References in this Quarterly Report on Form 10-Q for the quarterly period ended
March 31, 2022 (the "Quarterly Report") to "we," "us" or the "Company" refer to
East Stone Acquisition Corporation. References to our "management" or our
"management team" refer to our officers and directors, and references to our
"Sponsor" refer to Double Ventures Holdings Limited, a British Virgin Islands
business company with limited liability. The following discussion and analysis
of the Company's financial condition and results of operations should be read in
conjunction with the unaudited condensed consolidated financial statements and
the notes thereto contained elsewhere in this Quarterly Report. Certain
information contained in the discussion and analysis set forth below includes
forward-looking statements that involve risks and uncertainties.
Cautionary Note Regarding Forward-Looking Statements
This Quarterly Report includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"),
and Section 21E of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), that are not historical facts, and involve risks and
uncertainties that could cause actual results to differ materially from those
expected and projected. All statements, other than statements of historical fact
included in this Quarterly Report including, without limitation, statements in
this "Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations" regarding the Company's financial position, business
strategy and the plans and objectives of management for future operations, are
forward-looking statements. Words such as "expect," "believe," "anticipate,"
"intend," "estimate," "seek" and variations and similar words and expressions
are intended to identify such forward-looking statements. Such forward-looking
statements relate to future events or future performance, but reflect
management's current beliefs, based on information currently available. A number
of factors could cause actual events, performance or results to differ
materially from the events, performance and results discussed in the
forward-looking statements. For information identifying important factors that
could cause actual results to differ materially from those anticipated in the
forward-looking statements, please refer to the Risk Factors section of the
Company's final prospectus for its Initial Public Offering filed with the SEC.
The Company's securities filings can be accessed on the EDGAR section of the
SEC's website at www.sec.gov. Except as expressly required by applicable
securities law, the Company disclaims any intention or obligation to update or
revise any forward-looking statements whether as a result of new information,
future events or otherwise.
Overview
We are a blank check company incorporated in the British Virgin Islands with
limited liability (meaning our shareholders have no liability, as members of the
Company, for the liabilities of the Company over and above the amount already
paid for their shares) formed for the purpose of consummating a acquiring,
engaging in a share exchange, share reconstruction and amalgamation with,
purchasing all or substantially all of the assets of, or engaging in any other
similar business combination (the "Business Combination") with one or more
businesses or entities. We intend to effectuate our initial Business Combination
using cash from the proceeds of our Initial Public Offering and the private
placement of the private units, our shares, debt or a combination of cash,
shares and debt.
The issuance of additional shares in our initial Business Combination:
? may significantly dilute the equity interest of investors who do not have
pre-emption rights in respect of any such issue;
? may subordinate the rights of holders of ordinary shares if the rights,
preferences, designations and limitations attaching to the preferred shares
are created by amendment of our memorandum and articles of association by
resolution of the board of directors and preferred shares are issued with
rights senior to those afforded our ordinary shares;
? could cause a change in control if a substantial number of ordinary shares are
issued, which may affect, among other things, our ability to use our net
operating loss carry forwards, if any, and could result in the resignation or
removal of our present officers and directors;
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? may have the effect of delaying or preventing a change of control of us by
diluting the share ownership or voting rights of a person seeking to obtain
control of us; and
? may adversely affect prevailing market prices for our ordinary shares.
Similarly, if we issue debt securities or otherwise incur significant
indebtedness, it could result in:
? default and foreclosure on our assets if our operating revenues after our
initial Business Combination are insufficient to repay our debt obligations;
? acceleration of our obligations to repay the indebtedness even if we make all
principal and interest payments when due if we breach certain covenants that
require the maintenance of certain financial ratios or reserves without a
waiver or renegotiation of that covenant;
? our immediate payment of all principal and accrued interest, if any, if the
debt is payable on demand;
? our inability to obtain necessary additional financing if any document
governing such debt contains covenants restricting our ability to obtain such
financing while the debt security is outstanding;
? our inability to pay dividends on our ordinary shares;
? using a substantial portion of our cash flow to pay principal and interest on
our debt, which will reduce the funds available for dividends on our ordinary
shares if declared, expenses, capital expenditures, acquisitions and other
general corporate purposes;
? limitations on our flexibility in planning for and reacting to changes in our
business and in the industry in which we operate;
? increased vulnerability to adverse changes in general economic, industry and
competitive conditions and adverse changes in government regulation; and
? limitations on our ability to borrow additional amounts for expenses, capital
expenditures, acquisitions, debt service requirements, execution of our
strategy and other purposes and other disadvantages compared to our
competitors who have less debt.
