UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One) 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2021

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from                  to                   

 

Commission File No. 001-39226 

 

YUNHONG INTERNATIONAL
(Exact name of registrant as specified in its charter)

 

Cayman Islands   N/A
(State or other jurisdiction of
incorporation or organization)
  (I.R.S. Employer
Identification No.) 

 

4 – 19/F, 126 Zhong Bei,
Wuchang District, Wuhan, China
People’s Republic of China 430061
(Address of Principal Executive Offices, including zip code)

 

+86 131 4555 5555
(Registrant’s telephone number, including area code)

 

N/A
(Former name, former address and former fiscal year, if changed since last report)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
 Units, each consisting of one Class A
Ordinary Share, one-half of one Warrant and
one Right
  ZGYHU   The NASDAQ Stock Market LLC
Class A Ordinary Shares, par value $0.001
per share
  ZGYH   The NASDAQ Stock Market LLC
Warrants, each exercisable for one Class A
Ordinary Share for $11.50 per share
  ZGYHW   The NASDAQ Stock Market LLC
Rights, each exchangeable into one-tenth of
one Class A Ordinary Share
  ZGYHR   The NASDAQ Stock Market LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No  ¨

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes x No ¨ 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

¨  Large accelerated filer ¨  Accelerated filer
x Non-accelerated filer x  Smaller reporting company
  x  Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes x No ¨

 

As of July 30, 2021, there were 7,219,500 Class A ordinary shares, $0.001 par value per share, and 1,725,000 Class B ordinary shares, $0.001 par value per share, issued and outstanding.

 

 

 

 

 

YUNHONG INTERNATIONAL

 

Quarterly Report on Form 10-Q

 

TABLE OF CONTENTS

 

    Page
PART 1 – FINANCIAL INFORMATION  
     
Item 1. Interim Financial Statements 1
     
  Unaudited Condensed Balance Sheets as of March 31, 2021 and June 30, 2020 1
     
  Unaudited Condensed Statements of Operations for Three and Nine Months Ended March 31, 2021 and 2020 2
     
  Unaudited Condensed Statements of Changes in Shareholders’ Equity for Three and Nine Months Ended March 31, 2021 and 2020 3
     
  Unaudited Condensed Statements of Cash Flows for the Nine Months Ended March 31, 2021 and 2020 4
     
  Notes to Condensed Financial Statements (unaudited) 5
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 17
     
Item 3. Quantitative and Qualitative Disclosures about Market Risk 19
     
Item 4. Controls and Procedures 20
     
PART II – OTHER INFORMATION  
     
Item 1. Legal Proceedings 20
     
Item 1A. Risk Factors 20
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 20
     
Item 3. Defaults Upon Senior Securities 20
     
Item 4. Mine Safety Disclosures 21
     
Item 5. Other Information 21
     
Item 6. Exhibits 21
     
SIGNATURES 22

 

 

 

 

PART 1 - FINANCIAL INFORMATION

 

ITEM 1. INTERIM FINANCIAL STATEMENTS

 

YUNHONG INTERNATIONAL

CONDENSED BALANCE SHEETS

 

    March 31,     June 30,  
    2021     2020  
    (Unaudited)     (Audited)  
ASSETS                
Current Assets                
Cash   $ 101,152     $ 819,755  
Prepaid expenses and other current assets     100       23,750  
Total Current Assets     101,252       843,505  
                 
Cash and marketable securities held in Trust Account     69,739,183       69,057,508  
Total Assets   $ 69,840,435     $ 69,901,013  
                 
LIABILITIES AND SHAREHOLDERS’ EQUITY                
Current Liabilities                
Accrued expenses   $ 244,494     $ 80,000  
Advances from related party     182,796       232,796  
Promissory note- related party           210,659  
Promissory note – other     690,000        
Total Current Liabilities     1,117,290       523,455  
                 
Warrant liability     1,824,630       895,065  
Deferred underwriting fees payable     2,415,000       2,415,000  
Total Liabilities     5,356,920       3,833,520  
                 
Commitments and contingencies                
                 

Class A ordinary shares subject to possible redemption, 5,948,351and 6,106,749 shares at March 31, 2021 and

  June 30, 2020, respectively

    59,483,510       61,067,490  
                 
Shareholders’ Equity                
Preference shares, $0.001 par value; 1,000,000 shares authorized; none issued and outstanding            

Class A ordinary shares, $0.001 par value; 47,000,000 shares authorized; 1,271,149 and 1,112,751 shares

   issued and outstanding (excluding 5,948,351and 6,106,749 shares subject to possible redemption) at

   March 31, 2021 and June 30, 2020, respectively

    1,271       1,113  

Class B ordinary shares, $0.001 par value; 2,000,000 shares authorized; 1,725,000 shares issued and

   outstanding at March 31, 2021 and June 30, 2020

    1,725       1,725  
Additional paid-in capital     6,685,929       5,102,107  
Accumulated deficit     (1,688,920 )     (104,942 )
Total Shareholders’ Equity     5,000,005       5,000,003  
Total Liabilities and Shareholders’ Equity   $ 69,840,435     $ 69,901,013  

 

The accompanying notes are an integral part of the unaudited condensed financial statements.

 

1 

 

 

YUNHONG INTERNATIONAL
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)

 

   

Three Months Ended

March 31,

   

Nine Months Ended

March 31,

 
    2021     2020     2021     2020  
General and administrative expenses   $ 177,304     $ 51,441     $ 673,148     $ 51,572  
Loss from operations     (177,304 )     (51,441 )     (673,148 )     (51,572 )
                                 
Other income (loss):                                
Change in fair value of warrant liability     823,560       (71,505 )     (929,565 )     (71,505 )
Transaction costs associated with Initial Public Offering           (89,670 )           (89,670 )
Interest income earned on marketable securities held in the Trust Account     5,025       75,369       18,735       75,369  
Unrealized loss on marketable securities           (1,151,591 )           (1,151,591 )
Total other income (loss), net     828,585       (1,237,397 )     (910,830 )     (1,237,397 )
                                 
Net income (loss)   $ 651,281     $ (1,288,838 )   $ (1,583,978 )   $ (1,288,969 )
                                 
Weighted average shares outstanding of Class A redeemable ordinary shares     6,900,000       6,771,429       6,900,000       6,771,429  
                                 
Basic and diluted net income (loss) per share, Class A redeemable ordinary shares   $ 0.00     $ (0.19 )   $ 0.00     $ (0.19 )
                                 
Weighted average shares outstanding of Class A and Class B non-redeemable ordinary shares     2,044,500       1,870,681       2,044,500       1,773,207  
                                 
Basic and diluted net income (loss) per share, Class A and Class B non-redeemable ordinary shares   $ 0.32     $ (0.03 )   $ (0.78 )   $ (0.03 )

  

The accompanying notes are an integral part of the unaudited condensed financial statements.

 

2 

 

 

YUNHONG INTERNATIONAL
CONDENSED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

(Unaudited)

 

THREE AND NINE MONTHS ENDED MARCH 31, 2021

 

   

Class A

Ordinary Shares

   

Class B

Ordinary Shares

   

Additional

Paid-in

   

(Accumulated Deficit)
Retained

   

Total

Shareholders’

 
    Shares     Amount     Shares     Amount     Capital     Earnings     Equity  
Balance – July 1, 2020     1,112,751     $ 1,113       1,725,000     $ 1,725     $ 5,102,107     $ (104,942 )   $ 5,000,003  
                                                         
Change in value of Class A ordinary shares subject to possible redemption     (11,686 )     (12 )                 (116,848 )           (116,860 )
                                                         
Net income                                   116,863       116,863  
Balance – September 30, 2020     1,101,065     $ 1,101       1,725,000     $ 1,725     $ 4,985,259     $ 11,921     $ 5,000,006  
                                                         
Change in value of Class A ordinary shares subject to possible redemption     235,212       235                   2,351,885             2,352,120  
                                                         
Net loss                                   (2,352,122 )     (2,352,122 )
Balance – December 31, 2020     1,336,277     $ 1,336       1,725,000     $ 1,725     $ 7,337,144     $ (2,340,201 )   $ 5,000,004  
                                                         
Change in value of Class A ordinary shares subject to possible redemption     (65,128 )     (65 )                 (651,215 )           (651,280 )
                                                         
Net income                                   651,281       651,281  
Balance – March 31, 2021     1,271,149     $ 1,271       1,725,000     $ 1,725     $ 6,685,929     $ (1,688,920 )   $ 5,000,005  

 

THREE AND NINE MONTHS ENDED MARCH 31, 2020

 

   

Class A

Ordinary Shares

   

Class B

Ordinary Shares

   

Additional

Paid-in

   

Accumulated

   

Total

Shareholders’

 
    Shares     Amount     Shares     Amount     Capital     Deficit     Equity  
Balance – July 1, 2019         $       1,725,000     $ 1,725     $ 23,275     $ (5,081 )   $ 19,919  
                                                         
Net loss                                   (131 )     (131 )
Balance – September 30, 2019         $       1,725,000     $ 1,725     $ 23,275     $ (5,212 )   $ 19,788  
                                                         
Net loss                                          
Balance – December 31, 2019         $       1,725,000     $ 1,725     $ 23,275     $ (5,212 )   $ 19,788  
                                                         
Sale of 6,900,000 Units, net of underwriting fees and discounts, fair value allocated to warrant liability and offering costs     6,900,000       6,900                   63,130,555             63,137,455  
                                                         
Sale of 250,500 Private Units, net of fair value allocated to warrant liability     250,500       251                   2,444,629             2,444,880  
                                                         
Issuance of Representative Shares     69,000       69                   (69 )            
                                                         
Sale of Unit Purchase Option                             100             100  
                                                         
Ordinary shares subject to possible redemption     (5,931,338 )     (5,931 )                 (59,307,449 )           (59,313,380 )
                                                         
Net loss                                   (1,288,838 )     (1,288,838 )
Balance – March 31, 2020     1,288,162     $ 1,289       1,725,000     $ 1,725     $ 6,291,041     $ (1,294,050 )   $ 5,000,005  

 

The accompanying notes are an integral part of the unaudited condensed financial statements.

