NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
JUNE 30, 2019
(Unaudited)
NOTE 1. DESCRIPTION OF ORGANIZATION
AND BUSINESS OPERATIONS
Proficient Alpha Acquisition Corp. (the “Company”)
is a blank check company incorporated in Nevada on July 27, 2018. The Company was formed for the purpose of entering into a merger,
share exchange, asset acquisition, stock purchase, recapitalization, reorganization or other similar business combination with
one or more businesses or entities (a “Business Combination”). The Company may, subject to certain limitations, pursue
a Business Combination target with operations or prospects in the financial services sector in China, including Hong Kong, Macau
and mainland China.
As of June 30, 2019, the Company had not yet
commenced operations. All activity through June 30, 2019 relates to the Company’s formation and its initial public offering
(“IPO”), which is described below, and since the closing of the IPO, the search for a target for its Business Combination.
The registration statement for the Company’s
IPO was declared effective on May 29, 2019.
On June 3, 2019, the Company consummated
its IPO of 10,000,000 units (“Units”). Each Unit consists of one share of common stock, $0.001 par value per share
(“Common Stock”), one warrant (“Public Warrant”) to purchase one share of Common Stock at an exercise price
of $11.50 per share, and one right (“Right”) to receive one-tenth of one share of Common Stock upon consummation of
the Company’s initial Business Combination. The Units were sold at an offering price of $10.00 per Unit, generating
gross proceeds of $100,000,000. Pursuant to the Underwriting Agreement, the Company granted the underwriters in the IPO (the “Underwriters”)
a 30-day option to purchase up to 1,500,000 additional Units solely to cover over-allotments, if any (the “Over-Allotment
Option”); and simultaneously with the consummation of the IPO, the Underwriters exercised the Over-Allotment Option in full,
generating additional gross proceeds of $15,000,000 to the Company, which is described in Note 4.
Simultaneously
with the consummation of the IPO and the sale of the Units, the Company consummated the private placement (“Private Placement”)
of 5,375,000 warrants (“Placement Warrants”) at a price of $1.00 per Placement Warrant, generating total proceeds of
$5,375,000,
which is described in Note 5.
Following the closing of the IPO on
June 3, 2019, an amount of $115,000,000 ($10.00 per Unit) from the net proceeds of the sale of the Units in the IPO and the
Placement
Warrants
was placed in a trust account (“Trust Account”) which may be invested in U.S. government securities,
within the meaning set forth in Section 2(a)(16) of the Investment Company Act of 1940, as amended (the “Investment Company
Act”), with a maturity of 180 days or less or in any open-ended investment company that holds itself out as a money market
fund selected by the Company meeting the conditions of Rule 2a-7 of the Investment Company Act, as determined by the Company, until
the earlier of: (i) the consummation of a Business Combination or (ii) the distribution of the Trust Account, except that interest
earned on the Trust Account can be released to the Company to pay its tax obligations, as described below.
Transaction costs amounted to $6,600,439,
consisting of cash of $2,875,000 of underwriting fees and $290,120 of IPO costs, the fair value of 92,000 shares issued and 920,000
warrants granted to the Underwriters in total amount of $3,435,319 pursuant to the Underwriting Agreement. In addition, $2,177,380
of cash was held outside of the Trust Account and is available for working capital purposes (see Note 9).
The Company’s management has broad discretion
with respect to the specific application of the net proceeds of the IPO and Placement Warrants held outside of the Trust Account.
The Company’s initial Business Combination must be with one or more target businesses that together have a fair market value
equal to at least 80% of the balance in the Trust Account (net of taxes payable) at the time of the signing an agreement to enter
into a Business Combination. The Company will only complete a Business Combination if the post-Business Combination company owns
or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the
target sufficient for it not to be required to register as an investment company under the Investment Company Act. There is no
assurance that the Company will be able to successfully effect a Business Combination.
The Company will provide its stockholders
with the opportunity to redeem all or a portion of their shares of Common Stock upon the completion of a Business Combination either
(i) in connection with a stockholder meeting called to approve the Business Combination or (ii) by means of a tender offer. The
decision as to whether the Company will seek stockholder approval of a Business Combination or conduct a tender offer will be made
by the Company, solely in its discretion. The stockholders will be entitled to redeem their shares for a pro rata portion of the
amount then on deposit in the Trust Account (initially approximately $10.00 per share, plus any pro rata interest earned on the
funds held in the Trust Account and not previously released to the Company to pay its tax obligations).
