Trust Account, each holder will receive
a full pro rata portion of the amount then in the Trust Account plus any pro rata interest earned on the funds held in the Trust Account
(net of any taxes payable and less up to $50,000 of interest to pay liquidation expenses).
The initial shareholders have
agreed to waive their liquidation rights with respect to the Founder Shares and private shares if the Company fails to complete a Business
Combination within the Combination Period. However, if the initial shareholders acquire Public Shares in or after the IPO, they will be
entitled to liquidating distributions from the Trust Account with respect to such Public Shares 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 residual assets remaining available for distribution (including Trust Account assets) will
be only $10.00 per share initially held in the Trust Account. In order to protect the amounts held in the Trust Account, the Sponsor and
its officers has agreed that it will 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 entered into a written letter of intent, confidentiality
or other similar agreement or business combination agreement, reduce the amount of funds in the Trust Account to below the lesser of (i)
$10.00 per public share and (ii) the actual amount per public share held in the Trust Account as of the date of the liquidation of the
trust account, if less than $10.00 per share due to reductions in the value of the trust assets, less taxes payable, provided that such
liability will not apply to any claims by a third party or prospective target business who executed a waiver of any and all rights to
the monies held in the Trust Account (whether or not such waiver is enforceable) nor will it apply to any claims under the Company’s
indemnity of the underwriter of the Proposed Offering against certain liabilities, including liabilities under the Securities Act of 1933
as amended (the “Securities Act”). The Company will seek to reduce the possibility that the Sponsor and the officers of the
Company will have to indemnify the Trust Account due to claims of creditors by endeavoring to 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.
Announcement of Business Combination Agreement
On February 15, 2021, the Company entered into a letter termination
agreement with Ufin Holdings Limited, a Cayman Islands exempted company (“Ufin”), Ufin Tek Limited, a British Virgin Islands
business company (“Ufin Pubco”), Ufin Mergerco Limited, a British Virgin Islands business company and a wholly-owned subsidiary
of Pubco (“Ufin Merger Sub”), Xiaoma (Sherman) Lu, an individual, in the capacity as the Purchaser Representative thereunder,
Yingkui Liu, in the capacity as the Seller Representative thereunder, and Ufin Investment Limited, a British Virgin Islands business company
and the sole holder of Ufin’s outstanding capital shares (the “Ufin Seller”, together with the Company, Ufin, Ufin Pubco,
Ufin Merger Sub, Sherman Xiaoma Lu, Yingkui Liu and Ufin Seller, the “Ufin Parties”) for a proposed business combination,
as previously disclosed in the Current Report on Form 8-K of The Company, on November 9, 2020, The Company entered into that certain Amended
and Restated Business Combination Agreement (the “Ufin Agreement”). In accordance with such letter agreement, upon execution
and delivery of the letter agreement all of the rights and obligations of the Ufin Parties under the Ufin Agreement ceased (except for
certain obligations related to publicity, confidentiality, fees and expenses, trust fund waiver, termination and general provisions) without
any liability on the part of any party or any of their respective representatives.
On February 16, 2021, the
Company entered into a Business Combination Agreement (the “Business Combination Agreement”) with Navy Sail International
Limited, a British Virgin Islands company (“Navy Sail”), as Purchaser Representative, JHD Technologies Limited, a Cayman Islands
company (“Pubco”), Yellow River MergerCo Limited, a British Virgin Islands company and a wholly-owned subsidiary of Pubco
(“Merger Sub”), JHD Holdings (Cayman) Limited, a Cayman Islands company (“JHD”), Yellow River (Cayman) Limited,
a Cayman Islands company (the “Primary Seller”), and each of the holders of JHD’s capital shares that become parties
to the Business Combination Agreement after the date thereof by executing and delivering to the Purchaser, Pubco and JHD a joinder agreement
(each individually, a “Seller”, and collectively with the Primary Seller, the “Sellers”), and, Double Ventures
Holdings Limited, a British Virgin Islands business company and the Company’s sponsor (the “Sponsor”), solely with respect
to Sections 10.3 and Articles XII and XIII thereof, as applicable.
Pursuant to the Business Combination
Agreement, subject to the terms and conditions set forth therein, at the closing of the transactions contemplated by the Business Combination
Agreement (the “Closing”), (a) Merger Sub will merge with and into the Company, with the Company continuing as the surviving
entity (the “Merger”), as a result of which, (1) the Company shall become a wholly-owned subsidiary of Pubco and (ii) each
issued and outstanding security of the Company immediately prior to the Effective Time (as defined in the Business Combination Agreement)
shall no longer be outstanding and shall automatically be cancelled, in exchange for the right of the holder thereof to receive a substantially
equivalent security of Pubco, and (b) Pubco will acquire all of the issued and outstanding capital shares of JHD from the Sellers in exchange
for ordinary shares of Pubco (the “Share Exchange” and together with the Merger and the other transactions contemplated by
the Business Combination Agreement, the “Transactions”).
The total consideration to be
paid by Pubco to the Sellers for their shares of JHD, shall be an aggregate number of Pubco ordinary shares (the “Exchange Shares”)
with an aggregate value equal to (the “Exchange Consideration”) (i) One Billion U.S. Dollars ($1,000,000,000), plus (ii) the
aggregate amount cash of JHD and its direct and indirect subsidiaries as of the Closing date, minus (iii) the aggregate indebtedness of
JHD and its direct and indirect subsidiaries, and minus (iv) the amount of any unpaid transaction expenses of JHD in excess of $10,000,000
in aggregate, with each Pubco ordinary share valued at an amount equal to the price at which each Company ordinary share shall be redeemed
or converted pursuant to the redemption of shares (the “Redemption Price”). The issuances of Pubco ordinary shares in connection
with the Share Exchange will be exempt from registration under the Securities Act of 1933, as amended (the “Securities Act”),
in reliance upon Section 4(a)(2) thereof because securities of Pubco will issued to a limited number of Sellers without involving a public
offering. Such issuances will also be exempted from registration in reliance upon Regulation S of the Securities Act with regard to certain
Sellers receiving Pubco ordinary shares who are qualified as non-U.S. persons thereunder.
The parties agreed that at
or prior to the Closing, Pubco, the Seller and Continental Stock Transfer & Trust Company (or another mutually acceptable escrow agent),
as escrow agent (the “Escrow Agent”), will enter into an Escrow Agreement, effective as of the Closing, in form and substance
reasonably satisfactory to the Company and JHD (the “Escrow Agreement” ), pursuant to which Pubco shall cause to be delivered
to the Escrow Agent a number of Exchange Shares (each valued at the Redemption Price) equal in value to ten percent (10%) of the Exchange
Consideration otherwise issuable to the Sellers at the Closing (together with any equity securities paid as dividends or distributions
with respect to such shares or into which such shares are exchanged or converted, the “Escrow Shares”) to be held, along with
any other dividends, distributions or other income on the foregoing (the “Other Escrow Property”, together with the Escrow
Shares, the “Escrow Property”), in a segregated escrow account (the “Escrow Account”) and disbursed in accordance
with the terms of the Business Combination Agreement and the Escrow Agreement.
If and when earned, the Sellers
shall be entitled to receive from Pubco, as additional consideration for the purchase of the Purchased Shares, the Earned Escrow Shares
together with the Other Escrow Property. To the extent that the amount of the Earned Escrowed Shares is less than the number of Escrow
Share Number (as such terms are defined below), then the amount of Escrow Shares equal to such difference will be forfeited by the Sellers
and released to Pubco for cancellation along with any accrued but unpaid dividends payable in respect of such Escrow Shares.
For the purposes of the calculating
the Earned Earnout Shares, the following definitions shall apply:
“Earned Escrow Shares”
means the result of the following equation: Escrow Share Number * (Revenue / Earnout Target).
“Earnout Target”
means an amount equal to One Hundred Forty Million U.S. Dollars ($140,000,000).
“Earnout Year”
means the period commencing on the first day of the first fiscal quarter following Closing (but in any event no earlier than October 1,
2021) and ending on the twelve (12) month anniversary of such date.
“Escrow Share Number”
means the number of Escrow Shares.
“Revenue”
means the consolidated revenue of Pubco and its subsidiaries for the Earnout Year, as set forth in Pubco’s filings with the SEC; provided that
in no event shall the Revenue exceed the Earnout Target.
The obligations of the parties
to consummate the Transactions are subject to various conditions, including the following mutual conditions of the parties unless waived:
(i) the approval of the Business Combination Agreement and the Transactions and related matters by the requisite vote of the Company’s
shareholders; (ii) expiration of any waiting period under applicable antitrust laws; (iii) no law or order preventing or prohibiting the
Transactions; (iv) the Company having at least $5,000,001 in net tangible assets as of the Closing, after giving effect to the completion
of the Redemption and any private placement financing;(v) the effectiveness of the Registration Statement; (vi) amendment by the shareholders
of Pubco of Pubco’s memorandum and articles of association; (vii) receipt by JHD and the Company of evidence reasonably satisfactory
to each such party that Pubco qualifies as a foreign private issuer; (viii) the election or appointment of members to Pubco’s post-closing
board of directors designated by JHD and the Company; and (ix) the Pubco securities have been approved for listing on Nasdaq.
In addition, unless waived
by JHD, the obligations of JHD, Pubco, Merger Sub and the Sellers to consummate the Transactions are subject to the satisfaction of the
following Closing conditions, in addition to customary certificates and other closing deliveries: (i) the representations and warranties
of the Company being true and correct on and as of the Closing (subject to material adverse effect); (ii) the Company having performed
in all material respects its obligations and complied in all material respects with its covenants and agreements under the Business Combination
Agreement required to be performed or complied with by it on or prior the date of the Closing; (iii) absence of any material adverse effect
with respect to the Company since the date of the Business Combination Agreement which is continuing and uncured; (iv) receipt by JHD
and Pubco of a Registration Rights Agreement, providing customary registration rights to the Seller with respect to the portion of the
Exchange Shares delivered to the Seller at the Closing and any Earnout Escrow Shares that are released from escrow to the Sellers (the
“Seller Registration Rights Agreement”); and (v) the Company having delivered to the Sellers and JHD, evidence that is reasonably
satisfactory to the Seller Representative of the amount of cash and cash equivalents, including funds remaining in the trust account (after
giving effect to the completion and payment of the Redemption) and the proceeds of any PIPE investment.
Unless waived by the Company,
the obligations of the Company to consummate the Transactions are subject to the satisfaction of the following Closing conditions, in
addition to customary certificates and other closing deliveries: (i) the representations and warranties of JHD, Pubco and the Sellers
being true and correct on and as of the Closing (subject to Material Adverse Effect); (ii) JHD, Pubco, Merger Sub and Seller having performed
in all material respects the respective obligations and complied in all material respects with their respective covenants and agreements
under the Business Combination Agreement required to be performed or complied with on or prior the date of the Closing; (iii) absence
of any Material Adverse Effect with respect to JHD or Pubco since the date of the Business Combination Agreement which is continuing and
uncured; (iv) receipt by the Company of the Founders Registration Rights Agreement Amendment, each executed by Pubco; (v) receipt by the
Company of share certificates and other documents evidencing the transfer of the Purchased Shares to Pubco; and (vi) receipt by the Company
of the evidence of the termination of any outstanding options, warrants or other convertible securities of JHD, without any consideration
or liability therefor.
The Parties agree that after
taking into consideration the Redemption, the Trust Account proceeds and the gross proceeds of any private placement, the amount of cash
available to the Company should amount to One Hundred and Ten Million Dollars ($110,000,000) or more at Closing.
On September 13, 2021, the parties
thereto the Business Combination Agreement entered into that certain Amended and Restated Business Combination Agreement (the “Amended
Agreement”), which amended and restated the Business Combination Agreement in its entirety and provides, among other things, that
(a) a revised Amended and Restated Memorandum and Articles of Association of Pubco that, among other things, set forth the proposed authorized
share capital of Pubco following the consummation of the Business Combination, be appended to the Business Combination Agreement; (b)
the principal amount of certain convertible notes of JHD which are convertible into shares of Pubco (the “2021 Convertible Notes”)
and the aggregate cash proceeds of any future equity investments in JHD during the interim period that are convertible into shares of
Pubco (the “Equity Investment”) will be counted towards the Company’s minimum cash condition under the Business Combination
Agreement, consistent with the characterization of these instruments as a private equity investment to purchase ordinary shares of the
Company or, after the Closing, ordinary shares of Pubco, and (c) the ordinary shares of Pubco received by the Sellers, the holders of
the 2021 Convertible Notes (upon conversion of such promissory notes) and the holders of any future Equity Investment will be registered
for resale, along with the ordinary shares of Pubco issued to the Company’s public shareholders. The Amended Agreement also provides
that the ordinary shares of Pubco to be issued to the holders of the 2021 Convertible Notes and any future Equity Instrument are not part
of the Exchange Consideration being distributed to the Sellers under the Business Combination Agreement.
