Business Context and Reporting Period
This Form 10-Q, filed by Tuscan Holdings Corp. on June 1, 2021, covers the three months ended March 31, 2021. Although the request identifies Microvast Holdings, Inc., the filing is for Tuscan Holdings Corp., a special purpose acquisition company that had not yet completed its proposed merger with Microvast, Inc.
Tuscan had no operating revenue and conducted activities related to its formation, public offering, target search, and proposed Microvast business combination. The financial statements are unaudited and presented under U.S. GAAP.
Financial Metrics
| Metric | March 31, 2021 / Q1 2021 | Comparable Period or Prior Date |
|---|---|---|
| Operating revenue | $0 | $0 in Q1 2020 |
| Operating and formation costs | $890,929 | $228,749 in Q1 2020 |
| Net income (loss) | $(48,825) | $1,903,455 net income in Q1 2020 |
| Cash used in operating activities | $(569,686) | $(109,922) in Q1 2020 |
| Cash outside Trust Account | $44,096 | $135,961 at December 31, 2020 |
| Trust Account | $282.3 million | $282.3 million at December 31, 2020 |
| Convertible promissory notes, related party | $1.056 million fair value | $200,000 at December 31, 2020 |
| Warrant liability | $3.064 million | $4.204 million at December 31, 2020 |
| Common stock subject to possible redemption | $281.8 million | $272.3 million at December 31, 2020 |
| Stockholders’ equity | $(4.471) million | $5.000 million at December 31, 2020 |
Q1 2021 other income was $820,636, primarily comprising a $1.140 million decrease in warrant liability fair value, partly offset by a $356,000 increase in the fair value of related-party convertible notes. Trust Account interest income was $35,796 and the unrealized gain on Trust Account securities was $420.
Financing activities provided $477,821, consisting primarily of $500,000 in proceeds from related-party convertible notes, partially offset by repayment of $22,179 in related-party advances. No cash was provided by investing activities in Q1 2021.
Material Changes Versus the Prior Comparable Period
- Operating and formation costs increased approximately 289% from $228,749 to $890,929.
- The Company moved from $1.903 million of net income in Q1 2020 to a $48,825 net loss in Q1 2021.
- Trust Account interest and unrealized gains declined substantially from $2.465 million in Q1 2020 to $36,216 in Q1 2021.
- Cash used in operating activities increased to $569,686 from $109,922.
- The fair value of related-party convertible promissory notes increased to $1.056 million following $500,000 of additional proceeds and a $356,000 fair-value adjustment.
- The warrant liability declined by $1.140 million to $3.064 million, producing a noncash gain.
- The Company recorded a substantial decline in stockholders’ equity, primarily because the carrying value of redeemable common stock increased by $9.422 million and net loss was recorded.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- On February 1, 2021, Tuscan entered into a merger agreement with Microvast, Inc. Microvast equity holders were to receive 210 million shares, with up to 20 million additional earnout shares subject to market-price conditions. Tuscan also expected to issue 6,736,111 shares upon conversion of $57.5 million of Microvast bridge notes.
- Investors subscribed for $482.5 million of PIPE financing, representing 48.25 million shares at $10 per share. Closing was subject to customary conditions, stockholder approval, and Tuscan having at least $250 million of available cash.
- On May 10, 2021, after the reporting date, stockholders approved extending the business-combination deadline from April 30, 2021 to July 31, 2021. The filing states that 13,290 public shares were redeemed in connection with the extension.
- If a business combination was not completed by the applicable deadline, Tuscan was required to cease operations, redeem public shares from the Trust Account, and liquidate. Public warrants could expire worthless.
- Management disclosed substantial doubt about the Company’s ability to continue as a going concern through July 31, 2021 because only $44,096 was available outside the Trust Account and additional financing was required.
- The Sponsor had committed up to $1.5 million of non-interest-bearing convertible working-capital loans, of which $700,000 had been drawn as of March 31, 2021. Repayment depended principally on consummation of a business combination or available funds outside the Trust Account.
- Management identified a material weakness in internal control over financial reporting related to the accounting for Private Warrants and stated that the financial statements had been restated to classify those warrants as liabilities.
- The Company received a Nasdaq notice for failing to timely file this Form 10-Q; the filing states that submission of the report should restore compliance with the applicable filing requirement.
- COVID-19 could negatively affect the Company’s financial position, operations, or search for a target, but the specific impact was not determinable.
- Transaction-related contingent fees included $9.660 million payable to EarlyBirdCapital and a $5.5 million Morgan Stanley transaction fee, plus a PIPE placement fee, if the business combination closed.
Investor Verification Checklist
- Confirm that the filing relates to Tuscan Holdings Corp. rather than the post-merger Microvast Holdings, Inc.
- Verify the subsequent completion, amendment, or termination of the proposed Microvast transaction and the final number of redemptions.
- Reconcile the $282.3 million Trust Account balance, redemption liabilities, PIPE proceeds, and cash available at transaction closing.
- Review the final treatment and remediation status of the Private Warrant accounting restatement and related material weakness.
- Assess whether the disclosed going-concern uncertainty was resolved before the July 31, 2021 deadline.
- Verify the conversion, repayment, or forgiveness terms of the related-party convertible promissory notes.
- Review the final transaction fees, earnout shares, bridge-note conversion shares, PIPE dilution, and warrant terms.