The Company will proceed with a Business Combination
if the Company has net tangible assets of at least $5,000,001 upon such consummation of a Business Combination and, if the Company
seeks stockholder approval, a majority of the outstanding shares voted are voted in favor of the Business Combination. If a stockholder
vote is not required by law and the Company does not decide to hold a stockholder vote for business or other legal reasons, the
Company will, pursuant to its Amended and Restated Articles of Incorporation, conduct the redemptions pursuant to the tender offer
rules of the SEC, and file tender offer documents with the SEC prior to completing a Business Combination. If, however, a stockholder
approval of the transaction is required by law, or the Company decides to obtain stockholder approval for business or other legal
reasons, the Company will offer to redeem the Public Shares (as defined below) in conjunction with a proxy solicitation pursuant
to the proxy rules and not pursuant to the tender offer rules. If the Company seeks stockholder approval in connection with a Business
Combination, the sponsor, officers, directors and holders of Founder Shares (the “Initial Stockholders”) have agreed
to vote their Founder Shares (as defined in Note 7) and any Public Shares held by them in favor of approving a Business Combination.
Additionally, each public stockholder may elect to redeem their Public Shares irrespective of whether they vote for or against
the proposed transaction.
The Company will have until June 2,
2020 (or December 2, 2020 if the Company extends the period to consummate a Business Combination by the full amount) to consummate
a Business Combination (the “Combination Period”). If the Company is unable to complete a Business Combination within
the Combination Period, the Company will
(i) cease all operations except for the purpose
of winding up, (ii) as promptly as reasonably possible, but not more than 10 business days thereafter, redeem the Common Stock
sold as part of the Units in the IPO (the “
Public Shares
”), at a per-share
price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned on the Trust
Account net of interest that may be used by the Company to pay its taxes payable and for dissolution expenses, divided by the number
of then outstanding Public Shares, which redemption will completely extinguish public stockholders’ rights as stockholders
(including the right to receive further liquidation distributions, if any), and (iii) as promptly as reasonably possible following
such redemption, subject to the approval of the Company’s remaining stockholders and the Company’s board of directors,
dissolve and liquidate, subject in the cases of clauses (ii) and (iii) to the Company’s obligations under Nevada law to provide
for claims of creditors and other requirements of applicable law.
The Initial Stockholders have agreed to (i)
waive any and all right, title, interest or claim of any kind the
Initial Stockholders
may have in the future in or to any distribution of the Trust Account and any remaining net
assets of the Company as a result of, or arising out of, any contracts or agreements with the Company and will not seek recourse
against the Trust Account for any reason whatsoever; (ii) waive any right to exercise conversion rights with respect to any shares
of the Common Stock or Founder Shares owned or to be owned by the
Initial Stockholders
,
directly or indirectly, whether such shares be part of the Founder Shares or shares of Common Stock purchased by the
Initial
Stockholders
in the IPO or in the aftermarket, and each agrees not to seek conversion with
respect to such shares in connection with any vote to approve a Business Combination or to sell any such shares in a tender offer
undertaken by the Company in connection with a Business Combination;
and (iii)
not
propose, or vote in favor of, an amendment to Article Sixth of the Company’s Amended and Restated Articles of Incorporation,
as the same may be amended from time to time, prior to the consummation of a Business Combination unless the Company provides public
stockholders with the opportunity to convert their shares of Common Stock upon such approval in accordance with such Article Sixth
thereof
.
In the event that the Company does not consummate a Business Combination
and must liquidate and its remaining net assets are insufficient to complete such liquidation, each of the
Initial Stockholders
agrees to advance such funds necessary to complete such liquidation and agrees not to seek
repayment for such expenses
.
In order to protect the amounts held
in the Trust Account,
Mr. Shih-Chung Chou, o
ur sponsor has agreed that he will be
personally liable to ensure that the proceeds in the Trust Account are not reduced below $10.00 per Public Share by the claims
of target businesses or claims of vendors or other entities that are owed money by us for services rendered or contracted for or
products sold to us. Additionally, the agreement entered into by our sponsor specifically provides for two exceptions to the indemnity
he has given: he will have no liability (1) as to any claimed amounts owed to a target business or vendor or other entity who has
executed an agreement with us waiving any right, title, interest or claim of any kind they may have in or to any monies held in
the Trust Account, or (2) as to any claims for indemnification by the Underwriters of this offering against certain liabilities,
including liabilities under the Securities Act. We have not independently verified whether our sponsor has sufficient funds to
satisfy its indemnity obligations and we have not asked our sponsor to reserve for such indemnification obligations. The Company
will seek to reduce the possibility that
Mr. Shih-Chung Chou
will have to indemnify
the Trust Account due to claims of creditors by endeavoring to have all vendors, service providers, prospective target businesses
or other entities with which the Company does business, execute agreements with the Company waiving any right, title, interest
or claim of any kind in or to monies held in the Trust Account.
