Business Context and Reporting Period
This Form 10-Q was filed by Tuscan Holdings Corp., not Microvast Holdings, Inc., for the quarter and nine months ended September 30, 2020. Tuscan was a blank-check company formed to identify and complete a business combination, with a stated focus on the cannabis industry. It had generated no operating revenue and had not completed a business combination as of the reporting date.
The financial statements are unaudited and prepared under U.S. GAAP. The filing was signed November 9, 2020. The company was classified as a shell company and an emerging growth company.
Key Financial Metrics
| Metric | Three Months Ended September 30, 2020 | Nine Months Ended September 30, 2020 | Comparable 2019 Period |
|---|---|---|---|
| Operating revenue | $0 | $0 | $0 |
| Operating costs | $174,340 | $654,803 | $262,271 / $527,663 |
| Operating loss | $(174,340) | $(654,803) | $(262,271) / $(527,663) |
| Interest income | $579,117 | $2,589,682 | $1,577,268 / $3,657,526 |
| Net income (loss) | $(101,287) | $1,501,571 | $896,594 / $2,444,728 |
| Basic and diluted EPS | $(0.01) | $(0.06) | $(0.02) / $(0.04) |
| Net cash used in operating activities | Not separately presented | $(563,890) | $(1,115,949) |
Operating and revenue margins are not meaningful because the company had no operating revenue. Third-quarter results were also affected by a $532,988 unrealized loss on Trust Account securities; the nine-month period included a $33,021 unrealized loss.
At September 30, 2020, cash outside the Trust Account was $255,886, marketable securities held in the Trust Account were $282.2 million, total assets were $282.5 million, and total liabilities were $826,108. Common stock subject to possible redemption was reported as temporary equity of $276.7 million. Stockholders’ equity was $5.0 million.
The company had $200,000 outstanding under a non-interest-bearing, unsecured, convertible promissory note from its Sponsor. Management reported no long-term debt, capital lease obligations, operating lease obligations, or off-balance-sheet arrangements. The company also owed an affiliate $10,000 per month for administrative support.
Material Changes Versus the Prior Comparable Period
- Third-quarter net income of $896,594 in 2019 changed to a net loss of $101,287 in 2020, primarily because the 2020 period recorded an unrealized loss on Trust Account securities compared with an unrealized gain in 2019, lower interest income, and lower operating costs.
- Nine-month net income declined from $2,444,728 in 2019 to $1,501,571 in 2020, mainly due to lower interest income and higher operating costs.
- Nine-month operating costs increased 24.1% to $654,803 from $527,663. Quarterly operating costs declined 33.5% from $262,271 to $174,340.
- Nine-month cash used in operating activities improved to $563,890 from $1.12 million, although operations remained cash-consuming.
- The Sponsor provided a $200,000 loan during 2020 and had committed to provide up to $500,000 in loans. The balance sheet carried $200,000 of this financing at September 30, 2020.
- Trust Account securities increased from $280.1 million at December 31, 2019 to $282.2 million at September 30, 2020, despite approximately $479,000 withdrawn during the period to pay taxes.
Outlook, Risks, Contingencies, and Unusual Items
The company had until December 7, 2020 to complete a business combination. Management scheduled a December 3, 2020 special meeting to seek approval to extend that deadline to April 30, 2021. The filing states there was no assurance that stockholders would approve the extension. If no business combination was completed within the applicable period, the company would cease operations, redeem public shares using the Trust Account, and liquidate; the warrants could expire worthless.
Public stockholders were entitled to redeem shares for a pro rata portion of the Trust Account, generally based on $10.00 per share plus eligible interest, subject to applicable taxes and the terms of the transaction. A business combination was required to involve a target or targets with aggregate fair market value of at least 80% of the Trust Account assets, excluding taxes payable on Trust Account income.
Management stated that available cash was expected to fund needs through the earlier of a business combination or December 7, 2020. However, the company warned that it could require additional financing if transaction costs exceeded estimates, if it needed to fund substantial redemptions, or if it lacked sufficient cash to complete a transaction.
COVID-19 could negatively affect the company’s financial position, operations, and search for a target, but the specific impact was not determinable as of the reporting date. The filing also identified potential negative interest rates on Trust Account investments as a risk that could reduce the per-share redemption amount below $10.00.
Upon consummation of a business combination, the company expected to pay EarlyBirdCapital a $9.66 million advisory fee, excluding potential finder’s fees. No business-combination guidance or target-company operating outlook was provided.
Investor Verification Items
- Verify the issuer identity: the supplied metadata names Microvast Holdings, Inc., while the filing is for Tuscan Holdings Corp.
- Verify whether the December 2020 extension was approved and whether Tuscan subsequently completed a business combination or liquidated.
- Confirm the status, terms, and potential conversion of the $200,000 Sponsor promissory note and any additional working-capital loans.
- Reconcile the $282.2 million Trust Account balance, redemption obligations, tax withdrawals, and the number of redeemable public shares.
- Assess the effect of potential shareholder redemptions and any additional equity or debt financing on the post-combination capitalization.
- Review the $9.66 million EarlyBirdCapital fee and other transaction-related contingencies that would become payable upon a business combination.
- Confirm subsequent events after September 30, 2020, because the filing’s financial statements did not identify any subsequent events requiring adjustment or disclosure.