UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 20202021

 

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from to to________________

Commission File No. 001-38826

Microvast Holdings, Inc.

TUSCAN HOLDINGS CORP.
(Exact name of registrant as specified in its charter)

(Exact name of registrant as specified in its charter)

Delaware001-38826 83-2530757
(State or other jurisdiction
of
incorporation or organization)		 (I.R.S.Commission File Number)(IRS Employer
Identification No.)

 

12603 Southwest Freeway, Suite 210
Stafford, Texas		77477
(Address Of Principal Executive Offices)(Zip Code)

(281) 491-9505

(Registrant’s telephone number, including area code)

Tuscan Holdings Corp.

135 E. 57th Street, 18th Floor

New York, NY 10022

(Address of Principal Executive Offices, including zip code)

(646) 948-7100
(Registrant’s telephone number, including area code)

N/A
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class Trading Symbol(s) Name of exchange on which registered
Units, each consisting of oneCommon stock, par value $0.0001 per share of common stock and one redeemable warrant THCBUMVST The Nasdaq Stock Market LLC
Common stock, par value $0.0001 per shareTHCBThe Nasdaq Stock Market LLC
Warrants,Redeemable warrants, exercisable for shares of common stock at an exercise price of $11.50 per share THCBWMVSTW The Nasdaq Stock Market LLC

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

☐     Large accelerated filer☒      ☐Accelerated filer☐
☐     Non-accelerated filer☒Smaller reporting company☒
Emerging growth company☒ ☒      Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act):. Yes ☒☐ No ☐☒

 

As of November 9, 2020,12, 2021, there were 35,487,000300,522,394 shares of the Company’s common stock, par value $0.0001, issued and outstanding.

 

 

 

 

 

TABLE OF CONTENTSMICROVAST HOLDINGS, INC.

Form 10-Q

For the Quarter Ended September 30, 2021

 

Table of Contents

Page
PART I.FINANCIAL INFORMATION1
   
ITEMItem 1.FINANCIAL STATEMENTSFinancial Statements (Unaudited)1
   
 Condensed Balance SheetsSheet1
   
 Condensed Statements of Operations3
2
Condensed Statement of Comprehensive Loss4
   
 Condensed Statements of Changes in Stockholders’Shareholders’ Equity35
   
 Condensed Statements of Cash Flows47
   
 Notes to Unaudited Condensed Financial Statements59
   
ITEMItem 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSManagement’s Discussion and Analysis of Financial Condition and Results of Operations33
Item 3.Quantitative and Qualitative Disclosures About Market Risk45
Item 4.Controls and Procedures1545
PART II. OTHER INFORMATION48
Item 1.Legal Proceedings48
Item 1A.Risk Factors48
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds from Registered Securities48
   
ITEMItem 3.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKDefaults Upon Senior Securities1848
  
ITEMItem 4.CONTROLS AND PROCEDURESMine Safety Disclosures1848
   
PART II.Item 5.OTHER INFORMATIONOther Information1948
   
ITEM 1A.RISK FACTORS19
ITEM 5.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS19
ITEMItem 6.EXHIBITSExhibits20
SIGNATURES2149

 

i

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements about future financial and operating results, our objectives, expectations and intentions with respect to future operations, products and services; and other statements identified by words such as “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimated,” “believe,” “intend,” “plan,” “projection,” “outlook” or words of similar meaning. These forward-looking statements include, but are not limited to, statements regarding our industry and market sizes, future opportunities, our estimated future results and the Business Combination (as defined below). Such forward-looking statements are based upon the current beliefs and expectations of management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are difficult to predict and generally beyond our control. Actual results and the timing of events may differ materially from the results anticipated in these forward-looking statements.

There are important risks, uncertainties, events and factors that could cause our actual results or performance to differ materially from those in the forward-looking statements contained in this document, including:

●risks of operations in the People’s Republic of China;

●a delay or failure to realize the expected benefits from the Business Combination;

●the risks related to disruption of management time from ongoing business operations due to the Business Combination;

●the impact of the ongoing COVID-19 pandemic;

●changes in the highly competitive market in which we compete, including with respect to our competitive landscape, technology evolution or regulatory changes;

●changes in the markets that we target;

●the risk that we may not be able to execute our growth strategies or achieve profitability;

●the risk that we are unable to secure or protect our intellectual property;

●the risk that our customers or third-party suppliers are unable to meet their obligations fully or in a timely manner;

●the risk that our customers will adjust, cancel or suspend their orders for our products;

●the risk that we will need to raise additional capital to execute our business plan, which may not be available on acceptable terms or at all;

●the risk of product liability or regulatory lawsuits or proceedings relating to our products or services;

●the risk that we may not be able to develop and maintain effective internal controls;

●the outcome of any legal proceedings that may be instituted against us or any of our directors or officers; and

●the failure to realize anticipated pro forma results and underlying assumptions.

The foregoing list of factors is not exhaustive and new factors may emerge from time to time that could also affect actual performance and results. For more information, please see the risk factors included in our Annual Report on Form 10-K/A for the year ended December 31, 2020 in Part I, Item 1A and in the Registration Statement on Form S-1, (File No. 333-258978), which was initially filed on August 20, 2021, and as further amended, and subsequent filings with the SEC.

Actual results, performance or achievements may differ materially, and potentially adversely, from any projections and forward-looking statements and the assumptions on which those forward-looking statements are based. There can be no assurance that the data contained herein is reflective of future performance to any degree. You are cautioned not to place undue reliance on forward-looking statements as a predictor of future performance as projected financial information and other information are based on estimates and assumptions that are inherently subject to various significant risks, uncertainties and other factors, many of which are beyond our control.