 

3 

 

 

YUNHONG INTERNATIONAL
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)

 

   

Nine Months Ended

March 31,

 
    2021     2020  
Cash flows from operating activities:                
Net loss   $ (1,583,978 )   $ (1,288,969 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Interest income earned on marketable securities held in Trust Account     (18,735 )     (75,369 )
Unrealized loss on marketable securities           1,151,591  
Fees charged to Trust Account     27,060       21,602  
Change in fair value of warrant liability     929,565       71,505  
Transaction costs associated with Initial Public Offering           89,670  
Changes in operating assets and liabilities:                
Prepaid expenses and other current assets     23,650       (29,663 )
Accrued expenses     164,494       58,708  
Net cash used in operating activities     (457,944 )     (925 )
                 
Cash flows from investing activities:                
Investment of cash in Trust Account           (69,000,000 )
Investment of cash into Trust Account - extension loan     (690,000 )      
Net cash used in investing activities     (690,000 )     (69,000,000 )
                 
Cash flows from financing activities:                
Proceeds from sale of Units, net of underwriting discount paid           67,620,000  
Proceeds from sale of Private Units           2,505,000  
Proceeds from sale of unit purchase option           100  
Repayment of advance from related party     (50,000 )      
Proceeds from promissory note – related party           10,000  
Repayment of promissory note - related party     (210,659 )      
Proceeds from promissory note - other     690,000        
Payment of offering costs           (314,448 )
Net cash provided by financing activities     429,341       69,820,652  
                 
Net change in cash     (718,603 )     819,727  
Cash at beginning of period     819,755       19  
Cash at end of period   $ 101,152     $ 819,746  
                 
Non-cash investing and financing activities:                
Initial classification of ordinary shares subject to possible redemption   $     $ 60,512,460  
Change in value of ordinary shares subject to possible redemption   $ (1,583,980 )   $ (1,199,080 )
Deferred underwriting fee payable   $     $ 2,415,000  
Offering costs paid through promissory note – related party   $     $ 109,509  
Issuance of Representative Shares   $     $ 69  

 

The accompanying notes are an integral part of the unaudited condensed financial statements.

 

4 

 

 

  

NOTE 1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS

 

Yunhong International (the “Company”) is a blank check company incorporated in the Cayman Islands on January 10, 2019. The Company was 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, entering into contractual arrangements with, or engaging in any other similar business combination with one or more businesses or entities (“Business Combination”). Although the Company is not limited to a particular industry or geographic region for purposes of consummating a Business Combination, the Company intends to focus on businesses that have their primary operations located in Asia (excluding China). The Company is an early stage and emerging growth company and, as such, the Company is subject to all of the risks associated with early stage and emerging growth companies.

 

At March 31, 2021, the Company had not yet commenced any operations. All activity through March 31, 2021 relates to the Company’s formation, the initial public offering (the “Initial Public Offering”) (as discussed below) and identifying a target company for a Business Combination. The Company will not generate any operating revenues until after the completion of a Business Combination, at the earliest. The Company generates non-operating income in the form of interest income from the proceeds derived from the Initial Public Offering.

 

The registration statement for the Company’s Initial Public Offering was declared effective on February 12, 2020. On February 18, 2020, the Company consummated the Initial Public Offering of 6,000,000 units (“Units” and, with respect to the Class A ordinary shares included in the Units sold, the “Public Shares”) at $10.00 per Unit, generating gross proceeds of $60,000,000, which is described in Note 3.

 

Simultaneously with the closing of the Initial Public Offering, the Company consummated the sale of 232,500 units (the “Private Units”) at a price of $10.00 per Private Unit in a private placement to the Company’s sponsor, LF International Pte. Ltd. (the “Sponsor”), generating gross proceeds of $2,325,000, which is described in Note 4.

 

Following the closing of the Initial Public Offering on February 18, 2020, an amount of $60,000,000 ($10.00 per Unit) from the net proceeds of the sale of the Units in the Initial Public Offering and the sale of the Private Units was placed in a trust account (“Trust Account”), until the earlier of: (i) the completion of a Business Combination or (ii) the distribution of the funds in the Trust Account to the Company’s shareholders, as described below. The Trust Account is controlled by the terms of the Investment Management Trust Agreement, dated February 12, 2020, by and between the Company and American Stock Transfer & Trust Company LLC, as the trustee (the “Trust Agreement”) (see Note 9 for additional information).

 

On February 24, 2020, in connection with the underwriters’ election to fully exercise their over-allotment option, the Company consummated the sale of an additional 900,000 Units at $10.00 per Unit and the sale of an additional 18,000 Private Units at $10.00 per Private Unit, generating total gross proceeds of $9,180,000. Following the closing, an additional $9,000,000 was deposited into the Trust Account, bringing the aggregate proceeds held in the Trust Account to $69,000,000.

 

Transaction costs amounted to $4,330,715, consisting of $1,380,000 of underwriting fees, $2,415,000 of deferred underwriting fees and $535,715 of other offering costs.

 

The Company’s management has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering and sale of the Private Units, although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination. NASDAQ rules provide that the Business Combination must be with one or more target businesses that together have a fair market value equal to at least 80% of the balance in the Trust Account (less any deferred underwriting commissions and taxes payable on interest earned and less any interest earned thereon that is released for taxes) at the time of signing a definitive agreement in connection with 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 of 1940 (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 shareholders with the opportunity to redeem all or a portion of their Public Shares upon the completion of a Business Combination either (i) in connection with a shareholder meeting called to approve the Business Combination or (ii) by means of a tender offer. In connection with a proposed Business Combination, the Company may seek shareholder approval of a Business Combination at a meeting called for such purpose at which shareholders may seek to redeem their shares, regardless of whether they vote for or against a Business Combination.

 

5

 

     

The Company will proceed with a Business Combination only 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 shareholder approval, a majority of the outstanding shares voted are voted in favor of the Business Combination. If the Company seeks shareholder approval of a Business Combination and it does not conduct redemptions pursuant to the tender offer rules, the Company’s Amended and Restated Memorandum and Articles of Association, as amended, provides that a public shareholder, together with any affiliate of such shareholder or any other person with whom such shareholder is acting in concert or as a “group” (as defined under Section 13 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), will be restricted from seeking redemption rights with respect to 15% or more of the Public Shares without the Company’s prior written consent.

 

The shareholders will be entitled to redeem their Public Shares for a pro rata portion of the amount then in the Trust Account ($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 per-share amount to be distributed to shareholders who redeem their Public Shares will not be reduced by the deferred underwriting commissions the Company will pay to the underwriter. There will be no redemption rights upon the completion of a Business Combination with respect to the Company’s warrants or rights.

 

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, as amended, offer such redemption pursuant to the tender offer rules of the Securities and Exchange Commission (“SEC”), and file tender offer documents with the SEC prior to completing a Business Combination.

 

The Sponsor has agreed (a) to vote its Class B ordinary shares, the Class A ordinary shares included in the Private Units (the “Private Shares”) and any Public Shares purchased during or after the Initial Public Offering in favor of a Business Combination, (b) not to propose an amendment to the Company’s Amended and Restated Memorandum and Articles of Association, as amended, with respect to the Company’s pre-Business Combination activities prior to the consummation of a Business Combination unless the Company provides dissenting public shareholders with the opportunity to redeem their Public Shares in conjunction with any such amendment; (c) not to redeem any shares (including the Class B ordinary shares) and Private Units (including underlying securities) into the right to receive cash from the Trust Account in connection with a shareholder vote to approve a Business Combination (or to sell any shares in a tender offer in connection with a Business Combination if the Company does not seek shareholder approval in connection therewith) or a vote to amend the provisions of the Amended and Restated Memorandum and Articles of Association, as amended, relating to shareholders’ rights of pre-Business Combination activity and (d) that the Class B ordinary shares and Private Units (including underlying securities) shall not participate in any liquidating distributions upon winding up if a Business Combination is not consummated. However, the Sponsor will be entitled to liquidating distributions from the Trust Account with respect to any Public Shares purchased during or after the Initial Public Offering if the Company fails to complete its Business Combination.