NOTE 2. BASIS OF PRESENTATION
The accompanying unaudited condensed financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”)
for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X of the
SEC. Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have
been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they
do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations,
or cash flows. In the opinion of management, the accompanying unaudited condensed financial statements include all adjustments,
consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results
and cash flows for the periods presented.
The accompanying unaudited condensed financial
statements should be read in conjunction with the Company’s prospectus as filed with the SEC and declared effective on May
29, 2019, as well as the Company’s Form 8-K, as filed with the SEC on June 7, 2019. The interim results for the three and
nine months ended June 30, 2019 are not necessarily indicative of the results to be expected for the year ending September 30,
2019 or for any future interim periods.
NOTE 3. GOVERNMENT SECURITIES HELD
IN TRUST ACCOUNT
At June 30, 2019, the assets of $115,257,848
held in the Trust Account were substantially held in U.S. Treasury Bills with maturity of six months. Management elects to measure
the government securities at fair value in accordance with the guidance in Accounting Standards Codification (“ASC”)
Topic 825 “Financial Instruments”. Any changes
in fair value
of the government securities are recognized in net income. Impairment of government securities is recognized in earnings when a
decline in value has occurred that is deemed to be other than temporary, and the current fair value becomes the new cost basis
for the securities.
NOTE 4. INITIAL PUBLIC OFFERING
The registration statement for the
Company’s IPO was declared effective on May 29, 2019.
On June 3, 2019, the Company
consummated its IPO of 10,000,000 Units. Each Unit consists of one share of Common Stock, one Public Warrant to purchase one share
of Common Stock at an exercise price of $11.50 per share, and one Right to receive one-tenth of one share of Common Stock upon
consummation of the Company’s initial Business Combination. The Units were sold at an offering price of $10.00 per
Unit, generating gross proceeds of $100,000,000. Pursuant to the Underwriting Agreement, the Company granted the
Underwriters
in the IPO a 30-day Over-Allotment Option to purchase up to 1,500,000 additional Units solely
to cover over-allotments, if any; and simultaneously with the consummation of the IPO, the Underwriters exercised the Over-Allotment
Option in full, generating additional gross proceeds of $15,000,000 to the Company
(see Note 9).
NOTE 5. PRIVATE PLACEMENT
Simultaneously
with the consummation of the IPO and the sale of the Units, the Company consummated the Private Placement of 5,375,000 Placement
Warrants at a price of $1.00 per Placement Warrant, generating total proceeds of $5,375,000. The Placement Warrants, which
were purchased by Mr. Shih-Chung Chou, our sponsor, are substantially similar to the Public Warrants, except that if held by the
sponsor or his permitted transferees, the Placement Warrants (i) may be exercised for cash or on a cashless basis, (ii) are not
subject to being called for redemption and (iii) are, subject to certain limited exceptions, subject to transfer restrictions
until 30 days following the consummation of the Company’s initial Business Combination. If the Placement Warrants
are held by holders other than sponsor or his permitted transferees, the Placement Warrants will be redeemable by the Company and
exercisable by holders on the same basis as the Public Warrants.
The proceeds from the Placement Warrants were added to
the proceeds from the IPO to be held in the Trust Account. If the Company does not complete a Business Combination within the Combination
Period, the proceeds of the sale of the Placement Warrants will be used to fund the redemption of the Public Shares (subject to
the requirements of applicable law), and the Placement Warrants will expire worthless.
