Microvast (MVST) - 2021 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION This section presents the company's unaudited condensed consolidated financial statements and management's analysis of financial condition and operations ITEM 1. FINANCIAL STATEMENTS This section presents the unaudited condensed consolidated financial statements for Microvast Holdings, Inc. (formerly Tuscan Holdings Corp.) for the periods ended June 30, 2021, and December 31, 2020, including balance sheets, statements of operations, changes in stockholders' (deficit) equity, and cash flows, along with detailed notes explaining the company's organization, business combination, significant accounting policies, and financial instrument valuations Condensed Consolidated Balance Sheets This section provides a summary of the company's financial position as of June 30, 2021, and December 31, 2020 Balance Sheet Summary (June 30, 2021 vs. December 31, 2020) | Metric | June 30, 2021 (Unaudited) | December 31, 2020 (Audited) | | :-------------------------------- | :-------------------------- | :-------------------------- | | Total Current Assets | $105,999 | $158,460 | | Cash and marketable securities in Trust Account | $281,671,994 | $282,254,978 | | Total Assets | $281,777,993 | $282,413,438 | | Total Current Liabilities | $801,468 | $645,704 | | Total Liabilities | $6,671,298 | $5,071,612 | | Total Stockholders' (Deficit) Equity | $(6,474,581) | $5,000,006 | Condensed Consolidated Statements of Operations This section details the company's financial performance for the three and six months ended June 30, 2021 and 2020 Statements of Operations Summary (Three Months Ended June 30) | Metric | 2021 (Unaudited) | 2020 (Unaudited) | | :------------------------------------------ | :--------------- | :--------------- | | Operating and formation costs | $543,914 | $251,714 | | Loss from operations | $(543,914) | $(251,714) | | Interest income (Trust Account) | $10,503 | $983,408 | | Change in fair value of warrant liability | $(1,119,810) | $(133,965) | | Net income (loss) | $(2,050,595) | $(297,162) | | Basic net loss per common share (Non-redeemable) | $(0.26) | $(0.04) | Statements of Operations Summary (Six Months Ended June 30) | Metric | 2021 (Unaudited) | 2020 (Unaudited) | | :------------------------------------------ | :--------------- | :--------------- | | Operating and formation costs | $1,434,843 | $480,463 | | Loss from operations | $(1,434,843) | $(480,463) | | Interest income (Trust Account) | $46,299 | $2,010,565 | | Change in fair value of warrant liability | $20,610 | $3,435 | | Net income (loss) | $(2,099,420) | $1,606,293 | | Basic net loss per common share (Non-redeemable) | $(0.25) | $(0.04) | Condensed Consolidated Statements of Changes in Stockholders' (Deficit) Equity This section outlines changes in stockholders' equity for periods ending June 30, 2021, and June 30, 2020 Stockholders' (Deficit) Equity (January 1, 2021 to June 30, 2021) | Metric | January 1, 2021 | June 30, 2021 | | :------------------------------------ | :-------------- | :------------ | | Total Stockholders' (Deficit) Equity | $5,000,006 | $(6,474,581) | | Net loss (Jan-Jun 2021) | N/A | $(2,099,420) | Stockholders' Equity (January 1, 2020 to June 30, 2020) | Metric | January 1, 2020 | June 30, 2020 | | :------------------------------------ | :-------------- | :------------ | | Total Stockholders' Equity | $5,000,009 | $5,000,001 | | Net income (Jan-Mar 2020) | N/A | $1,903,455 | | Net loss (Apr-Jun 2020) | N/A | $(297,162) | Condensed Consolidated Statements of Cash Flows This section summarizes the cash inflows and outflows from operating, investing, and financing activities Cash Flow Summary (Six Months Ended June 30) | Metric | 2021 (Unaudited) | 2020 (Restated) | | :------------------------------------ | :--------------- | :-------------- | | Net cash used in operating activities | $(1,290,879) | $(545,136) | | Net cash provided by investing activities | $629,283 | $346,474 | | Net cash provided by financing activities | $592,110 | $202,833 | | Net Change in Cash | $(69,486) | $4,171 | | Cash – Ending | $66,475 | $144,474 | Notes to Condensed Consolidated Unaudited Financial Statements This section details accounting policies, business combination, and financial instrument valuations - Microvast Holdings, Inc. (formerly Tuscan Holdings Corp.) was a blank check company formed on November 5, 2018, for the purpose