We expect to continue to incur significant costs in the pursuit of our
acquisition plans. Our plans to raise capital or to consummate our initial
Business Combination may not be successful.
Recent Developments
Second Business Combination Agreement with JHD
On February 16, 2021, we entered into the Original Agreement with Navy Sail
International Limited, a British Virgin Islands company ("Navy Sail"), as
Purchaser Representative, JHD Technologies Limited, a Cayman Islands company
("Pubco"), Yellow River MergerCo Limited, a British Virgin Islands company and a
wholly-owned subsidiary of Pubco ("Merger Sub"), JHD, Yellow River (Cayman)
Limited, a Cayman Islands company (the "Primary Seller"), and each of the
holders of JHD's capital shares that become parties to the Original Agreement
after the date hereof by executing and delivering to the Purchaser, Pubco and
JHD a joinder agreement (each individually, a "Seller", and collectively with
the Primary Seller, the "Sellers"), and our Sponsor, solely with respect to
Sections 10.3 and Articles XII and XIII thereof, as applicable. On September 13,
2021 and October 7, 2021, the parties to the Original Agreement entered into
that certain Amended and Restated Second Business Combination Agreement and
Second Amended and Restated Second Business Combination Agreement (as amended on
November 12, 2021), respectively.
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The Original Agreement and related agreements are further described in the
current reports on Form 8-K filed by our Company on February 18, 2021, September
17, 2021, October 14, 2021 and November 26, 2021. The foregoing description of
the Original Agreement is qualified in its entirety by reference to the complete
text of the Original Agreement, a copy of which was attached as Annex A to the
Company's Definitive Proxy Statement on Schedule 14A filed with the SEC on
February 10, 2021 and is incorporated herein by reference.
The transactions contemplated by the Original Agreement (the "JHD Transactions")
are subject to, among other things, the approval of the JHD Transactions by the
Company's shareholders, satisfaction of the conditions stated in the Original
Agreement and other customary closing conditions, including that the SEC
completes its review of the proxy statement/prospectus relating to the JHD
Transactions, the receipt of certain regulatory approvals, and the approval by
The Nasdaq Stock Market to list the securities of the combined company.
Subsequent to the date of this Quarterly Report, on April 15, 2022, The Company
terminated its Second Business Combination Agreement with JHD Holdings Limited
and its related parties. The Company also announced execution of a Third
Business Combination of the Company and ICONIQ Holding Limited, a Cayman Islands
company, under the Pubco.
Execution of New Business Combination Agreement
On April 15, 2022, the Company, entered into the Third Business Combination
Agreement with Navy Sail International Limited, a British Virgin Islands
company, in the capacity as the representative of the Company and the
shareholders of the Company immediately prior to Closing from and after the
Purchaser Representative, the Pubco, the First Merger Sub, the Second Merger
Sub, and ICONIQ.
Pursuant to the Third Business Combination Agreement, subject to the terms and
conditions set forth therein, at the Closing, which Closing is subject to, among
other things, regulatory and shareholder approval, (a) the First Merger, with
ICONIQ surviving the First Merger as a wholly-owned subsidiary of Pubco and the
outstanding shares of ICONIQ being converted into the right to receive shares of
Pubco; and (b) the Second Merger" with the Company surviving the Second Merger
as a wholly-owned subsidiary of the Pubco and the outstanding securities of the
Company being converted into the right to receive substantially equivalent
securities of the Pubco.