NOTE 6. ACCRUED EXPENSES
As of June 30, 2019, the Company had
accrued expenses of $23,296, of which $4,963 was due primarily to the outstanding balance on a credit card, and $18,333 was in
connection with the accrued compensation to the Company’s independent directors. Pursuant to the executed offer letters,
the Company agreed to pay the Company’s independent directors, respectively, $2,000 in cash per month starting from August
1, 2018, plus 25,000 to 50,000 shares of Common Stock, which will be issued within 10 days after the completion date of the initial
Business Combination. The fair value of this stock issuance was determined by the fair value of the Company’s Common Stock
on the grant date, at a price of $0.20 per share. Accordingly, the Company calculated the stock-based compensation of $30,000
at its fair value and amortized pro rata within 18 months. Total 150,000 shares of Common Stock to independent directors are not
issued within 10 days after the completion date of the initial Business Combination. Accordingly, the Company recorded $18,333
as accrued expenses.
NOTE 7. RELATED PARTY TRANSACTIONS
Founder Shares
As of June 30, 2019, 2,875,000 shares of the
Company (“Founder Shares”) were issued to the stockholders prior to the date of the prospectus for an aggregate amount
of $575,000, including cash of $555,000 and $20,000 prepaid expenses to the management of the Company. The 2,875,000 Founder Shares
include an aggregate of up 375,000 shares held by the sponsor subject to forfeiture to the extent that the Underwriters’
Over-Allotment Option
is not exercised in full or in part, so that the Initial Stockholders
will own 20% of the Company’s issued and outstanding shares after the IPO. S
imultaneously
with the consummation of the IPO, the Underwriters exercised the Over-Allotment Option in full. As a result, the
375,000
shares held by the sponsor were no longer subject to forfeiture
.
As of June 30, 2019,
the Company had subscription receivable of $10,741.
Simultaneously with the closing
of
the IPO
, the Founder Shares were placed into an escrow account maintained in New York, New York by American Stock Transfer&
Trust Company LLC, acting as escrow agent. Subject to certain limited exceptions, 50% of these shares will not be transferred,
assigned, sold or released from escrow until the earlier of (i) six months after the date of the consummation of our initial Business
Combination or (ii) the date on which the closing price of our Common Stock equals or exceeds $12.50 per share (as adjusted for
stock splits, stock dividends, reorganizations and recapitalizations) for any 20 trading days within any 30-trading day period
commencing after our initial Business Combination and the remaining 50% of the Founder Shares may not be transferred, assigned
or sold until six months after the date of the consummation of our initial Business Combination, or earlier, in either case, if,
subsequent to our initial Business Combination, we consummate a subsequent liquidation, merger, stock exchange or other similar
transaction which results in all of our stockholders having the right to exchange their shares of Common Stock for cash, securities
or other property. The limited exceptions include transfers, assignments or sales (i) to our officers, directors, consultants,
advisors or their affiliates, (ii) to an entity’s members, (iii) to relatives and trusts for estate planning purposes, (iv)
by virtue of the laws of descent and distribution upon death, (v) pursuant to a qualified domestic relations order, (vi) to us
for no value for cancellation in connection with the consummation of our initial Business Combination, or (vii) by private sales
made at or prior to the consummation of a Business Combination at prices no greater than the price at which the shares were originally
purchased, in each case (except for clause (vi) or with our prior consent) where the transferee agrees to the terms of the escrow
agreement and to be bound by these transfer restrictions.
Our Initial Stockholders have agreed to (i)
waive any and all right, title, interest or claim of any kind our Initial Stockholders may
have in the future in or to any distribution of the Trust Account and any remaining net assets of the Company as a result of, or
arising out of, any contracts or agreements with the Company and will not seek recourse against the Trust Account for any reason
whatsoever; (ii) waive any right to exercise conversion rights with respect to any shares of the Common Stock or Founder Shares
owned or to be owned by our Initial Stockholders, directly or indirectly, whether such shares be part of the Founder Shares or
shares of Common Stock purchased by our Initial Stockholders in the IPO or in the aftermarket, and each agrees not to seek conversion
with respect to such shares in connection with any vote to approve a Business Combination or to sell any such shares in a tender
offer undertaken by the Company in connection with a Business Combination;
and (iii)
not
propose, or vote in favor of, an amendment to Article Sixth of the Company’s Amended and Restated Articles of Incorporation,
as the same may be amended from time to time, prior to the consummation of a Business Combination unless the Company provides public
stockholders with the opportunity to convert their shares of Common Stock upon such approval in accordance with such Article Sixth
thereof
.
In the event that the Company does not consummate a Business Combination
and must liquidate and its remaining net assets are insufficient to complete such liquidation, each of the Initial Stockholders
agrees to advance such funds necessary to complete such liquidation and agrees not to seek repayment for such expenses
.