All information set forth herein speaks only as of the date hereof, and we disclaim any intention or obligation to update any forward-looking statements as a result of developments occurring after the date hereof except as may be required under applicable securities laws. Forecasts and estimates regarding our industry and end markets are based on sources we believe to be reliable, however there can be no assurance these forecasts and estimates will prove accurate in whole or in part. Annualized, pro forma, projected and estimated numbers are used for illustrative purpose only, are not forecasts and may not reflect actual results.

ii

PART I. FINANCIAL INFORMATION

 

ITEMItem 1. FINANCIAL STATEMENTS

TUSCAN HOLDINGS CORP.

CONDENSED BALANCE SHEETS

  

September 30,

2020

  

December 31,

2019

 
  (unaudited)    
ASSETS      
Current assets      
Cash $255,886  $140,303 
Prepaid income taxes  —   69,818 
Prepaid expenses and other current assets  87,915   186,247 
Total Current Assets  343,801   396,368 
         
Deferred tax assets  6,934   — 
Marketable securities held in Trust Account  282,180,433   280,103,245 
Total Assets $282,531,168  $280,499,613 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY        
Current liabilities        
Accounts payable and accrued expenses $261,636  $269,055 
Income taxes payable  364,472   — 
Total Current Liabilities  626,108   269,055 
         
Convertible promissory note – related party  200,000   — 
Deferred tax liability  —   27,069 
Total Liabilities  826,108   296,124 
         
Commitments        
         
Common stock subject to possible redemption, 27,110,573 and 27,126,477 shares at redemption value at September 30, 2020 and December 31, 2019, respectively  276,705,058   275,203,480 
         
Stockholders’ Equity        
Preferred stock, $0.0001 par value; 1,000,000 shares authorized, none issued and outstanding  —   — 
Common stock, $0.0001 par value; 65,000,000 shares authorized; 8,376,427 and 8,360,523 shares issued and outstanding (excluding 27,110,573 and 27,126,477 shares subject to possible redemption) at September 30, 2020 and December 31, 2019, respectively  838   836 
Additional paid in capital  131,206   1,632,786 
Retained earnings  4,867,958   3,366,387 
Total Stockholders’ Equity  5,000,002   5,000,009 
Total Liabilities and Stockholders’ Equity $282,531,168  $280,499,613 

The accompanying notes are an integral part of the condensed financial statements. 


TUSCAN HOLDINGS CORP.

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
  2020  2019  2020  2019 
             
Operating costs $174,340  $262,271  $654,803  $527,663 
Loss from operations  (174,340)  (262,271)  (654,803)  (527,663)
                 
Other income:                
Interest income  579,117   1,577,268   2,589,682   3,657,526 
Unrealized loss on marketable securities held in Trust Account  (532,988)  (187,306)  (33,021)  (35,094)
Other income, net  46,129   1,389,962   2,556,661   3,622,432 
                 
(Loss) income before income taxes  (128,211)  1,127,691   1,901,858   3,094,769 
Benefit (provision) for income taxes  26,924   (231,097)  (400,287)  (650,041)
Net (loss) income $(101,287) $896,594  $1,501,571  $2,444,728 
                 
Weighted average shares outstanding, basic and diluted (1)  8,387,847   8,274,315   8,384,294   7,792,096 
                 
Basic and diluted net loss per common share (2) $(0.01) $(0.02) $(0.06) $(0.04)

(1)Excludes an aggregate of 27,110,573 and 27,157,275 shares subject to possible redemption at September 30, 2020 and 2019

(2)Net loss per common share - basic and diluted excludes income attributable to common stock subject to possible redemption of $22,645 and $1,091,123 for the three months ended September 30, 2020 and 2019 and $1,970,861 and $2,777,233 for the nine months ended September 30, 2019, respectively.

The accompanying notes are an integral part of the condensed financial statements. 


TUSCAN HOLDINGS CORP.
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

Financial Statements (Unaudited)

 

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2020MICROVAST HOLDINGS, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)

 

  Common Stock  Additional
Paid-in		  Retained  Total
Stockholders’		 
  Shares  Amount  Capital  Earnings  Equity 
Balance – January 1, 2020  8,360,523  $836  $1,632,786  $3,366,387  $5,000,009 
                     
Change in value of common stock subject to possible redemption  43,951   4   (1,632,786)  (133,280)  (1,766,062)
                     
Net income  —   —   —   1,766,055   1,766,055 
Balance – March 31, 2020  8,404,474   840   —   4,999,162   5,000,002 
                     
Change in value of common stock subject to possible redemption  (16,627)  (1)  29,917   133,280   163,196 
                     
Net loss  —   —   —   (163,197)  (163,197)
Balance – June 30, 2020  8,387,847  $839  $29,917  $4,969,245  $5,000,001 
                     
Change in value of common stock subject to possible redemption  (11,420)  (1)  101,289   —   101,288 
                     
Net loss  —   —   —   (101,287)  (101,287)
Balance – September 30, 2020  8,376,427  $838  $131,206  $4,867,958  $5,000,002 
  December 31,
2020		  September 30,
2021		 
Assets      
Current assets:      
Cash and cash equivalents $21,496  $572,609 
Restricted cash  19,700   39,900 
Accounts receivable (net of allowance for doubtful accounts of $5,047 and $4,796 as of December 31, 2020 and September 30, 2021, respectively)  76,298   67,243 
Notes receivable  20,839   10,260 
Inventories, net  44,968   47,820 
Prepaid expenses and other current assets  6,022   12,964 
Amount due from related parties  -   128 
Total Current Assets  189,323   750,924 
Property, plant and equipment, net  198,017   222,771 
Land use rights, net  14,001   13,935 
Acquired intangible assets, net  2,279   2,024 
Other non-current assets  890   702 
Total Assets $404,510  $990,356 
         