Under the Third Business Combination Agreement, the Aggregate Merger
Consideration Amount to be paid to the shareholders of ICONIQ is $2,500,000,000
and will be paid entirely in shares, comprised of newly issued ordinary shares
of the Pubco, with each share valued at the Per Share Price.
As a result of the Mergers, (a) each of the Class A ordinary shares of ICONIQ
that are issued and outstanding immediately prior to the time when the First
Merger becomes effective under the Companies Act (2022 Revision) of the Cayman
Islands, as amended (the "First Merger Effective Time") will be cancelled and
converted into (i) the right to receive 90% of such number of Class A ordinary
shares of the Pubco equal to the Exchange Ratio, and (ii) the contingent right
to receive 10% of such number of Class A ordinary shares of the Pubco equal to
the Exchange Ratio in accordance with the Third Business Combination Agreement.
Each Class B ordinary share of ICONIQ that is issued and outstanding immediately
prior to the First Merger Effective Time will be cancelled and converted into
the right to receive the number of Class B ordinary shares of the Pubco equal to
the Exchange Ratio; (b) each ordinary share of the Purchaser that is issued and
outstanding immediately prior to the Effective Time shall be cancelled and
converted automatically into the right to receive one Pubco Class B ordinary
share. Each of outstanding Purchaser Public Warrant and Purchaser Private
Warrant shall be converted into one Pubco Public Warrant and one Pubco Private
Warrant, respectively. Each issued and outstanding Purchaser Right shall be
automatically converted into one-tenth of one Pubco Class B ordinary share.
Related Party Loans
As of March 31, 2022, our Chief Financial Officer and one of the initial
shareholders, Mr. Chunyi (Charlie) Hao, has loaned to the Company $427,027, the
Working Capital Loans. If the Company completes a Business Combination, the
Company would repay the Working Capital Loans. In the event that a Business
Combination does not close, the Company may use a portion of proceeds held
outside the trust account to repay the Working Capital Loans, but no proceeds
held in the trust account would be used to repay the Working Capital Loans. Such
Working Capital Loans would be evidenced by promissory notes. The notes would
either be repaid upon consummation of a Business Combination, without interest,
or, at the lender's discretion.
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Promissory Note
As of March 31, 2022, Yellow River Asset Management, an affiliate of JHD
("Yellow River"), and the Company signed a promissory note in which Yellow River
agreed to loan to the Company a sum of $200,000. The note bears no interest and
is repayable in full upon the earlier of consummation of the Company's initial
Business Combination and its winding up. As of March 31, 2022, the Company had
drawn down an aggregate of $200,000.
Extension Loan
Effective May 24, 2021 and August 24, 2021, the Company extended the date by
which the Company has to consummate a Business Combination from May 24, 2021 to
August 24, 2021, and from August 24, 2021 to November 24, 2021, respectively
(the "Extensions"). The Extensions are up to two three-month extensions
permitted under the Company's governing documents and provides the Company with
additional time to complete its proposed Business Combination with JHD. In
accordance with the Business Combination Agreement, JHD has loaned to the
Company a sum of $2,760,000 on the Sponsor's behalf in order to support the
Extension. Such loan is non-interest bearing and will be payable upon the
consummation of the proposed Business Combination. Effective February 24, 2022,
the Company extended the date by which the Company has to consummate a Business
Combination from February 24, 2022 to August 24, 2022 without involving cash
payment into trust account.
Backstop and Founder Share Transfer Arrangements
On November 12, 2021, the Company entered into certain FPA with Sea Otter, Mint
Tower, Glazer and Meteora, which provided that such investors will not redeem
shares that they each hold up to an aggregate of 2,923,974 shares, connection
with the proposal for the November Extension and the proposed Merger with JHD,
and instead would each either hold such shares for a period of time following
the consummation of the JHD Merger, at which time they will each have the right
to sell them to the Company at $10.41 per share, or will sell such shares on the
open market during such time period at a market price of at least $10.26 per
share.