On October 7, 2021, the parties
to the Amended Agreement entered into that certain Second Amended and Restated Business Combination Agreement, pursuant to which the Amended
Agreement was further amended and restated in its entirety to, among other things, (i) memorialize an agreement among the parties that
the vested options in the Primary Seller previously issued to senior executives and directors of the Primary Seller would be exchanged
for substitute options in Pubco exercisable into a pool of the ordinary shares, $0.0001 par value per share, of Pubco, thereby reducing
the Exchange Consideration that would otherwise have been issued to the Sellers and (ii) delete the text noting that the 2021 convertible
notes and any equity investment would be treated as PIPE investments.
On February 23, 2021, the
Company issued an unsecured promissory note in the amount of up to $500,000 to Chunyi (Charlie) Hao, the Chairman of the Board of Directors
and Chief Financial Officer of the Company as a working capital loan. The note bears no interest and is repayable in full upon the earlier
of consummation of the Company’s initial business combination and its winding up. The note may also be converted into units at a
price of $10.00 per unit at the option of the noteholder upon the consummation of the Company’s initial business combination. Such
units would be identical to the private placement units issued to Double Ventures Holdings Limited, I-Bankers Securities, Inc., Hua Mao
and Cheng Zhao at the Company’s Initial Public Offering. As of September 30, 2021, the Company had drawn down an aggregate of $300,000
(see Note 6).
On May 21, 2021 and August
20, 2021, an aggregate of $1,380,000 and $1,380,000, respectively, was deposited by JHD into the Trust Account for the Company’s
public shareholders, representing $0.10 per public share, which enables the Company to extend the period of time it has to consummate
its initial Business Combination by twice of three months to November 24, 2021 (the “Extension”). The Extension was up to
two three-month extensions permitted under Company’s Amended and Restated Memorandum and Articles of Association and provides the
Company with additional time to complete its proposed Business Combination with JHD. In accordance with the Business Combination Agreement
by and between the Company and JHD, JHD agreed to loan to the Company a sum of $2,760,000 on the Sponsor’s behalf in order to support
the Extension. Such loan was non-interest bearing and would be payable upon the consummation of the proposed Business Combination.
On September 30, 2021, JHD
and the Company signed a promissory note in which Yellow River Asset Management, an affiliate of JHD (“Yellow River”), agreed
to loan to the Company a sum of $200,000. The note bears no interest and is repayable in full upon the earlier of consummation of the
Company’s initial Business Combination and its winding up. As of September 30, 2021, the Company had drawn down an aggregate of
$186,514 (see Note 6).
Liquidity and Going Concern
The Company has principally
financed its operations from inception on August 9, 2018 using proceeds from the sale of its equity securities to its initial shareholders
prior to the IPO and from the sale of the Placement Units and the IPO that were placed in an account outside of the Trust Account for
working capital purposes. As of September 30, 2021, the Company had $56,267 in its operating bank account, $141,604,421 in cash and marketable
securities held in the Trust Account to be used for a Business Combination or to repurchase or redeem its ordinary share in connection
therewith.
The Company intends to use
substantially all of the funds held in the Trust Account, including any amounts representing interest earned on the Trust Account (less
taxes payable and deferred underwriting commissions) to complete its initial Business Combination. To the extent necessary, the Company’s
Sponsor, officers and directors or their respective affiliates may, but are not obligated to, loan the Company funds as may be required
(the “Working Capital Loans”). As of September 30, 2021, Mr. Chunyi (Charlie) Hao, the Company’s Chairman of the Board
and Chief Financial Officer, has loaned the Company $300,000 as Working Capital Loans.
On May 21, 2021 and August 20,
2021, an aggregate of $1,380,000 and $1,380,000, respectively, was deposited by JHD into the Trust Account for the Company’s public
shareholders, representing $0.10 per public share, which enables the Company to extend the period of time it has to consummate its initial
Business Combination by twice of three months to November 24, 2021.
On November 5, 2021, the
Company filed with the SEC its definitive proxy statement on Schedule 14A for a special meeting of shareholders to be held on November
24, 2021, which includes a proposal to amend the Company’s Amended and Restated Memorandum and Articles of Association to extend
the date by which Company has to consummate a Business Combination from November 24, 2021 to February 24, 2022. On November 24, 2021,
the shareholders approved the Company extension to February 24, 2022 by approving the amendment of the Company’s Amended and Restated
Memorandum and Articles of Association.
If the Company completes a
Business Combination, the Company would repay the Working Capital Loans. 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. Such Working Capital Loans would be evidenced by promissory notes. The notes
would either be repaid upon consummation of a Business Combination, without interest, or, at the lender’s discretion, or converted
upon consummation of a Business Combination into additional Private Units at a price of $10.00 per Unit (the “Working Capital Units”)
(see Note 6).
In order to finance transaction
costs in connection with an initial Business Combination, the initial shareholders, the Company’s officers and directors or their
affiliates may, but are not obligated to, loan the Company funds as may be required. If the Company consummates its initial Business Combination,
the Company would repay such loaned amounts. In the event that the initial Business Combination does not close, the Company may use the
fund held outside the Trust Account to repay such loaned amounts but no proceeds from the Trust Account would be used to repay such loaned
amounts. Up to $1,500,000 of such notes may be convertible into additional Working Capital Units at a price of $10.00 per unit (which,
for example, would result in the holders being issued 150,000 ordinary shares if $1,500,000 of notes were so converted as well as 150,000
rights to receive 15,000 shares and 150,000 warrants to purchase 75,000 shares). We do not expect to seek loans from parties other than
the initial shareholders, the Company’s officers and directors or their affiliates as we do not believe third parties will be willing
to loan such funds and provide a waiver against any and all rights to seek access to funds in our Trust Account.
Until the consummation of
a Business Combination, the Company will be using funds held outside of the Trust Account for identifying and evaluating target businesses,
performing business due diligence on prospective target businesses, traveling to and from the offices, plants or similar locations of
prospective target businesses or their representatives, reviewing corporate documents and material agreements of prospective target businesses,
structuring, negotiating and completing a Business Combination.
If the Company’s estimates
of the costs of identifying a target business, undertaking in-depth due diligence and negotiating a Business Combination are less than
the actual amount necessary to do so, the Company may have insufficient funds available to operate its business prior to a Business Combination.
Moreover, the Company may need to obtain additional financing either to complete a Business Combination or because it becomes obligated
to redeem a significant number of its Public Shares upon completion of a Business Combination, in which case the Company may issue additional
securities or incur debt in connection with such Business Combination.
On November 24, 2021,
the Company called a shareholders meeting to approve the extension from November 24, 2021 to February 24, 2022. As the result of the
extension into February 24, 2022, the scheduled liquidation date of the Company, the Company will have close to three months to complete
Business Combination. With such extension approved, it is not guaranteed the Company may consummate a Business Combination by February
24, 2022. The liquidity condition and date for mandatory liquidation raise substantial doubt about the Company’s ability to continue
as a going concern through February 24, 2022, the scheduled liquidation date of the Company. These financial statements do not include
any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should
the Company be unable to continue as a going concern. On May 21, 2021 and August 20, 2021, the Company extended the date by
which the Company has to consummate a Business Combination from May 24, 2021 to August 24, 2021, and from August 24, 2021 to November
24, 2021, respectively. On November 24, 2021, the Company held a special meeting of shareholders and approved to amend the Company’s
amended and restated memorandum and articles of association to extend the date by which the Company has to consummate an initial business
combination from November 24, 2021 to February 24, 2022. In connection with the approval of the extension, shareholders elected to redeem
an aggregate of 10,534,895 ordinary shares, of which the Company paid cash from the trust account in the aggregate amount of approximately
$108.1 million (approximately $10.26 per share) to redeeming shareholders.
In connection with the
Company’s assessment of going concern considerations in accordance with Financial Accounting Standards Board (“FASB”)
Accounting Standards Update (“ASU”) 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue
as a Going Concern,” management has determined that if the Company is unable to complete a Business Combination by November 24,
2021, and if a further extension to February 24, 2022 is not approved by the Company’s shareholders, then the Company will cease
all operations except for the purpose of liquidating. The date for mandatory liquidation and subsequent dissolution raise substantial
doubt about the Company’s ability to continue as a going concern. No adjustments have been made to the carrying amounts of assets
or liabilities should the Company be required to liquidate after November 24, 2021.
NOTE 2. RESTATEMENT OF
PREVIOUSLY ISSUED FINANCIAL STATEMENTS
In connection with the
preparation of the Company’s financial statements as of September 30, 2021, the Company concluded it should revise its financial
statements to classify all Public Shares in temporary equity. In accordance with the SEC and its staff’s guidance on redeemable
equity instruments, ASC 480, paragraph 10-S99, redemption provisions not solely within the control of the Company require ordinary shares
subject to redemption to be classified outside of permanent equity. Previously, the Company considered redeemable shares as part of permanent
equity to the extent that such shares would cause equity to be not less than $5,000,001. Effective with these financial statements, the
Company restated this interpretation to include temporary equity in net tangible assets. Accordingly, effective with this filing, the
Company presents all redeemable ordinary shares as temporary equity and recognizes accretion from the initial book value to redemption
value at the time of its Initial Public Offering and in accordance with ASC 480. The Company’s previously filed financial statements
that contained the error were reported in the Company’s Form 10-Q with the SEC filed on November 15, 2021 for reporting date September
30, 2021.
As a result, management
recorded a reclassification adjustment related to temporary equity and permanent equity. This resulted in an adjustment to the initial
carrying value of the ordinary shares subject to possible redemption with the offset recorded to additional paid-in capital (to the extent
available), accumulated deficit and ordinary shares.
In connection with the
change in presentation for the ordinary shares subject to redemption, the Company also restated its income (loss) per ordinary share
calculation to allocated net income (loss) evenly to ordinary shares and non-redeemable ordinary shares. This presentation contemplates
a Business Combination as the most likely outcome, in which case, both classes of ordinary share pro rata in the income (loss) of the
Company.
There has been no change
in the Company’s total assets, liabilities or operating results.
The Company will present
this restatement in a prospective manner in all future filings. Under this approach, the previously issued IPO Balance Sheet and Form
10-Qs will not be amended, but historical amounts presented in the current and future filings will be recast to be consistent with the
current presentation, and an explanatory footnote will be provided. The impact of the restatement on the Company’s financial statements is reflected
in the following table.