Liabilities        
Current liabilities:        
Accounts payable $42,007  $36,557 
Advance from customers  2,446   2,343 
Accrued expenses and other current liabilities  60,628   48,065 
Income tax payables  664   665 
Short-term bank borrowings  12,184   22,851 
Notes payable  35,782   43,131 
Bonds payable  29,915   - 
Total Current Liabilities  183,626   153,612 
Deposit liability for series B2 convertible preferred shares (“Series B2 Preferred”)  21,792   - 
Long-term bonds payable  73,147   73,147 
Warrant liability  -   2,461 
Share-based compensation liability  -   8,841 
Other non-current liabilities  110,597   35,511 
Total Liabilities $389,162  $273,572 

 

1

THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2019MICROVAST HOLDINGS, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS - continued

(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)

 

  Common Stock  

Additional

Paid-in

  (Accumulated Deficit)/ Retained  

Total

Stockholders’

 
  Shares  Amount  Capital  Earnings  Equity 
Balance – January 1, 2019  7,200,000  $720  $25,480  $(792) $25,408 
                     
Sale of 27,600,000 Units, net of underwriting discounts and offering costs  27,600,000   2,760   269,938,142   —   269,940,902 
                     
Sale of 687,000 Private Units  687,000   68   6,869,932   —   6,870,000 
                     
Common stock subject to possible redemption  (27,181,690)  (2,718)  (272,116,910)  —   (272,119,628)
                     
Net income  —   —   —   283,325   283,325 
Balance – March 31, 2019  8,305,310   830   4,716,644   282,533   5,000,007 
                     
Common stock subject to possible redemption  (30,995)  (3)  (1,264,811)  —   (1,264,814)
                     
Net income  —   —   —   1,264,809   1,264,809 
Balance – June 30, 2019  8,274,315  $827  $3,451,833  $1,547,342  $5,000,002 
                     
Common stock subject to possible redemption  (30,995)  (3)  (1,264,811)  —   (1,264,814)
                     
Net income  —   —   —   1,264,809   1,264,809 
Balance – September 30, 2019  8,329,725  $833  $2,555,238  $2,443,936  $5,000,007 

  December 31,
2020		  September 30,
2021		 
Mezzanine Equity (Note 14 and Note 16)      
       
Series C1 convertible redeemable preferred shares (“Series C1 Preferred”) (US$0.01 par value; 26,757,258 authorized, issued and outstanding as of December 31, 2020 and nil authorized, issued and outstanding as of September 30, 2021) $80,581  $- 
Series C2 convertible redeemable preferred shares (“Series C2 Preferred”) (US$0.01 par value; 20,249,450 authorized, issued and outstanding as of December 31, 2020 and nil authorized, issued and outstanding as of September 30, 2021)  81,966   - 
Series D1 convertible redeemable preferred shares (“Series D1 Preferred”) (US$0.01 par value; 22,311,516 authorized, issued and outstanding as of December 31, 2020 and nil authorized, issued and outstanding as of September 30, 2021)  146,583   - 
Redeemable noncontrolling interests  90,820   - 
Total Mezzanine Equity $399,950  $- 
         
Commitments and contingencies (Note 21)        
         
Shareholders’ Equity        
Common Stock (par value of US$0.0001 per share, 240,450,000 and 750,000,000 shares authorized as of December 31, 2020 and September 30, 2021; 99,028,297 and 300,522,394 shares issued, and 99,028,297 and 298,834,894 shares outstanding as of December 31, 2020 and September 30, 2021) $6  $30 
Additional paid-in capital  -   1,291,199 
Statutory reserves  6,032   6,032 
Accumulated deficit  (397,996)  (585,460)
Accumulated other comprehensive income  7,356   4,983 
Total Shareholders’ (Deficit)/Equity  (384,602)  716,784 
Total Liabilities, Mezzanine Equity and Shareholders’ Equity $404,510  $990,356 

 

The accompanying notes are an integral part of thethese unaudited condensed consolidated financial statements.

 


2

 

MICROVAST HOLDINGS, INC.

TUSCAN HOLDINGS CORP.UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

CONDENSED STATEMENTS OF CASH FLOWS(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)

(Unaudited)

  

Nine Months Ended

September 30,

 
  2020  2019 
Cash Flows from Operating Activities:      
Net income $1,501,571  $2,444,728 
Adjustments to reconcile net income to net cash used in operating activities:        
Interest earned on marketable securities held in Trust Account  (2,589,682)  (3,657,526)
Unrealized loss on marketable securities held in Trust Account  33,021   35,094 
Deferred tax benefit  (34,003)  (7,370)
Changes in operating assets and liabilities:        
Prepaid expenses and other current assets  98,332   (173,767)
Prepaid income taxes  69,818   — 
Accounts payable and accrued expenses  (7,419)  (62,589)
Income taxes payable  364,472   305,481 
Net cash used in operating activities  (563,890)  (1,115,949)
         
Cash Flows from Investing Activities:        
Investment of cash in Trust Account  —   (276,000,000)
Cash withdrawn from Trust Account to pay income taxes  479,473   720,000 
Net cash provided by (used in) investing activities  479,473   (275,280,000)
         
Cash Flows from Financing Activities:        
Proceeds from sale of Units, net of underwriting discounts paid  —   270,480,000 
Proceeds from sale of Private Units  —   6,870,000 
Due to related party  2,833   — 
Repayment of due to related party  (2,833)  — 
Advances from related party  —   86,748 
Repayment of advances from related party  —   (86,748)
Proceeds from convertible promissory note – related party  200,000   — 
Proceeds from promissory note – related party  —   15,000 
Repayment of promissory note – related party  —   (90,342)
Payment of offering costs  —   (455,423)
Net cash provided by financing activities  200,000   276,819,235 
         