In connection with the above-mentioned arrangements, the Sponsor entered into
certain Founder Share Transfer Agreements with the Backstop Investors to
transfer to the Backstop Investors an aggregate of 399,996 Founder Shares to be
transferred to such investors. Of such amount, an aggregate of 135,000 Founder
Shares were transferred to the Backstop Investors in connection with the
November Extension, and an aggregate of up to 264,996 Founder Shares will be
transferred to the Backstop Investors contemporaneously with the Second Business
Combination. Any Founder Shares transferred pursuant to these arrangements will
be subject to the same rights and obligations as the remaining Founder Shares
held by the Sponsor, including certain registration rights and the obligations
to (a) vote any Founder Shares held by the Backstop Investors in favor of the
Business Combination, and (b) subject any Founder Shares held by them to the
same lock-up restrictions as the Founder Shares held by our Sponsor.
On November 12, 2021, JHD, Pubco, Primary Seller, the Company, the Sponsor, Navy
Sail, Chunyi (Charlie) Hao, and Xiaoma (Sherman) Lu (Messers Hao and Lu,
collectively with Navy Sail and the Sponsor, the "Primary Initial Shareholders")
entered into a Letter Agreement Amendment to the Founder Share Letter by and
among JHD, the Company, the Sponsor, Navy Sail, Chunyi (Charlie) Hao and Xiaoma
(Sherman) Lu.
The Founder Share Letter provided, inter alia, that up to 1,725,000 Forfeiture
Shares would be subject to forfeiture in the event that the Company did not have
at least $100 million in cash at the Closing, with the number of such shares to
be forfeit determined on a sliding scale depending upon the amount of the cash
shortfall, if any, with the entire amount of the 1,725,000 shares subject to
forfeiture if the Company's cash at closing was $70 million or less. Under the
terms of the Letter Agreement Amendment, the Company, the Primary Initial
Shareholders, JHD Holdings Limited, Pubco and the Primary Seller have agreed
that the 1,725,000 Forfeiture Shares would be exchanged for an equivalent
Forfeiture Replacement Shares at the Closing and that such Forfeiture
Replacement Shares would be distributed as follows: (A) 138,000 Forfeiture
Replacement Shares to the Primary Seller, (B) to Glazer, Sea Otter and Mint
Tower, up to 450,000 Forfeiture Replacement Shares in consideration for their
having entered into the FPA and the Founder Share Transfer Agreements and (C)
out of the remaining Forfeiture Replacement Shares, (i) to a shareholder of the
Sponsor who is not a director or officer of the Purchaser) up to 500,000
Forfeiture Replacement Shares and (ii) to the extent of any remaining Forfeiture
Replacement Shares (a) 50% to Chunyi (Charlie) Hao and Xiaoma (Sherman) Lu and
(b) 50% to the Primary Seller.
The Forfeiture Replacement Shares being delivered to the Backstop Investors and
to the Primary Seller are not subject to the forfeiture calculations under the
Founder Share Letter (as amended by the Letter Agreement Amendment), however the
calculation of any Forfeiture Replacement Shares to be distributed to the
shareholder of the Sponsor or to Chunyi (Charlie) Hao, Xiaoma (Sherman) Lu and
the Primary Seller under (C) above will be subject to the forfeiture
calculations. To the extent that the forfeiture calculation results in less than
all of the remaining Founder Shares subject to the arrangement (1,725,000) being
distributed pursuant to the terms of the preceding paragraph, the remainder of
such shares shall remain with the Primary Initial Shareholders.
32
On January 31, 2022, certain of the Backstop Investors entered into the February
2022 Founder Share Transfer Agreements with the Sponsor to support a proposal
for the February Extension. Pursuant to February 2022 Founder Share Transfer
Agreements, such Backstop Investors agreed to not request redemption of an
aggregate of up to 600,000 ordinary shares of the Company in connection with the
February Extension. In connection therewith, our Sponsor agreed to transfer to
such Backstop Investors an aggregate of (i) 180,000 Founder Shares on or prior
to the February 24, 2022 special meeting of shareholders to approve the February
Extension, and (ii) 60,000 Founder Shares for each month past May 24, 2022 that
the Third Business Combination has not yet closed, for a total of up to 360,000
Founder Shares to be received by such Backstop Investors to support the February
Extension.