Balance Sheet as of September 30, 2020
|
|
As Previously
Reported
in
Form 10-Q
|
|
Adjustment
|
|
As Restated
|
Ordinary shares subject to possible redemption
|
|
$
|
133,773,590
|
|
|
$
|
4,226,410
|
|
|
$
|
138,000,000
|
|
Ordinary shares
|
|
$
|
4,668,155
|
|
|
$
|
1,163,374
|
|
|
$
|
5,831,529
|
|
Retained earnings (Accumulated deficit)
|
|
$
|
331,850
|
|
|
$
|
(5,389,784
|
)
|
|
$
|
(5,057,934
|
)
|
Total Shareholders’ Equity (Deficit)
|
|
$
|
5,000,005
|
|
|
$
|
(4,226,410
|
)
|
|
$
|
773,595
|
|
Statements
of Operations
for
the three months ended September 30, 2020
|
|
As Previously
Reported
in
Form 10-Q
|
|
|
Adjustment
|
|
|
As Restated
|
|
Basic and diluted net income (loss) per ordinary share
– redeemable shares
|
|
$
|
0.00
|
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
Basic and diluted net loss per ordinary share –
non-redeemable shares
|
|
$
|
(0.05
|
)
|
|
$
|
0.04
|
|
|
$
|
(0.01
|
)
|
Balance Sheet as of December 31, 2020
|
|
As Previously Revised in
Form 10-KT On June 9,
2021
|
|
Adjustment
|
|
As Restated
|
Ordinary shares subject to possible redemption
|
|
$
|
131,251,050
|
|
|
$
|
6,748.950
|
|
|
$
|
138,000,000
|
|
Ordinary shares
|
|
$
|
5,197,467
|
|
|
$
|
(1,359,166
|
)
|
|
$
|
3,838,301
|
|
Accumulated deficit
|
|
$
|
(197,458
|
)
|
|
$
|
(5,389,784
|
)
|
|
$
|
(5,587,242
|
)
|
Total Shareholders’ Equity (Deficit)
|
|
$
|
5,000,009
|
|
|
$
|
(6,748,950
|
)
|
|
$
|
(1,748,941
|
)
|
Balance Sheet as of March 31, 2021
|
|
As Previously
Reported
in
Form 10-Q
|
|
|
Adjustment
|
|
|
As Restated
|
|
Ordinary shares subject to possible redemption
|
|
$
|
131,161,240
|
|
|
$
|
6,838,760
|
|
|
$
|
138,000,000
|
|
Ordinary shares
|
|
$
|
5,287,277
|
|
|
$
|
(1,448,976
|
)
|
|
$
|
3,838,301
|
|
Accumulated deficit
|
|
$
|
(287,272
|
)
|
|
$
|
(5,389,784
|
)
|
|
$
|
(5,677,056
|
)
|
Total Stockholders’ Equity (Deficit)
|
|
$
|
5,000,005
|
|
|
$
|
(6,838,760
|
)
|
|
$
|
(1,838,755
|
)
|
Statements of Operations
For the three months ended March
31, 2021
|
|
As Previously
Reported in
Form 10-Q
|
|
|
Adjustment
|
|
|
As Restated
|
|
Basic and diluted net income (loss) per ordinary share
– redeemable shares
|
|
$
|
0.00
|
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
Basic and diluted net loss per ordinary share –
non-redeemable shares
|
|
$
|
(0.02
|
)
|
|
$
|
0.01
|
|
|
$
|
(0.01
|
)
|
Balance Sheet as of June 30, 2021
|
|
As Previously
Reported in
Form 10-Q
|
|
|
Adjustment
|
|
|
As Restated
|
|
Ordinary shares subject to possible redemption
|
|
$
|
130,217,160
|
|
|
$
|
7,782,840
|
|
|
$
|
138,000,000
|
|
Ordinary shares
|
|
$
|
6,231,357
|
|
|
$
|
(2,393,056
|
)
|
|
$
|
3,838,301
|
|
Accumulated deficit
|
|
$
|
(1,231,349
|
)
|
|
$
|
(5,389,784
|
)
|
|
$
|
(6,621,133
|
)
|
Total Stockholders’ Equity (Deficit)
|
|
$
|
5,000,008
|
|
|
$
|
(7,782,840
|
)
|
|
$
|
(2,782,832
|
)
|
Statements
of Operations
For
the three months ended June 30, 2021
|
|
As Previously
Reported in
Form 10-Q
|
|
|
Adjustment
|
|
|
As Restated
|
|
Basic and diluted net income (loss) per ordinary share
– redeemable shares
|
|
$
|
0.00
|
|
|
$
|
(0.05
|
)
|
|
$
|
(0.05
|
)
|
Basic and diluted net loss per ordinary share –
non-redeemable shares
|
|
$
|
(0.24
|
)
|
|
$
|
0.19
|
|
|
$
|
(0.05
|
)
|
Statements
of Operations
For
the six months ended June 30, 2021
|
|
As Previously
Reported
in
Form 10-Q
|
|
|
Adjustment
|
|
|
As Restated
|
|
Basic and diluted net income (loss) per ordinary share
– redeemable shares
|
|
$
|
0.00
|
|
|
$
|
(0.06
|
)
|
|
$
|
(0.06
|
)
|
Basic and diluted net loss per ordinary share –
non-redeemable shares
|
|
$
|
(0.27
|
)
|
|
$
|
0.21
|
|
|
$
|
(0.06
|
)
|
NOTE 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying unaudited
condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United
States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article
8 of Regulation S-X promulgated by the SEC. Certain information or footnote disclosures normally included in financial statements prepared
in accordance with GAAP have been condensed, consolidated 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 consolidated 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 consolidated financial statements should be read in conjunction with the Company’s Annual Report on Form 10-KT for the
year ended December 31, 2020 as filed with the SEC on June 9, 2021, which contains the audited financial statements and notes thereto,
and with the Company’s Annual Report on Form 10-KT/A for the year ended December 31, 2020 as filed with SEC on December 6, 2021,
which contains restatement of previously issued misstated financial statements and notes thereto. The interim results for the three and
nine months ended September 30, 2021 are not necessarily indicative of the results to be expected for the year ending December 31, 2021
or for any future interim periods.
Principles of Consolidation
The accompanying unaudited
condensed consolidated financial statements include the accounts of the Company and its wholly-owned subsidiary. All intercompany balances
and transactions have been eliminated on consolidation.
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
auditor 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 non-binding advisory vote on executive
compensation and shareholder 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 unaudited
condensed consolidated financial statements in conformity with GAAP requires 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 revenues and expenses during the reporting periods.
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. In these financial statements, management exercised a significant
judgment in estimating the fair value of its warrant liabilities. The actual results could differ significantly from those estimates including
the estimate of the fair value of its warrant liabilities.
Ordinary Shares Subject to Possible Redemption
The
Company accounts for its ordinary shares subject to possible redemption in accordance with the guidance in ASC Topic 480 “Distinguishing
Liabilities from Equity.” Ordinary shares subject to mandatory redemption (if any) are classified as a liability instrument and
are measured at fair value. Conditionally redeemable ordinary shares (including ordinary shares that feature redemption rights that are
either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s
control) are classified as temporary equity. At all other times, ordinary shares are classified as stockholders’ equity. The Company’s
ordinary shares feature certain redemption rights that are considered to be outside of the Company’s control and subject to the
occurrence of uncertain future events. Accordingly, as of September 30, 2021 and December 31, 2020, 13,800,000 shares of
ordinary shares subject to possible redemption are presented at redemption value as temporary equity, outside of the shareholders’
deficit section of the Company’s condensed balance sheet.
The
Company recognizes changes in redemption value immediately as they occur and adjusts the carrying value of redeemable ordinary shares
to equal the redemption value at the end of each reporting period.
At
September 30, 2021 and December 31, 2020, the ordinary shares reflected in the balance sheets is reconciled in the following
table (See Note):
Gross proceeds
|
|
$
|
138,000,000
|
|
Less: proceeds allocated to public warrants
|
|
|
(690,000
|
)
|
Less: ordinary share issuance costs
|
|
|
(4,699,784
|
)
|
Add: Accretion of carrying value to redemption value
|
|
|
5,389,784
|
|
Ordinary shares subject to possible redemption
|
|
$
|
138,000,000
|
|
Offering Costs
Total offering costs amounted
to $4,154,255, including fair value placed on the Representative’s Shares and Representative’s Warrants, at $1,035,000 and
$1,640,028, respectively. Of the total $4,118,255 transaction cost, the cash transaction costs amounted to $3,083,255, of which $2,415,000
was underwriting fees, including $402,500 deferred underwriting commission, payable at the consummation of the Business Combination (as
described below), and $668,255 of other offering costs of legal, accounting and other expenses incurred through the IPO that are directly
related to the IPO. All of the transaction costs were charged to the equity of the Company upon completion of IPO.
Income Taxes
ASC Topic 740 “Income
Taxes” prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of
tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more-likely-than-not
to be sustained upon examination by taxing authorities. The Company’s management determined that the British Virgin Islands is the
Company’s only major tax jurisdiction. 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 September 30, 2021
and December 31, 2020, respectively. The Company is currently not aware of any issues under review that could result in significant payments,
accruals or material deviation from its position.
There is currently no taxation
imposed on income by the government of the British Virgin Islands. In accordance with British Virgin Islands federal income tax regulations,
income taxes are not levied on the Company. Consequently, income taxes are not reflected in the Company’s unaudited condensed consolidated
financial statements. The Company’s management does not expect that the total amount of unrecognized tax benefits will materially
change over the next twelve months.
Net Income (Loss) per Ordinary Share
Net income (loss) per share
is computed by dividing net income (loss) by the weighted average number of ordinary shares outstanding for the period. The calculation
of diluted income (loss) per share does not consider the effect of the warrants issued in connection with the (i) initial public offering,
(ii) the exercise of the over-allotment option and (iii) private placement units, since the exercise of the warrants are contingent upon
the occurrence of future events. The warrants derived from the public units are exercisable to purchase 6,900,000 shares of ordinary shares
and warrants derived from the private placement units are exercisable to purchase 175,000 shares of ordinary shares, together 7,075,000
in the aggregate.
The Company’s unaudited
condensed consolidated statement of operations includes a presentation of income (loss) per share for ordinary shares subject to redemption
in a manner similar to the two-class method of income (loss) per share.
For the three months ended
September 30, 2021 and 2020, net income per ordinary share, basic and diluted for redeemable ordinary shares, is calculated as dividing
the allocated net income (loss) for the three months ended September 30, 2021 and 2020, by the weighted average number of 13,800,000 and
13,800,000 redeemable ordinary shares outstanding for the periods, respectively, resulted in $(0.01) and $(0.01) per ordinary share, basic
and diluted.
For the nine months ended
September 30, 2021 and 2020, net income (loss) per ordinary share, basic and diluted for redeemable ordinary shares, is calculated as
dividing the allocated net income (loss) for the nine months ended September 30, 2021 and 2020, by the weighted average number of 13,800,000
and 13,800,000 redeemable ordinary shares outstanding for the periods, respectively, resulted in $(0.07) and $0.01 per ordinary share,
basic and diluted.
For the three months ended
September 30, 2021 and 2020, net loss per ordinary, basic and diluted for non-redeemable ordinary shares, is calculated by dividing the
allocated net loss by the weighted average numbers of 3,903,500 and 3,903,500, respectively, non-redeemable ordinary shares outstanding
for the period, resulted in $(0.01) and $(0.01) per ordinary share, basic and diluted.
For the nine months ended September 30, 2021 and 2020, net income (loss)
per ordinary, basic and diluted for non-redeemable ordinary shares, is calculated by dividing the allocated net income (loss) by the weighted
average numbers of 3,903,500 and 3,741,333, respectively, non-redeemable ordinary shares outstanding for the period, resulted in $(0.07)
and $0.01 per ordinary share, basic and diluted.
Non-redeemable ordinary shares
include the Founder Shares, Representative’s Shares and ordinary shares underlying the Private Placement Units, as these shares
do not have any redemption features and do not participate in the income earned on the Trust Account.
Concentration of Credit Risk
Financial instruments that
potentially subject the Company to credit risk consist principally of cash and investment held in Trust Account. Cash is maintained in
accounts with financial institutions, which at times may exceed the federal depository insurance coverage limit of $250,000. As of September
30, 2021, the Company had not experienced losses on this account and management believes the Company is not exposed to significant risks
on such account.
Financial Instruments
The Company analyses all financial
instruments with features of both liabilities and equity under ASC Topic 480 “Distinguishing Liabilities from Equity” and
ASC Topic 815 “Derivatives and Hedging”. Pursuant to its IPO, the Company sold 13,800,000 Units (including underwriters’
full exercise over-allotment option 1,800,000 Unit) consisting with one ordinary share, one right (“Public Right”), and one
warrant (“Public Warrant”) (see Note 4). Simultaneously with the closing of the IPO, the Company sold 350,000 Private Units
(see Note 5), consisting with 350,000 ordinary shares, 350,000 warrants (“Private Warrant”) and 350,000 rights (“Private
Right). As a compensation to IPO underwriters, the Company issued 690,000 Representative’s Warrants to the Company underwriters
(see Note 7). The Company accounted for its Public Warrant, Public Right and Private Right as equity instruments. The Company accounted
for Private Warrants and Representative Warrants as liability instruments.
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 balance sheet, primarily due to their short-term nature, other than the warrant liabilities.
Derivative Warrant Liabilities
The Company does not use derivative
instruments to hedge exposures to cash flow, market, or foreign currency risks.
Management evaluates all of its
financial instruments, including issued warrants, to determine if such instruments are derivatives or contain features that qualify as
embedded derivatives, pursuant to ASC 480 and ASC 815-15. The classification of derivative instruments, including whether such instruments
should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. In accordance with ASC 825-10 “Financial
Instruments”, offering costs attributable to the issuance of the derivative warrant liabilities are recognized in the statement
of operations as incurred.
The Company sold 350,000 Private
Warrants and issued 690,000 Representative Warrants in connection to its IPO (together “Liability Warrant”) (see Note 5 and
Note 7). All of the Company’s outstanding Liability Warrants are recognized as derivative liabilities in accordance with ASC 815-40.
Accordingly, we recognize the Warrant instruments as liabilities at fair value and adjust the instruments to fair value at each reporting
period. The liabilities are subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized
in our statement of operations.
Recently Issued 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. The ASU also
removes certain settlement conditions that are required for equity-linked contracts to qualify for the derivative scope exception, and
it simplifies the diluted earnings per share calculation in certain areas. The Company adopted ASU 2020-06 on January 1, 2021. Adoption
of the ASU did not impact the Company’s financial position, results of operations or cash flows. There are no other ASUs being adopted.
Other than the above, there
are no other recently issued accounting standards which are applicable to the Company.
NOTE 4. INITIAL PUBLIC OFFERING
Pursuant to the IPO, the Company
sold 13,800,000 Units at a purchase price of $10.00 per Unit, which includes the underwriters’ full exercise of the over-allotment
option in the amount of 1,800,000 Units. Each Unit consists of one ordinary share, no par value, one right, and one redeemable warrant
(each whole warrant, a “Public Warrant”). Each right entitles the holder thereof to receive one-tenth (1/10) of one ordinary
share upon the consummation of the Business Combination. Each Public Warrant entitles the holder thereof to purchase one-half (1/2) of
one ordinary share at an exercise price of $11.50 per full share (subject to certain adjustments) (see Note 8).
