Microvast Holdings, Inc. Form 10-Q Summary
Business context and reporting period
This filing covers the quarter and six months ended June 30, 2021. During the reporting period, the registrant was Tuscan Holdings Corp., a special purpose acquisition company with no operating business or revenue. On July 23, 2021, after quarter-end, Tuscan completed its business combination with Microvast, Inc. and was renamed Microvast Holdings, Inc. Accordingly, the reported financial statements primarily reflect the SPAC’s activities and do not reflect Microvast’s operating results.
Key financial metrics
| Metric | Three months ended June 30, 2021 | Six months ended June 30, 2021 | Comparable prior period |
|---|---|---|---|
| Revenue | $0 | $0 | $0 |
| Operating and formation costs | $543,914 | $1,434,843 | $251,714 and $480,463 |
| Net income (loss) | $(2,050,595) | $(2,099,420) | $(297,162) and $1,606,293 |
| Basic loss per non-redeemable share | $(0.26) | $(0.25) | $(0.04) and $(0.04) |
| Net cash used in operating activities | Not separately presented | $(1,290,879) | $(545,136) |
- Other expense for the six months included a $736,000 increase in the fair value of related-party convertible promissory notes, partly offset by a $20,610 favorable change in warrant liability fair value and $46,299 of Trust Account interest income.
- As of June 30, 2021, cash was $66,475, compared with $135,961 at December 31, 2020.
- Cash and marketable securities in the Trust Account were $281,671,994, compared with $282,254,978 at December 31, 2020.
- Total assets were $281,777,993 and total liabilities were $6,671,298. Common stock subject to possible redemption was classified as temporary equity at $281,581,276, resulting in stockholders’ deficit of $6,474,581.
- Related-party convertible promissory notes were recorded at fair value of $1,686,000; warrant liability was $4,183,830.
- Cash provided by investing activities was $629,283, principally from Trust Account withdrawals for redemptions and taxes. Cash provided by financing activities was $592,110, including $750,000 of related-party note proceeds.
- The filing does not provide operating or gross margins because the pre-combination entity had no revenue or operating business.
Material changes versus the prior comparable period
- Second-quarter net loss increased to $2.1 million from $0.3 million, primarily because operating costs more than doubled and the Company recorded a $1.12 million unfavorable change in warrant liability fair value.
- Six-month results shifted from net income of $1.6 million to a net loss of $2.1 million. The prior-year period benefited from $2.0 million of Trust Account interest income and a $500,000 unrealized gain, whereas 2021 had substantially lower Trust Account income and higher operating costs.
- Six-month operating cash use increased to $1.29 million from $0.55 million.
- Cash declined by $69,486 during the first six months, while Trust Account assets declined modestly due to withdrawals for taxes and redemptions.
- Related-party convertible promissory note fair value increased from $200,000 at year-end 2020 to $1,686,000 at June 30, 2021, reflecting $750,000 of additional proceeds and a $736,000 fair-value adjustment.
Business combination, outlook, risks and unusual items
- At the July 23, 2021 closing, the Company issued 210,000,000 shares to former Microvast owners, 6,736,111 shares upon conversion of $57.5 million of Bridge Notes, and 48,250,000 shares in a $482.5 million PIPE financing.
- The Company contributed approximately $708 million of cash to Microvast for working capital. Former Microvast owners and MPS investors may earn up to 20 million additional shares if specified share-price performance targets are met.
- The filing contains no post-combination operating guidance or financial forecast for Microvast. Management’s pre-combination discussion states that operating revenues were not expected until after the business combination.
- COVID-19 could adversely affect financial position, operations, or the transaction search process; the specific effect was not determinable at filing.
- Management reported a material weakness in disclosure controls and procedures related to the prior restatement that reclassified Private Warrants as liabilities. Controls were therefore considered ineffective as of June 30, 2021. Remediation efforts were underway, but completion and effectiveness were not assured.
- The Company received Nasdaq notices concerning an untimely annual meeting and late filing of the prior-quarter Form 10-Q; it reported holding the annual meeting on April 28, 2021 and believed compliance was regained after filing the prior Form 10-Q on June 2, 2021.
- There were no reported legal proceedings, off-balance-sheet arrangements, long-term debt, capital leases, or operating leases as of June 30, 2021. The Company did have transaction-related fee obligations, including $9.66 million payable to EarlyBirdCapital and a $5.5 million Morgan Stanley advisory fee, plus PIPE placement fees.
Facts investors should verify
- Confirm that post-July 23, 2021 filings reflect Microvast’s consolidated operating results rather than the SPAC’s historical financial statements.
- Verify the final share count, dilution from the merger, Bridge Notes, PIPE financing, warrants, sponsor securities, and potential earn-out shares.
- Reconcile the approximately $708 million cash contribution to Microvast with post-closing cash, liquidity, working-capital needs, and any transaction expenses.
- Review the remediation and auditor implications of the material weakness and prior Private Warrant restatement.
- Assess Microvast’s actual revenue growth, gross margins, cash burn, capital expenditures, manufacturing capacity, customer concentration, and battery supply-chain risks in subsequent filings.
- Review the terms and potential dilution or accounting effects of the warrants, related-party convertible notes, lock-ups, and registration rights.