 

The Company initially had until February 18, 2021 to consummate a Business Combination. However, if the Company anticipated that it may not be able to consummate a Business Combination by February 18, 2021, the Company may extend the period of time to consummate a Business Combination up to three times, each by an additional three months (for a total of up to 21 months to complete a Business Combination) (the “Combination Period”). In order to extend the time available for the Company to consummate a Business Combination, the Sponsor or its affiliates or designees must deposit into the Trust Account $690,000 ($0.10 per share), on or prior to the applicable deadline for each three month extension (or up to an aggregate of $2,070,000, or $0.30 per share, if the Company extends for the full nine months).

 

On February 10, 2021, the period of time for the Company to consummate a Business Combination was extended for an additional three-month period ending on May 18, 2021, and, accordingly, $690,000 was deposited into the Trust Account. The deposit was funded by non-interest bearing unsecured convertible promissory note from Ares Motor Works (“Ares”).

 

If the Company is unable to complete a Business Combination within the Combination Period, the Company will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but no more than five business days thereafter, redeem 100% of the outstanding Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned (net of taxes payable and less interest to pay dissolution expenses up to $50,000), divided by the number of then outstanding Public Shares, which redemption will completely extinguish public shareholders’ rights as shareholders (including the right to receive further liquidation distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the remaining shareholders and the Company’s board of directors, proceed to commence a voluntary liquidation and thereby a formal dissolution of the Company, subject in each case to its obligations to provide for claims of creditors and the requirements of applicable law. The underwriter has agreed to waive its rights to the deferred underwriting commission held in the Trust Account in the event the Company does not complete a Business Combination within the Combination Period and, in such event, such amounts will be included with the funds held in the Trust Account that will be available to fund the redemption of the Public Shares. In the event of such distribution, it is possible that the per share value of the assets remaining available for distribution will be less than the Initial Public Offering price per Unit ($10.00).

 

The Sponsor has agreed that it will be liable to the Company, if and to the extent any claims by a vendor for services rendered or products sold to the Company, or a prospective target business with which the Company has discussed entering into a transaction agreement, reduce the amounts in the Trust Account to below $10.00 per share, except as to any claims by a third party who executed a waiver of any and all rights to seek access to the Trust Account and except as to any claims under the Company’s indemnity of the underwriters of the Initial Public Offering against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the “Securities Act”). In the event that an executed waiver is deemed to be unenforceable against a third party, the Sponsor will not be responsible to the extent of any liability for such third-party claims. The Company will seek to reduce the possibility that the Sponsor will have to indemnify the Trust Account due to claims of creditors by endeavoring to have all vendors, service providers (except for the Company’s independent public registered 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.

  

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Going Concern

 

In connection with the Company’s assessment of going concern considerations in accordance with Financial Accounting Standard Board’s Accounting Standards Update (“ASU”) 2014-15, “Disclosures of Uncertainties about an Entity’s Ability to Continue as a Going Concern,” management has determined that the mandatory liquidation and subsequent dissolution raises 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 May 18, 2021.

 

The period of time for the Company to consummate a Business Combination was extended for two (2) additional three-month periods on February 10, 2021 and May 13, 2021. The May 13, 2021 additional three month extension is for the three month period ending on August 18, 2021. On February 10, 2021, $690,000 was deposited into the Trust Account. The deposit was funded by non-interest bearing unsecured convertible promissory notes from Ares. The note is repayable on or before November 18, 2021 (subject to the waiver against trust limitations) and may be converted into shares of the Company or its successor entity at a price of $10.00 per share at the option of the lender.

 

On May 13, 2021, $690,000 was deposited into the Trust Account. The deposit was funded by non-interest bearing unsecured convertible promissory notes from Giga Energy Inc. (f/k/a Ares Motor Works) (“Giga Energy”). The note is repayable on or before November 18, 2021 (subject to the waiver against trust limitations) and may be converted into shares of the Company or its successor entity at a price of $10.00 per share at the option of the lender.

 

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentation

 

The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X of the SEC. Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a 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 Annual Report on Form 10-KA for the year ended June 30, 2020, as filed with the SEC on July 23, 2021, which contains the audited financial statements and notes thereto. The financial information as of June 30, 2020 is derived from the audited financial statements presented in the Company’s Annual Report on Form 10-KA for the year June 30, 2020. The interim results for the three and nine months ended March 31, 2021 are not necessarily indicative of the results to be expected for the year ending June 30, 2021, or for any future interim periods.

 

Emerging Growth Company

 

The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies including, but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and 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 condensed 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 period.

 

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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 condensed financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future confirming events. One of the more significant accounting estimates included in these financial statements is the determination of the fair value of the warrant liability. Such estimates may be subject to change as more current information becomes available and accordingly the actual results could differ significantly from those estimates.

 

Cash and Cash Equivalents

 

The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. The Company did not have any cash equivalents as of March 31, 2021 and June 30, 2020.

 

Class A Ordinary Shares Subject to Possible Redemption

 

The Company accounts for its Class A ordinary shares subject to possible redemption in accordance with the guidance in ASC Topic 480 “Distinguishing Liabilities from Equity.” Class A ordinary shares subject to mandatory redemption 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. The Company’s redeemable Class A ordinary shares feature certain redemption rights that are considered to be outside of the Company’s control and subject to occurrence of uncertain future events. Accordingly, at March 31, 2021 and June 30, 2020, Class A ordinary shares subject to possible redemption are presented as temporary equity, outside of the shareholders’ equity section of the Company’s condensed balance sheets.

 

Offering Costs

 

Offering costs consisted of legal, accounting, underwriting fees and other costs incurred through the Initial Public Offering that are directly related to the Initial Public Offering. Offering costs amounting to $4,241,045 were charged to shareholders’ equity and $89,670 of the offering costs were allocated to the warrant liabilities and charged to the statement of operations upon the completion of the Initial Public Offering.

 

Warrant Liability

 

The Company accounts for the Warrants in accordance with the guidance contained in ASC 815-40 under which the Warrants do not meet the criteria for equity treatment and must be recorded as liabilities. Accordingly, the Company classifies the Warrants as liabilities at their fair value and adjust the Warrants to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in our statement of operations. The Private Placement Warrants and the Public Warrants for periods where no observable traded price was available are valued using a Monte Carlo simulation. For periods subsequent to the detachment of the Public Warrants from the Units, the Public Warrant quoted market price was used as the fair value as of each relevant date.

 

Income Taxes

 

ASC Topic 740 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 Cayman Islands is the Company’s only major tax jurisdiction. The Company recognizes accrued interest and penalties related to unrecognized tax benefits, if any, as income tax expense. There were no unrecognized tax benefits as of March 31, 2021 and June 30, 2020 and no amounts accrued for interest and penalties. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position.

 

The Company is considered an exempted Cayman Islands company with no connection to any other taxable jurisdiction and is presently not subject to income taxes or income tax filing requirements in the Cayman Islands or the United States. As such, the Company’s tax provision is zero for the periods presented.

 

Net Income (Loss) Per Ordinary Share

 

Net income (loss) per ordinary share is computed by dividing net income (loss) by the weighted average number of ordinary shares outstanding for the period. The Company has not considered the effect of (1) warrants sold in the Initial Public Offering and the private placement to purchase 3,575,250 Class A ordinary shares, (2) rights sold in the Initial Public Offering and the private placement that convert into 715,050 Class A ordinary shares and (3) 345,000 Class A ordinary shares, warrants to purchase 172,500 Class A ordinary shares and rights that convert into 34,500 Class A ordinary shares in the unit purchase option sold to the underwriters, in the calculation of diluted loss per share, since the exercise of the warrants, the conversion of the rights into Class A ordinary shares and the exercise of the unit purchase option would be anti-dilutive under the treasury stock method.

 

The Company’s condensed statements of operations include a presentation of income (loss) per share for ordinary shares subject to possible redemption in a manner similar to the two-class method of income (loss) per share. Net income per share, basic and diluted, for Class A redeemable ordinary shares is calculated by dividing the interest income earned on the Trust Account, by the weighted average number of Class A redeemable ordinary shares outstanding for the period. Net loss per share, basic and diluted, for Class A and B non-redeemable ordinary shares is calculated by dividing the net loss, adjusted for income attributable to Class A redeemable ordinary shares, by the weighted average number of Class A and B non-redeemable ordinary shares outstanding for the period. Class A and B non-redeemable ordinary shares includes the Private Units, the Representative Shares (as defined in Note 7) and Founder Shares (as defined in Note 5) as these shares do not have any redemption features and do not participate in the income or losses of the Trust Account.