On November 24, 2021, the Company held a special meeting of shareholders and
approved to amend the Company's Amended and Restated Memorandum and Articles of
Association to extend the date by which the Company has to consummate an initial
Business Combination from November 24, 2021 to February 24, 2022. In connection
with the approval of the extension, shareholders elected to redeem an aggregate
of 10,534,895 ordinary shares, of which the Company paid cash from the trust
account in the aggregate amount of approximately $108.1 million (approximately
$10.26 per share) to redeeming shareholders.
On February 24, 2022, the Company held a special meeting of shareholders and
approved to amend the Company's Amended and Restated Memorandum and Articles of
Association to extend the date by which the Company has to consummate an initial
Business Combination from February 24, 2022 to August 24, 2022. In connection
with the approval of the extension, shareholders elected to redeem an aggregate
of 361 ordinary shares, of which the Company paid cash from the trust account in
the aggregate amount of approximately $3,704 (approximately $10.26 per share) to
redeeming shareholders.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date.
Our only activities from August 9, 2018 (inception) through March 31, 2022 were
organizational activities, those necessary to consummate the Initial Public
Offering and identifying a target company for a Business Combination. We do not
expect to generate any operating revenues until after the completion of our
initial Business Combination. We generate non-operating income in the form of
interest income on marketable securities held after the Initial Public Offering.
We have been incurring expenses as a result of being a public company (for
legal, financial reporting, accounting and auditing compliance), as well as for
due diligence expenses.
For the three months ended March 31, 2022 and 2021, respectively, we had net
income (loss) of $216,865 and ($89,814), respectively, which consists of
operating costs of $402,487 and $109,937, decrease in fair value of derivative
warrant liabilities of $449,000 and decrease in fair value of $16,700,
respectively, offset by decrease in fair value of derivative forward share
purchase of $2,069,000, and interest income of $2,152 and $3,423 on marketable
securities held in the trust account, a trust account in the United States at
JPMorgan Chase Bank, N.A., maintained by Continental Stock Transfer & Trust
Company, acting as trustee.
Liquidity and Capital Resources
On February 24, 2020, we consummated the Initial Public Offering of 12,000,000
units ("Units") and the sale of an additional 1,800,000 Units pursuant to the
full exercise by the underwriters in the Initial Public Offering (the
"Underwriters") of their over-allotment option at a price of $10.00 per Unit,
generating aggregate gross proceeds of $138,000,000. Simultaneously with the
closings of the Initial Public Offering and the sale of the additional Units, we
consummated the sales of an aggregate of 350,000 Private Units at a price of
$10.00 per Private Unit, generating gross proceeds of $3,500,000.
On February 24, 2020, in connection with the Initial Public Offering, we issued
to the representative of the Underwriters and its designee a total of 103,500
ordinary shares and 690,000 Representative's Warrants, which are exercisable at
$12.00 per full share (or an aggregate exercise price of $8,280,000). A total of
$138,000,000 of the net proceeds from the Initial Public Offering and the
Private Units was placed in the trust account.
In connection with the Initial Public Offering and the private placement, a
total of $138,000,000 was placed in the trust account. The total transaction
costs relating to the Initial Public Offering amounted to $4,154,255, including
value placed on the Representative's Shares at $1,035,000, but excluding value
placed Representative's Warrants at $1,640,028 which is accounted for as
derivative warrant liability on the Company's consolidated balance sheet. Of the
amount $4,154,255, $3,083,255 was cash costs of the transaction, consisting of
$2,415,000 of underwriting fees, of which $402,500 has been deferred to the
consummation of the Business Combination, and $668,255 of other offering costs.
