| Organization and Business Operations | Note
1 — Organization and Business Operations Organization
and General Kaixin
Auto Holdings, formerly CM Seven Star Acquisition Corporation, (the “Company” or “KAH”) was incorporated
as a blank check company on November 28, 2016, under the laws of the Cayman Islands 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’s efforts to identify a prospective
target business were not limited to a particular industry or geographic location. As
of March 31, 2019, the Company had not yet commenced any operations generating revenue. The Company has selected December 31 as
its fiscal year end. On
April 30, 2019, the Company consummated a Business Combination. See Note 10 - Subsequent Events Financing The
registration statements for the Company’s initial public offering (“Initial Public Offering”) were declared
effective on October 25, 2017. On October 30, 2017, the Company consummated the Initial Public Offering of 18,000,000 units (“Units”
or “Public Units” and, with respect to the ordinary shares included in the Public Units being offered, the “Public
Shares”), generating gross proceeds of $180,000,000, which is described in Note 3. Simultaneously
with the closing of the Initial Public Offering, the Company consummated the sale of 475,000 units (the “Private Units”)
at a price of $10.00 per Unit in a private placement to the Company’s sponsor (the “Sponsor” or “SVF”),
generating gross proceeds of $4,750,000, which is described in Note 4. Contained
in the underwriting agreement for the Public Offering is an overallotment option allowing the underwriters to purchase from the
Company up to an additional 2,700,000 Public Units and the sale of an additional 54,000 Private Units at $10.00 per Unit (as described
in Note 3 – Initial Public Offering and Note 4 - Private Placement). On
November 3, 2017, the underwriters exercised the option in part and purchased 2,636,293 Public Units, which were sold at an offering
price of $10.00 per Unit, generating gross proceeds of $26,362,930. Simultaneously with the sale of the over-allotment Public
Units, the Company consummated the private placement of an additional 52,726 Private Units at a price of $10.00 per Unit, generating
total additional gross proceeds of $527,260. Trust
Account Following
the closing of the Initial Public Offering on October 30, 2017, an amount of $180,000,000 ($10.00 per Unit) from the net proceeds
of the sale of the Public Units in the Initial Public Offering and the Private Units was placed in a trust account (“Trust
Account”). Following the closing of underwriters’ exercise of over-allotment option on November 3, 2017, an additional
$26,362,930 of net proceeds ($10.00 per Unit) was placed in the Trust Account, bringing the aggregate proceeds held in the Trust
Account to $206,362,930, as of November 3, 2017. The
funds in the Trust Account were permitted to 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 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 as described below, except that interest earned on the Trust Account were permitted
to be released to pay the Company’s income or other tax obligations. Initial
Business Combination The
Company’s management had broad discretion with respect to the specific application of the net proceeds of the Initial Public
Offering and the Private Units, although substantially all of the net proceeds were intended to be generally applied toward consummating
a Business Combination. The Company’s Business Combination was required to 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. However, the Company was only to complete a Business
Combination if the post-Business Combination company owned or acquired 50% or more of the outstanding voting securities of the
target or otherwise acquired a controlling interest in the target sufficient for it not to be required to register as an investment
company under the Investment Company Act. The
ordinary shares subject to redemption will be recorded at a redemption value and classified as temporary equity upon the completion
of the Initial Public Offering, in accordance with Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing
Liabilities from Equity.” In such case, 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 a majority of the issued and outstanding shares
voted are voted in favor of the Business Combination. If a shareholder vote is not required by law and the Company does not decide
to hold a shareholder vote for business or other legal reasons, the Company will, pursuant to Amended and Restated Memorandum
and Articles of Association, 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 shareholder
approval of the transaction is required by law, or the Company decides to obtain shareholder approval for business or other legal
reasons, the Company will offer to redeem shares in conjunction with a proxy solicitation pursuant to the proxy rules and not
pursuant to the tender offer rules. If the Company seeks shareholder approval in connection with a Business Combination, the Initial
Shareholders (defined in Note 5 - Related Party Transactions) have agreed to vote their initial shares and private shares, as