of a business combination[24] - On July 23, 2021, the company consummated the acquisition of Microvast, Inc. (the "Merger"), with Microvast becoming a wholly-owned subsidiary[7][25][28] - The Business Combination involved the issuance of 210,000,000 shares to former Microvast owners, 6,736,111 shares for Bridge Notes conversion, 48,250,000 shares to PIPE Investors, and 150,000 private placement units to the Sponsor, with approximately $708,000,000 in cash contributed to Microvast for working capital[30] - The company faced Nasdaq compliance issues in early 2021 for not holding an annual meeting and for late 10-Q filing, but believes compliance was regained[40][41] - The financial statements are unaudited and prepared in accordance with GAAP for interim reporting, with certain disclosures condensed or omitted[43] - The Company is an "emerging growth company" and has elected not to opt out of the extended transition period for new accounting standards[46][47] - Warrants are accounted for as liabilities at fair value, with changes recognized in the statements of operations[52] - Common stock subject to possible redemption is classified as temporary equity at redemption value[53] - The Company adopted ASU 2020-06 effective January 1, 2021, which simplifies accounting for convertible instruments, with no material impact on financial statements[67] - On March 7, 2019, the Company completed its IPO, selling 24,000,000 units at $10.00 each, with an additional 3,600,000 units sold on March 12, 2019, due to the over-allotment option, and each unit included one common stock share and one Public Warrant[34][37][71] - Simultaneously with the IPO, the Sponsor and EarlyBirdCapital purchased 615,000 Private Units at $10.00 each, with an additional 72,000 Private Units purchased on March 12, 2019, and proceeds were added to the Trust Account[35][37][72] - The Sponsor purchased 5,750,000 Founder Shares for $25,000 in November 2018, which increased to 6,900,000 shares after a stock dividend[73][74] - Vogel Partners, LLP (an affiliate of Mr. Vogel) provides administrative services for $10,000 per month[77] - The Company issued unsecured convertible promissory notes to the Sponsor totaling $1,500,000 ($300,000 on April 21, 2020, and $1,200,000 on February 12, 2021), which are non-interest bearing and convertible into units at $10.00 per unit upon business combination[79] - The Company entered into a Registration Rights and Lock-Up Agreement at closing, replacing a prior agreement, which outlines resale registration rights and transfer restrictions for certain stockholders, including a one-year lock-up for 25% of Wu's shares and a two-year lock-up for the remaining 75%, with an early release condition at $15.00[82][83][84] - EarlyBirdCapital is entitled to a $9,660,000 cash fee upon business combination[85] - Morgan Stanley & Co. LLC is entitled to a $5.5 million transaction fee plus expenses for financial advisory services and placement fees for the PIPE Financing (3.5% on proceeds up to $300M, 2.5% on proceeds above $300M)[86] - A Stockholders Agreement was entered into at closing, establishing the board of directors and nomination rights for Wu and the Sponsor[88][89][90] - An Amendment to Escrow Agreement details lock-up periods and earn-out conditions for Sponsor and Founder shares, tied to stock price targets ($12.00 and $15.00)[92][93][94][100] - As of June 30, 2021, there were 7,887,000 shares of common stock issued and outstanding, excluding 27,583,510 shares subject to possible redemption[97] - Common stock subject to possible redemption was valued at $281,581,276 as of June 30, 2021[98] - Public Warrants become exercisable 30 days after a business combination at $11.50 per share and expire five years after, redeemable by the Company if the stock price exceeds $18.00 for 20 trading days within a 30-day period[100][101] - Private Warrants are identical but non-redeemable and exercisable for cash or cashless as long as held by initial purchasers or permitted transferees[102] - The Company's assets and liabilities measured at fair value include cash and marketable securities in the Trust Account (Level 1), Warrant Liability – Private Warrants (Level 3), and Convertible Promissory Notes – Related Party (Level 3)[106] - Private Warrants and Convertible Promissory Notes are valued using a binomial lattice simulation model[107][109] Fair Value of Private Warrants | Metric | June 30, 2021 | December 31, 2020 | | :------------- | :------------ | :---------------- | | Fair value | $4,183,830 | $4,204,440 | | Stock price | $13.63 | $17.10 | | Volatility | 46.9% | 19.5% | Fair Value of Convertible Promissory Notes | Metric | June 30, 2021 | | :------------- | :------------ | | Fair value | $1,686,000 | | Stock price | $13.63 | | Volatility | 46.9% | | Probability of transaction | 90.00% | - On July 23, 2021, the Company consummated the merger with Microvast[113] ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS This section provides management's perspective on the company's financial condition and operational results for the periods presented, focusing on its status as a blank check company and the recent business combination with Microvast, detailing financial performance, liquidity, capital resources, and critical accounting policies, highlighting significant net losses incurred in 2021 due to operating costs and changes in fair value of financial instruments Overview This section introduces the company as a blank check entity and its core activities - The Company is a blank check company incorporated on November 5, 2018, formed to effect a business combination[116] - All activities since inception relate to its formation, initial public offering, and identifying/consummating a business combination[117] Recent Developments This section highlights key events including the merger, PIPE financing, and Nasdaq compliance - On February 1, 2021, the Company entered into a Merger Agreement with Microvast, Inc., which resulted in Microvast becoming a wholly-owned subsidiary[118] - The Merger Agreement included the issuance of 210,000,000 shares of common stock to Microvast equity holders and the ability to earn an additional 20,000,000 shares based on stock price performance[118] - The Company secured $482,500,000 through a PIPE Financing by issuing 48,250,000 shares of common stock at $10.00 per share[122] - Stockholder approval was obtained to extend the business combination deadline to July 31, 2021, with some public shares redeemed for cash[123] - The Company issued an unsecured promissory note to the Sponsor for $1,200,000 on February 12, 2021, convertible into units at $10.00 per unit[124] - Nasdaq compliance issues regarding the annual meeting and timely 10-Q filing were addressed, with compliance believed to be regained[125][126] Results of Operations This section analyzes financial performance, detailing net losses and contributing factors for the periods - For the three months ended June 30, 2021, the Company had a net loss of $2,050,595, primarily due to operating costs ($543,914), change in fair value of convertible promissory notes ($380,000), and change in fair value of warrants ($1,119,810), compared to a net loss of $297,162 in the same period of 2020[128][130] - For the six months ended June 30, 2021, the Company reported a net loss of $2,099,420, driven by changes in the fair value of convertible promissory notes ($736,000) and operating costs ($1,434,843), contrasting with a net income of $1,606,293 for the six months ended June 30, 2020[129][131] Liquidity and Capital Resources This section discusses the company's cash position, funding sources, and cash flow activities - The Company generated gross proceeds of $240,000,000 from its Initial Public Offering (24,000,000 Units at $10.00) and $6,150,000 from the sale of 615,000 Private Units[132] - An additional $36,000,000 from 3,600,000 Units and $720,000 from 72,000 Private Units were generated through the underwriters' over-allotment option[133] - A total of $276,000,000 was placed in the Trust Account following the IPO and private placements[134] - As of June 30, 2021, marketable securities in the Trust Account totaled $281,671,994, including approximately $7,751,000 of interest income and unrealized gains[135] - Cash used in operating activities for the six months ended June 30, 2021, was $1,290,879, compared to $545,136 for the same period in 2020[136][137] - The Company had cash of $66,475 as of June 30, 2021[139] - Unsecured, non-interest bearing convertible promissory notes to the Sponsor totaled $1,500,000, convertible into units at $10.00 per unit upon business combination[140] - The Company secured an aggregate of $482.5 million in funding through the PIPE Financing as part of the business combination[142] Off-Balance Sheet Financing Arrangements This section confirms the absence of