33
On May 21, 2021 and August 20, 2021, an aggregate of $1,380,000 and $1,380,000,
respectively, was deposited by JHD into the trust account for the Company's
public shareholders, representing $0.10 per public share, which enables the
Company to extend the period of time it has to consummate its initial Business
Combination by twice of three months to November 24, 2021. On November 24, 2021,
the Company held a special meeting of shareholders and approved to amend the
Company's Amended and Restated Memorandum and Articles of Association to extend
the date by which the Company had to consummate an initial Business Combination
from November 24, 2021 to February 24, 2022. In connection with the approval of
the extension, shareholders elected to redeem an aggregate of 10,534,895
ordinary shares, of which the Company paid cash from the trust account in the
aggregate amount of approximately $108.1 million (approximately $10.26 per
share) to redeeming shareholders.
As of March 31, 2022, we had marketable securities held in the trust account of
$33,503,273 (including $2,760,000 deposited for the two three-month extensions
from May 24, 2021 to November 24, 2021) consisting of U.S. government treasury
bills, notes and bonds with a maturity of 185 days or less or in money market.
Interest income on the balance in the trust account may be used by us to pay
taxes. In November 2021, the Company paid cash from the trust account in the
aggregate amount of approximately $108.1 million (approximately $10.26 per
share) to redeeming shareholders.
We intend to use substantially all of the net proceeds of the Initial Public
Offering and the sale of the Private Units, including the funds held in the
trust account (excluding any deferred underwriting commissions and certain
advisory fees to I-Bankers, to acquire a target business or businesses and to
pay our expenses relating thereto. To the extent that our capital stock are used
in whole or in part as consideration to effect our initial Business Combination,
the remaining proceeds held in the trust account as well as any other net
proceeds not expended will be used as working capital to finance the operations
of the target business. Such working capital funds could be used in a variety of
ways including continuing or expanding the target business' operations, for
strategic acquisitions and for marketing, research and development of existing
or new products. Such funds could also be used to repay any operating expenses
or finders' fees which we had incurred prior to the completion of our initial
Business Combination if the funds available to us outside of the trust account
were insufficient to cover such expenses.
As of March 31, 2022, we had cash of $13,529 held outside of the trust account.
We intend to use the funds held outside the trust account primarily to identify
and evaluate prospective acquisition candidates, perform business due diligence
on prospective target businesses, travel to and from the offices, plants or
similar locations of prospective target businesses, review corporate documents
and material agreements of prospective target businesses, select the target
business to acquire and structure, negotiate and consummate an initial Business
Combination.
In order to fund working capital deficiencies or finance transaction costs in
connection with an initial Business Combination, the initial shareholders, the
Company's officers and directors or their affiliates may, but are not obligated
to, loan us funds as may be required. In the event that our initial Business
Combination does not close, we may use a portion of the working capital held
outside the trust account to repay such loaned amounts but no proceeds from our
trust account would be used for such repayment. Up to $1,500,000 of such loans
may be convertible into units at a price of $10.00 per unit (which, for example,
would result in the holders being issued 150,000 ordinary shares if $1,500,000
of notes were so converted, as well as 150,000 rights to receive 15,000 ordinary
shares and 150,000 warrants to purchase 75,000 shares) at the option of the
lender. If we do not complete an initial Business Combination, the loans will
only be repaid with funds not held in the trust account, and only to the extent
available. We do not expect to seek loans from parties other than the initial
shareholders, the Company's officers and directors or their affiliates as we do
not believe third parties will be willing to loan such funds and provide a
waiver against any and all rights to seek access to funds in our trust account.
The liquidity condition and date for mandatory liquidation raise substantial
doubt about the Company's ability to continue as a going concern through August
24, 2022, the scheduled liquidation date of the Company. The unaudited condensed
financial statements disclosed in "Item 1. Financial Statements" do not include
any adjustments relating to the recovery of the recorded assets or the
classification of the liabilities that might be necessary should the Company be
unable to continue as a going concern.
In connection with the Company's assessment of going concern considerations in
accordance with FASB ASU 2014-15, "Disclosures of Uncertainties about an
Entity's Ability to Continue as a Going Concern," management has determined that
if the Company is unable to complete a Business Combination by August 24, 2022,
and if a further extension to February 24, 2023 is not approved by the Company's
shareholders, then the Company will cease all operations except for the purpose
of liquidating. The date for mandatory liquidation and subsequent dissolution
raise substantial doubt about the Company's ability to continue as a going
concern. No adjustments have been made to the carrying amounts of assets or
liabilities should the Company be required to liquidate on August 24, 2022.