well as any public shares acquired in or after this offering, in favor of any proposed business combination. Additionally, each
public shareholder may elect to redeem their Public Shares irrespective of whether they vote for or against the proposed transaction. The
Company initially had 15 months (to January 2019) from the closing of the Initial Public Offering to consummate a Business Combination
(the “Combination Period”). If the Company were unable to complete a Business Combination within the Combination Period,
it would have triggered the automatic winding up, dissolution and liquidation pursuant to the terms of the Amended and Restated
Memorandum and Articles of Association. However, if the Company anticipated that it may not be able to consummate a Business Combination
within 15 months, the Company was permitted to, but was not obligated to, extend the period of time to consummate a Business Combination
by an additional three months (for a total of up to 18 months to complete a Business Combination). Pursuant to the terms of the
Amended and Restated Memorandum and Articles of Association then in effect and the trust agreement entered into between the Company
and Continental Stock Transfer & Trust Company, LLC, in order to extend the time available for the Company to consummate a
Business Combination, the Company’s insiders or their affiliates or designees, upon five days advance notice prior to the
applicable deadline, were required to deposit into the trust account $2,063,629 ($0.10 per share), on or prior to the date of
the applicable deadline. The insiders received a non-interest bearing, unsecured promissory note equal to the amount of any such
deposit that will not be repaid in the event that the Company is unable to close a Business Combination unless there are funds
available outside the trust account to do so. Such notes were to either be paid upon consummation of the initial Business Combination,
or, at the lender’s discretion, converted upon consummation of the Business Combination into additional private units at
a price of $10.00 per unit. The Company’s shareholders have approved the issuance of the private units upon conversion of
such notes, to the extent the holder wishes to so convert such notes at the time of the consummation of a Business Combination.
The Company issued a press release announcing such intention on January 25, 2019. In addition, the Company issued a press release
the day after the applicable deadline announcing whether or not the funds had been timely deposited. On January 25, 2019,
the Company extended the time required for the Company to complete its proposed Business Combination with Kaixin, for an additional
three-months, ending April 30, 2019. The Sponsor or its designees and Kaixin deposited an aggregate amount of $2,063,629, of which
Kaixin funded $1,050,000 and the Sponsor funded $1,013,629, representing $0.10 per public share, into the Company’s Trust
account on January 25, 2019 pursuant to the terms of the investment management trust agreement entered into by the Company at
the time of the Company’s initial public offering and pursuant to the terms of the definitive share exchange agreement previously
entered into by the Company and Kaixin. The
amount in the Trust Account (less the aggregate nominal par value of the shares of the Company’s public shareholders) under
the Companies Law was treated as share premium which is distributable under the Companies Law. If the Company were forced to liquidate
the Trust Account, the public shareholders would have been distributed the amount in the Trust Account calculated as of the date
that is two days prior to the distribution date (including any accrued interest). On April 30, 2019, 20,403,667 shares of KAH
ordinary shares were redeemed upon consummation of the Business Combination. See Note 10 - Subsequent Events The
Initial Shareholders have agreed to (i) vote their insider shares (as well as any Public Shares acquired in or after this offering)
in favor of any proposed Business Combination (ii) waive their conversion rights with respect to their initial share (as well
as any other shares acquired in or after this offering) in connection with the consummation of a Business Combination, (iii) to
waive their rights to liquidating distributions from the Trust Account with respect to their initial shares if the Company fails
to consummate a Business Combination within the Combination Period and (iv) not to propose an amendment to the Company’s
Amended and Restated Memorandum and Articles of Association that would affect the substance or timing of the Company’s obligation
to redeem 100% of its Public Shares if the Company does not complete a Business Combination, unless the Company provides the public
shareholders with the opportunity to redeem their shares in conjunction with any such amendment. Share
Exchange Agreement On
November 2, 2018, the Company entered into a share exchange agreement with Renren Inc. (“Renren” or the “Seller”)
and Kaixin Auto Group (“Kaixin”) pursuant to which the Company would acquire all of the outstanding equity interests
of Kaixin (the “Share Exchange Agreement,” and the transactions contemplated thereby, the “Business Combination”).