Net Change in Cash  115,583   423,286 
Cash – Beginning  140,303   17,500 
Cash – Ending $255,886  $440,786 
         
Supplemental cash flow information:        
Cash paid for income taxes $—  $720,000 
         
         
Non-cash investing and financing activities:        
Initial classification of common stock subject to possible redemption $—  $271,835,860 
Change in value of common stock subject to possible redemption $1,501,578  $2,445,171 
  Three Months Ended
September 30,		  Nine Months Ended
September 30,		 
  2020  2021  2020  2021 
Revenues $30,753  $36,894  $59,400  $85,204 
Cost of revenues  (27,075)  (72,779)  (50,950)  (129,100)
Gross profit/(loss)  3,678   (35,885)  8,450   (43,896)
Operating expenses:                
General and administrative expenses  (4,721)  (57,058)  (12,670)  (67,810)
Research and development expenses  (4,558)  (13,518)  (12,518)  (23,199)
Selling and marketing expenses  (3,456)  (7,380)  (9,464)  (14,242)
Total operating expenses  (12,735)  (77,956)  (34,652)  (105,251)
Subsidy income  (39)  545   802   2,676 
Loss from operations  (9,096)  (113,296)  (25,400)  (146,471)
Other income and expenses:                
Interest income  66   97   502   304 
Interest expense  (1,397)  (1,247)  (4,234)  (4,630)
Loss on changes in fair value of convertible notes  -   (3,018)  -   (9,861)
Gain on change in fair value of warrant liability  -   1,113   -   1,113 
Other income (expense), net  68   (19)  63   25 
Loss before provision for income taxes  (10,359)  (116,370)  (29,069)  (159,520)
Income tax benefit (expense)  270   (106)  (5)  (324)
Net loss $(10,089) $(116,476) $(29,074) $(159,844)
Less: Accretion of Series C1 Preferred  975   251   2,923   2,257 
Less: Accretion of Series C2 Preferred  2,216   570   6,650   5,132 
Less: Accretion of Series D1 Preferred  4,662   1,190   13,986   10,708 
Less: Accretion for noncontrolling interests  4,002   1,516   11,924   9,523 
Net loss attributable to common stock shareholders of Microvast Holdings, Inc. $(21,944) $(120,003) $(64,557) $(187,464)
Net loss per share attributable to common stock shareholders of Microvast Holdings, Inc.                
Basic and diluted $(0.22) $(0.49) $(0.65) $(1.27)
Weighted average shares used in calculating net loss per share of common stock                
Basic and diluted  99,028,297   243,861,780   99,028,297   147,836,650 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

3

MICROVAST HOLDINGS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)

  Three Months Ended
September 30,		  Nine Months Ended
September 30,		 
  2020  2021  2020  2021 
Net loss $(10,089) $(116,476) $(29,074) $(159,844)
Foreign currency translation adjustment  10,867   (3,130)  6,223   (2,373)
Comprehensive income/(loss) $778  $(119,606) $(22,851) $(162,217)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 


4

MICROVAST HOLDINGS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ (DEFICIT)/EQUITY

(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)

 Three Months Ended September 30, 2020
        Additional     Accumulated
other		     Total
Microvast

Holdings, Inc.

 
  Common Stock  paid-in  Accumulated  Comprehensive  Statutory  Shareholders’ 
  Shares  Amount  capital  deficit  loss  reserves  Deficit 
                      
Balance as of June 30, 2020  99,028,297  $     6  $-  $(359,646) $(13,910) $6,032  $(367,518)
Net loss  -   -   -   (10,089)  -   -   (10,089)
Accretion for Series C1 Preferred  -   -   -   (975)  -   -   (975)
Accretion for Series C2 Preferred  -   -   -   (2,216)  -   -   (2,216)
Accretion for Series D1 Preferred  -   -   -   (4,662)  -   -   (4,662)
Accretion for the exiting noncontrolling interests  -   -   -   (1,425)  -   -   (1,425)
Foreign currency translation adjustments  -   -   -   -   10,867   -   10,867 
Accretion for redeemable noncontrolling interests  -   -   -   (2,577)  -   -   (2,577)
Balance as of September 30, 2020  99,028,297  $6  $-  $(381,590) $(3,043) $6,032  $(378,595)
                             
  Nine Months Ended September 30, 2020 
        Additional     Accumulated
other		     Total
Microvast
Holdings, Inc.		 
  Common Stock  paid-in  Accumulated  Comprehensive  Statutory  Shareholders’ 
  Shares  Amount  capital  deficit  loss  reserves  Deficit 
                      
Balance as of January 1, 2020  99,028,297  $     6  $3,727  $(320,760) $(9,266) $6,032  $(320,261)
Net loss  -   -   -   (29,074)  -   -   (29,074)
Accretion for Series C1 Preferred  -   -   (2,923)  -   -   -   (2,923)
Accretion for Series C2 Preferred  -   -   (804)  (5,846)  -   -   (6,650)
Accretion for Series D1 Preferred  -   -   -   (13,986)  -   -   (13,986)
Accretion for the exiting noncontrolling interests  -   -   -   (4,243)  -   -   (4,243)
Foreign currency translation adjustments  -   -   -   -   6,223   -   6,223 
Accretion for redeemable noncontrolling interests  -   -   -   (7,681)   -   -   (7,681)
Balance as of September 30, 2020  99,028,297  $6  $-  $(381,590) $(3,043) $6,032  $(378,595)

5

MICROVAST HOLDINGS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ (DEFICIT)/EQUITY - continued

(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)

  Three Months Ended September 30, 2021 
        Additional     Accumulated other      

Total

Microvast
Holdings, Inc.