 

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The following table reflects the calculation of basic and diluted net income (loss) per ordinary share (in dollars, except per share amounts):

  

    Three Months Ended
March 31,
    Nine Months Ended
March 31,
 
    2021     2020     2021     2020  
Redeemable Class A Ordinary Shares                                
Numerator: Earnings allocable to Redeemable Class A Ordinary Shares                                
Interest Income   $ 5,025     $ 75,369     $ 18,735     $ 75,369  
Unrealized loss on marketable securities held in the Trust Account           (1,151,591 )           (1,151,591 )
Net Earnings   $ 5,025     $ (1,076,222 )   $ 18,735     $ (1,076,222 )
Denominator: Weighted Average Redeemable Class A Ordinary Shares                                
Redeemable Class A Ordinary Shares, Basic and Diluted     6,900,000       6,771,429       6,900,000       6,771,429  
Earnings/Basic and Diluted Redeemable Class A Ordinary Shares   $ 0.00     $ (0.19 )   $ 0.00     $ (0.19 )
                                 
Non-Redeemable Class A and B Ordinary Shares                                
Numerator: Net Loss minus Redeemable Net Earnings                                
Net Income (Loss)   $ 651,281     $ (1,288, 838 )   $ (1,583,978 )   $ (1,288,969 )
Redeemable Net Earnings   $ (5,025 )   $ (1,076,222 )   $ (18,735 )   $ (1,076,222 )
Non-Redeemable Net Income (Loss)   $ (646,256 )   $ (2,365, 060 )   $ (1,602,713 )   $ (2,365,191 )
Denominator: Weighted Average Non-Redeemable Class A and B Ordinary Shares                                
Non-Redeemable Class A and B Ordinary Shares, Basic and Diluted (1)     2,044,500       1,870,681       2,044,500       1,773,207  
Loss/Basic and Diluted Non-Redeemable Class A and B Ordinary Shares   $ 0.32     $ (0.03 )   $ (0.78 )   $ (0.03 )

 

As of March 31, 2021 and 2020, basic and diluted shares are the same as there are no securities that are dilutive to the shareholders.

  

Concentration of Credit Risk

 

Financial instruments that potentially subject the Company to concentration of credit risk consist of a foreign cash account in a financial institution. The Company has not experienced losses on this account and management believes the Company is not exposed to significant risks on such account.

 

Fair Value of Financial Instruments

 

The fair value of the Company’s assets and liabilities, which qualify as financial instruments under ASC Topic 820, “Fair Value Measurement,” approximates the carrying amounts represented in the accompanying condensed balance sheets, primarily due to their short-term nature, except for the Warrants (see Note 9).

 

Recently Issued Accounting Standards

 

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 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) (“ASU 2020-06”) to simplify accounting for certain financial instruments. ASU 2020-06 eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity. ASU 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments. ASU 2020-06 is effective January 1, 2022 and should be applied on a full or modified retrospective basis, with early adoption permitted beginning on January 1, 2021. The Company is currently assessing the impact, if any, that ASU 2020-06 would have on its financial position, results of operations or cash flows.

 

Management does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s financial statements.

 

NOTE 3. INITIAL PUBLIC OFFERING

 

Pursuant to the Initial Public Offering, the Company sold 6,900,000 Units at a purchase price of $10.00 per Unit, which includes the exercise by the underwriters of their over-allotment option in full of 900,000 Units at $10.00 per Unit. Each Unit consists of one Class A ordinary share, one-half of one redeemable warrant (“Public Warrant”) and one right (“Public Right”). Each whole Public Warrant entitles the holder to purchase one Class A ordinary share at an exercise price of $11.50 per whole share (see Note 7). Each Public Right entitles the holder to receive one-tenth of one Class A ordinary share upon the consummation of a Business Combination (see Note 7).

 

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NOTE 4. PRIVATE PLACEMENT

 

Simultaneously with the closing of the Initial Public Offering, the Sponsor purchased an aggregate of 232,500 Private Units at a price of $10.00 per Private Unit, or $2,325,000 in the aggregate. On February 24, 2020, in connection with the underwriters’ exercise of the over-allotment option in full, the Sponsor purchased an additional 18,000 Private Units for an aggregate purchase price of $180,000. Each Private Unit consists of one Private Share, one-half of one redeemable warrant (each, a “Private Warrant”) and one right (each, a “Private Right”). Each whole Private Warrant is exercisable to purchase one Class A ordinary share at a price of $11.50 per whole share. Each Private Right entitles the holder to receive one-tenth of one Class A ordinary share upon the consummation of a Business Combination. The proceeds from the sale of the Private Units were added to the net proceeds from the Initial Public Offering held in the Trust Account. If the Company does not complete a Business Combination within the Combination Period, the proceeds from the sale of the Private Units will be used to fund the redemption of the Public Shares (subject to the requirements of applicable law) and the Private Warrants (and underlying securities) and Private Rights will expire worthless.

  

NOTE 5. RELATED PARTY TRANSACTIONS

 

Founder Shares

 

In January 2019, the Company issued one Class B ordinary share to the Sponsor for no consideration. On May 23, 2019, the Company cancelled the one share and issued to the Sponsor 1,437,500 Class B ordinary shares (the “Founder Shares”) for an aggregate purchase price of $25,000, or approximately $0.017 per share. In February 2020, the Company effected a 1.2 for 1 stock dividend for each Founder Share outstanding, resulting in the Sponsor holding an aggregate of 1,725,000 Founder Shares, of which up to 225,000 shares were subject to forfeiture to the extent that the underwriters’ over-allotment option was not exercised in full or in part, so that the Sponsor would own, on an as-converted basis, 20% of the Company’s issued and outstanding shares after the Initial Public Offering. All share and per share amounts have been retroactively restated to reflect the share transactions. As a result of the underwriters’ election to fully exercise their over-allotment option, 225,000 Founder Shares are no longer subject to forfeiture.

 

The initial shareholders agreed, subject to limited exceptions, not to transfer, assign or sell any of their Founder Shares until the earlier to occur of: (A) six months after the completion of the initial Business Combination or (B) subsequent to the initial Business Combination, (x) if the last sale price of the Class A ordinary shares equal or exceed $12.00 per share (as adjusted for share splits, share capitalizations, reorganizations, recapitalizations and the like) for any 20 trading days within any 30-trading day period commencing at least 150 days after the initial Business Combination, or (y) the date on which the Company completes a liquidation, merger, capital stock exchange or other similar transaction that results in all of the Company’s shareholders having the right to exchange their Class A ordinary shares for cash, securities or other property.

 

Advances from Related Party

 

During the year ended June 30, 2020, the Sponsor advanced the Company funds in the aggregate amount of $232,796 to cover certain working capital expenses. The advances are non-interest bearing and payable upon demand. The Company repaid $50,000 of such advances during the quarter ended March 31, 2021. Advances totaling $182,796 are outstanding as of March 31, 2021.

 

Promissory Note – Related Party

 

On May 23, 2019, the Company issued an unsecured promissory note to the Sponsor, as amended and restated on January 17, 2020 (the “Promissory Note”). Pursuant to the Promissory Note, the Company may borrow up to an aggregate principal amount of $300,000 to cover expenses related to the Initial Public Offering (the “Promissory Note”). The Promissory Note was non-interest bearing and payable on the earlier of June 30, 2020 or the completion of the Initial Public Offering. As of June 30, 2020, there was $210,659 outstanding under the Promissory Note. The outstanding balance under the Promissory Note of $210,659 was repaid in July 2020.

 

Administrative Services Agreement

 

The Company entered into an agreement, commencing on February 18, 2020 through the earlier of the consummation of a Business Combination or the Company’s liquidation, to pay the Sponsor a monthly fee of $10,000 for office space, administrative and support services. On April 15, 2020, the Company entered into an assignment agreement with the Sponsor and an affiliate of the Sponsor, pursuant to which all of the Sponsor’s rights and obligations under the agreement were assigned to the affiliate of the Sponsor. For the three and nine months ended March 31, 2021, the Company incurred $30,000 and $90,000 in fees for these services, respectively. At March 31, 2021, $20,000 is included in accrued expenses in the accompanying condensed balance sheets.

 

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Related Party Loans

 

In order to finance transaction costs in connection with a Business Combination, the Sponsor or an affiliate of the Sponsor, or certain of the Company’s officers and directors may, but are not obligated to, loan the Company funds as may be required (“Working Capital Loans”). Such Working Capital Loans would be evidenced by promissory notes. The notes would either be repaid upon consummation of a Business Combination, without interest, or, at the lender’s discretion, up to $1,500,000 of such Working Capital Loans may be converted upon consummation of a Business Combination into additional units at a price of $10.00 per Unit. 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. The units would be identical to the Private Units. As of March 31, 2021 and June 30, 2020, no Working Capital Loans were outstanding.

  

Related Party Extension Loans

 

As discussed in Note 1, the Company may extend the period of time to consummate a Business Combination three times by an additional three months each time (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 Sponsor or its affiliates or designee must deposit into the Trust Account for each three-month extension $690,000 ($0.10 per share), on or prior to the date of the applicable deadline. Any such payments would be made in the form of a loan and will be non-interest bearing and payable upon the consummation of a Business Combination. 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. Up to $1,500,000 of such loans may be convertible into shares at a price of $10.00 per share at the option of the lender. If the Company does not complete a Business Combination, the Company will not repay such loans. The Sponsor and its affiliates or designees are not obligated to fund the Trust Account to extend the time for the Company to complete a Business Combination.

 

On February 10, 2021, the period of time for the Company to consummate a Business Combination was extended for an additional three-month period ending on May 18, 2021, and, accordingly, $690,000 was deposited into the Trust Account. The deposit was funded by non-interest bearing unsecured convertible promissory notes from Ares. The note is repayable on or before November 18, 2021 (subject to the waiver against trust limitations) and may be converted into shares of the Company or its successor entity at a price of $10.00 per share at the option of the lender.