Accrued Expenses – Related
Parties
As of June 30, 2019, the Company had $14,074 due to related parties in connection with the accrued compensation
to the Company’s management and directors. Pursuant to the executed offer letters, the Company agreed to pay the Company’s
then Co-Chief Executive Officer and Chief Financial Officer, $2,000 and $5,000 in cash per month starting from February 1, 2019
and August 1, 2018, respectively, and 50,000 Founder Shares each, and agreed to pay the Company’s director $2,000 in cash
per month starting from August 1, 2018, plus an aggregate of 100,000 shares of Common Stock, which will be issued within 10 days
after the completion date of the initial Business Combination. The fair value of this stock issuance was determined by the fair
value of the Company’s Common Stock on the grant date, at a price of $0.20 per share. Accordingly, the Company calculated
the stock-based compensation of $40,000 at its fair value and amortized pro rata within 18 months. A total of 100,000 shares were
issued to the then Co-Chief Executive Officer and Chief Financial Officer and a total of 100,000 shares are to be issued to the
directors within 10 days after the completion of the initial Business Combination.
On March 20, 2019, the Company entered
into an offer letter with Mr. Kin Sze, our Co-Chief Executive Officer, President and Secretary, pursuant to which, the Company agreed to issue to Mr. Sze 50,000
shares of Common Stock for his services during a period of 18 months starting from March 20, 2019. The 50,000 shares will be issued
within 10 days after the completion date of the initial Business Combination. The fair value of this stock issuance was determined
by the fair value of the Company’s Common Stock on the grant date, at a price of $0.20 per share. Accordingly, the Company
calculated the stock-based compensation of $10,000 at its fair value and amortized pro rata within 18 months.
On June 28, 2019, Mr. Wei Fan, our Co-Chief Executive Officer resigned from his positions as Co-Chief Executive Officer and
member of the Board of Directors (the "Board") of the Company for his personal reasons. As a result, Mr. Kin Sze became the
sole Chief Executive Officer of the Company and was appointed to fill the vacancy on the Board created by Mr. Fan's resignation.
In lieu of the payment of $2,000 monthly cash compensation to Mr. Fan, the Board approved the payment of such compensation
to Mr. Sze. Mr. Fan also agreed to transfer his 50,000 Founder Shares to Mr. Sze upon resignation. The shares transfer is
processing.
The unrecognized stock-based compensation
was $7,778 as of June 30, 2019.
NOTE 8. NET LOSS PER COMMON STOCK
Net loss per Common Stock is computed by dividing net loss by the weighted average number of shares of Common Stock outstanding
for the period. The Company applies the two-class method in calculating earnings per share. 9,730,167 shares of Common Stock subject
to possible redemption at June 30, 2019, which are not currently redeemable and are not redeemable at fair value, have been excluded
from the calculation of basic loss per share since such shares, if redeemed, only participate in their pro rata share of the Trust
Account earnings. The Company has not considered the effect of (1) warrants sold in the
IPO
and private placement to purchase 5,375,000 warrants and (2) warrants to purchase 920,000 shares of Common Stock granted to the
Underwriters, in the calculation of diluted loss per share, since the exercise of the warrants and the conversion of the rights
into shares of Common Stock is contingent upon the occurrence of future events
. As a result, diluted
loss per share is the same as basic loss per share for the periods.
Reconciliation of net income/loss per share of
Common Stock
The Company’s net loss is adjusted
for the portion of income/loss that is attributable to Common Stock subject to redemption, as these shares only participate in the income of the Trust Account and
not the losses of the Company. Accordingly, basic and diluted loss per share of Common Stock is calculated
as follows:
|
|
Three Months Ended
June 30, 2019
|
|
Nine Months Ended
June 30, 2019
|
Net loss
|
|
$
|
(56,442
|
)
|
|
$
|
(254,393
|
)
|
Less: Income attributable to Common Stock subject to redemption
|
|
|
(218,166
|
)
|
|
|
(218,166
|
)
|
Adjusted net loss
|
|
|
(274,608
|
)
|
|
|
(472,559
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding, basic and diluted
|
|
|
3,433,550
|
|
|
|
3,059,814
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per
share of Common Stock
|
|
$
|
(0.08
|
)
|
|
$
|
(0.15
|
)
|
NOTE 9. COMMITMENTS AND CONTINGENCIES
Registration Rights
Pursuant to a registration rights agreement
entered into on May 29, 2019, the holders of the Founder Shares, Placement Warrants (and their underlying securities), and
the Working Capital Warrants,
if any
(and their underlying securities) (“Registrable Securities”), are entitled to
registration rights. The holders of a majority of these Registrable Securities are entitled to make up to three demands that the
Company register such securities. The holders of the majority of the Founders Shares can elect to exercise these registration rights
at any time commencing three months prior to the date on which the shares of Common Stock are to be released from escrow. The holders
of a majority of the Placement Warrants and Working Capital Warrants (in each case, including the underlying securities) can elect
to exercise these registration rights at any time after the Company consummates a Business Combination.