 
  Common Stock  paid-in  Accumulated  Comprehensive  Statutory  Shareholders’ 
  Shares  Amount  capital  deficit  Income (loss)  reserves  (Deficit)/Equity 
                      
Balance as of June 30, 2021  99,028,297  $6  $-  $(465,457) $8,113  $6,032  $(451,306)
Net loss  -   -   -   (116,476)  -   -   (116,476)
Accretion for Series C1 Preferred  -   -   -   (251)  -   -   (251)
Accretion for Series C2 Preferred  -   -   -   (570)  -   -   (570)
Accretion for Series D1 Preferred  -   -   -   (1,190)  -   -   (1,190)
Accretion for redeemable noncontrolling interests  -   -   -   (658)  -   -   (658)
Accretion for the exiting noncontrolling interests  -   -   -   (858)  -   -   (858)
Issuance of common stock upon the reverse recapitalization, net of issuance costs of $42.8 million (Note 3)  191,254,950   23   1,241,648   -   -   -   1,241,671 
Share-based compensation  8,551,647   1   49,551   -   -   -   49,552 
Foreign currency translation adjustments  -   -   -       (3,130)   -    (3,130) 
Balance as of September 30, 2021  298,834,894  $30  $1,291,199  $(585,460) $4,983  $6,032  $716,784 
                             
  Nine Months Ended September 30, 2021 
        Additional     Accumulated other      

Total

Microvast
Holdings, Inc.

 
  Common Stock  paid-in  Accumulated  Comprehensive  Statutory  Shareholders’ 
  Shares  Amount  capital  deficit  income (loss)  reserves  (Deficit)/Equity 
                      
Balance as of January 1, 2021  99,028,297  $6  $-  $(397,996) $7,356  $6,032  $(384,602)
Net loss  -   -   -   (159,844)  -   -   (159,844)
Accretion for Series C1 Preferred  -   -   -   (2,257)  -   -   (2,257)
Accretion for Series C2 Preferred  -   -   -   (5,132)  -   -   (5,132)
Accretion for Series D1 Preferred  -   -   -   (10,708)  -   -   (10,708)
Accretion for redeemable noncontrolling interests  -   -   -   (5,841)  -   -   (5,841)
Accretion for the exiting noncontrolling interests  -   -   -   (3,682)  -   -   (3,682)
Issuance of common stock upon the reverse recapitalization, net of issuance costs of $42.8 million (Note 3)  191,254,950   23   1,241,648   -   -   -   1,241,671 
Share-based compensation  8,551,647   1   49,551   -   -   -   49,552 
Foreign currency translation adjustments  -   -   -   -   (2,373)  -   (2,373)
Balance as of September 30, 2021  298,834,894  $30  $1,291,199  $(585,460) $4,983  $6,032  $716,784 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

6

 

 

MICROVAST HOLDINGS, INC.

TUSCAN HOLDINGS CORP.UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

NOTES TO CONDENSED FINANCIAL STATEMENTS

SEPTEMBER 30, 2020

(Unaudited)(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)

 

  Nine Months Ended
September 30,		 
  2020  2021 
Cash flows from operating activities      
Net loss $(29,074) $(159,844)
Adjustments to reconcile net loss to net cash used in operating activities:        
Loss on disposal of property, plant and equipment  205   6 
Depreciation of property, plant and equipment  11,384   14,398 
Amortization of land use right and intangible assets  529   499 
Share-based compensation  -   58,290 
Changes in fair value of warrant liability  -   (1,113)
Changes in fair value of convertible notes  -   9,861 
(Reversal) allowance of doubtful accounts  (861)  261 
Provision for obsolete inventories  1,326   12,667 
Impairment loss from property, plant and equipment  645   867 
Product warranty  2,468   44,610 
Changes in operating assets and liabilities:        
Notes receivable  10,630   10,782 
Accounts receivable  11,782   9,425 
Inventories  6,021   (15,127)
Prepaid expenses and other current assets  (625)  (6,874)
Amount due from/to related parties  1,859   (128)
Other non-current assets  (154)  52 
Notes payable  (8,612)  6,868 
Accounts payable  (2,545)  (5,944)
Advance from customers  (1,165)  (130)
Accrued expenses and other liabilities  1,981   (6,371)
Other non-current liabilities  -   2,292 
Income tax payables  5   - 
Net cash generated from/(used in) operating activities  5,799   (24,653)
         
Cash flows from investing activities        
Purchases of property, plant and equipment  (15,375)  (40,718)
Proceeds on disposal of property, plant and equipment  6   - 
Purchase of short-term investments  (2,002)  - 
Proceeds from maturity of short-term investments  2,946   - 
Net cash used in investing activities  (14,425)  (40,718)
         
Cash flows from financing activities        
Proceeds from borrowings  15,230   26,603 
Repayment of bank borrowings  (17,590)  (15,665)
Loans borrowing from related parties  18,063   8,426 
Repayment of related party loans  (18,063)  (8,426)
Merger and Private Investment in Public Equity (“PIPE”) financing  -   747,791 
Payment for transaction fee in connection with the merger  -   (42,821)
Payment to exited noncontrolling interests (Note 14)  -   (139,038)
Issuance of convertible notes  -   57,500 
         
Net cash (used in)/generated from financing activities  (2,360)  634,370 
Effect of exchange rate changes  534   2,314 
(Decrease) Increase in cash, cash equivalents and restricted cash  (10,452)  571,313 
Cash, cash equivalents and restricted cash at beginning of the period  41,784   41,196 
Cash, cash equivalents and restricted cash at end of the period $31,332  $612,509 

NOTE

7

MICROVAST HOLDINGS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - continued

(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)

  Nine Months Ended
September 30,		 
  2020  2021 
       
Reconciliation to amounts on consolidated balance sheets      
Cash and cash equivalents $23,099  $572,609 
Restricted cash  8,233   39,900 
Total cash, cash equivalents and restricted cash $31,332  $612,509 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

8

MICROVAST HOLDINGS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)

1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS

 

TuscanMicrovast Holdings, Corp. (theInc.(“Microvast” or the “Company”) was incorporated in Delaware on November 5, 2018. The Company was formed for the purpose of entering into a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization or similar business combination with one or more businesses or entities (the “Business Combination”).