NOTE 5. PRIVATE PLACEMENT
Simultaneously with the closing
of the IPO, the Sponsor, anchor investors and I-Bankers purchased an aggregate of 350,000 Private Units, of which 275,000 were purchased
by the Company’s Sponsor, anchor investors and 75,000 by I-Bankers, for an aggregate purchase price of $3,500,000. Each Private
Unit consists of one ordinary share (“Private Share”), one right (“Private Right”) and one warrant (“Private
Warrant”). Each Private Right entitles the holder thereof to receive one-tenth (1/10) of one ordinary share upon the consummation
of the Business Combination. Each warrant entitles the holder thereof to purchase one-half (1/2) of one ordinary share at an exercise
price of $11.50 per full share. The net proceeds from the private placement was added to the proceeds from the IPO being held in the Trust
Account. If the Company does not complete a Business Combination within the Combination Period, the net proceeds from the sale of the
private placement will be used to fund the redemption of the Public Shares (subject to the requirements of applicable law) and Private
Units and all underlying securities will expire worthless.
NOTE 6. RELATED PARTY TRANSACTIONS
Founder Shares
In October 2018, the Company
issued 1,437,500 ordinary shares to its initial shareholders (the “Founder Shares”) for an aggregate purchase price of $25,000,
or approximately $0.017 per share. In January and February 2020, the Company effected 2 for 1 and 1.2 for 1 share dividends, respectively,
for each ordinary share outstanding, resulting in the initial shareholders owning an aggregate of 3,450,000 Founder Shares. The share
dividends are retroactively restated in the accompanying unaudited condensed consolidated financial statements.
Of the 3,450,000 Founder Shares,
450,000 shares were subject to forfeiture by the initial shareholders to the extent that the underwriters’ over-allotment is not
exercised in full or in part. As a result of the underwriters’ election to fully exercise their over-allotment option, 450,000 Founder
Shares are no longer subject to forfeiture.
Additionally, subject to certain
limited exceptions, the initial shareholders have agreed to escrow (and not transfer any ownership interest in) their Founder Shares,
excluding any Units or shares comprising Units acquired by the initial shareholders in the offering or in the open market: (i) with respect
to 50% of the Founder Shares for a period ending on the earlier of the six month anniversary of the Business Combination or the date on
which the closing price of the ordinary shares exceeds $12.50 for any 20 trading days within a 30-trading day period following the closing
of the Business Combination and (ii) with respect to the other 50% of the Founder Shares for a period ending on the six month anniversary
of the closing of the Business Combination, unless approved by the Company’s public shareholders. However, if, after a Business
Combination, there is a transaction whereby all the outstanding shares are exchanged or converted into cash (as they would be in a post-asset
sale liquidation) or another issuer’s shares, then the Founder Shares (or any ordinary shares thereunder) shall be permitted to
come out of escrow to participate. In addition, all initial shareholders have agreed to escrow (and not transfer any ownership interest
in) their Private Units (or any securities comprising the Private Units), excluding any Units acquired by initial shareholders in the
Proposed Offering or in the open market, until thirty (30) days following the closing of the Business Combination.
Administrative Support Arrangement
The Company entered into an
administrative support agreement with an affiliate of the Company’s officers (the “Service Party”), commencing on February
19, 2020 through the earlier of the consummation of a Business Combination or the Company’s liquidation, the Company agreed to pay
the Service Party up to a maximum of $120,000 in the aggregate for office space, utilities and secretarial and administrative services.
Such administrative fee has been fully paid by the Company to Service Party as of September 30, 2021.
Promissory Note — Related Party
In order to finance transaction
costs in connection with a Business Combination, the Sponsor, officers and directors or their respective affiliates may, but are not obligated
to, provide Working Capital Loans to the Company. If the Company completes a Business Combination, the Company would repay the Working
Capital Loans. 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.
Such Working Capital Loans would be evidenced by promissory notes. The notes would either be repaid upon consummation of a Business Combination,
without interest, or, at the lender’s discretion, or converted upon consummation of a Business Combination into additional Working
Capital Units. The notes were non-interest bearing and were not secured.
On February 23, 2021, the
Company issued a promissory note for up to $500,000 in Working Capital Loans to Mr. Chunyi (Charlie) Hao, Chairman to the Company’s
Board and Chief Financial Officer. As of September 30, 2021, Mr. Hao has loaned to Company $300,000.
Promissory Note — Advance from Related
Party
As of September 30, 2021,
the Company issued a promissory note for up to $200,000 to Yellow River. The note was non-interest bearing and was not secured. As of
September 30, 2021, the Company drew down $186,514 to pay expense and booked as advance from related parties into the Company liabilities.
As of September 30, 2021, the outstanding of the note payable was at $186,514.
Related Party Extension Loans
As discussed in Note 1, the
Company may extend the period of time to consummate a Business Combination up to two times, each by an additional three months (for a
total of 21 months to complete a Business Combination). In order to extend the time available for the Company to consummate a Business
Combination, the initial shareholders and/or their affiliates or designees must deposit into the Trust Account up to an aggregate of $2,760,000
for a total of two extensions. Any such payments would be made in the form of a loan. Such loan was non-interest bearing and would be
payable upon the earlier of (i) the date on which the Business Combination is consummated and (ii) the Company’s liquidation. If
the Company completes a Business Combination, the Company would repay such loaned amounts out of the proceeds of the Trust Account released
to the Company. If the Company does not complete a Business Combination, the Company will not repay such loans. On May 21, 2021 and August
20, 2021, an aggregate of $1,380,000 and $1,380,000, respectively, was deposited in the Trust Account to extend the date by which the
Company has to consummate a Business Combination from May 24, 2021 to August 24, 2021, and from August 24, 2021 to November 24, 2021.
NOTE 7. COMMITMENTS AND CONTINGENCIES
Risk and Uncertainties
Management continues to evaluate
the impact of the COVID-19 pandemic on the industry and has concluded that while it is reasonably possible that the virus could have a
negative effect on the Company’s financial position, proposed business combination, and/or search for a target company, the specific
impact is not readily determinable as of the date of these financial statements. A significant outbreak of COVID-19 and other infectious
diseases could result in a widespread health crisis that could adversely affect the economies and financial markets worldwide, and potential
target companies may defer or end discussions for a potential merger with us if COVID-19 is going on, and materially adversely affects
their business operations and, therefore, the valuation of their business. The extent to which COVID-19 impacts our closing on the proposed
business combination will depend on future developments, which are highly uncertain and cannot be predicted, including new information
which may emerge concerning the severity of COVID-19 and the actions to contain COVID-19 or treat its impact, among others. If the disruptions
posed by COVID-19 or other matters of global concern continue for an unexpectedly long period of time, our ability to consummate a Business
Combination may be materially adversely affected. The accompanying unaudited condensed consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
Registration Rights
Pursuant to a registration
rights agreement entered into by and among the Company, the initial shareholders, anchor investors and I-Bankers on February 19, 2020,
the holders of the Founder Shares, Private Units (and underlying securities), and Working Capital Units (and underlying securities) will
be entitled to registration rights. The holders of a majority-in-interest of these securities are entitled to make up to three demands
that the Company register such securities. In addition, the holders have certain “piggy-back” registration rights with respect
to registration statements filed subsequent to the consummation of a Business Combination.
Business Combination Marketing Agreement
The Company has engaged I-Bankers
as an advisor in connection with the Company’s Business Combination to assist the Company in holding meetings with the Company’s
shareholders to discuss the potential Business Combination and the target business’ attributes, introduce the Company to potential
investors that are interested in purchasing the Company’s securities in connection with the Business Combination, assist the Company
in obtaining shareholder approval for the Business Combination and assist the Company with its press releases and public filings in connection
with the Business Combination. Pursuant to the Company’s agreement with I-Bankers, (i) if the amount of cash held in the Trust Account
immediately prior to the Business Combination, after redemptions, is at least 50% of the gross proceeds of the IPO, then the advisory
fees payable to I-Bankers will be 2.75% of the cash remaining in the Trust Account, (ii) if the amount of cash held in the Trust Account
immediately prior to the Business Combination, after redemptions, is less than 50% of the gross proceeds of the IPO, then the advisory
fees payable to I-Bankers will be 1.375% of the gross proceeds of the IPO, and (iii) notwithstanding (i) and (ii) above, if the amount
of cash held in the Trust Account immediately prior to the Business Combination, after redemptions, is less than $20,000,000, then the
advisory fees payable to I-Bankers will be paid in a combination of cash and securities in the same proportion as the cash and securities
consideration paid to the target and its shareholders in the Business Combination, provided that in no event shall the cash portion of
such advisory fees be less than $1,000,000.
Deferred Underwriting Commission
The deferred underwriting
commission of $402,500 is to be paid out of the Trust Account to I-Bankers and EarlyBird only on completion of the Company’s Business
Combination. The deferred offering commission will be paid only upon consummation of a Business Combination. If the business combination
is not consummated, such deferred offering commission will be forfeited. None of the underwriters will be entitled to any interest accrued
on the deferred offering commission.
Representative’s Shares
On February 24, 2020, the
Company issued an aggregate of 103,500 Representative’s Shares to I-Bankers and EarlyBird, in connection with their services as
underwriters for the IPO. The underwriters have agreed not to transfer, assign or sell any of Representative’s Shares until the
completion of the Company’s initial Business Combination. In addition, the underwriters agreed (i) to waive their redemption
rights with respect to such shares in connection with the completion of the initial Business Combination and (ii) to waive their rights
to liquidating distributions from the Trust Account with respect to the Representative’s Shares if the Company fails to complete
its initial Business Combination within the Combination Period. Based on the IPO price of $10.00 per Unit, the fair value of the
103,500 ordinary shares was $1,035,000, which was an expense of the IPO resulting in a charge directly to shareholders’ equity upon
the completion of the IPO.
Representative’s Warrants
On February 24, 2020, the
Company issued an aggregate of 690,000 Representative’s Warrants, exercisable at $12.00 per full share, to I-Bankers and EarlyBird,
in connection with their services as underwriters for the IPO. The Representative’s Warrants may be exercised for cash or on a cashless
basis, at the holder’s option, at any time during the period commencing on the later of the first anniversary of the Effective Date
and the closing of the Company’s initial Business Combination and terminating on the fifth anniversary of such effectiveness date.
The underwriters have each agreed that neither it nor its designees will be permitted to exercise the warrants after the five year anniversary
of the Effective Date. The Company accounted for the 690,000 Representative’s Warrants as an expense of the IPO resulting in a charge
directly to shareholders’ equity. The fair value of Representative’s Warrants was estimated to be approximately $1,640,028
(or $2.38 per warrant) using the Black-Scholes option-pricing model.
The Representative’s
Warrants grant to holders demand and “piggy back” rights for periods of five and seven years, respectively, from the Effective
Date with respect to the registration under the Securities Act of the ordinary shares issuable upon exercise of the Representative’s
Warrants. The Company will bear all fees and expenses attendant to registering the securities, other than underwriting commissions, which
will be paid for by the holders themselves. The exercise price and number of ordinary shares issuable upon exercise of the Representative’s
Warrants may be adjusted in certain circumstances including in the event of a share dividend, or the Company’s recapitalization,
reorganization, merger or consolidation. However, the Representative’s Warrants will not be adjusted for issuances of ordinary shares
at a price below its exercise price.
On February 24, 2020, the
date when the Representative Warrants were issued, the Company estimated the fair value of Representative’s Warrants to be approximately
$1,640,028 (or $2.38 per warrant) using the Black-Scholes option-pricing model at the issuing time.
NOTE 8. DERIVATIVE WARRANT LIABILITIES
As of September 30, 2021,
the Company had 350,000 Private Warrants outstanding and 690,000 Representative Warrants outstanding. The Private Warrants and Representative
Warrants are recognized as warrant liabilities and subsequently measured at fair value.
The Private Warrants will
be identical to the Public Warrants (see Note 10) underlying the Units being sold in the IPO, except that the Private Warrants and the
ordinary shares issuable upon the exercise of the Private Warrants will not be transferable, assignable or salable until 30 days after
the completion of a Business Combination, subject to certain limited exceptions. Additionally, the Private Warrants will be exercisable
on a cashless basis and 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.
The Representative Warrants
are different from Public and Private Warrants. The exercise price of Representative Warrants is $12 and is non-redeemable. Representative’s
Warrants have been deemed compensation by FINRA and were subject to a lock-up period. The Company considered Representative Warrants as
a liability because net cash settlement is assumed under ASC 815-40 as the Company is required to deliver registered shares to the purchasers
of Representative Warrants.