Any
demand for a Registration (“Demand Registration”) shall specify the number of shares of Registrable Securities proposed
to be sold and the intended method(s) of distribution thereof. The Company will within 10 days of the Company’s receipt of
the Demand Registration notify all holders of Registrable Securities of the demand, and each holder of Registrable Securities who
wishes to include all or a portion of such holder’s Registrable Securities in the Demand Registration shall so notify the
Company within ten (10) days after the receipt by the holder of the notice from the Company.
In addition, the holders have
certain “piggy-back” registration rights with respect to registration statements filed subsequent to the completion
of a Business Combination and rights to require the Company to register for resale such securities pursuant to Rule 415 under the
Securities Act. However, the registration rights agreement provides that the Company will not permit any registration statement
filed under the Securities Act to become effective until termination of the applicable lock-up period. The Company will bear the
expenses incurred in connection with the filing of any such registration statements.
Underwriting Agreement
The Company granted the Underwriters a 30-day
option to purchase up to 1,500,000 additional Units to cover over-allotments at the IPO price, less the underwriting discounts
and commissions.
Simultaneously with the consummation of the IPO, the Underwriters exercised
the Over-Allotment Option in full, generating additional gross proceeds of $15,000,000 to the Company.
The Underwriters were paid a cash underwriting
discount of two and one-half percent (2.5%) of the gross proceeds of the IPO and exercise of the Over-Allotment Option, or $2,875,000.
As additional consideration, on June 3, 2019,
the Company issued to the Underwriters a number of shares of Common Stock equal to 0.8% of the shares of Common Stock contained
in the Units sold in the Offering, or 92,000 shares (excluding any shares of Common Stock underlying the Warrants and the Rights
contained in the Units) (the “Representative’s Shares”). The Underwriters agreed not to transfer, assign or
sell any of the Representative’s Shares without the Company’s prior written consent until the completion of the Business
Combination. The Underwriters agreed (i) to waive its redemption rights with respect to such shares in connection with the completion
of the initial Business Combination and (ii) to waive its 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 by June 2, 2020 (or December
2, 2020 if the Company extends the period of time to consummate a Business Combination). There are significant restrictions against
transferring the Representative’s Shares during the first six (6) months after the IPO. Based on the IPO price of $10.00
per Unit, the fair value of the 92,000 shares of Common Stock was $920,000, which was an expense of the IPO resulting in a charge
directly to stockholders’ equity upon the completion of the IPO.
As
additional consideration, the Company granted the Underwriters on June 3, 2019 a warrant (the “Representative’s Warrant”)
for the purchase of 8.0% of the shares of Common Stock contained in the Units sold in the Offering, or 920,000 warrants (excluding
any shares of Common Stock underlying the Warrants and the Rights contained in the Units) (the “Representative’s Warrant
Shares”). The Representative’s Warrants shall be exercisable, in whole or in part, commencing the later of (i) the
closing of the Business Combination, or (ii) one-year from May 29, 2019 (the “Effective Date”), and expiring five
(5) years from the Effective Date, for cash or on a cashless basis, at an initial exercise price of $12.00 per Representative’s
Warrant Share, which is equal to 120% of the IPO price of a Unit. There are significant restrictions against transferring the
Representative’s Warrants during the first six (6) months after the Effective Date. The Company accounted for the 920,000
warrants as an expense of the IPO resulting in a charge directly to stockholders’ equity. The fair value of
Representative’s
Warrants
was estimated to be approximately $2,515,319 (or $2.73 per warrant) using the Black-Scholes option-pricing model.