Kaixin was founded in 2015 by its corporate parent, Renren, to capitalize on growth in China’s used car financing industry.
Kaixin operates a unique business model that includes on-line and brick-and-mortar dealerships as well as a network of parties
that provide a range of value-added and after-sale services. 100%
of the acquisition consideration is newly issued ordinary shares of the Company and amounts remaining in the Company’s trust
account at the closing of the business combination are expected to be used for Kaixin’s capital growth. Upon closing of
the acquisition, Kaixin shareholders received approximately 28.3 million in ordinary shares as consideration and up to approximately
19.5 million additional ordinary shares based on incentive earnouts (as described in more detail below), issuable in the future
upon achievement of certain financial results and/or share prices, and subject to certain indemnification arrangements. In addition,
4.7 million ordinary shares were reserved for issuance under an equity incentive plan in exchange for outstanding options in Kaixin. If
Kaixin’s revenue equals or exceeds RMB5.0 billion in 2019 (USD 725.7 million), Renren will receive 1.95 million ordinary
shares. If Kaixin’s 2019 Adjusted Earnings Before Interest, Taxes, Depreciation, and Amortization (“EBITDA”)
equals RMB150 million (USD 21.8 million), Renren will receive 3.9 million ordinary shares, increasing proportionally to 7.8 million
shares if 2019 Adjusted EBITDA equals or exceeds RMB200 million (USD 29.0 million). If Kaixin’s 2020 Adjusted EBITDA equals
RMB340 million (USD 49.3 million), Renren will receive 4.875 million ordinary shares, increasing proportionally to 9.75 million
ordinary shares if 2020 Adjusted EBITDA equals or exceeds RMB480 million (USD 69.7 million). Notwithstanding the Revenue and Adjusted
EBITDA achieved by the post-transaction company for any period, Kaixin shareholders will receive the 2019 earnout shares if the
Company’s share price is higher than $13.00 for any sixty days in any period of ninety consecutive trading days during a
fifteen month period following the closing, and will receive the 2019 earnout shares and the 2020 earnout shares if the Company’s
share price is higher than $13.50 for any sixty days in any period of ninety consecutive trading days during a thirty month period
following the closing. Convertible
Loan Agreement On
January 28, 2019, the Company entered into a convertible loan agreement with Kaixin and Kunlun Tech Limited (“Kunlun”),
pursuant to which Kunlun agreed to fund, subject to customary closing conditions, a $23 million convertible loan to Kaixin (the
“Kunlun Loan”), with interest payable at the rate stipulated by the People’s Bank of China. The first tranche
of the Loan, in the amount of $20 million, was funded to Kaixin on January 28, 2019, and the remaining $3 million is to be funded
on or before January 31, 2020. Upon
completion of the Business Combination with Kaixin, all amounts outstanding under the Kunlun Loan were automatically converted
into Company units (each unit having the same underlying securities as were issued in Initial Public Offering) at a conversion
price of $10.00 per unit. Accounting
for the Acquisition The
Business Combination is accounted for as a “reverse merger” in accordance with U.S. GAAP. Under this method of accounting,
the Company will be treated as the “acquired” company for financial reporting purposes. This determination is primarily
based on the fact that subsequent to the Business Combination, Kaixin securityholders have a majority of the voting power of the
combined company, Kaixin comprising all of the ongoing operations of the combined entity, Kaixin comprising a majority of the
governing body of the combined company, and Kaixin’s senior management comprising all of the senior management of the combined
company. Accordingly, for accounting purposes, the Business Combination is treated as the equivalent of Kaixin issuing shares
for the net assets of the Company, accompanied by a recapitalization. The net assets of the Company for subsequent periods will
be stated at fair value which approximates historical costs as the Company has only cash and short-term liabilities. No goodwill
or other intangible assets are recorded. Operations prior to the Business Combination will be those of Kaixin. Liquidation However,
the holders of the initial shares will not participate in any liquidation distribution with respect to such securities. In the