NOTE 9. SHAREHOLDERS’ EQUITY
Preferred Shares
— The Company is authorized to issue an unlimited number of preferred shares, no par value, divided into five classes, Class A through
Class E, each with such designation, rights and preferences as may be determined by a resolution of the Company’s board of directors
to amend the Amended and Restated Memorandum and Articles of Association to create such designations, rights and preferences. As of September
30, 2021 and December 31, 2020, there were no preferred shares designated, issued or outstanding.
Ordinary Shares
— The Company is authorized to issue an unlimited number of ordinary shares, no par value. Holders of the Company’s ordinary
shares are entitled to one vote for each share. As of September 30, 2021 and December 31, 2020, there were 13,800,000 and 13,800,000 ordinary
shares, respectively, subject to redemption. As of September 30, 2021 and December 31, 2020, there were 3,903,500 and 3,903,500 ordinary
shares, respectively, issued and outstanding.
Rights —
Each holder of a right will receive one-tenth (1/10) of one ordinary share upon consummation of the Business Combination, even if the
holder of such right redeemed all ordinary shares held by him, her or it in connection with the Business Combination or an amendment to
the Company’s Amended and Restated Memorandum and Articles of Association with respect to the Company’s pre-Business Combination
activities. No additional consideration will be required to be paid by a holder of rights in order to receive his, her or its additional
ordinary shares upon consummation of a Business Combination as the consideration related thereto has been included in the unit purchase
price paid for by investors in the IPO. The shares issuable upon exchange of the public rights will be freely tradable (except to the
extent held by affiliates of the Company).
NOTE 10. WARRANTS – PUBLIC AND PRIVATE
Warrant underlying units sold
in the IPO (the “Public Warrants”) may only be exercised for a whole number of shares. No fractional shares will be issued
upon exercise of the Public Warrants. The Public Warrants will become exercisable on the later of (a) the consummation of a Business Combination
or (b) twelve (12) months from the Effective Date. No Public Warrants will be exercisable for cash unless the Company has an effective
and current registration statement covering the ordinary shares issuable upon exercise of the Public Warrants and a current prospectus
relating to such ordinary shares. Notwithstanding the foregoing, if a registration statement covering the ordinary shares issuable upon
the exercise of the Public Warrants is not effective within 90 days from the consummation of a Business Combination, the 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 the Public Warrants on a cashless basis pursuant to an available exemption from registration
under the Securities Act. If an exemption from registration is not available, holders will not be able to exercise their Public Warrants
on a cashless basis. The Public Warrants will expire five years from the consummation of a Business Combination or earlier upon redemption
or liquidation.
The Public Warrant exercise
price is adjusted, if (x) the Company issues additional ordinary shares or equity-linked securities for capital raising purposes in connection
with the closing of the initial Business Combination at an issue price or effective issue price of less than $9.50 per ordinary share
(with such issue price or effective issue price to be determined in good faith by the Company’s board of directors), (y) the aggregate
gross proceeds from such issuances represent more than 60% of the total equity proceeds, and interest thereon, available for the funding
of the initial Business Combination, and (z) the volume weighted average trading price of the ordinary shares during the 20 trading day
period starting on the trading day prior to the day on which the Company consummates the initial Business Combination (such price, the
“Market Price”) 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 Market Price, and the $18.00 per share redemption trigger price described above will be adjusted (to the nearest
cent) to be equal to 180% of the Market Price.
The Company may call the warrants
for redemption (excluding the Private Warrants, any outstanding Representative’s Warrants, and any warrants underlying units issued
to the Sponsor, initial shareholders, officers, directors or their affiliates in payment of Working Capital Loans made to the Company),
in whole and not in part, at a price of $0.01 per warrant:
|
●
|
at any time while the warrants are exercisable,
|
|
●
|
upon not less than 30 days’ prior written notice of redemption to each warrant holder,
|
|
●
|
if, and only if, the reported last sale price of the ordinary shares equals or exceeds $18.00 per share (as adjusted for share splits, share dividends, reorganizations and recapitalizations), for any 20 trading days within a 30 trading day period ending on the third trading 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 issuance of the ordinary shares underlying such 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 warrants
for redemption as described above, management will have the option to require all holders that wish to exercise the warrants to do so
on a “cashless basis,” as described in the warrant agreement. The exercise price and number of ordinary shares issuable upon
exercise of the warrants may be adjusted in certain circumstances including in the event of a share dividend, extraordinary dividend or
recapitalization, reorganization, merger or consolidation. However, the warrants will not be adjusted for issuances of ordinary shares
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 respect to such warrants. Accordingly, the warrants may expire worthless.
NOTE 11. 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 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.
As of September 30, 2021 and
December 31, 2020, the carrying values of prepaid expenses, accrued expenses, and loans and advances payable to related parties approximate
their fair values due to the short-term nature of the instruments. The Company’s portfolio of investments held in the Trust Account
is comprised of investments in U.S. Treasury securities with an original maturity of 185 days or less or investments in money market funds
that invest in U.S. government securities, or a combination thereof. The fair value for trading securities is determined using quoted
market prices in active markets.
As noted in Note 8, the Company
has concluded that its Private Warrants and Representative’s Warrants should be presented as liabilities with subsequent fair value
remeasurement. Accordingly the fair value of the Private Warrants and Representative’s Warrants were classified as a Level 3 measurement.
The following table presents
information about the Company’s assets and liabilities that are measured at fair value on a recurring basis at September 30, 2021
and December 31, 2020 and indicates the fair value of held to maturity securities as follows.
|
|
Level
|
|
|
September 30,
2021
|
|
|
|
|
|
|
|
|
Description
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
Trust Account – U.S. Treasury Securities Money Market Fund
|
|
1
|
|
|
$
|
141,604,421
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
Derivative Warrant Liability – Private Warrant
|
|
3
|
|
|
$
|
458,000
|
|
Derivative Warrant Liability – Representative Warrant
|
|
3
|
|
|
$
|
1,728,000
|
|
|
|
Level
|
|
|
December 31,
2020
|
|
|
|
|
|
|
|
|
Description
|
|
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
Trust Account – U.S. Treasury Securities Money Market Fund
|
|
1
|
|
|
$
|
138,833,973
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
Derivative Warrant Liability – Private Warrant
|
|
3
|
|
|
$
|
466,300
|
|
Derivative Warrant Liability – Representative Warrant
|
|
3
|
|
|
$
|
1,765,800
|
|
The fair value of the Private
Warrants and Representative Warrants were estimated using Black-Scholes model for the three and nine months ended September 30, 2020 and
2021, respectively. For the three months ended September 30, 2021 and 2020 on the statements of operations, the Company recognized a decrease
in the fair value of warrant liabilities of $10,500 and $32,400, respectively, presented as change in fair value of derivative warrant
liabilities on the accompanying statement of operations. For the nine months ended September 30, 2021 and 2020, the Company recognized
a decrease in the fair value of warrant liabilities of $46,100 and an increase in the fair value of warrant liabilities of $166,872, respectively,
presented as change in fair value of derivative warrant liabilities on the accompanying statement of operations.
The estimated fair value of
the Private Warrants and Representative Warrants is determined using Level 3 inputs. Inherent in these valuations are assumptions related
to expected stock-price volatility, expected life, risk-free interest rate and dividend yield. The Company estimates the volatility of
its ordinary shares based on historical and implied volatilities of select peer companies as well as its own that matches the expected
remaining life of the warrants. The risk-free interest rate is based on the U.S. Treasury zero-coupon yield curve on the grant date for
a maturity similar to the expected remaining life of the warrants. The expected life of the warrants is assumed to be equivalent to their
remaining contractual term. The dividend rate is based on the historical rate, which the Company anticipates remaining at zero.
The following table provides
quantitative information regarding Level 3 fair value measurements inputs for the Company’s warrants at their measurement dates:
|
|
As of
September 30,
2021
|
|
|
As of
December 31,
2020
|
|
|
|
|
|
|
|
|
Volatility
|
|
|
40.14
|
%
|
|
|
39.83
|
%
|
Stock price
|
|
|
10.20
|
|
|
|
10.06
|
|
Expected life of the warrants to convert
|
|
|
4.90
|
|
|
|
5.64
|
|
Risk free rate
|
|
|
1.03
|
%
|
|
|
0.54
|
%
|
Dividend yield
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
The change in the fair value
of the derivative warrant liabilities for the period from February 9, 2018 (inception) through September 30, 2020, and for the period
from December 31, 2020 through September 30, 2021 are summarized as follows:
Derivative warrant liabilities at February 9, 2018 (inception)
|
|
$
|
-
|
|
Issuance of Private Warrants
|
|
|
353,200
|
|
Issuance of Representative Warrants
|
|
|
1,640,028
|
|
Change in fair value of derivative warrant liabilities
|
|
|
166,872
|
|
Derivative Warrant Liabilities at September 30, 2020
|
|
$
|
2,160,100
|
|
|
|
|
|
|
Derivative Warrant Liabilities at December 31, 2020
|
|
$
|
2,232,100
|
|
Change in fair value of derivative warrant liabilities
|
|
|
(46,100
|
)
|
Derivative Warrant Liabilities at September 30, 2021
|
|
$
|
2,186,000
|
|
NOTE 12. SUBSEQUENT EVENTS
On November 12, 2021, the Company
entered into certain forward share purchase agreements (the “Forward Share Purchase Agreements) with Sea Otter Securities (“Sea
Otter”), Stichting Juridisch Eigendom Mint Tower Arbitrage Fund (“Mint Tower”), Glazer Special Opportunity Fund I, LP
(“Glazer”) and Meteora Capital Partners, LP (“Meteora” and, together with Sea Otter, Mint Tower, and Glazer, the
“Backstop Investors”), which provide that such investors will not redeem shares that they each hold in connection with the
proposal to extend the date by which the Company has to consummate a Business Combination from November 24, 2021 to February 24, 2022
(the “February Extension”) and the proposed Merger with JHD, and instead would each either hold such shares for a period of
time following the consummation of the Merger, at which time they will each have the right to sell them to East Stone at $10.41 per share,
or will sell such shares on the open market during such time period at a market price of at least $10.26 per share.
In connection with the above-mentioned
arrangements, the Sponsor entered into certain share transfer agreements (the “Founder Share Transfer Agreements”) with the
Backstop Investors. Pursuant to the Founder Share Transfer Agreement with Meteora and Glazer on November 12, 2021, Meteora and Glazer
agreed not to sell, transfer or seek redemption of an aggregate of 974,658 public shares of Company and to vote such shares in favor of
the February Extension and the Merger.
In consideration of Meteora and
Glazer’s agreement to abide by such restrictions on its public shares, the Sponsor agreed to transfer to the Glazer investors 44,444
Founder Shares for every 324,886 public shares not redeemed, for an aggregate of 133,332 Founder Shares. Of such amount, an aggregate
of up to 45,000 Founder Shares will be transferred on or before the date of the special meeting of the shareholders of the Company to
consider the Merger, and an aggregate of 88,332 Founder Shares will be transferred to the Glazer investors on or before the date of the
Closing.
The Company has also entered into
founder shares transfer agreements with identical terms to the Founder Share Transfer Agreement with Sea Otter (pursuant to which 133,332
founder shares will be transferred to Sea Otter) and with Mint Tower (pursuant to which 133,332 founder shares will be transferred to
Mint Tower).
On November 12, 2021, the Business
Combination Agreement (the “Business Combination Agreement Amendment”) was further amended to memorialize an agreement among
the parties that any funds in the Trust Account that relate to ordinary shares of the Company held by the Backstop Investors shall not
count toward the minimum cash condition contained in Section 9.2(d) of the Business Combination Agreement. In addition, Section 10.1(b)
of the Business Combination Agreement was amended, contingent upon the effectiveness of the February Extension, to provide that the Business
Combination Agreement may be terminated at any time prior to the Closing by either the Company or JHD, if the Closing does not occur by
February 24, 2022.
On November 12, 2021, JHD, Pubco,
Primary Seller, the Company, the Sponsor, Navy Sail, Chunyi (Charlie) Hao, and Xiaoma (Sherman) Lu (Messers Hao and Lu, collectively with
Navy Sail and the Sponsor, the “Primary Initial Shareholders”) entered into an amendment (the “Letter Agreement Amendment”)
to the Letter Agreement Regarding Forfeiture of Founder Shares, dated February 16, 2021 (the “Founder Share Letter”) by and
among JHD, the Company, the Sponsor, Navy Sail, Chunyi (Charlie) Hao, and Xiaoma (Sherman) Lu.