 

NOTE 6. COMMITMENTS AND CONTINGENCIES

 

Risks and Uncertainties

 

Management continues to evaluate the impact of the COVID-19 pandemic and has concluded that while it is reasonably possible that the virus could have a negative effect on the Company’s financial position, results of its operations and/or search for a target company, the specific impact is not readily determinable as of the date of these condensed financial statements. The condensed 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 on February 12, 2020, the holders of the Founder Shares, the Private Units, securities underlying the unit purchase option issued to the underwriters and units that may be issued upon conversion of Working Capital Loans (and in each case holders of their component securities, as applicable), are entitled to registration rights requiring the Company to register such securities for resale (in the case of the Founder Shares, only after conversion to Class A ordinary shares). The holders of these securities are entitled to make up to three demands, excluding short form 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 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 underwriters are entitled to a deferred fee of 3.5% of the gross proceeds of the Initial Public Offering, or $2,415,000. The deferred fee will be paid in cash upon the closing of a Business Combination from the amounts held in the Trust Account, subject to the terms of the underwriting agreement.

 

Right of First Refusal

 

For a period beginning on the closing of Initial Public Offering and ending 12 months from the closing of a Business Combination, the Company has granted the underwriters a right of first refusal to act as lead-left book running manager and lead left manager for any and all future private or public equity, convertible and debt offerings during such period. In accordance with FINRA Rule 5110(f)(2)(E)(i), such right of first refusal shall not have a duration of more than three years from the effective date of the registration statements for the Initial Public Offering. 

  

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NOTE 7. SHAREHOLDERS’ EQUITY

 

Preference Shares — The Company is authorized to issue 1,000,000 preference shares with a par value of $0.001 per share with such designations, voting and other rights and preferences as may be determined from time to time by the Company’s board of directors. At March 31, 2021 and June 30, 2020, there were no preference shares issued or outstanding.

 

Class A Ordinary Shares — The Company is authorized to issue 47,000,000 Class A ordinary shares with a par value of $0.001 per share. Holders of Class A ordinary shares are entitled to one vote for each share. At March 31, 2021 and June 30, 2020, there were 1,271,149 and 1,112,751 Class A ordinary shares issued and outstanding, excluding 5,948,351and 6,106,749 shares subject to possible redemption, respectively.

 

Class B Ordinary Shares — The Company is authorized to issue 2,000,000 Class B ordinary shares with a par value of $0.001 per share. At March 31, 2021 and June 30, 2020, there were 1,725,000 Class B ordinary shares issued and outstanding.

 

The Class B ordinary shares will automatically convert into Class A ordinary shares at the time of a Business Combination on a one-for-one basis, subject to adjustment for share splits, share capitalizations, reorganizations, recapitalizations and the like. In the case that additional Class A ordinary shares, or equity-linked securities, are issued or deemed issued in excess of the amounts sold in Initial Public Offering and related to the closing of the Business Combination, the ratio at which Class B ordinary shares shall convert into Class A ordinary shares will be adjusted (unless the holders of a majority of the issued and outstanding Class B ordinary shares agree to waive such anti-dilution adjustment with respect to any such issuance or deemed issuance) so that the number of Class A ordinary shares issuable upon conversion of all Class B ordinary shares will equal, in the aggregate, 20% of the sum of all ordinary shares outstanding upon completion of the Initial Public Offering plus all Class A ordinary shares and equity-linked securities issued or deemed issued in connection with the Business Combination (excluding any shares or equity-linked securities issued, or to be issued, to any seller in the Business Combination or any private placement-equivalent units issued to the Sponsor or its affiliates upon conversion of loans made to the Company). Holders of Founder Shares may also elect to convert their Class B ordinary shares into an equal number of Class A ordinary shares, subject to adjustment as provided above, at any time. 

 

NOTE 8. WARRANTS

 

Warrants — As of March 31, 2021 and June 30, 2020 there were 3,450,000 Public Warrants outstanding. 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) 12 months from the effective date of the registration statements for the Initial Public Offering. The Public Warrants will expire five years from the consummation of a Business Combination or earlier upon redemption or liquidation.

 

The Company will not be obligated to deliver any Class A ordinary shares pursuant to the exercise of a warrant and will have no obligation to settle such warrant exercise unless a registration statement under the Securities Act with respect to the Class A ordinary shares underlying the warrants is then effective and a prospectus relating thereto is current, subject to the Company satisfying its obligations with respect to registration.

 

The Company has agreed that as soon as practicable, but in no event later than 15 business days after the closing of a Business Combination, the Company will use its best efforts to file, and within 60 business days following a Business Combination to have declared effective, a registration statement covering the Class A ordinary shares issuable upon exercise of the 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 warrants in accordance with the provisions of the warrant agreement. No warrants will be exercisable for cash unless the Company has an effective and current registration statement covering the Class A ordinary shares issuable upon exercise of the warrants and a current prospectus relating to such Class A ordinary shares. Notwithstanding the foregoing, if a registration statement covering the Class A ordinary shares issuable upon exercise of the warrants is not effective within a specified period following the consummation of a Business Combination, warrant holders may, until such time as there is an effective registration statement and during any period when the Company shall have failed to maintain an effective registration statement, exercise warrants on a cashless basis pursuant to 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 Company may call the warrants for redemption (excluding the Private Warrants but including any outstanding warrants issued upon exercise of the unit purchase option):

 

  · in whole and not in part;

  · at a price of $0.01 per warrant;

  · upon not less than 30 days’ prior written notice of redemption (the “30-day redemption period”) to each warrant holder; and

  · if, and only if, the reported last sale price of the Class A ordinary shares equal or exceed $16.50 per share (as adjusted for share splits, share capitalizations, rights issuances, subdivisions, reorganizations, recapitalizations and the like) for any 20 trading days within a 30-trading day period ending on the third trading day prior to the date the Company sends to the notice of redemption to the warrant holders.

 

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If and when the warrants become redeemable by the Company, the Company may not exercise its redemption right if the issuance of shares upon exercise of the warrants is not exempt from registration or qualification under applicable state blue sky laws or the Company is unable to effect such registration or qualification.

 

If the Company calls the Public Warrants for redemption, management will have the option to require any holder that wishes to exercise the Public 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, or recapitalization, reorganization, merger or consolidation. However, the warrants will not be adjusted for issuance 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 the respect to such warrants. Accordingly, the warrants may expire worthless.

 

In addition, if (x) the Company issues additional Class A ordinary shares or equity-linked securities for capital raising purposes in connection with the closing of a Business Combination at an issue price or effective issue price of less than $9.20 per share (with such issue price or effective issue price to be determined in good faith by the Company’s board of directors and, in the case of any such issuance to the Sponsor or its affiliates, without taking into account any Founder Shares held by the Sponsor or such affiliates, as applicable, prior to such issuance) (the “Newly Issued Price”), (y) the aggregate gross proceeds from such issuances represent more than 60% of the total equity proceeds, and interest thereon, available for the funding of a Business Combination on the date of the consummation of a Business Combination (net of redemptions), and (z) the volume weighted average trading price of the Company’s Class A ordinary shares during the 20 trading day period starting on the trading day prior to the day on which the Company consummates a Business Combination (such price, the “Market Value”) is below $9.20 per share, the exercise price of the warrants will be adjusted (to the nearest cent) to be equal to 115% of the higher of the Market Value and the Newly Issued Price, and the $16.50 per share redemption trigger price will be adjusted (to the nearest cent) to be equal to 180% of the higher of the Market Value and the Newly Issued Price.

 

As of March 31, 2021 and June 30, 2020 there were 125,250 Private Warrants outstanding. The Private Warrants are identical to the Public Warrants underlying the Units sold in the Initial Public Offering, except that the Private Warrants and the Class A 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.

 

Rights — As of March 31, 2021 and June 30, 2020 there were 715,050 Rights outstanding. Each holder of a right will receive one-tenth (1/10) of one Class A ordinary share upon consummation of a Business Combination, even if the holder of such right redeemed all Class A ordinary shares held by it in connection with a Business Combination. No additional consideration will be required to be paid by a holder of rights in order to receive its additional 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 Initial Public Offering. If the Company enters into a definitive agreement for a Business Combination in which the Company will not be the surviving entity, the definitive agreement will provide for the holders of rights to receive the same per share consideration the holders of the Class A ordinary shares will receive in the transaction on an as-converted into Class A ordinary share basis and each holder of a right will be required to affirmatively convert its rights in order to receive 1/10 share underlying each right (without paying additional consideration).

 

The Company will not issue fractional shares in connection with an exchange of rights. Fractional shares will either be rounded down to the nearest whole share or otherwise addressed in accordance with the applicable provisions of Cayman Islands law. As a result, the holders of the rights must hold rights in multiples of 10 in order to receive shares for all of the holders’ rights upon closing of a Business Combination. 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 rights will not receive any of such funds with respect to their rights, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with respect to such rights, and the rights will expire worthless. Further, there are no contractual penalties for failure to deliver securities to the holders of the rights upon consummation of a Business Combination. Additionally, in no event will the Company be required to net cash settle the rights. Accordingly, the rights may expire worthless.

