Microvast Holdings, Inc. annual report, FY2020

Business context and reporting period

This Form 10-K is for Tuscan Holdings Corp., not Microvast Holdings, Inc., for the year ended December 31, 2020. Tuscan was a blank-check company formed to complete a business combination and had no operating business or operating revenue during the period. The filing was signed March 24, 2021.

On February 1, 2021, Tuscan entered into a proposed merger with Microvast, Inc. The transaction was pending at the filing date and was subject to stockholder approval, customary closing conditions, and Tuscan having at least $250 million of available cash.

Key financial metrics

Metric20202019
Operating revenueNoneNone
Operating and formation costs$921,665$778,815
Interest income from trust account$2,654,140$4,912,346
Unrealized gain on trust-account securities$9,750$128,899
Provision for income taxes$366,764$895,251
Net income$1,375,461$3,367,179
Cash used in operating activities$(705,994)$(1,634,432)
Cash outside the trust account at year-end$135,961$140,303
Trust-account securities$282,254,978$280,103,245
Total liabilities$867,172$296,124
Convertible promissory note payable to related party$200,000None

Profitability was driven by interest and unrealized gains on trust-account investments rather than business operations. The filing does not provide meaningful operating margins because the company had no operating revenue. Non-redeemable common stock generated a net loss of $674,167, or $0.08 per share, while redeemable shares received allocated income of $0.08 per share.

Material changes versus the prior comparable period

  • Net income declined 59.2% from $3.37 million to $1.38 million, primarily because trust-account interest income fell 46.0% to $2.65 million.
  • Operating costs increased approximately 18.3%, from $778,815 to $921,665.
  • Cash used in operating activities improved to $705,994 from $1.63 million.
  • Trust-account assets increased to $282.3 million from $280.1 million, despite a $32,684 redemption payment and approximately $479,000 of interest withdrawals for taxes during 2020.
  • Common stock subject to possible redemption decreased by 39,921 shares following the December 2020 extension vote, when 3,198 public shares were redeemed at approximately $10.22 per share.

Merger, outlook, risks, and unusual items

  • The proposed Microvast transaction contemplated issuing 210 million closing shares, up to 20 million earnout shares, and 6,736,111 shares upon conversion of $57.5 million of Microvast bridge notes.
  • A $482.5 million PIPE financing was agreed, representing 48.25 million shares at $10.00 per share. Pro forma ownership was expected to be approximately 69.9% for former Microvast equityholders and 9.2% for existing Tuscan stockholders, assuming no public-share redemptions.
  • The transaction was to be accounted for as a reverse recapitalization, with Tuscan treated as the accounting acquiree and no goodwill or other intangible assets recognized.
  • Tuscan’s business-combination deadline had been extended from December 7, 2020 to April 30, 2021. A preliminary proxy statement sought a further extension to July 31, 2021.
  • Management and the auditor identified substantial doubt about the company’s ability to continue as a going concern through the applicable liquidation deadline because cash outside the trust account was insufficient to fund planned activities. The financial statements contain no adjustment for this uncertainty.
  • The Sponsor had committed up to $1.5 million of loans by February 2021, of which $600,000 had been drawn; the Sponsor intended to convert the commitment into private units if the Microvast transaction closed.
  • Nasdaq notified Tuscan that it had failed to hold a timely annual meeting. Nasdaq granted an extension through June 29, 2021, subject to conditions including periodic updates on the Microvast transaction.
  • If no business combination were completed by the applicable deadline, public shares would generally be redeemed from the trust account, while warrants would expire worthless. Trust-account distributions could be reduced by creditor claims, bankruptcy proceedings, or an inability of the Sponsor to satisfy its indemnification obligations.
  • COVID-19 reduced investment yields and could delay financing, due diligence, or completion of the proposed transaction. The filing states that the specific financial impact was not determinable.

Facts investors should verify

  • Confirm that the relevant issuer for the requested filing is Tuscan Holdings Corp.; this 2020 Form 10-K does not report Microvast Holdings, Inc.’s operating results.
  • Verify whether the proposed Microvast merger, the $482.5 million PIPE financing, and the bridge-note conversion actually closed and on what final terms.
  • Review subsequent filings for the final business-combination deadline, public-share redemptions, trust-account balance, and Nasdaq compliance status.
  • Assess dilution from the 210 million closing shares, potential 20 million earnout shares, 48.25 million PIPE shares, 6.736 million bridge-note shares, Sponsor units, and outstanding warrants.
  • Evaluate the going-concern uncertainty, liquidity outside the trust account, related-party financing, transaction fees, and potential claims against trust-account assets.