The Founder Share Letter provided,
inter alia, that up to 1,725,000 Ordinary Shares (the “Forfeiture Shares”) would be subject to forfeiture in the event that
the Company did not have at least $100 million in cash at the Closing, with the number of such shares to be forfeit determined on a sliding
scale depending upon the amount of the cash shortfall, if any, with the entire amount of the 1,725,000 shares subject to forfeiture if
the Company’s cash at closing was $70 million or less. Under the terms of the Letter Agreement Amendment, the Company, the Primary
Initial Shareholders, JHD Holdings Limited, Pubco and the Primary Seller have agreed that the 1,725,000 Forfeiture Shares would be exchanged
for an equivalent number of Pubco ordinary shares (“Forfeiture Replacement Shares”) at the Closing and that such Forfeiture
Replacement Shares would be distributed as follows: (A) 138,000 Forfeiture Replacement Shares to the Primary Seller, (B) to Glazer, Sea
Otter and Mint Tower, up to 450,000 Forfeiture Replacement Shares in consideration for their having entered into the Forward Share Purchase
Agreements and the Founder Share Transfer Agreements and (C) out of the remaining Forfeiture Replacement Shares, (i) to a shareholder
of the Sponsor who is not a director or officer of the Purchaser) up to 500,000 Forfeiture Replacement Shares and (ii) to the extent of
any remaining Forfeiture Replacement Shares (a) 50% to Charlie Hao and Xiaoma (Sherman) Lu and (b) 50% to the Primary Seller.
The Forfeiture Replacement Shares
being delivered to the Backstop Investors and to the Primary Seller are not subject to the forfeiture calculations under the Founder Share
letter (as amended by the Letter Agreement Amendment), however the calculation of any Forfeiture Replacement Shares to be distributed
to the shareholder of the Sponsor or to Charlie Hao, Sherman Lu and the Primary Seller under (C) above will be subject to the forfeiture
calculations. To the extent that the forfeiture calculation results in less than all of the remaining Founder Shares subject to the arrangement
(1,725,000) being distributed pursuant to the terms of the preceding paragraph, the remainder of such shares shall remain with the Primary
Initial Shareholders.
On November 24,
2021, the Company held a special meeting of shareholders and approved to amend the Company’s Amended and Restated Memorandum and
Articles of Association to extend the date by which the Company has to consummate an initial business combination from November 24, 2021
to February 24, 2022. In connection with the approval of the extension, shareholders elected to redeem an aggregate of 10,534,895 ordinary
shares, of which the Company paid cash from the trust account in the aggregate amount of approximately $108.1 million (approximately
$10.26 per share) to redeeming shareholders.
Based upon this review, the Company
did not identify any other subsequent events, other than previously disclosed, that would have required adjustment or disclosure in the
unaudited condensed financial statements.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
References in this report
(the “Quarterly Report”) to “we,” “us” or the “Company” refer to East Stone Acquisition
Corporation. References to our “management” or our “management team” refer to our officers and directors, and
references to our “Sponsor” refer to Double Ventures Holdings Limited, a British Virgin Islands business company with limited
liability. The following discussion and analysis of the Company’s financial condition and results of operations should be read in
conjunction with the unaudited condensed consolidated financial statements and the notes thereto contained elsewhere in this Quarterly
Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve
risks and uncertainties.
Special Note Regarding Forward-Looking Statements
This Quarterly Report includes
“forward-looking statements” within the meaning of Section 27A of 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 and the plans and objectives of management for future operations, are forward-looking statements.
Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek”
and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements
relate to future events or future performance, but reflect management’s current beliefs, based on information currently available.
A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed
in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially
from those anticipated in the forward-looking statements, please refer to the Risk Factors section of the Company’s final prospectus
for its initial public offering filed with the Securities and Exchange Commission (the “SEC”). 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
incorporated in the British Virgin Islands with limited liability (meaning our shareholders have no liability, as members of the Company,
for the liabilities of the Company over and above the amount already paid for their shares) formed for the purpose of acquiring, engaging
in a share exchange, share reconstruction and amalgamation with, purchasing all or substantially all of the assets of, or engaging in
any other similar business combination with one or more businesses or entities. We intend to effectuate our initial business combination
using cash from the proceeds of our initial public offering and the private placement of the private units, our shares, debt or a combination
of cash, shares and debt.
The issuance of additional
shares in our initial business combination:
|
●
|
may
significantly dilute the equity interest of investors who do not have pre-emption rights in respect of any such issue;
|
|
●
|
may
subordinate the rights of holders of ordinary shares if the rights, preferences, designations and limitations attaching to the preferred
shares are created by amendment of our memorandum and articles of association by resolution of the board of directors and preferred shares
are issued with rights senior to those afforded our ordinary shares;
|
|
●
|
could
cause a change in control if a substantial number of ordinary shares are issued, which may affect, among other things, our ability to
use our net operating loss carry forwards, if any, and could result in the resignation or removal of our present officers and directors;
|
|
●
|
may have the effect of delaying or preventing a change of control of us by diluting the share ownership or voting rights of a person seeking to obtain control of us; and
|
|
●
|
may adversely affect prevailing market prices for our ordinary shares.
|
Similarly, if we issue debt
securities or otherwise incur significant indebtedness, it could result in:
|
●
|
default and foreclosure on our assets if our operating revenues after our initial business combination are insufficient to repay our debt obligations;
|
|
●
|
acceleration of our obligations to repay the indebtedness even if we make all principal and interest payments when due if we breach certain covenants that require the maintenance of certain financial ratios or reserves without a waiver or renegotiation of that covenant;
|
|
●
|
our immediate payment of all principal and accrued interest, if any, if the debt is payable on demand;
|
|
●
|
our inability to obtain necessary additional financing if any document governing such debt contains covenants restricting our ability to obtain such financing while the debt security is outstanding;
|
|
●
|
our inability to pay dividends on our ordinary shares;
|
|
●
|
using a substantial portion of our cash flow to pay principal and interest on our debt, which will reduce the funds available for dividends on our ordinary shares if declared, expenses, capital expenditures, acquisitions and other general corporate purposes;
|
|
●
|
limitations on our flexibility in planning for and reacting to changes in our business and in the industry in which we operate;
|
|
●
|
increased vulnerability to adverse changes in general economic, industry and competitive conditions and adverse changes in government regulation; and
|
|
●
|
limitations on our ability to borrow additional amounts for expenses, capital expenditures, acquisitions, debt service requirements, execution of our strategy and other purposes and other disadvantages compared to our competitors who have less debt.
|
We expect to continue to incur
significant costs in the pursuit of our acquisition plans. Our plans to raise capital or to consummate our initial business combination
may not be successful.
Recent Developments
Termination of Agreement with Ufin
On February 15, 2021, the
Company entered into a letter termination agreement with Ufin Holdings Limited, a Cayman Islands exempted company (“Ufin”),
Ufin Tek Limited, a British Virgin Islands business company (“Ufin Pubco”), Ufin Mergerco Limited, a British Virgin Islands
business company and a wholly-owned subsidiary of Pubco (“Ufin Merger Sub”), Xiaoma (Sherman) Lu, an individual, in the capacity
as the Purchaser Representative thereunder, Yingkui Liu, in the capacity as the Seller Representative thereunder, and Ufin Investment
Limited, a British Virgin Islands business company and the sole holder of Ufin’s outstanding capital shares (the “Ufin Seller”,
together with The Company, Ufin, Ufin Pubco, Ufin Merger Sub, Sherman Xiaoma Lu, Yingkui Liu and Ufin Seller, the “Ufin Parties”)
for a proposed business combination, as previously disclosed in the Current Report on Form 8-K of The Company, on November 9, 2020, The
Company entered into that certain Amended and Restated Business Combination Agreement (the “Ufin Agreement”). In accordance
such letter agreement, upon execution and delivery of the letter agreement all of the rights and obligations of the Ufin Parties under
the Ufin Agreement ceased (except for certain obligations related to publicity, confidentiality, fees and expenses, trust fund waiver,
termination and general provisions) without any liability on the part of any party or any of their respective representatives.
Business Combination Agreement with JHD
On February 16, 2021, the
Company entered into a Business Combination Agreement (the “Business Combination Agreement”) with Navy Sail International
Limited, a British Virgin Islands company (“Navy Sail”), as Purchaser Representative, JHD Technologies Limited, a Cayman
Islands company (“Pubco”), Yellow River MergerCo Limited, a British Virgin Islands company and a wholly-owned subsidiary
of Pubco (“Merger Sub”), JHD Holdings (Cayman) Limited, a Cayman Islands company (“JHD”), Yellow River (Cayman)
Limited, a Cayman Islands company (the “Primary Seller”), and each of the holders of JHD’s capital shares that become
parties to the Business Combination Agreement after the date thereof by executing and delivering to the Purchaser, Pubco and JHD a joinder
agreement (each individually, a “Seller”, and collectively with the Primary Seller, the “Sellers”), and, Double
Ventures Holdings Limited, a British Virgin Islands business company, the Company’s sponsor, solely with respect to Sections 10.3
and Articles XII and XIII thereof, as applicable (the “Sponsor”).
Pursuant to the Business Combination
Agreement, subject to the terms and conditions set forth therein, at the closing of the transactions contemplated by the Business Combination
Agreement (the “Closing”), (a) Merger Sub will merge with and into the Company, with the Company continuing as the surviving
entity (the “Merger”), as a result of which, (1) the Company shall become a wholly-owned subsidiary of Pubco and (ii) each
issued and outstanding security of the Company immediately prior to the Effective Time (as defined in the Business Combination Agreement)
shall no longer be outstanding and shall automatically be cancelled, in exchange for the right of the holder thereof to receive a substantially
equivalent security of Pubco, and (b) Pubco will acquire all of the issued and outstanding capital shares of JHD from the Sellers in exchange
for ordinary shares of Pubco (the “Share Exchange” and together with the Merger and the other transactions contemplated by
the Business Combination Agreement, the “Transactions”).
The total consideration to be
paid by Pubco to the Sellers for their shares of JHD, shall be an aggregate number of Pubco ordinary shares (the “Exchange Shares”)
with an aggregate value equal to (the “Exchange Consideration”) (i) One Billion U.S. Dollars ($1,000,000,000), plus (ii) the
aggregate amount cash of JHD and its direct and indirect subsidiaries as of the Closing date, minus (iii) the aggregate indebtedness of
JHD and its direct and indirect subsidiaries, and minus (iv) the amount of any unpaid transaction expenses of JHD in excess of $10,000,000
in aggregate, with each Pubco ordinary share valued at an amount equal to the price at which each Company ordinary share shall be redeemed
or converted pursuant to the redemption of shares (the “Redemption Price”). The issuances of Pubco ordinary shares in connection
with the Share Exchange will be exempt from registration under the Securities Act in reliance upon Section 4(a)(2) thereof because securities
of Pubco will issued to a limited number of Sellers without involving a public offering. Such issuances will also be exempted from registration
in reliance upon Regulation S of the Securities Act with regard to certain Sellers receiving Pubco ordinary shares who are qualified as
non-U.S. persons thereunder.
The parties agreed that at
or prior to the Closing, Pubco, the Seller and Continental Stock Transfer & Trust Company (or another mutually acceptable escrow agent),
as escrow agent (the “Escrow Agent”), will enter into an Escrow Agreement, effective as of the Closing, in form and substance
reasonably satisfactory to the Company and JHD (the “Escrow Agreement” ), pursuant to which Pubco shall cause to be delivered
to the Escrow Agent a number of Exchange Shares (each valued at the Redemption Price) equal in value to ten percent (10%) of the Exchange
Consideration otherwise issuable to the Sellers at the Closing (together with any equity securities paid as dividends or distributions
with respect to such shares or into which such shares are exchanged or converted, the “Escrow Shares”) to be held, along with
any other dividends, distributions or other income on the foregoing (the “Other Escrow Property”, together with the Escrow
Shares, the “Escrow Property”), in a segregated escrow account (the “Escrow Account”) and disbursed in accordance
with the terms of the Business Combination Agreement and the Escrow Agreement.
If and when earned, the Sellers
shall be entitled to receive from Pubco, as additional consideration for the purchase of the Purchased Shares, the Earned Escrow Shares
together with the Other Escrow Property. To the extent that the amount of the Earned Escrowed Shares is less than the number of Escrow
Share Number (as such terms are defined below), then the amount of Escrow Shares equal to such difference will be forfeited by the Sellers
and released to Pubco for cancellation along with any accrued but unpaid dividends payable in respect of such Escrow Shares.
For the purposes of the calculating
the Earned Earnout Shares, the following definitions shall apply:
“Earned Escrow Shares”
means the result of the following equation: Escrow Share Number * (Revenue / Earnout Target).
“Earnout Target”
means an amount equal to One Hundred Forty Million U.S. Dollars ($140,000,000).
“Earnout Year”
means the period commencing on the first day of the first fiscal quarter following Closing (but in any event no earlier than October 1,
2021) and ending on the twelve (12) month anniversary of such date.