 

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Representative Shares

 

On February 18, 2020, the Company issued to the designees of the underwriters 60,000 Class A ordinary shares (the “Representative Shares”). On February 24, 2020, in connection with the underwriters’ election to exercise the over-allotment option in full, the Company issued an additional 9,000 Representative Shares to the designees of the underwriters. The Company accounted for the Representative Shares as an offering cost of the Initial Public Offering, with a corresponding credit to shareholders’ equity. The Company estimated the fair value of Representative Shares to be $690,000 based upon the price of the Units sold in the Initial Public Offering. The holders of the Representative Shares have agreed not to transfer, assign or sell any such shares until the completion of a Business Combination. In addition, the holders have agreed (i) to waive its redemption rights with respect to such shares in connection with the completion of our initial business combination and (ii) to waive their rights to liquidating distributions from the Trust Account with respect to such shares if the Company fails to complete a Business Combination within the Combination Period.

 

The Representative Shares have been deemed compensation by FINRA and are therefore subject to a lock-up for a period of 180 days immediately following the date of the effectiveness of the registration statement related to the Initial Public Offering pursuant to Rule 5110(g)(1) of FINRA’s NASD Conduct Rules. Pursuant to FINRA Rule 5110(g)(1), these securities will not be the subject of any hedging, short sale, derivative, put or call transaction that would result in the economic disposition of the securities by any person for a period of 180 days immediately following the effective date of the registration statements related to the Initial Public Offering, nor may they be sold, transferred, assigned, pledged or hypothecated for a period of 180 days immediately following the effective date of the registration statements related to the Initial Public Offering except to any underwriter and selected dealer participating in the Initial Public Offering and their bona fide officers or partners.

 

Unit Purchase Option

 

On February 18, 2020, the Company sold to the underwriters (and its designees), for $100, an option to purchase up to 300,000 Units exercisable at $12.25 per Unit (or an aggregate exercise price of $4,226,250) commencing on the later of February 12, 2021 and the closing of a Business Combination. On February 24, 2020, in connection with the underwriters’ election to exercise the over-allotment option in full, the Company issued the underwriters an option to purchase up to an additional 45,000 Units exercisable at $12.25 per Unit for no additional consideration. The unit purchase option may be exercised for cash or on a cashless basis, at the holder’s option, and expires February 12, 2025. The Units issuable upon exercise of the option are identical to those offered in the Initial Public Offering. The Company accounted for the unit purchase option, inclusive of the receipt of $100 cash payment, as an expense of the Initial Public Offering resulting in a charge directly to shareholders’ equity. The Company estimated the fair value of the unit purchase option is approximately $893,000, or $2.59 per Unit, using the Black-Scholes option-pricing model. The fair value of the unit purchase option 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 1.39% and (3) expected life of five years. The option and such units purchased pursuant to the option, as well as the Class A ordinary shares underlying such units, the rights included in such units, the Class A ordinary shares that are issuable for the rights included in such units, the warrants included in such units, and the shares underlying such warrants, have been deemed compensation by FINRA and are therefore subject to a 180-day lock-up pursuant to Rule 5110(g)(1) of FINRA’s NASDAQ Conduct Rules. Additionally, the option may not be sold, transferred, assigned, pledged or hypothecated for a one-year period (including the foregoing 180-day period) following the date of Initial Public Offering except to any underwriter and selected dealer participating in the Initial Public Offering and their bona fide officers or partners. The option grants to holders demand and “piggy back” rights for periods of five and seven years, respectively, from the effective date of the registration statements with respect to the registration under the Securities Act of the securities directly and indirectly issuable upon exercise of the option. 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 units issuable upon exercise of the option 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 option will not be adjusted for issuances of Class A ordinary shares at a price below its exercise price.

 

NOTE 9. 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:

 

  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.
     
  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.
     
  Level 3: 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 Company classifies its U.S. Treasury and equivalent securities as held-to-maturity in accordance with ASC 320 “Investments - Debt and Equity Securities.” Held-to-maturity securities are those securities which the Company has the ability and intent to hold until maturity. Held-to-maturity treasury securities are recorded at amortized cost on the accompanying condensed balance sheets and adjusted for the amortization or accretion of premiums or discounts.

 

At March 31, 2021, assets held in the Trust Account were comprised of $63,866,065 in mutual and money market funds and $5,183,118 in U.S. Treasury Securities. At June 30, 2020, assets held in the Trust Account were comprised of $63,846,914 in mutual and money market funds and $5,210,594 in U.S. Treasury Securities.

 

The following table presents information about the Company’s assets that are measured at fair value on a recurring basis at March 31, 2021, and June 30, 2020, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value. The gross holding gains and fair value of held-to-maturity securities at March 31, 2021, and June 30, 2020, are as follows:

 

    Held-To-Maturity   Level     Amortized Cost     Gross
Holding
(Loss) Gain
    Fair Value  
March 31, 2021   U.S. Treasury Securities (Mature on 1/31/2021)     1     $ 5,183,118     $ (19,001 )   $ 5,164,117  
June 30, 2020   U.S. Treasury Securities (Matured on 8/15/2020)     1     $ 5,210,594     $ 1,363     $ 5,211,957  

 

Description   Level     March 31,
2021
    June 30,
2020
 
Liabilities:                        
Warrant Liabilities – Public Warrants     1       1,759,500       862,500  
Warrant Liabilities – Private Warrants     3       65,130       32,565  

 

The Warrants were accounted for as liabilities in accordance with ASC 815-40 and are presented within warrant liabilities on the balance sheets. The warrant liabilities are measured at fair value at inception and on a recurring basis, with changes in fair value presented within change in fair value of warrant liabilities in the consolidated statement of operations.

 

Level 3 financial liabilities consist of the Private Warrant liability for which there is no current market for these securities such that the determination of fair value requires significant judgment or estimation. Changes in fair value measurements categorized within Level 3 of the fair value hierarchy are analyzed each period based on changes in estimates or assumptions and recorded as appropriate.

 

The fair value of the Private Warrants was estimated at March 31, 2021 and June 30, 2020 to be $0.52 and $0.26, respectively, using the Monte Carlo Simulation approach and the following assumptions:

 

    March 31,
2021
    June 30,
2020
 
Risk-free interest rate     1.04 %     0.39 %
Expected Term     5.0       6.0  
Dividend yield     0.00 %     0.00 %
Expected volatility     12.3 %     6.3 %
Exercise price   $ 11.50     $ 11.50  
Unit Price   $ 10.03     $ 9.76  

 

The following table presents the changes in the fair value of Level 3 warrant liabilities:

 

    Private Warrants  
Fair value as of June 30, 2020   $ 32,565  
Change in valuation inputs or other assumptions     32,565  
Fair value as of March 31, 2021   $ 65,130  

 

There were no transfers in or out of Level 3 from other levels in the fair value hierarchy during the three months ended March 31, 2021.

 

NOTE 10. TRUST ACCOUNT

 

During the preparation of the quarterly report for the quarter ended March 31, 2020, the Company determined that American Stock Transfer & Trust Company LLC, as the trustee, and Morgan Stanley, as custodian, had not invested the Trust Account funds in accordance with the Trust Agreement. Thereafter, the Company immediately took steps to liquidate such investments and to reinvest the funds only in the types of securities specified under the Trust Agreement (the date of such reinvestment, May 5, 2020, is referred to herein as the “Reinvestment Date”). As of March 31, 2020, the Company had an unrealized loss on marketable securities held in the Trust Account of $1,151,591 (including principal and interest). Between March 31, 2020 and the Reinvestment Date, the Company recouped part of the losses and on the Reinvestment Date the Company had an unrealized loss on marketable securities held in the Trust Account of $565,000 (the “Shortfall”). The Shortfall represents the difference between the aggregate amount of the funds in the Trust Account as of the Reinvestment Date and the amount that would have been in the Trust Account on the Reinvestment Date had the funds in the Trust Account always been invested pursuant to the requirements set forth in the Trust Agreement. To remedy the issue, and for no additional consideration, on May 14, 2020 the Sponsor funded the Trust Account in the amount of the Shortfall. Since the amount of the Shortfall funded by the Sponsor is not required to be repaid by the Company, the Company recorded this amount as a credit to additional paid in capital during the year ended June 30, 2020.

 

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NOTE 11. SUBSEQUENT EVENTS

 

The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the financial statements were issued. Based upon this review, other than as described below, the Company did not identify any subsequent events that would have required adjustment or disclosure in the financial statements.

 

On May 13, 2021, the period of time for the Company to consummate a Business Combination was extended for an additional three-month period ending on August 18, 2021, and, accordingly, $690,000 was deposited into the Trust Account. The deposit was funded by non-interest bearing unsecured convertible promissory notes from Giga Energy. The note is repayable on or before November 18, 2021 (subject to the waiver against trust limitations) and may be converted into shares of the Company or its successor entity at a price of $10.00 per share at the option of the lender.