Although the Company is not limited to a particular industry or sector for purposes of consummating a Business Combination, the Company is focusing its search on companies in the cannabis industry. The Company is an early stage and emerging growth company and, as such, the Company is subject to all of the risks associated with early stage and emerging growth companies.

All activity through September 30, 2020 relates to the Company’s formation, the initial public offering (“Initial Public Offering”), which is described below, and, after the Initial Public Offering, identifying a target company for a Business Combination. The Company will not generate any operating revenues until after the completion of a Business Combination, at the earliest. The Company generates non-operating income in the form of interest income from the proceeds derived from the Initial Public Offering.

The registration statement for the Company’s Initial Public Offering was declared effective on March 5, 2019. On March 7, 2019, the Company consummated the Initial Public Offering of 24,000,000 units (the “Units” and, with respect to the shares of common stock included in the Units sold, the “Public Shares”) at $10.00 per Unit, generating gross proceeds of $240,000,000, which is described in Note 3.

Simultaneously with the closing of the Initial Public Offering, the Company consummated the sale of 615,000 units (the “Private Units”) at a price of $10.00 per Private Unit in a private placement to Tuscan Holdings Acquisition LLC (the “Sponsor”) and EarlyBirdCapital, Inc. (“EarlyBirdCapital”) and its designee, generating gross proceeds of $6,150,000, which is describedsubsidiaries (collectively, the “Group”) are primarily engaged in Note 4.

Following the closing of the Initial Public Offering on March 7, 2019, an amount of $240,000,000 ($10.00 per Unit) from the net proceeds of the sale of the Unitsdeveloping, manufacturing, and selling electronic power products for electric vehicles primarily in the Initial Public Offering and the salePeople’s Republic of the Private Units was placed in a trust accountChina (“Trust Account”) which are invested in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act of 1940, as amended (the “Investment Company Act”), with a maturity of 180 days or less or in any open-ended investment company that holds itself out as a money market fund meeting the conditions of Rule 2a-7 of the Investment Company Act of 1940, as amended (the “Investment Company Act”), as determined by the Company, until the earlier of: (i) the completion of a Business Combination or (ii) the distribution of the Trust Account, as described below.

On March 12, 2019, the underwriters exercised their over-allotment option in full, resulting in the sale of an additional 3,600,000 Units for $36,000,000, less the underwriters’ discount of $720,000. In connection with the underwriters’ exercise of their over-allotment option, the Company also consummated the sale of an additional 72,000 Private Units at $10.00 per Private Unit, generating total gross proceeds of $720,000. A total of $36,000,000 was deposited into the Trust Account from the sale of the additional Units pursuant to the over-allotment option and the additional sale of Private Units, bringing the aggregate proceeds held in the Trust Account to $276,000,000.

Transaction costs amounted to $6,059,098, consisting of $5,520,000 of underwriting fees and $539,098 of other offering costs. In addition, as of September 30, 2020, cash of $255,886 was held outside of the Trust Account and is available for working capital purposes.

The Company’s management has broad discretion with respect to the specific application of the net proceeds of the Initial Public Offering and the sale of the Private Units, although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination. The Company’s Business Combination must be with one or more target businesses that together have a fair market value of at least 80% of the assets held in the Trust Account (excluding taxes payable on income earned on the Trust Account) at the time of the agreement to enter into a Business Combination. The Company will only complete a Business Combination if the post-transaction company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest in the target sufficient for it not to be required to register as an investment company under the Investment Company Act. There is no assurance that the Company will be able to complete a Business Combination successfully.

The Company will provide its holders of the outstanding Public Shares (the “public stockholders”) with the opportunity to redeem all or a portion of their Public Shares upon the completion of a Business Combination either (i) in connection with a stockholder meeting called to approve the Business Combination or (ii) by means of a tender offer. The decision as to whether the Company will seek stockholder approval of a Business Combination or conduct a tender offer will be made by the Company, solely in its discretion. The public stockholders will be entitled to redeem their Public Shares for a pro rata portion of the amount then in the Trust Account ($10.00 per Public Share, plus any pro rata interest earned on the funds held in the Trust Account and not previously released to the Company to pay its franchise and income tax obligations). There will be no redemption rights upon the completion of a Business Combination with respect to the Company’s warrants.  


TUSCAN HOLDINGS CORP.

NOTES TO CONDENSED FINANCIAL STATEMENTS

SEPTEMBER 30, 2020

(Unaudited)

The Company will proceed with a Business Combination only if the Company has net tangible assets of at least $5,000,001 upon such consummation of a Business Combination and, solely if the Company seeks stockholder approval, a majority of the shares voted are voted in favor of the Business Combination. If a stockholder vote is not required by law and the Company does not decide to hold a stockholder vote for business or other legal reasons, the Company will, pursuant to its Amended and Restated Certificate of Incorporation (the “Amended and Restated Certificate of Incorporation”), conduct the redemptions pursuant to the tender offer rules of the U.S. Securities and Exchange Commission (“SEC”PRC”) and file tender offer documents with the SEC prior to completing a Business Combination. If, however, stockholder approval of the transaction is required by law, or the Company decides to obtain stockholder approval for business or legal reasons, the Company will offer to redeem shares in conjunction with a proxy solicitation pursuant to the proxy rules and not pursuant to the tender offer rules. If the Company seeks stockholder approval in connection with a Business Combination, the Company’s Sponsor and EarlyBirdCapital have agreed to vote their Founder Shares (as defined in Note 5), Private Shares (as defined in Note 4) and any Public Shares purchased after the Initial Public Offering in favor of approving a Business Combination and not to convert any shares in connection with a stockholder vote to approve a Business Combination or sell any shares to the Company in a tender offer in connection with a Business Combination. Additionally, each public stockholder may elect to redeem their Public Shares irrespective of whether they vote for or against the proposed transaction or do not vote at all.

