NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS
December 31, 2019
(Unaudited)
NOTE 1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial
statements of Proficient Alpha Acquisition Corp. (the “Company”) have been prepared in accordance with the generally accepted
accounting principles in the United States of America (“GAAP”) for interim financial information and in accordance
with the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information or footnote disclosures normally included
in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the applicable rules and regulations
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 Annual Report on Form 10-K for the year ended September 30, 2019. The interim
results for the three months ended December 31, 2019 are not necessarily indicative of the results to be expected for the year
ending September 30, 2020 or for any future interim periods.
NOTE 2. DESCRIPTION
OF ORGANIZATION AND BUSINESS OPERATIONS
Organization and General:
The Company is a blank check company incorporated
in Nevada on July 27, 2018, which was formed for the purpose of entering into a merger, share exchange, asset acquisition, stock
purchase, recapitalization, reorganization or other similar business combination with one or more businesses or entities (a “Business
Combination”). The Company may, subject to certain limitations, pursue a Business Combination target with operations or prospects
in the financial services sector in China, including Hong Kong, Macau and mainland China. 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.
As of December 31, 2019, the Company had not
yet commenced any operations. All activity for the period from July 27, 2018 (inception) through December 31, 2019 relates to
the Company’s formation and the initial public offering (“IPO”), and subsequent to the IPO, searching for a
target for its Business Combination. The Company will not generate any operating revenues until after consummation of the initial
Business Combination, at the earliest. The Company will generate non-operating income in the form of interest income from the
proceeds derived from the IPO.
On June 3, 2019, the Company consummated
its IPO of 10,000,000 units (“Units”). Each Unit consists of one share of common stock, $0.001 par value per share
(“Common Stock”), one warrant (“Public Warrant”) to purchase one share of Common Stock at an exercise price
of $11.50 per share, and one right (“Right”) to receive one-tenth of one share of Common Stock upon consummation of
the Company’s initial Business Combination. The Units were sold at an offering price of $10.00 per Unit, generating
gross proceeds of $100,000,000. Pursuant to the Underwriting Agreement, the Company granted the underwriters in the IPO (the “Underwriters”)
a 30-day option to purchase up to 1,500,000 additional Units solely to cover over-allotments, if any (the “Over-Allotment
Option”); and simultaneously with the consummation of the IPO, the Underwriters exercised the Over-Allotment Option in full,
generating additional gross proceeds of $15,000,000 to the Company.
Simultaneously with the consummation of the
IPO and the sale of the Units, the Company consummated the private placement (“Private Placement”) of 5,375,000 warrants
(“Placement Warrants”) at a price of $1.00 per Placement Warrant, generating total proceeds of $5,375,000.
Following the closing of the IPO on June
3, 2019, an amount of $115,000,000 ($10.00 per Unit) from the net proceeds of the sale of the Units in the IPO and the Placement
Warrants was placed in a trust account (“Trust Account”) which may be invested in U.S. government
securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act of 1940, as amended (the
“Investment Company Act”), with a maturity of 180 days or less or in any open-ended investment company that holds
itself out as a money market fund selected by the Company meeting the conditions of Rule 2a-7 of the Investment Company Act,
as determined by the Company, until the earlier of: (i) the consummation of a Business Combination or (ii) the distribution
of the Trust Account, except that interest earned on the Trust Account can be released to the Company to pay its tax
obligations, as described below.
Transaction costs amounted to $6,625,439, consisting
of cash of $2,875,000 of underwriting fees and $315,120 of IPO costs, the fair value of 92,000 shares issued and 920,000 warrants
granted to the Underwriters in total amount of $3,435,319 pursuant to the Underwriting Agreement. In addition, $2,177,380 of cash
was held outside of the Trust Account and is available for working capital purposes.
The Company’s initial Business Combination
must be with one or more target businesses that together have a fair market value equal to at least 80% of the balance in the Trust
Account (as defined below) (net of taxes payable) at the time of the signing an agreement to enter into a Business Combination.
The Company will only complete a Business Combination if the post-Business Combination company owns or acquires 50% or more of
the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficient for it not
to be required to register as an investment company under the Investment Company Act 1940, as amended, or the Investment Company
Act. There is no assurance that the Company will be able to successfully effect a Business Combination.
The Company will provide its stockholders with
the opportunity to redeem all or a portion of their shares of Common Stock upon the completion of a Business Combination either
(i) in connection with a stockholder meeting called to approve the Business Combination or (ii) by means of a tender offer. The
decision as to whether the Company will seek stockholder approval of a Business Combination or conduct a tender offer will be made
by the Company, solely in its discretion. The stockholders will be entitled to redeem their shares for a pro rata portion of the
amount then on deposit in the Trust Account (initially approximately $10.00 per share, plus any pro rata interest earned on the
funds held in the Trust Account and not previously released to the Company to pay its tax obligations).