 

On May 14, 2021, the Company entered into a Share Exchange Agreement (the “Share Exchange Agreement”) with Giga Energy a corporation formed under the laws of the Province of British Columbia, Canada, each of Giga Energy’s shareholders named therein (collectively, the “Sellers”), LF International Pte. Ltd., a Republic of Singapore company, in the capacity as the representative from and after the closing of the Transactions (as defined below) (the “Closing”) for the Company’s shareholders other than the Sellers (the “Purchaser Representative”), and Yang Lan, in the capacity as the representative for the Sellers thereunder (the “Seller Representative”). Pursuant to the Share Exchange Agreement, among other things and subject to the terms and conditions contained therein, the Company will effect an acquisition of Giga Energy, by acquiring from the Sellers all of the issued and outstanding equity interests of Giga Energy (together with the other transactions contemplated by the Share Exchange Agreement, the “Transactions”).

 

Pursuant to the Share Exchange Agreement, in exchange for all of the outstanding shares of Giga Energy, the Company will issue to the Sellers a number of the Company ordinary shares (the “Exchange Shares”) equal in value to US$7,354,615,385, with the the Company ordinary shares valued at US$10.00 per share, with fifteen percent (15%) of such Exchange Shares (“Escrow Shares”) being deposited into a segregated escrow at the Closing (along with dividends and other earnings otherwise payable with respect to such Escrow Shares). The Escrow Shares and other escrow property shall serve as a source of security for the Sellers’ indemnification obligations and any purchase price adjustments. The Exchange Shares, including the Escrow Shares, will be allocated among the Sellers pro-rata based on each Seller’s ownership of Giga Energy immediately prior to the Closing. Certain Sellers will have their portion of the Exchange Shares subject to a lock-up as set forth in the Lock-Up Agreements as described below under the heading “Lock-Up Agreement.”

 

The Escrow Shares will be held in an escrow account to be maintained by Continental Stock Transfer & Trust Company, in its capacity as the escrow agent, or such other escrow agent as agreed by the Company and Giga Energy prior to the Closing (the “Escrow Agent”). While the Escrow Shares are held in escrow, the Sellers will be entitled to vote their portion of the Escrow Shares.

 

Simultaneously with the Closing of the Share Exchange Agreement, the Company, the Purchaser Representative and the Sellers will also enter into a Registration Rights Agreement (the “Registration Rights Agreement”). Under the Registration Rights Agreement, the Sellers hold registration rights that obligate the Company to register for resale under the Securities Act of 1933, as amended (the “Securities Act”), all or any portion of the Exchange Shares (the “Registrable Securities”) so long as such shares are not then restricted under the Lock-Up Agreement. Sellers holding a majority-in-interest of all Registrable Securities then issued and outstanding are entitled under the Registration Rights Agreement to make a written demand for registration under the Securities Act of all or part of their Registrable Securities, so long as such shares are not then restricted under the Lock-Up Agreement (including shares held in escrow under the Escrow Agreement). Subject to certain exceptions, if at any time after the Closing of the Transactions, the Company proposes to file a registration statement under the Securities Act with respect to its securities, under the Registration Rights Agreement, The Company shall give notice to the Sellers as to the proposed filing and offer the Sellers holding Registrable Securities an opportunity to register the sale of such number of Registrable Securities as requested by the Sellers in writing. In addition, subject to certain exceptions, Sellers holding Registrable Securities are entitled under the Registration Rights Agreement to request in writing that the Company register the resale of any or all of such Registrable Securities on Form S-3 or F-3 and any similar short-form registration that may be available at such time.

 

Under the Registration Rights Agreement, the Company agrees to indemnify the Sellers and certain persons or entities related to the Sellers such as their officers, directors, employees, agents and representatives (the “Seller Indemnified Parties”) against any losses or damages resulting from any untrue statement or omission of a material fact in any registration statement or prospectus pursuant to which they sell Registrable Securities, unless such liability arose from their misstatement or omission in any registration statement or prospectus and the Sellers agree to indemnify the Company and certain persons or entities related to the Company such as its officers and directors and underwriters against all losses caused by their misstatements or omissions in those documents.

 

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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 Yunhong International. References to our “management” or our “management team” refer to our officers and directors, references to the “Sponsor” refer to LF International Pte. Ltd. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this Quarterly Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.

 

Special Note Regarding Forward-Looking Statements

 

This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act that are not historical facts, and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements other than statements of historical fact included in this Form 10-Q including 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 Annual Report on Form 10-KA filed with 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 as a Cayman Islands exempted company and incorporated for the purpose of effecting a merger, share exchange, asset acquisition, stock purchase, reorganization or similar Business Combination with one or more businesses. We have not selected any specific Business Combination target. 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, the proceeds of the sale of our securities in connection with our initial Business Combination, our shares, debt or a combination of cash, stock and debt.

 

We expect to continue to incur significant costs in the pursuit of our acquisition plans. We cannot assure you that our plans to raise capital or to complete our initial Business Combination will be successful.

 

Results of Operations

 

We have neither engaged in any operations nor generated any revenues to date. Our only activities since inception have been organizational activities, those necessary to prepare for our Initial Public Offering, and after the Initial Public Offering, identifying a target company for a Business Combination. We will not generate any operating revenues until after completion of our initial Business Combination, at the earliest. We generate non-operating income in the form of interest income on marketable securities held in the Trust Account. We incur expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses in connection with completing a Business Combination.

 

For the three months ended March 31, 2021, we had a net income of $651,281, which consists of change in fair value of warrant liability of $823,560 and interest earned on marketable securities held in the Trust Account of $5,025, offset by general and administrative expenses of $177,304.

 

For the nine months ended March 31, 2021, we had a net loss of $1,583,978, which consists of general and administrative expenses of $673,148 and change in fair value of warrant liability of $929,565, offset by interest earned on marketable securities held in the Trust Account of $18,735.

 

For the three months ended March 31, 2020, we had a net loss of $1,288,838, which consists of general and administrative expenses of $51,441, change in fair value of warrant liability of $71,505, transaction costs associated with Initial Public Offering of $89,670, unrealized loss on marketable securities held in the Trust Account of $1,151,591, offset by interest earned on marketable securities held in the Trust Account of $75,369.

 

For the nine months ended March 31, 2020, we had a net loss of $1,288,969, which consists of general and administrative expenses of $51,572, change in fair value of warrant liability of $71,505, transaction costs associated with Initial Public Offering of $89,670, unrealized loss on marketable securities held in the Trust Account of $1,151,591, offset by interest earned on marketable securities held in the Trust Account of $75,369.

 

Liquidity and Capital Resources 

 

On February 18, 2020, we consummated the Initial Public Offering of 6,000,000 units at $10.00 per unit, generating gross proceeds of $60,000,000. Simultaneously with the closing of the Initial Public Offering, we consummated the sale of 232,500 private placement units to the Sponsor at a price of $10.00 per unit, generating gross proceeds of $2,325,000.

 

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On February 24, 2020, in connection with the underwriters’ election to fully exercise their over-allotment option, we consummated the sale of an additional 900,000 units at $10.00 per Unit and the sale of an additional 18,000 private units at $10.00 per private placement unit, generating total gross proceeds of $9,180,000.

 

Following our Initial Public Offering, the exercise of the over-allotment option and the sale of the private units, a total of $69,000,000 was placed in the Trust Account. We incurred $4,330,715 in transaction costs, including $1,380,000 of underwriting fees, $2,415,000 of deferred underwriting fees and $535,715 of other offering costs.

 

For the nine months ended March 31, 2021, cash used in operating activities was $457,944, which consisted of our net loss of $1,583,978 was affected by interest earned on marketable securities held in the Trust Account of $18,735, offset by fees charged to Trust Account of $27,060 and change in fair value of warrant liability of $929,565. Changes in operating assets and liabilities provided $188,144 of cash from operating activities.

 

For the nine months ended March 31, 2020, cash used in operating activities was $925. Net loss of $1,288,969 was affected by interest earned on marketable securities held in the Trust Account of $75,369, offset by unrealized loss on marketable securities held in the Trust Account of $1,151,591, fees charged to Trust Account of $21,602, change in fair value of warrant liability of $71,505, and transaction costs associated with Initial Public Offering of $89,670. Changes in operating liabilities provided $29,045 of cash from operating activities.

 

As of March 31, 2021, we had cash and marketable securities of $69,739,183 held in the Trust Account. We intend to use substantially all of the funds held in the Trust Account, including any amounts representing interest earned on the Trust Account (which interest shall be net of taxes payable and excluding deferred underwriting commissions) to complete our initial Business Combination. To the extent that our ordinary shares or debt is used, in whole or in part, as consideration to complete our initial Business Combination, the remaining proceeds held in the Trust Account will be used as working capital to finance the operations of the target business or businesses, make other acquisitions and pursue our growth strategies.

 

As of March 31, 2021, we had cash of $101,152 outside of the Trust Account. We intend to use the funds held outside the Trust Account primarily to identify and evaluate target businesses, perform business due diligence on prospective target businesses, travel to and from the offices, plants or similar locations of prospective target businesses or their representatives or owners, review corporate documents and material agreements of prospective target businesses, and structure, negotiate and complete our initial Business Combination.