The Sponsor and EarlyBirdCapital have agreed (a) to waive their rights to liquidating distributions from the Trust Account with respect to the Founder Shares and Private Shares if the Company fails to consummate a Business Combination and (b) not to propose an amendment to the Amended and Restated Certificate of Incorporation that would affect a public stockholders’ ability to convert or sell their shares to the Company in connection with a Business Combination or affect the substance or timing of the Company’s obligation to redeem 100% of its Public Shares if the Company does not complete a Business Combination, unless the Company provides the public stockholders with the opportunity to redeem their Public Shares in conjunction with any such amendment.

The Company will have until December 7, 2020 to complete a Business Combination (the “Combination Period”). If the Company is unable to complete a Business Combination within the Combination Period, the Company will (i) cease all operations except for the purpose of winding up, (ii) as promptly as reasonably possible but not more than ten business days thereafter, redeem the Public Shares, at a per-share price, payable in cash, equal to the aggregate amount then on deposit in the Trust Account including interest earned on the funds held in the Trust Account and not previously released to the Company to pay franchise and income taxes, divided by the number of then outstanding Public Shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including the right to receive further liquidating distributions, if any), subject to applicable law, and (iii) as promptly as reasonably possible following such redemption, subject to the approval of the Company’s remaining stockholders and the Company’s board of directors, dissolve and liquidate, subject in each case to the Company’s obligations under Delaware law to provide for claims of creditors and the requirements of other applicable law. There will be no redemption rights or liquidating distributions with respect to the Company’s warrants, which will expire worthless if the Company fails to complete a Business Combination within the Combination Period.

In order to protect the amounts held in the Trust Account, the Sponsor has agreed to be liable to the Company if and to the extent any claims by a third party for services rendered or products sold to the Company, or a prospective target business with which the Company has discussed entering into a transaction agreement, reduce the amount of funds in the Trust Account to below $10.00 per Public Share, except as to any claims by a third party who executed an agreement with the Company waiving any right, title, interest or claim of any kind they may have in or to any monies held in the Trust Account and except as to any claims under the Company’s indemnity of the underwriters of Initial Public Offering against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the “Securities Act”). Moreover, in the event that an executed waiver is deemed to be unenforceable against a third party, the Insiders will not be responsible to the extent of any liability for such third-party claims. The Company will seek to reduce the possibility that the Sponsor will have to indemnify the Trust Account by endeavoring to have all vendors, service providers, prospective target businesses or other entities with which the Company does business, execute agreements with the Company waiving any right, title, interest or claim of any kind in or to monies held in the Trust Account.

Special Meeting to Extend Combination Period

The Company has scheduled a special meeting of stockholders for December 3, 2020, pursuant to which, among other matters, it will seek stockholder approval to extend the Combination Period from December 7, 2020 to April 30, 2021 (the “Extension Meeting”). The Company’s public stockholders will be able to elect to redeem their shares in connection with the Extension Meeting for a pro rata portion of the amount then on deposit in the Trust Account ($10.00 per share, plus any pro rata interest earned on the funds held in the Trust Account and not previously released to the Company to pay franchise and income taxes). There is no assurance that the Company's stockholders will vote to approve the extension of time with which the Company has to complete a Business Combination. If the Company does not obtain stockholder approval, the Company would wind up its affairs and liquidate.


TUSCAN HOLDINGS CORP.

NOTES TO CONDENSED FINANCIAL STATEMENTS

SEPTEMBER 30, 2020

(Unaudited)Europe.

 

Liquidity

The Company has principally financed its operations from inception using proceeds from the sale of its equity securities to its stockholders prior to the Initial Public Offering and such amount of proceeds from the Initial Public Offering that were placed in an account outside of the Trust Account for working capital purposes. As of September 30, 2020, the Company had $255,886 held outside of the Trust Account. As of April 20, 2020, the Sponsor committed to provide an aggregate of $500,000 in loans to the Company. The loans shall be non-interest bearing, unsecured and due upon the consummation of a Business Combination. In the event that a Business Combination does not close, the loans would be repaid only out of funds held outside the Trust Account to the extent such funds are available. Otherwise, all amounts loaned to the Company would be forgiven. On April 21, 2020, the Sponsor loaned the Company an aggregate of $200,000 (see Note 5). Based on the foregoing, the Company believes it will have sufficient cash to meet its needs through the earlier of consummation of a Business Combination or December 7, 2020, the date that the Company will be required to cease all operations except for the purpose of winding up, if a Business Combination is not consummated. 

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Basis of Presentationpresentation and use of estimates

 

The accompanying unaudited condensed consolidated financial statements include the accounts of the Company and its subsidiaries. The unaudited condensed consolidated financial statements have been prepared in accordance with accounting principlesthe rules and regulations of the Security and Exchange Commission and U.S. generally accepted in the United States of Americaaccounting standards (“U.S. GAAP”) for interim financial reporting. Accordingly, certain information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X of the SEC. Certain information or footnote disclosures normally included in the notes to the annual financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC forfrom these interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a complete presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited condensed financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented.statements.