The fair value of the
Representative’s Warrants
granted to the Underwriters
was estimated as of the date of grant using the following assumptions: (1) expected volatility of 35%, (2) risk-free interest
rate of 1.83% and (3) expected life of five years. The
Representative’s Warrants
and the shares of Common Stock underlying
Representative’s Warrants
have been
deemed compensation by FINRA and are therefore subject to a 360-day lock-up pursuant to Rule 5110(g)(1) of FINRA’s Conduct
Rules. Additionally, the
Representative’s Warrants
may not be sold, transferred,
assigned, pledged or hypothecated for a one-year period following the date of IPO except to any Underwriter and selected dealer
participating in the IPO and their bona fide officers or partners. The Representative’s Warrants grants to holders demand
and “piggy back” rights for a period of seven years from the Effective Date with respect
to the registration under the Securities Act of the securities directly and indirectly 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 shares issuable upon exercise of
the
Representative’s Warrants
may be adjusted in certain circumstances including
in the event of a stock dividend, or the Company’s recapitalization, reorganization, merger or consolidation. However, the
Representative’s Warrants will not be adjusted for issuances of Common Stock at a price below its exercise price.
Business Combination Marketing Agreement
The Company has engaged I-Bankers Securities,
Inc. (“IBS”) as an advisor in connection with a Business Combination to assist the Company in holding meetings with
its shareholders to discuss a potential Business Combination and the target business’ attributes, introduce the Company
to potential investors that are interested in purchasing securities, assist the Company in obtaining stockholder approval for
the Business Combination and assist the Company with its press releases and public filings in connection with a Business Combination.
The Company will pay IBS a cash fee for such services upon the consummation of a Business Combination in an amount equal to 3.5%
of the gross proceeds received by the Company from the sale of the Units in the IPO that are not redeemed by stockholders in connection
with the initial Business Combination completed by the Company (the “Fee”); provided the minimum Fee shall not be
less than $1,500,000. The Fee shall be due and payable at the closing of the Business Combination (“Closing”). If
a proposed Business Combination is not consummated for any reason, no Fee shall be due or payable.
At
the Closing, the Company shall reimburse IBS for all reasonable and documented costs and expenses incurred by IBS (including reasonable
fees and disbursements of counsel) in connection with the performance of the services set forth in the Business Combination Marketing
Agreement; provided, however, any costs and/or expenses in excess of $5,000 in the aggregate shall be subject to the Company’s
prior written approval, which approval will not be unreasonably withheld. The expenses and costs will be charged at cost without
markup.
NOTE 10. STOCKHOLDER’S EQUITY
Preferred Stock
- The
Company is authorized to issue a total of 1,000,000 shares of Preferred Stock, par value of $0.001 each, with such designation,
rights and preferences as may be determined from time to time by the Company’s Board of Directors. As of June 30, 2019 and
September 30, 2018,
there were no shares of preferred stock issued or outstanding
.
Common Stock
- The Company
is authorized to issue a total of 150,000,000 shares of Common Stock, par value of $0.001 each.
Holders
of the Company’s Common Stock are entitled to one vote for each share. As of June 30, 2019 and September 30, 2018, there
were 4,736,833 and 2,875,000 shares of Common Stock issued and outstanding (excluding 9,730,167 and -0- shares of Common Stock
subject to possible redemption), respectively.
Warrants
—The Public
Warrants will become exercisable on the later of (a) 30 days after the completion of a Business Combination or (b) 12 months from
the closing of the IPO; provided in each case that the Company has an effective registration statement under the Securities Act
covering the shares of Common Stock issuable upon exercise of the Public Warrants and a current prospectus relating to them is
available. The Company will use its best efforts to file with the SEC a registration statement for the registration, under the
Securities Act, of the shares of Common Stock issuable upon exercise of the Public Warrants. The Company will use its best efforts
to cause the same to become effective and to maintain the effectiveness of such registration statement, and a current prospectus
relating thereto, until the expiration of the Public Warrants in accordance with the provisions of the warrant agreement. Notwithstanding
the foregoing, if a registration statement covering the shares of Common Stock issuable upon exercise of the Public Warrants is
not effective within a specified period following the consummation of Business Combination, warrant holders may, until such time
as there is an effective registration statement and during any period when the Company shall have failed to maintain an effective
registration statement, exercise warrants on a cashless basis pursuant to the exemption provided by Section 3(a)(9) of the Securities
Act, provided that such exemption is available. If that exemption, or another exemption, is not available, holders will not be
able to exercise their warrants on a cashless basis. The Public Warrants will expire five years after the completion of a Business
Combination or earlier upon redemption or liquidation.