The Company will proceed with a Business Combination
if the Company has net tangible assets of at least $5,000,001 upon such consummation of a Business Combination and, if the Company
seeks stockholder approval, a majority of the outstanding shares voted are voted in favor of the Business Combination. If a stockholder
vote is not required by law and the Company does not decide to hold a stockholder vote for business or other legal reasons, the
Company will, pursuant to its Amended and Restated Articles of Incorporation, conduct the redemptions pursuant to the tender offer
rules of the Securities and Exchange Commission (“SEC”), and file tender offer documents with the SEC prior to completing
a Business Combination. If, however, a stockholder approval of the transaction is required by law, or the Company decides to obtain
stockholder approval for business or other legal reasons, the Company will offer to redeem the Public Shares in conjunction with
a proxy solicitation pursuant to the proxy rules and not pursuant to the tender offer rules. If the Company seeks stockholder approval
in connection with a Business Combination, the Sponsor, officers and directors (the “Initial Stockholders”) have agreed
to vote their founder shares and any Public Shares held by them in favor of approving a Business Combination. Additionally, each
public stockholder may elect to redeem their Public Shares irrespective of whether they vote for or against the proposed transaction.
The Company will have until June 3, 2020
(or December 3, 2020 if the Company extends the period to consummate a Business Combination by the full amount) to consummate
a Business Combination (the “Combination Period”). If the Company is unable to complete a Business Combination
within the Combination Period, the Company will (i) cease all operations except for the
purpose of winding up, (ii) as promptly as reasonably possible, but not more than 10 business days thereafter, redeem the
Common Stock sold as part of the Units in the IPO (the “Public Shares”), at a per-share price, payable in
cash, equal to the aggregate amount then on deposit in the Trust Account, including interest earned on the Trust Account net
of interest that may be used by the Company to pay its taxes payable and for dissolution expenses, divided by the number of
then outstanding Public Shares, which redemption will completely extinguish public stockholders’ rights as stockholders
(including the right to receive further liquidation distributions, if any), and (iii) as promptly as reasonably possible
following such redemption, subject to the approval of the Company’s remaining stockholders and the Company’s
board of directors, dissolve and liquidate, subject in the cases of clauses (ii) and (iii) to the Company’s obligations
under Nevada law to provide for claims of creditors and other requirements of applicable law.
The Initial Stockholders have agreed to (i)
waive any and all right, title, interest or claim of any kind the Initial Stockholders may have in the future in or to any distribution
of the Trust Account and any remaining net assets of the Company as a result of, or arising out of, any contracts or agreements
with the Company and will not seek recourse against the Trust Account for any reason whatsoever; (ii) waive any right to exercise
conversion rights with respect to any shares of the Common Stock owned or to be owned by the Initial Stockholders, directly or
indirectly, whether such shares be part of the founder shares or shares of Common Stock purchased by the Initial Stockholders in
the IPO or in the aftermarket, and each agrees not to seek conversion with respect to such shares in connection with any vote to
approve a Business Combination or to sell any such shares in a tender offer undertaken by the Company in connection with a Business
Combination; and (iii) not propose, or vote in favor of, an amendment to Article Sixth of the Company’s Amended and Restated
Articles of Incorporation, as the same may be amended from time to time, prior to the consummation of a Business Combination unless
the Company provides public stockholders with the opportunity to redeem their shares of Common Stock upon such approval in accordance
with such Article Sixth thereof. In the event that the Company does not consummate a Business Combination and must liquidate and
its remaining net assets are insufficient to complete such liquidation, each of the Initial Stockholders agrees to advance such
funds necessary to complete such liquidation and agrees not to seek repayment for such expenses.
In order to protect the amounts held in the
Trust Account, Mr. Shih-Chung Chou, our sponsor has agreed that he will be personally liable to ensure that the proceeds in the
Trust Account are not reduced below $10.00 per Public Share by the claims of target businesses or claims of vendors or other entities
that are owed money by us for services rendered or contracted for or products sold to us. Additionally, the agreement entered into
by our sponsor specifically provides for two exceptions to the indemnity he has given: he will have no liability (1) as to any
claimed amounts owed to a target business or vendor or other entity who has executed an agreement with us waiving any right, title,
interest or claim of any kind they may have in or to any monies held in the Trust Account, or (2) as to any claims for indemnification
by the Underwriters of this offering against certain liabilities, including liabilities under the Securities Act. We have not independently
verified whether our sponsor has sufficient funds to satisfy its indemnity obligations and we have not asked our sponsor to reserve
for such indemnification obligations. The Company will seek to reduce the possibility that Mr.
Shih-Chung Chou will have to indemnify the Trust Account due to claims of creditors by endeavoring to have all vendors,
service providers, prospective target businesses or other entities with which the Company does business, execute agreements with
the Company waiving any right, title, interest or claim of any kind in or to monies held in the Trust Account.
NOTE 3. GOVERNMENT SECURITIES HELD IN TRUST
ACCOUNT
As of December 31, 2019, the assets of
$116,428,920 held in the Trust Account were substantially held in U.S. Treasury Bills with maturity of six months. Management
elects to measure the government securities at fair value in accordance with the guidance in Accounting Standards
Codification (“ASC”) Topic 825 “Financial Instruments”. Any changes in fair value of the government
securities are recognized in net income. Impairment of government securities is recognized in earnings when a decline in
value has occurred that is deemed to be other than temporary, and the current fair value becomes the new cost basis for the
securities.