event of such distribution, it is possible that the per share value of the residual assets remaining available for distribution
(including Trust Account assets) will be less than the $10.00 per Unit in the Initial Public Offering. In order to protect the
amounts held in the Trust Account, an affiliate of the Sponsor will contractually agree, pursuant to a written agreement to the
Company, that if the Company liquidates the Trust Account prior to the consummation of a business combination, it will be liable
to ensure that the proceeds in the Trust Account are not reduced by the claims of target businesses or claims of vendors or other
entities that are owed money by the Company for services rendered or contracted for or products sold to the Company. This liability
will not apply with respect to any claims by a third party who executed a waiver of any right, title, interest or claim of any
kind in or to any monies held in the Trust Account. Moreover, in the event that an executed waiver is deemed to be unenforceable
against a third party, the affiliate of 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 affiliate of the Sponsor will have to indemnify the Trust Account
due to claims of creditors by endeavoring to have all vendors, service providers (other than the Company’s independent auditors),
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. The
Company paid the costs of liquidating the Trust Account from the remaining assets outside of the trust account. Liquidity As
of March 31, 2019, the Company had cash outside the Trust Account of $53,980 available for working capital needs. All remaining
cash was held in the Trust Account and was generally unavailable for use, prior to an initial Business Combination, and is restricted
for use either in a Business Combination or to redeem ordinary shares. As of March 31, 2019, none of the amount on deposit in
the Trust Account was available to be withdrawn as described above. Through
the March 31, 2019, the Company’s liquidity needs were satisfied through receipt of $31,038 from the sale of the insider
shares, advances from the Company’s Sponsor and an affiliate of the Sponsor in an aggregate amount of $663,009 which were
repaid upon the IPO, and the remaining net proceeds from the IPO and Private Placement (as described in Note 3 and Note 4). On
May 23, 2018 and January 24, 2019, the Sponsor loaned to the Company an additional $500,000 (see Note 5) and $1,100,000 (see Note
5), respectively, pursuant to the non-convertible non-interest-bearing promissory notes, which will be repaid promptly after the
date on which the Company consummates a Business Combination. On January 25, 2019, the Company issued two promissory notes
in the aggregate of $2,063,629 to its Sponsor and Kaixin. The promissory note issued to the Sponsor was $1,013,629 and the promissory
note issued to Kaixin was $1,050,000. The $2,063,629 received by the Company upon issuance of the notes was deposited into the
Company’s Trust Account for the benefit of its public shareholders in order to extend the period of time the Company
had to complete a business combination for an additional three months, from January 30, 2019 to April 30, 2019 (see Notes 5 and
7).. The note does not bear interest and is payable promptly after the date the Company completes a Business Combination. Until
consummation of its Business Combination, the Company used the funds not held in the Trust Account for identifying and evaluating
prospective acquisition candidates, performing business due diligence on prospective target businesses, traveling to and from
the offices, plants or similar locations of prospective target businesses, reviewing corporate documents and material agreements
of prospective target businesses, selecting the target business to acquire and structuring, negotiating and consummating the Business
Combination. On
November 2, 2018, the Company entered into a Share Exchange Agreement with Kaixin Auto Group. The Business Combination closed
on April 30, 2019. The Company has engaged several professional firms for services regarding the transaction, resulting in a significant
increase in the Company’s expenditures for merger and acquisition related activities. On April 30, 2019, the Company consummated
the transactions contemplated by the Share Exchange Agreement. Please see Note 10 – Subsequent Events |