34
In connection with the transactions contemplated by the Third Business
Combination Agreement, ICONIQ issued to the Company an unsecured promissory note
effective upon the execution thereof (the "ICONIQ Note") of up to an aggregate
amount of $1,000,000, which funds will solely be used to pay certain third party
service fees and expenses of the Company in connection with this Third Business
Combination. The first tranche of the ICONIQ Note of $300,000 will be disbursed
to the Company within five calendar days of the execution of the Third Business
Combination Agreement, and the second tranche of $700,000 will be drawn down and
paid directly to the Company's third-party service providers in connection with
the consummation of the Transactions as such expenses are incurred. The ICONIQ
Note bears no interest and will be due and payable (subject to the waiver
against trust provisions) on the earlier of (i) the one year anniversary of the
date of disbursing the first tranche of the ICONIQ Note, (ii) the date of
closing of a Business Combination between the Company and a third party other
than ICONIQ, (iii) the date of closing of the transactions contemplated by the
Third Business Combination Agreement, (iv) the date of the occurrence of an
Event of Default as described in the ICONIQ Note, and (v) the date of
termination of the Third Business Combination Agreement. The ICONIQ Note may be
repaid, at ICONIQ's discretion, (i) in cash or (ii) in the Company's ordinary
shares, based on a conversion price of $10.26 per share, or, if lower, the
then-applicable redemption price of the Company's public shares, subject to the
terms of the Third Business Combination Agreement.
With a minimum cash on our consolidated balance sheet, we do believe we will
need to raise additional funds in order to meet the expenditures required for
operating our business to consummate our initial Business Combination. Any
additional funds raised prior to our initial Business Combination are liability
of the surviving company upon Business Combination. However, we cannot ensure
sufficient fund available to repay any such funding if large redemption occurs
at our initial Business Combination. We may issue additional securities or incur
debt in connection with such initial Business Combination. Subject to compliance
with applicable securities laws, we would only complete such financing
simultaneously with the consummation of our initial Business Combination, in
which case we may issue additional securities or incur debt in connection with
such initial Business Combination. Following our initial Business Combination,
if cash on hand is insufficient, we may need to obtain additional financing in
order to meet our obligations.
Off-Balance Sheet Financing Arrangements
We have no obligations, assets or liabilities which would be considered
off-balance sheet arrangements as of March 31, 2022. We do not participate in
transactions that create relationships with unconsolidated entities or financial
partnerships, often referred to as variable interest entities, which would have
been established for the purpose of facilitating off-balance sheet arrangements.
We have not entered into any off-balance sheet financing arrangements,
established any special purpose entities, guaranteed any debt or commitments of
other entities, or purchased any non-financial assets.
Contractual Obligations
We do not have any long-term debt, capital lease obligations, operating lease
obligations or long-term liabilities, other than an agreement to pay East Stone
Capital Limited, an affiliate of our executive officers, a quarterly fee of
$30,000 (up to $120,000 in the aggregate) for office space, utilities and
secretarial and administrative services. We began incurring these fees on
February 20, 2020 and will continue to incur these fees quarterly until the
earlier of the consummation by the Company of an initial Business Combination or
the Company's liquidation (up to a maximum of $120,000 in the aggregate). As of
March 31, 2022, the Company has fulfilled paying East Stone Capital Limited the
aggregate $120,000 and has retired this contractual obligation.
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity
with GAAP requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and income and expenses
during the periods reported. Actual results could materially differ from those
estimates. The Company has identified the following critical accounting
policies:
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Ordinary Shares Subject to Possible Redemption
The Company accounts for its ordinary shares subject to possible redemption in
accordance with the guidance in ASC 480. Ordinary shares subject to mandatory
redemption (if any) are classified as a liability instrument and are measured at
fair value. Conditionally redeemable ordinary shares (including ordinary shares
that feature redemption rights that are either within the control of the holder
or subject to redemption upon the occurrence of uncertain events not solely
within the Company's control) are classified as temporary equity. At all other
times, ordinary shares are classified as shareholders' equity. Certain of the
Company's ordinary shares feature redemption rights that are considered to be
outside of the Company's control and subject to the occurrence of uncertain
future events. Accordingly, as of March 31, 2022 and December 31, 2021,
3,264,744 and 3,265,105 public ordinary shares, respectively, subject to
possible redemption are presented at redemption value as temporary equity,
outside of the shareholders' (deficit) equity section of the Company's
consolidated balance sheet.