“Escrow Share Number”
means the number of Escrow Shares.
“Revenue”
means the consolidated revenue of Pubco and its subsidiaries for the Earnout Year, as set forth in Pubco’s filings with the SEC; provided that
in no event shall the Revenue exceed the Earnout Target.
The obligations of the parties
to consummate the Transactions are subject to various conditions, including the following mutual conditions of the parties unless waived:
(i) the approval of the Business Combination Agreement and the Transactions and related matters by the requisite vote of the Company’s
shareholders; (ii) expiration of any waiting period under applicable antitrust laws; (iii) no law or order preventing or prohibiting the
Transactions; (iv) the Company having at least $5,000,001 in net tangible assets as of the Closing, after giving effect to the completion
of the Redemption and any private placement financing;(v) the effectiveness of the Registration Statement; (vi) amendment by the shareholders
of Pubco of Pubco’s memorandum and articles of association; (vii) receipt by JHD and the Company of evidence reasonably satisfactory
to each such party that Pubco qualifies as a foreign private issuer; (viii) the election or appointment of members to Pubco’s post-closing
board of directors designated by JHD and the Company; and (ix) the Pubco securities have been approved for listing on Nasdaq.
In addition, unless waived
by JHD, the obligations of JHD, Pubco, Merger Sub and the Sellers to consummate the Transactions are subject to the satisfaction of the
following Closing conditions, in addition to customary certificates and other closing deliveries: (i) the representations and warranties
of the Company being true and correct on and as of the Closing (subject to material adverse effect); (ii) the Company having performed
in all material respects its obligations and complied in all material respects with its covenants and agreements under the Business Combination
Agreement required to be performed or complied with by it on or prior the date of the Closing; (iii) absence of any material adverse effect
with respect to the Company since the date of the Business Combination Agreement which is continuing and uncured; (iv) receipt by JHD
and Pubco of a Registration Rights Agreement, providing customary registration rights to the Seller with respect to the portion of the
Exchange Shares delivered to the Seller at the Closing and any Earnout Escrow Shares that are released from escrow to the Sellers (the
“Seller Registration Rights Agreement”); and (v) the Company having delivered to the Sellers and JHD, evidence that is reasonably
satisfactory to the Seller Representative of the amount of cash and cash equivalents, including funds remaining in the trust account (after
giving effect to the completion and payment of the Redemption) and the proceeds of any PIPE investment.
Unless waived by the Company,
the obligations of the Company to consummate the Transactions are subject to the satisfaction of the following Closing conditions, in
addition to customary certificates and other closing deliveries: (i) the representations and warranties of JHD, Pubco and the Sellers
being true and correct on and as of the Closing (subject to Material Adverse Effect); (ii) JHD, Pubco, Merger Sub and Seller having performed
in all material respects the respective obligations and complied in all material respects with their respective covenants and agreements
under the Business Combination Agreement required to be performed or complied with on or prior the date of the Closing; (iii) absence
of any Material Adverse Effect with respect to JHD or Pubco since the date of the Business Combination Agreement which is continuing and
uncured; (iv) receipt by the Company of the Founders Registration Rights Agreement Amendment, each executed by Pubco; (v) receipt by the
Company of share certificates and other documents evidencing the transfer of the Purchased Shares to Pubco; and (vi) receipt by the Company
of the evidence of the termination of any outstanding options, warrants or other convertible securities of JHD, without any consideration
or liability therefor.
The Parties agreed that after
taking into consideration the Redemption, the trust account proceeds and the gross proceeds of any private placement, the amount of cash
available to the Company should amount to One Hundred and Ten Million Dollars ($110,000,000) or more at Closing.
The Transactions are subject to,
among other things, the approval of the Transactions by the Company’s shareholders, satisfaction of the conditions stated in the
Business Combination Agreement and other customary closing conditions, including that the SEC completes its review of the proxy statement/prospectus
relating to the Transactions, the receipt of certain regulatory approvals, and the approval by The Nasdaq Stock Market to list the securities
of the combined company.
On September 13, 2021, the parties
thereto the Business Combination Agreement entered into that certain Amended and Restated Business Combination Agreement (the “Amended
Agreement”), which amended and restated the Business Combination Agreement in its entirety and provides, among other things, that
(a) a revised Amended and Restated Memorandum and Articles of Association of Pubco that, among other things, set forth the proposed authorized
share capital of Pubco following the consummation of the Business Combination, be appended to the Business Combination Agreement; (b)
the principal amount of certain convertible notes of JHD which are convertible into shares of Pubco (the “2021 Convertible Notes”)
and the aggregate cash proceeds of any future equity investments in JHD during the interim period that are convertible into shares of
Pubco (the “Equity Investment”) will be counted towards the Company’s minimum cash condition under the Business Combination
Agreement, consistent with the characterization of these instruments as a private equity investment to purchase ordinary shares of the
Company or, after the Closing, ordinary shares of Pubco, and (c) the ordinary shares of Pubco received by the Sellers, the holders of
the 2021 Convertible Notes (upon conversion of such promissory notes) and the holders of any future Equity Investment will be registered
for resale, along with the ordinary shares of Pubco issued to the Company’s public shareholders. The Amended Agreement also provides
that the ordinary shares of Pubco to be issued to the holders of the 2021 Convertible Notes and any future Equity Instrument are not part
of the Exchange Consideration being distributed to the Sellers under the Business Combination Agreement.
On October 7, 2021, the parties
to the Amended Agreement entered into that certain Second Amended and Restated Business Combination Agreement, pursuant to which the Amended
Agreement was further amended and restated in its entirety to, among other things, (i) memorialize an agreement among the parties that
the vested options in the Primary Seller previously issued to senior executives and directors of the Primary Seller would be exchanged
for substitute options in Pubco exercisable into a pool of the ordinary shares, $0.0001 par value per share, of Pubco, thereby reducing
the Exchange Consideration that would otherwise have been issued to the Sellers and (ii) delete the text noting that the 2021 convertible
notes and any equity investment would be treated as PIPE investments.
Related Party Loans
On February 23, 2021, March
3, 2021, June 23, 2021 and June 25, 2021, respectively, our Chief Financial Officer and one of the initial shareholders, Mr. Chunyi (Charlie)
Hao, has loaned to the Company $200,000, the Working Capital Loans. If the Company completes a Business Combination, the Company would
repay the Working Capital Loans. 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. Such Working Capital Loans would be evidenced by promissory notes. The notes would either be repaid upon consummation of
a Business Combination, without interest, or, at the lender’s discretion, or converted upon consummation of a Business Combination
into additional Private Units at a price of $10.00 per Unit (the “Working Capital Units”).
Effective May 24, 2021 and August
24, 2021, the Company extended the date by which the Company has to consummate a business combination from May 24, 2021 to August 24,
2021, and from August 24, 2021 to November 24, 2021, respectively (the “Extensions”). The Extensions are up to two three-month
extensions permitted under the Company’s governing documents and provides the Company with additional time to complete its proposed
business combination with JHD. In accordance with the Business Combination Agreement, JHD has loaned to the Company a sum of $2,760,000
on the Sponsor’s behalf in order to support the Extension. Such loan is non-interest bearing and will be payable upon the consummation
of the proposed business combination.
As of September 30, 2021, Yellow
River Asset Management, an affiliate of JHD (“Yellow River”), and the Company signed a promissory note in which Yellow River
agreed to loan to the Company a sum of $200,000. The note bears no interest and is repayable in full upon the earlier of consummation
of the Company’s initial Business Combination and its winding up. As of September 30, 2021, the Company had drawn down an aggregate
of $186,514.
Backstop Arrangements
On November 12, 2021, the Company
entered into certain forward share purchase agreements (the “Forward Share Purchase Agreements) with Sea Otter Securities (“Sea
Otter”), Stichting Juridisch Eigendom Mint Tower Arbitrage Fund (“Mint Tower”), Glazer Special Opportunity Fund I, LP
(“Glazer”) and Meteora Capital Partners, LP (“Meteora” and, together with Sea Otter, Mint Tower, and Glazer, the
“Backstop Investors”), which provide that such investors will not redeem shares that they each hold in connection with the
proposal to extend the date by which the Company has to consummate a Business Combination from November 24, 2021 to February 24, 2022
(the “February Extension”) and the proposed Merger with JHD, and instead would each either hold such shares for a period of
time following the consummation of the Merger, at which time they will each have the right to sell them to East Stone at $10.41 per share,
or will sell such shares on the open market during such time period at a market price of at least $10.26 per share.
In connection with the above-mentioned
arrangements, the Sponsor entered into certain share transfer agreements (the “Founder Share Transfer Agreements”) with the
Backstop Investors. Pursuant to the Founder Share Transfer Agreement with Meteora and Glazer on November 12, 2021, Meteora and Glazer
agreed not to sell, transfer or seek redemption of an aggregate of 974,658 public shares of Company and to vote such shares in favor of
the February Extension and the Merger.
In consideration of Meteora and
Glazer’s agreement to abide by such restrictions on its public shares, the Sponsor agreed to transfer to the Glazer investors 44,444
Founder Shares for every 324,886 public shares not redeemed, for an aggregate of 133,332 Founder Shares. Of such amount, an aggregate
of up to 45,000 Founder Shares will be transferred on or before the date of the special meeting of the shareholders of the Company to
consider the Merger, and an aggregate of 88,332 Founder Shares will be transferred to the Glazer investors on or before the date of the
Closing.
The Company has also entered into
founder shares transfer agreements with identical terms to the Founder Share Transfer Agreement with Sea Otter (pursuant to which 133,332
founder shares will be transferred to Sea Otter) and with Mint Tower (pursuant to which 133,332 founder shares will be transferred to
Mint Tower).
On November 12, 2021, the Business
Combination Agreement (the “Business Combination Agreement Amendment”) was further amended to memorialize an agreement among
the parties that any funds in the Trust Account that relate to ordinary shares of the Company held by the Backstop Investors shall not
count toward the minimum cash condition contained in Section 9.2(d) of the Business Combination Agreement. In addition, Section 10.1(b)
of the Business Combination Agreement was amended, contingent upon the effectiveness of the February Extension, to provide that the Business
Combination Agreement may be terminated at any time prior to the Closing by either the Company or JHD, if the Closing does not occur by
February 24, 2022.
On November 12, 2021, JHD, Pubco,
Primary Seller, the Company, the Sponsor, Navy Sail, Chunyi (Charlie) Hao, and Xiaoma (Sherman) Lu (Messers Hao and Lu, collectively with
Navy Sail and the Sponsor, the “Primary Initial Shareholders”) entered into an amendment (the “Letter Agreement Amendment”)
to the Letter Agreement Regarding Forfeiture of Founder Shares, dated February 16, 2021 (the “Founder Share Letter”) by and
among JHD, the Company, the Sponsor, Navy Sail, Chunyi (Charlie) Hao, and Xiaoma (Sherman) Lu.
The Founder Share Letter provided,
inter alia, that up to 1,725,000 Ordinary Shares (the “Forfeiture Shares”) would be subject to forfeiture in the event that
the Company did not have at least $100 million in cash at the Closing, with the number of such shares to be forfeit determined on a sliding
scale depending upon the amount of the cash shortfall, if any, with the entire amount of the 1,725,000 shares subject to forfeiture if
the Company’s cash at closing was $70 million or less. Under the terms of the Letter Agreement Amendment, the Company, the Primary
Initial Shareholders, JHD Holdings Limited, Pubco and the Primary Seller have agreed that the 1,725,000 Forfeiture Shares would be exchanged
for an equivalent number of Pubco ordinary shares (“Forfeiture Replacement Shares”) at the Closing and that such Forfeiture
Replacement Shares would be distributed as follows: (A) 138,000 Forfeiture Replacement Shares to the Primary Seller, (B) to Glazer, Sea
Otter and Mint Tower, up to 450,000 Forfeiture Replacement Shares in consideration for their having entered into the Forward Share Purchase
Agreements and the Founder Share Transfer Agreements and (C) out of the remaining Forfeiture Replacement Shares, (i) to a shareholder
of the Sponsor who is not a director or officer of the Purchaser) up to 500,000 Forfeiture Replacement Shares and (ii) to the extent of
any remaining Forfeiture Replacement Shares (a) 50% to Charlie Hao and Xiaoma (Sherman) Lu and (b) 50% to the Primary Seller.
The Forfeiture Replacement Shares
being delivered to the Backstop Investors and to the Primary Seller are not subject to the forfeiture calculations under the Founder Share
letter (as amended by the Letter Agreement Amendment), however the calculation of any Forfeiture Replacement Shares to be distributed
to the shareholder of the Sponsor or to Charlie Hao, Sherman Lu and the Primary Seller under (C) above will be subject to the forfeiture
calculations. To the extent that the forfeiture calculation results in less than all of the remaining Founder Shares subject to the arrangement
(1,725,000) being distributed pursuant to the terms of the preceding paragraph, the remainder of such shares shall remain with the Primary
Initial Shareholders.