The Company may redeem the Public Warrants:
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●
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in whole and not in part;
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●
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at a price of $0.01 per warrant;
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●
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at any time during the exercise period;
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●
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upon a minimum of 30 days’ prior written notice of redemption; and
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●
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if, and only if, the last sale price of the Company’s Common Stock equals or exceeds $18.00 per share for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date on which the Company sends the notice of redemption to the warrant holders.
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●
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If, and only if, there is a current registration statement in effect with respect to the shares of Common Stock underlying such warrants.
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The Placement Warrants are identical
to the Public Warrants underlying the Units sold in the IPO, except that the Placement Warrants and the Common Stock issuable upon
the exercise of the Placement Warrants are not transferable, assignable or salable until 30 days after the completion of a Business
Combination, subject to certain limited exceptions. Additionally, the Placement Warrants are exercisable on a cashless basis and
are non-redeemable so long as they are held by the initial purchasers or their permitted transferees. If the Placement Warrants
are held by someone other than the initial purchasers or their permitted transferees, the Placement Warrants will be redeemable
by the Company and exercisable by such holders on the same basis as the Public Warrants.
If the Company calls the Public Warrants
for redemption, management will have the option to require all holders that wish to exercise the Public Warrants to do so on a
“cashless basis,” as described in the warrant agreement. The exercise price and number of shares of Common Stock issuable
upon exercise of the warrants may be adjusted in certain circumstances including in the event of a stock dividend, or recapitalization,
reorganization, merger or consolidation, and the following:
If, in connection with the closing of
the Business Combination, (x) the Company issues additional shares of Common Stock or securities of the Company which are convertible
into, or exchangeable or exercisable for, shares of Common Stock, at an issue price or effective issue price of less than $9.20
per share of Common Stock, with such issue price or effective issue price to be determined in good faith by the Board of Directors
of the Company (and in the case of any such issuance to the sponsor or its affiliates, without taking into account any shares of
Common Stock of the Company issued prior to the IPO and held by them, as applicable, prior to such issuance) (the “Newly
Issued Price”), (y) the aggregate gross proceeds from such issuances represent more than 60% of the total equity proceeds,
and interest thereon, available for the funding of the Business Combination on the date of the consummation of the Business Combination
(net of redemptions), and (z) the volume weighted average trading price of the Common Stock during the 20 trading day period starting
on the trading day prior to the day on which the Company consummates the Business Combination
(
such
price, the “Market Value”) is below $9.20 per share of Common Stock, the exercise price of Public Warrants and Placement
Warrants shall be adjusted (to the nearest cent) to be equal to 115% of the higher of the Market Value and the Newly Issued Price.
Additionally, in no event will the Company
be required to net cash settle the warrants. There will be no redemption rights upon the completion of a Business Combination with
respect to the Company’s warrants. If the Company is unable to complete a Business Combination within the Combination Period
and the Company liquidates the funds held in the Trust Account, holders of warrants will not receive any of such funds with respect
to their warrants, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with
the respect to such warrants. Accordingly, the warrants may expire worthless.
NOTE 11. FAIR VALUE MEASUREMENTS
The Company follows the guidance in
ASC 820 for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and
non-financial assets and liabilities that are re-measured and reported at fair value at least annually.
The fair value of the Company’s
financial assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection
with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market
participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks
to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable
inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy
is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets
and liabilities:
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Level 1:
|
Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
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Level 2:
|
Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active.
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Level 3:
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Unobservable inputs based on our assessment of the assumptions that market participants would use in pricing the asset or liability.
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The following table presents information
about the Company’s assets that are measured at fair value on a recurring basis at June 30, 2019 and September 30, 2018,
and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:
Description
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Level
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June 30, 2019
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September 30, 2018
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Assets:
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|
|
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|
|
|
|
|
|
|
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Government securities held in Trust Account
|
|
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1
|
|
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$
|
115,257,848
|
|
|
$
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—
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NOTE 12. SUBSEQUENT EVENTS
On July 24, 2019, the Company and
Mr.
Shih-Chung Chou, o
ur sponsor, entered into an unsecured promissory note (the “Note”) for a principal amount
of up to $800,000 to be used by the Company for working capital purposes. Pursuant to the terms of the Note, the sponsor
will loan to the Company up to a total of $800,000, in the event that the Company’s cash held outside of its trust account
is less than $150,000. The Note bears no interest and is repayable in full upon the earlier of the consummation of the Company’s
initial Business Combination and the date of the winding up of the Company.