 

In order to fund working capital deficiencies or finance transaction costs in connection with an intended initial Business Combination, our Sponsor or an affiliate of our Sponsor or certain of our officers and directors may, but are not obligated to, loan us funds as may be required. if we complete our initial Business Combination, we would repay such loaned amounts. in the event that our initial Business Combination does not close, we may use a portion of the working capital held outside the Trust Account to repay such loaned amounts but no proceeds from our Trust Account would be used for such repayment. Up to $1,500,000 of such loans may be convertible into units at a price of $10.00 per unit at the option of the lender. The units would be identical to the private units.

  

On February 10, 2021, the period of time for us to consummate a Business Combination was extended for an additional three-month period ending on May 18, 2021, and, accordingly, $690,000 was deposited into the Trust Account. The deposit was by non-interest bearing unsecured convertible promissory notes from Ares. The note is repayable upon the consummation of a Business Combination and may be converted into units at a price of $10.00 per unit at the option of the lender.

 

During the preparation of the quarterly report for the quarter ended March 31, 2020, we determined that American Stock Transfer & Trust Company LLC, as the trustee, and Morgan Stanley, as custodian, had not invested the Trust Account funds in accordance with the Trust Agreement. Thereafter, we immediately took steps to liquidate such investments and to reinvest the funds only in the types of securities specified under the Trust Agreement (the date of such reinvestment, May 5, 2020, is referred to herein as the “Reinvestment Date”). As of March 31, 2020, we had an unrealized loss on marketable securities held in the Trust Account of $1,151,591 (including principal and interest). Between March 31, 2020 and the Reinvestment Date, we recouped part of the losses and on the Reinvestment Date we had an unrealized loss on marketable securities held in the Trust Account of $565,000 (the “Shortfall”). The Shortfall represents the difference between the aggregate amount of the funds in the Trust Account as of the Reinvestment Date and the amount that would have been in the Trust Account on the Reinvestment Date had the funds in the Trust Account always been invested pursuant to the requirements set forth in the Trust Agreement. To remedy the issue, and for no additional consideration, on May 14, 2020 the Sponsor funded the Trust Account in the amount of the Shortfall. Since the amount of the Shortfall funded by the Sponsor is not required to be repaid by us, we recorded this amount as a credit to additional paid in capital.

 

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 estimates of the costs of identifying a target business, undertaking in-depth due diligence and negotiating an initial Business Combination are less than the actual amount necessary to do so, we may have insufficient funds available to operate our business prior to our initial Business Combination. Moreover, we may need to obtain additional financing either to complete our initial Business Combination or because we become obligated to redeem a significant number of our public shares upon completion of our initial Business Combination, in which case we may issue additional securities or incur debt in connection with such Business Combination.

 

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Going Concern

 

Management has determined that the mandatory liquidation date of May 18, 2021 and subsequent dissolution raises substantial doubt about our ability to continue as a going concern.

 

Off-balance Sheet Financing Arrangements

 

We have no obligations, assets or liabilities, which would be considered off-balance sheet arrangements as of March 31, 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 our Sponsor, and since April 2020, an affiliate of our Sponsor a monthly fee of $10,000 for office space, administrative and support services to us. We began incurring these fees on February 18, 2020 and will continue to incur these fees monthly until the earlier of the completion of our initial Business Combination and our liquidation.

 

The underwriters are entitled to a deferred fee of 3.5% of the gross proceeds of the Initial Public Offering, or $2,415,000. The deferred fee will be paid in cash upon the closing of a Business Combination from the amounts held in the Trust Account, subject to the terms of the underwriting agreement.

  

Critical Accounting Policies

 

The preparation of condensed financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following critical accounting policies:

 

Warrant Liability

 

We account for the Warrants in accordance with the guidance contained in ASC 815-40 under which the Warrants do not meet the criteria for equity treatment and must be recorded as liabilities. Accordingly, we classify the Warrants as liabilities at their fair value and adjust the Warrants to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in our statement of operations. The Private Placement Warrants and the Public Warrants for periods where no observable traded price was available are valued using a Monte Carlo simulation. For periods subsequent to the detachment of the Public Warrants from the Units, the Public Warrant quoted market price was used as the fair value as of each relevant date.

 

Class A Ordinary Shares Subject to Possible Redemption

 

We account for our Class A ordinary shares subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” Class A ordinary shares subject to mandatory redemption is classified as a liability instrument and is measured at fair value. Conditionally redeemable ordinary shares (including ordinary shares that features redemption rights that is either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely within our control) is classified as temporary equity. At all other times, ordinary shares are classified as shareholders’ equity. Our Class A ordinary shares feature certain redemption rights that are considered to be outside of our control and subject to occurrence of uncertain future events. Accordingly, Class A ordinary shares subject to possible redemption is presented as temporary equity, outside of the shareholders’ equity section of our condensed interim balance sheets.

 

Net Loss Per Ordinary Share

 

We apply the two-class method in calculating earnings per share. Net income (loss) per ordinary share, basic and diluted, for Class A redeemable ordinary shares is calculated by dividing the interest income and unrealized losses on the Trust Account by the weighted average number of Class A redeemable ordinary shares outstanding since original issuance. Net income (loss) per ordinary share, basic and diluted, for Class A and Class B non-redeemable ordinary shares is calculated by dividing the net income (loss), less income attributable to Class A redeemable ordinary shares, by the weighted average number of Class A and Class B non-redeemable ordinary shares outstanding for the periods presented. 

 

Recent Accounting Pronouncements

 

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 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) (“ASU 2020-06”) to simplify accounting for certain financial instruments. ASU 2020-06 eliminates the current models that require separation of beneficial conversion and cash conversion features from convertible instruments and simplifies the derivative scope exception guidance pertaining to equity classification of contracts in an entity’s own equity. The new standard also introduces additional disclosures for convertible debt and freestanding instruments that are indexed to and settled in an entity’s own equity. ASU 2020-06 amends the diluted earnings per share guidance, including the requirement to use the if-converted method for all convertible instruments. ASU 2020-06 is effective January 1, 2022 and should be applied on a full or modified retrospective basis, with early adoption permitted beginning on January 1, 2021. The Company is currently assessing the impact, if any, that ASU 2020-06 would have on its financial position, results of operations or cash flows.

 

Management does not believe that any other recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on our condensed financial statements.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not required for smaller reporting company.

 

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ITEM 4. CONTROLS AND PROCEDURES

 

Disclosure controls and procedures are designed to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

Under the supervision and with the participation of our management, including our principal executive officer and principal financial and accounting officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the fiscal quarter ended March 31, 2021, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based upon that evaluation, our principal executive officer and principal financial and accounting officer concluded that, solely due to the Company’s restatement of its financial statements to reclassify the Company’s warrants as described in the 10-K/A filed July 23, 2021, a material weakness existed and our disclosure controls and procedures were not effective as of March 31, 2021.

 

Changes in Internal Control Over Financial Reporting

 

During the most recently completed fiscal quarter, there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. However, as management has identified a material weakness in our internal control over financial reporting with respect to the classification of the Company’s Warrants as components of equity instead of as liabilities, as well as the related determination of the fair value of warrant liabilities, additional paid-in capital and accumulated deficit, and related financial disclosures, the Company intends to address this material weakness by enhancing its processes to identify and appropriately apply applicable accounting requirements to better evaluate its research and understanding of the nuances of the complex accounting standards that apply to its financial statements. The Company’s current plans include providing enhanced access to accounting literature, research materials and documents and increased communication among its personnel and third-party professionals with whom it consults regarding complex accounting applications. The Company has also retained the services of a valuation expert to assist in valuation analysis of the Warrants on a quarterly basis.

 

PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS.

 

None.

 

ITEM 1A. RISK FACTORS.

 

Not required for a smaller reporting company.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

 

None.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

 

None.

 

20  

 

 

ITEM 4. MINE SAFETY DISCLOSURES.

 

Not applicable.

 

ITEM 5. OTHER INFORMATION.

 

None.

 

ITEM 6. EXHIBITS.

 

The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.

 

No.   Description of Exhibit
31.1*   Certification of Principal Executive Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*   Certification of Principal Financial Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1**   Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2**   Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101. INS*   XBRL Instance Document
101. CAL*   XBRL Taxonomy Extension Calculation Linkbase Document
101. SCH*   XBRL Taxonomy Extension Schema Document
101. DEF*   XBRL Taxonomy Extension Definition Linkbase Document
101. LAB*   XBRL Taxonomy Extension Labels Linkbase Document
101. PRE*   XBRL Taxonomy Extension Presentation Linkbase Document

 

* Filed herewith.
** Furnished herewith.

 

21  

 

 

SIGNATURES

 

Pursuant to the requirements of Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  YUNHONG INTERNATIONAL
     
Date: July 30, 2021 /s/ Patrick Orlando
  Name: Patrick Orlando
  Title:

Chief Executive Officer
(Principal Executive Officer)

     
Date: July 30, 2021 /s/ Andrey Novikov
  Name: Andrey Novikov
  Title:

Chief Financial Officer
(Principal Financial and Accounting Officer)

 

22  

 

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