off-balance sheet arrangements as of the reporting date - The Company had no off-balance sheet arrangements as of June 30, 2021[143] Contractual Obligations This section details contractual commitments, including administrative and contingent business combination fees - The Company has no long-term debt, capital lease obligations, or operating lease obligations other than a $10,000 monthly fee to an affiliate of the Sponsor for administrative services[145] - Fees payable to EarlyBirdCapital ($9,660,000) and Morgan Stanley ($5.5 million transaction fee + PIPE placement fees) are contingent upon the consummation of the Microvast business combination[146] Critical Accounting Policies This section outlines the key accounting policies for warrants, common stock, and net loss per share - Warrants are recorded as liabilities at fair value, with changes recognized in the statements of operations, using a binomial lattice model for valuation[148] - Common stock subject to possible redemption is classified as temporary equity at redemption value due to redemption rights outside the Company's control[149] - Net loss per common share is calculated using the two-class method, distinguishing between common stock subject to possible redemption and non-redeemable common stock[150] Recently Adopted Accounting Standards This section describes the adoption of new accounting standards and their impact on the financial statements - The Company adopted ASU No. 2020-06, "Accounting for Convertible Instruments and Contracts in an Entity's Own Equity," effective January 1, 2021, which had no material impact on its financial statements[152] ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK This section is not required for smaller reporting companies, and thus no specific disclosures about market risk are provided - Not required for smaller reporting companies[154] ITEM 4. CONTROLS AND PROCEDURES Management concluded that the company's disclosure controls and procedures were not effective as of June 30, 2021, due to a material weakness related to the accounting for Private Warrants, which led to a restatement of financial statements, and the company is implementing remediation plans to address this weakness Evaluation of Disclosure Controls and Procedures This section details the assessment of disclosure controls, noting a material weakness in warrant accounting - As of June 30, 2021, the disclosure controls and procedures were deemed not effective due to a material weakness in accounting for Private Warrants, which led to a restatement of financial statements[156] - Disclosure controls and procedures provide reasonable, not absolute, assurance of meeting objectives[157] Changes in Internal Control Over Financial Reporting This section addresses internal control changes and planned remediation for the identified material weakness - No material changes in internal control over financial reporting occurred during the quarter, as the material weakness related to Private Warrants was identified subsequently[158] - The Company plans to enhance processes, provide better access to accounting literature, and increase communication to address the identified material weakness[158] PART II. OTHER INFORMATION This section covers additional disclosures including risk factors, equity sales, and a list of filed exhibits ITEM 1A. RISK FACTORS This section refers to the risk factors detailed in the Company's Annual Report on Form 10-K/A for the year ended December 31, 2020, and states that no material changes to these risk factors have occurred as of the report date - No material changes to risk factors disclosed in the Annual Report on Form 10-K/A as of the date of this report[161] ITEM 5. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS No unregistered sales of equity securities or use of proceeds are reported in this period - None[162] ITEM 6. EXHIBITS This section lists the exhibits filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q, including certifications, XBRL documents, and the cover page interactive data file - Includes certifications of Principal Executive Officer and Principal Financial Officer (31.1, 31.2, 32.1, 32.2)[167] - Includes Inline XBRL Instance Document, Taxonomy Extension Schema, Calculation Linkbase, Definition Linkbase, Label Linkbase, and Presentation Linkbase (101.INS, 101.SCH, 101.CAL, 101.DEF, 101.LAB, 101.PRE)[167] - Includes Cover Page Interactive Data File (104)[167]