The Company recognizes changes in redemption value immediately as they occur and
adjusts the carrying value of redeemable ordinary shares to equal the redemption
value at the end of each reporting period.
Net Income (Loss) per Ordinary Share
Net loss per ordinary share is computed by dividing net loss by the weighted
average number of ordinary shares outstanding for the period. The calculation of
diluted loss per share does not consider the effect of the warrants issued in
connection with the (i) Initial Public Offering, (ii) the exercise of the
over-allotment option and (iii) Private Units, since the exercise of the
warrants are contingent upon the occurrence of future events. The warrants
derived from the public units are exercisable to purchase 6,900,000 shares of
ordinary shares and warrants derived from the Private Units are exercisable to
purchase 175,000 shares of ordinary shares, together 7,075,000 in the aggregate.
The Company's unaudited condensed consolidated statement of operations includes
a presentation of income (loss) per share for ordinary shares subject to
redemption in a manner similar to the two-class method of income (loss) per
share.
For the three months ended March 31, 2021, net income per ordinary share, basic
and diluted for redeemable ordinary shares, is calculated as dividing the
allocated net income (loss) for the three months ended March 31, 2022, by the
weighted average number of 13,800,000 and 3,903,500 redeemable ordinary shares
outstanding for the periods, respectively, resulted in $(0.01) and $(0.01) per
ordinary share, basic and diluted.
For the three months ended March 31, 2022, net income (loss) per ordinary share,
basic and diluted for redeemable ordinary shares, is calculated as dividing the
allocated net income (loss) for the three months ended March 31, 2022, by the
weighted average number of 3,264,969 and 3,903,500 redeemable ordinary shares
outstanding for the periods, respectively, resulted in net income of $0.03 and
$0.03 per ordinary share, basic and diluted.
Non-redeemable ordinary shares include the Founder Shares, Representative's
Shares and ordinary shares underlying the Private Units, as these shares do not
have any redemption features and do not participate in the income earned on the
trust account.
Derivative Warrant Liabilities
The Company does not use derivative instruments to hedge exposures to cash flow,
market, or foreign currency risks.
Management evaluates all of its financial instruments, including issued
warrants, to determine if such instruments are derivatives or contain features
that qualify as embedded derivatives, pursuant to ASC 480 and ASC 815-15. The
classification of derivative instruments, including whether such instruments
should be recorded as liabilities or as equity, is re-assessed at the end of
each reporting period. In accordance with FASB ASC Topic 825-10, "Financial
Instruments", offering costs attributable to the issuance of the derivative
warrant liabilities are recognized in the condensed consolidated statement of
operations as incurred.
Recent Accounting Pronouncements
Management does not believe that any recently issued, but not yet effective,
accounting standards, if currently adopted, would have a material effect on the
Company's unaudited condensed financial statements.
Factors That May Adversely Affect Our Results of Operations
Our results of operations and our ability to complete an initial Business
Combination may be adversely affected by various factors that could cause
economic uncertainty and volatility in the financial markets, many of which are
beyond our control. Our business could be impacted by, among other things,
downturns in the financial markets or in economic conditions, increases in oil
prices, inflation, increases in interest rates, supply chain disruptions,
declines in consumer confidence and spending, the ongoing effects of the
COVID-19 pandemic, including resurgences and the emergence of new variants, and
geopolitical instability, such as the military conflict in the Ukraine. We
cannot at this time fully predict the likelihood of one or more of the above
events, their duration or magnitude or the extent to which they may negatively
impact our business and our ability to complete an initial Business Combination.
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