Business Context and Reporting Period
The filing is a Form 10-Q for the quarter ended March 31, 2020, filed May 4, 2020, by Tuscan Holdings Corp., not Microvast Holdings, Inc. Tuscan was a blank-check company seeking a business combination, with a stated focus on the cannabis industry. Its activities consisted primarily of formation, the March 2019 initial public offering, and identifying a target; it had no operating revenue.
Key Financial Metrics
| Metric | Three Months Ended March 31, 2020 | Three Months Ended March 31, 2019 |
|---|---|---|
| Operating costs | $228,749 | $70,042 |
| Interest income | $1,027,157 | $409,539 |
| Unrealized gain on Trust Account securities | $1,438,240 | $19,142 |
| Income before taxes | $2,236,648 | $358,639 |
| Income tax provision | $470,593 | $75,314 |
| Net income | $1,766,055 | $283,325 |
| Adjusted loss attributable to non-redeemable common stock | $142,381 | $15,431 |
| Basic and diluted loss per share | $0.02 | $0.00 |
| Net cash used in operating activities | $109,922 | $27,594 |
The company generated no revenue. Reported net income primarily reflected interest income and unrealized gains on Trust Account investments rather than operating performance. The filing’s MD&A states that operating cash usage was $413,599 for 2020, which conflicts with the condensed statement of cash flows showing $109,922; the filing text does not reconcile this discrepancy.
At March 31, 2020, cash outside the Trust Account was $195,979, current assets were $412,053, and total current liabilities were $543,522. Marketable securities held in the Trust Account totaled $282.4 million, compared with $280.1 million at December 31, 2019. Common stock subject to possible redemption was $277.0 million. Total liabilities were $845,553 and stockholders’ equity was approximately $5.0 million.
The company reported no long-term debt, capital lease obligations, operating lease obligations, or other long-term liabilities. It incurred a $10,000 monthly administrative-support fee payable to an affiliate and had a $303,677 due-to-affiliate balance at March 31, 2020.
Material Changes Versus the Prior Comparable Period
- Net income increased to $1.77 million from $283,325, primarily because of higher Trust Account interest and unrealized gains.
- Operating costs increased to $228,749 from $70,042.
- Trust Account securities increased by approximately $2.3 million from year-end 2019, including investment earnings and gains, partly offset by approximately $166,000 withdrawn for taxes during the quarter.
- Cash outside the Trust Account increased to $195,979 from $140,303.
- Current liabilities increased to $543,522 from $269,055, primarily due to income taxes payable and amounts due to an affiliate.
- The number of shares subject to possible redemption declined to 27,082,526 from 27,126,477.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- The company had until December 7, 2020 to complete a business combination. If unsuccessful, it was required to cease operations, redeem public shares using the Trust Account, and liquidate. Public warrants would expire worthless.
- Management expected sufficient cash to fund operations through the earlier of a business combination or the December 7, 2020 deadline, but acknowledged that additional financing might be required for transaction costs or substantial shareholder redemptions.
- On April 20, 2020, the Sponsor committed up to $500,000 of non-interest-bearing, unsecured loans. On April 21, 2020, the company issued a $300,000 Sponsor note, convertible into post-combination units at $10 per unit. These were subsequent events and were not outstanding at March 31, 2020.
- Public stockholders could redeem shares for their pro rata Trust Account value in connection with a business combination. The company was required to maintain at least $5,000,001 of net tangible assets to close a transaction.
- The company expected to pay EarlyBirdCapital a $9.66 million cash fee upon consummation of a business combination, excluding possible finders’ fees.
- The Trust Account was invested substantially in short-term U.S. Treasury securities. Management reported no material market or interest-rate risk.
- The company’s controls evaluation concluded that disclosure controls and procedures were effective, with no material change in internal control over financial reporting during the quarter.
- The filing discusses the CARES Act and states that it did not expect a significant effect on financial position or results of operations.
Investor Verification Checklist
- Verify that the requested issuer is correct: the supplied filing is for Tuscan Holdings Corp., not Microvast Holdings, Inc.
- Reconcile the MD&A cash-flow amount of $413,599 with the statement-of-cash-flows amount of $109,922.
- Confirm the status and terms of the December 7, 2020 business-combination deadline, shareholder redemption rights, and liquidation provisions.
- Review the Trust Account balance, permitted tax withdrawals, and the amount available to redeem public shares.
- Assess the Sponsor’s $500,000 loan commitment and the $300,000 subsequent promissory note, including conversion and repayment terms.
- Consider the potential $9.66 million EarlyBirdCapital transaction fee and the effects of any shareholder redemptions or additional financing.