On November 5, 2021, the Company
filed with the SEC a definitive proxy statement on Schedule 14A for a special meeting of shareholders, which is scheduled to be held on
November 24, 2021, which includes a proposal to amend the Company’s Amended and Restated Memorandum and Articles of Association
to extend the date by which Company has to consummate a Business Combination from November 24, 2021 to February 24, 2022. On November
15, 2021, the Company filed an amendment to the definitive proxy statement to report the terms of the Backstop Arrangements described
above.
On November 24, 2021,
the Company held a special meeting of shareholders and approved to amend the Company’s Amended and Restated Memorandum and Articles
of Association to extend the date by which the Company has to consummate an initial business combination from November 24, 2021 to February
24, 2022. In connection with the approval of the extension, shareholders elected to redeem an aggregate of 10,534,895 ordinary shares,
of which the Company paid cash from the trust account in the aggregate amount of approximately $108.1 million (approximately $10.26 per
share) to redeeming shareholders.
Results of Operations
We have neither engaged in
any operations nor generated any revenues to date. Our only activities from August 9, 2018 (inception) through September 30, 2021 were
organizational activities, those necessary to consummate the initial public offering, described below, and identifying a target company
for a business combination. We do not expect to generate any operating revenues until after the completion of our initial business combination.
We expect to generate non-operating income in the form of interest income on marketable securities held after the initial public offering.
We expect to incur increased 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 nine months ended
September 30, 2021 and 2020, respectively, we had net income (loss) of $(1,253,325) and $189,323, respectively, which consists of interest
income on marketable securities held in a trust account in the United States at JPMorgan Chase Bank, N.A., maintained by Continental
Stock Transfer & Trust Company, acting as trustee (“Trust Account”), offset by operating costs of $(1,309,878) and $(474,278),
and change in fair value of derivative warrant liabilities of $46,100 and $(166,872) respectively.
Liquidity and Capital Resources
On February 24, 2020, we consummated
the initial public offering of 12,000,000 units (“Units”) and the sale of an additional 1,800,000 Units pursuant to the full
exercise by the underwriters in the initial public offering (the “Underwriters”) of their over-allotment option at a price
of $10.00 per Unit, generating aggregate gross proceeds of $138,000,000. Simultaneously with the closings of the initial public offering
and the sale of the additional Units, we consummated the sales of an aggregate of 350,000 Units (the “Private Placement Units”)
at a price of $10.00 per Private Placement Unit, generating gross proceeds of $3,500,000.
On February 24, 2020, in connection
with the initial public offering, we issued to the representative of the Underwriters and its designee a total of 103,500 ordinary shares
and 690,000 warrants, exercisable at $12.00 per full share (or an aggregate exercise price of $8,280,000) (“Representative’s
Warrants”). A total of $138,000,000 of the net proceeds from the initial public offering and the Private Placement Units was placed
in a U.S.-based trust account at J.P. Morgan Chase Bank, N.A., maintained by CST, acting as trustee.
On May 21, 2021 and August
20, 2021, an aggregate of $1,380,000 and $1,380,000, respectively, was deposited by JHD into the Trust Account for the Company’s
public shareholders, representing $0.10 per public share, which enables the Company to extend the period of time it has to consummate
its initial Business Combination by twice of three months to November 24, 2021, which is the scheduled liquidation date of the Company.
In connection with the initial
public offering and the private placement, a total of $138,000,000 was placed in the Trust Account. The total transaction costs relating
to the initial public offering amounted to $4,154,255, including value placed on the Representative’s Shares at $1,035,000, but
excluding value placed Representative’s Warrants at $1,640,028 which is accounted for as derivative warrant liability on the Company’s
balance sheet. Of the amount $4,154,255, $3,083,255 was cash costs of the transaction, consisting of $2,415,000 of underwriting fees,
of which $402,500 has been deferred to the consummation of the Business Combination, and $668,255 of other offering costs.
As of September 30, 2021,
we had marketable securities held in the Trust Account of $141,604,421 (including $2,760,000 deposited for the two three-month extensions
from May 24, 2021 to November 24, 2021) consisting of U.S. government treasury bills, notes and bonds with a maturity of 185 days or less
or in money market. Interest income on the balance in the Trust Account may be used by us to pay taxes. Through September 30, 2021, we
did not withdraw any funds from the interest earned on the Trust Account.
We intend to use substantially
all of the net proceeds of the initial public offering and the sale of the Private Placement Units, including the funds held in the trust
account (excluding any deferred underwriting commissions and certain advisory fees to I-Bankers Securities, Inc., the representative of
the Underwriter (“I-Bankers”)), to acquire a target business or businesses and to pay our expenses relating thereto. To the
extent that our capital stock are used in whole or in part as consideration to effect our initial business combination, the remaining
proceeds held in the Trust Account as well as any other net proceeds not expended will be used as working capital to finance the operations
of the target business. Such working capital funds could be used in a variety of ways including continuing or expanding the target business’
operations, for strategic acquisitions and for marketing, research and development of existing or new products. Such funds could also
be used to repay any operating expenses or finders’ fees which we had incurred prior to the completion of our initial business combination
if the funds available to us outside of the Trust Account were insufficient to cover such expenses.
As of September 30, 2021,
we had cash of $56,267 held outside of the Trust Account. We intend to use the funds held outside the Trust Account primarily to identify
and evaluate prospective acquisition candidates, perform business due diligence on prospective target businesses, travel to and from the
offices, plants or similar locations of prospective target businesses, review corporate documents and material agreements of prospective
target businesses, select the target business to acquire and structure, negotiate and consummate an initial business combination.
In order to fund working capital
deficiencies or finance transaction costs in connection with an initial business combination, the initial shareholders, the Company’s
officers and directors or their affiliates may, but are not obligated to, loan us funds as may be required. In the event that our initial
business combination does not close, we may use a portion of the working capital held outside the Trust Account to repay such loaned amounts
but no proceeds from our Trust Account would be used for such repayment. Up to $1,500,000 of such loans may be convertible into units
at a price of $10.00 per unit (which, for example, would result in the holders being issued 150,000 ordinary shares if $1,500,000 of notes
were so converted, as well as 150,000 rights to receive 15,000 ordinary shares and 150,000 warrants to purchase 75,000 shares) at the
option of the lender. If we do not complete an initial business combination, the loans will only be repaid with funds not held in the
Trust Account, and only to the extent available. We do not expect to seek loans from parties other than the initial shareholders, the
Company’s officers and directors or their affiliates as we do not believe third parties will be willing to loan such funds and provide
a waiver against any and all rights to seek access to funds in our Trust Account.
The liquidity condition
and date for mandatory liquidation raise substantial doubt about the Company’s ability to continue as a going concern through November
24, 2021, the scheduled liquidation date of the Company. These financial statements do not include any adjustments relating to the recovery
of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a
going concern. On May 21, 2021 and August 20, 2021, the Company extended the date by which the Company has to consummate a
Business Combination from May 24, 2021 to August 24, 2021, and from August 24, 2021 to November 24, 2021, respectively. On November 24,
2021, the Company held a special meeting of shareholders and approved to amend the Company’s Amended and Restated Memorandum and
Articles of Association to extend the date by which the Company has to consummate an initial business combination from November 24, 2021
to February 24, 2022. In connection with the approval of the extension, shareholders elected to redeem an aggregate of 10,534,895 ordinary
shares, of which the Company paid cash from the trust account in the aggregate amount of approximately $108.1 million (approximately
$10.26 per share) to redeeming shareholders.
In connection with the
Company’s assessment of going concern considerations in accordance with FASB’s ASU 2014-15, “Disclosures of Uncertainties
about an Entity’s Ability to Continue as a Going Concern,” management has determined that if the Company is unable to complete
a Business Combination by November 24, 2021, and if a further extension to February 24, 2022 is not approved by the Company’s shareholders,
then the Company will cease all operations except for the purpose of liquidating. The date for mandatory liquidation and subsequent dissolution
raise substantial doubt about the Company’s ability to continue as a going concern. No adjustments have been made to the carrying
amounts of assets or liabilities should the Company be required to liquidate after November 24, 2021.
We do not believe we will
need to raise additional funds in order to meet the expenditures required for operating our business. However, if our estimate of the
costs of undertaking in-depth due diligence and negotiating an initial business combination are less than the actual amounts necessary
to do so, we may have insufficient funds available to operate our business prior to our initial business combination. Moreover, we may
need to obtain additional financing either to consummate our initial business combination or because we become obligated to redeem a significant
number of our public shares upon consummation of our initial business combination, in which case we may issue additional securities or
incur debt in connection with such initial business combination. Subject to compliance with applicable securities laws, we would only
complete such financing simultaneously with the consummation of our initial business combination, in which case we may issue additional
securities or incur debt in connection with such initial business combination. Following our initial business combination, if cash on
hand is insufficient, we may need to obtain additional financing in order to meet our obligations
Off-Balance Sheet Financing Arrangements
We have no obligations, assets
or liabilities which would be considered off-balance sheet arrangements as of September 30, 2021. We do not participate in transactions
that create relationships with unconsolidated entities or financial partnerships, often referred to as variable interest entities, which
would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet
financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any
non-financial assets.
Contractual Obligations
We do not have any long-term
debt, capital lease obligations, operating lease obligations or long-term liabilities, other than an agreement to pay East Stone Capital
Limited, an affiliate of our executive officers, a quarterly fee of $30,000 (up to $120,000 in the aggregate) for office space, utilities
and secretarial and administrative services. We began incurring these fees on February 20, 2020 and will continue to incur these fees
quarterly until the earlier of the consummation by the Company of an initial business combination or the Company’s liquidation (up
to a maximum of $120,000 in the aggregate). As of September 30, 2021, the Company has fulfilled paying East Stone Capital Limited the
aggregate $120,000 and has retired this contractual obligation.
Critical Accounting Policies
The preparation of financial
statements and related disclosures in conformity with accounting principles generally accepted in the United States of America (“GAAP”)
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. The Company has identified the following critical accounting policy:
Ordinary Shares Subject to Possible Redemption
The Company accounts for its
ordinary shares subject to possible redemption in accordance with the guidance in ASC Topic 480 “Distinguishing Liabilities from
Equity.” Ordinary shares subject to mandatory redemption (if any) are classified as a liability instrument and are measured at fair
value. Conditionally redeemable ordinary shares (including ordinary shares that feature redemption rights that are either within the control
of the holder or subject to redemption upon the occurrence of uncertain events not solely within the Company’s control) are classified
as temporary equity. At all other times, ordinary shares are classified as shareholders’ equity. Certain of the Company’s
ordinary shares feature redemption rights that are considered to be outside of the Company’s control and subject to the occurrence
of uncertain future events. Accordingly, as of September 30, 2021, 13,800,000 ordinary shares subject to possible redemption
are presented at redemption value as temporary equity, outside of the shareholders’ equity section of the Company’s condensed
balance sheet.
The Company recognizes changes
in redemption value immediately as they occur and adjusts the carrying value of redeemable ordinary shares to equal the redemption value
at the end of each reporting period.
Derivative Warrant Liabilities
The Company does not use derivative
instruments to hedge exposures to cash flow, market, or foreign currency risks.
Management evaluates all of its financial instruments,
including issued warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives,
pursuant to ASC 480 and ASC 815-15. The classification of derivative instruments, including whether such instruments should be recorded
as liabilities or as equity, is re-assessed at the end of each reporting period. In accordance with ASC 825-10 “Financial Instruments”,
offering costs attributable to the issuance of the derivative warrant liabilities are recognized in the statement of operations as incurred.
Public Shares Subject
to Possible Redemption
We account for Public
Shares subject to possible redemption in accordance with the guidance in FASB ASC 480 “Distinguishing Liabilities from Equity.”
Public Shares subject to mandatory redemption (if any) are classified as liability instruments and are measured at fair value. Conditionally
redeemable Public Shares (including ordinary shares that feature redemption rights that are either within the control of the holder or
subject to redemption upon the occurrence of uncertain events not solely within our control) are classified as temporary equity. At all
other times, Public Shares are classified as shareholders’ equity. Our Public Shares feature certain redemption rights that are
considered to be outside of our control and subject to the occurrence of uncertain future events. Accordingly, as of September 30, 2021,
17,703,500 Public Shares subject to possible redemption are presented as temporary equity, outside of the shareholders’ equity
section of the balance sheet.
Recent Accounting Pronouncements
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. The ASU also
removes certain settlement conditions that are required for equity-linked contracts to qualify for the derivative scope exception, and
it simplifies the diluted earnings per share calculation in certain areas. The Company adopted ASU 2020-06 on January 1, 2021. Adoption
of the ASU did not impact the Company’s financial position, results of operations or cash flows.