NOTE
4. ESCROW DEPOSIT
On October 2, 2019, the escrow deposit of
$800,000 was released by the escrow agent and returned to the Company due to the termination of a non-binding letter of intent
with a potential target company for an initial Business Combination, dated July 18, 2019, entered into by and between the Company
and such potential target company.
NOTE 5. PREPAID EXPENSES
As of December 31, 2019, the Company had prepaid
expenses of $76,830, of which $70,000 was in connection with the prepayment for D&O insurance, and $6,830 was related to the
prepaid legal services.
NOTE 6. ACCRUED EXPENSES
As of December 31, 2019, the Company had
accrued expenses of $66,985, of which $18,083 and $46,025 were due to the legal fee and evaluation fee, respectively, in
connection with the potential Business Combination.
NOTE 7. INCOME TAXES
The Company is subject to federal taxes and
no state taxes in the State of Nevada. A reconciliation of the Company’s effective income tax rate to the federal statutory
rate is as follows:
|
|
December 31,
|
|
|
2019
|
Federal income tax expense at the statutory rate (20%)
|
|
$
|
40,156
|
|
State income taxes, net of federal benefit
|
|
|
—
|
|
Permanent differences
|
|
|
—
|
|
Change in valuation allowance
|
|
|
—
|
|
Provision for income taxes
|
|
$
|
40,156
|
|
As of December 31, 2019, the Company had income
tax payable in amount of $59,499. The Company accounts for its deferred tax assets and liabilities, including excess tax benefits
of share-based payments, based on the tax ordering of deductions to be used on its tax returns. The tax effects of temporary differences
that give rise to significant portions of deferred tax assets and deferred tax liabilities was $0 as of December 31, 2019.
NOTE 8. ACCRUED EXPENSES - RELATED PARTY
As of December 31, 2019, the Company had
$76,684 due to related parties including travel expenses of $14,142 advanced by the Company’s Chief Executive Officer,
and accrued compensation of $62,497 to the Company’s management and directors. Pursuant to the executed offer letters,
the Company pays the Company’s Chief Executive Officer and Chief Financial Officer, $2,000 and $5,000 in cash per month
starting from February 1, 2019 and August 1, 2018, respectively, and issued to each of them 50,000 founder shares. In
addition, the Company pays the Company’s directors $2,000 in cash per month starting from August 1, 2018, and will
issue a total of 250,000 shares of Common Stock within 10 days after the closing date of the initial Business Combination.
The fair value of this stock issuance was determined by the fair value of the Company’s Common Stock on the grant
date, at a price of $0.20 per share. Accordingly, the Company calculated the stock-based compensation of $70,000 at its
fair value and amortized pro rata within 18 months. A total of 100,000 founder shares to Chief Executive Officer and Chief
Financial Officer were issued and the 250,000 shares to directors are not issued within 10 days after the closing date of the
initial Business Combination.
On March 20, 2019, the Company entered into
an offer letter with the Company’s current Chief Executive Officer, President and Secretary, pursuant to which, the Company
agreed to issue to him 50,000 shares of Common Stock for his services. The 50,000 shares will be issued within 10 days after the
closing date of the initial Business Combination. The fair value of this stock issuance was determined by the fair value of the
Company’s Common Stock on the grant date, at a price of $0.20 per share. Accordingly, the Company calculated the stock-based
compensation of $10,000 at its fair value and amortized pro rata within 18 months.
Accordingly, the Company recognized stock-based
compensation of $3,333 during the three months ended December 31, 2019. The Company recognized compensation expenses of $10,000
in connection with the Common Stock hereto, which was included in the accrued expenses – related parties as of December
31, 2019. The unrecognized stock-based compensation was $1,111 as of December 31, 2019.
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 the Company’s assessment of the assumptions that market participants would use in pricing the asset or
liability.
|
The following table presents information about
the Company’s assets that are measured at fair value on a recurring basis at December 31, 2019, and indicates the fair value
hierarchy of the valuation inputs the Company utilized to determine such fair value:
Description
|
|
Level
|
|
December 31, 2019
|
Assets:
|
|
|
|
|
|
|
|
|
Government securities held in Trust Account
|
|
|
1
|
|
|
$
|
116,428,920
|
|
NOTE
10. CREDIT ARRANGEMENT
On July 24, 2019, the Company and the Sponsor
entered into an unsecured promissory note (the “Note”) for a principal amount of up to $800,000 to be used by the
Company for working capital purposes. Pursuant to the terms of the Note, the Sponsor will loan to the Company up to a total
of $800,000, in the event that the Company’s cash held outside of its Trust Account is less than $150,000. The Note bears
no interest and is repayable in full upon the earlier of the closing of the Company’s initial Business Combination and the
date of the winding up of the Company.