 

The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s Annualaudited consolidated financial statements for the period ended December 31, 2020 included in the Company’s Current Report on Form 10-K for the year ended December 31, 2019 as8-K filed with the SEC on March 13, 2020,July 28, 2021 and as amended and filed with the SEC on August 16, 2021, which containsprovides a more complete discussion of the auditedCompany’s accounting policies and certain other information. In the opinion of the management, the accompanying unaudited condensed consolidated financial statements and notes thereto. Thereflect all adjustments (which include normal recurring adjustments) necessary for a fair statement of financial information as of December 31, 2019 is derived from the audited financial statements presented in the Company’s Annual Report on Form 10-Kresults for the year ended December 31, 2019.interim periods presented. The interimCompany believes that the disclosures are adequate to make the information presented not misleading.

The results of operations for the three and nine months ended September 30, 20202021 are not necessarily indicative of the results to be expected for any subsequent quarter or for the fiscal year ending December 31, 2020 or for any future interim periods.

Emerging Growth Company2021.

 

The Companyfinancial information as of December 31, 2020 included on the condensed consolidated balance sheets is derived from the Group’s audited consolidated financial statements for the year ended December 31, 2020.

Other than the policies noted below, there have been no significant changes to the significant accounting policies disclosed in Note 2 of the audited consolidated financial statements as of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019, and 2018.

Significant accounting estimates reflected in the Group’s financial statements include allowance for doubtful accounts, provision for obsolete inventories, impairment of long-lived assets, valuation allowance for deferred tax assets, product warranties, fair value measurement of the convertible promissory notes, fair value measurement of warrant liability and share based compensation.

All intercompany transactions and balances have been eliminated upon consolidation.

9

MICROVAST HOLDINGS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)

2. SIGNIFICANT ACCOUNTING POLICIES - continued

Basis of presentation and use of estimates-continued

On July 23, 2021 (the “Closing Date”), Tuscan Holdings Corp. (“Tuscan”), consummated the previously announced merger with Microvast, Inc., a Delaware corporation, pursuant to the Agreement and Plan of Merger (the “Merger Agreement”) dated February 1, 2021, between Tuscan, Microvast, Inc. and TSCN Merger Sub Inc., a Delaware corporation (“Merger Sub”), pursuant to which the Merger Sub merged with and into Microvast, Inc., with Microvast, Inc. surviving the merger (the “Merger,” and, collectively with the other transactions described in the Merger Agreement, the “Reverse Recapitalization”). As a result of the Merger, Tuscan was renamed “Microvast Holdings, Inc.” The Merger is accounted for as a reverse recapitalization as Microvast, Inc. was determined to be the accounting acquirer under Financial Accounting Standards Board’s Accounting Standards Codification Topic 805, Business Combinations (“ASC 805”).

Please refer to Note 3 “Reverse Recapitalization” for further details of the Merger.

Emerging Growth Company

Pursuant to the JOBS Act, an “emergingemerging growth company” may adopt new or revised accounting standards that may be issued by FASB or the SEC either (i) within the same periods as defined in Section 2(a) ofthose otherwise applicable to non-emerging growth companies or (ii) within the Securities Act of 1933,same time periods as amended (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it mayprivate companies. The Company intends to take advantage of certain exemptions from variousthe exemption for complying with new or revised accounting standards within the same time periods as private companies. Accordingly, the information contained herein may be different than the information provided by other public companies.

The Company also intends to take advantage of some of the reduced regulatory and reporting requirements that are applicable to other public companies that are notof emerging growth companies pursuant to the JOBS Act so long as the Company qualifies as an emerging growth company, including, but not limited to, not being required to comply withan exemption from the independent registered public accounting firmauditor attestation requirements of Section 404404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation, in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbindingnon-binding advisory votevotes on executive compensation and stockholder approval of any golden parachute payments not previously approved.payments.

Further, Section 102(b)(1) of the JOBS Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.


TUSCAN HOLDINGS CORP.

NOTES TO CONDENSED FINANCIAL STATEMENTS

SEPTEMBER 30, 2020

(Unaudited)

Use of EstimatesRevenue recognition

 

The preparationNature of condensed financial statements in conformity with GAAP requires management to make estimatesGoods and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.Services

Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate, could change in the near term due to one or more future events. Accordingly, the actual results could differ significantly from those estimates.

Cash and Cash Equivalents

The Company considers all short-term investments with an original maturityGroup’s revenue consists primarily of three months or lesssales of lithium batteries. The obligation of the Group is providing the electronic power products. Revenue is recognized at the point of time when purchased to be cash equivalents. The Company did not have any cash equivalents as of September 30, 2020 and December 31, 2019.

Marketable Securities Held in Trust Account

At September 30, 2020 and December 31, 2019, the assets held in the Trust Account were substantially held in U.S. Treasury Bills. Through September 30, 2020, the Company withdrew approximately $1,417,000 of interest earned in the Trust Account to pay its franchise and income taxes, of which approximately $479,000 was withdrawn during the nine months ended September 30, 2020.   

Common Stock Subject to Possible Redemption

The Company accounts for its common stock subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” Common stock subject to mandatory redemption is classified as a liability instrument and is measured at fair value. Conditionally redeemable common stock (including common stock that feature redemption rights that is either within the control of the holderpromised goods or subjectservices is transferred to redemption upon the occurrence of uncertain events not solely withincustomer, in an amount that reflects the Company’s control) is classified as temporary equity. At all other times, common stock is classified as stockholders’ equity. The Company’s common stock features certain redemption rights that are consideredconsideration the Group expects to be outside of the Company’s control and subjectentitled to occurrence of uncertain future events. Accordingly, common stock subject to possible redemption is presented at redemption value as temporary equity, outside of the stockholders’ equity section of the Company’s condensed balance sheets.

Income Taxes

The Company follows the asset and liability method of accounting for income taxes under ASC 740, “Income Taxes.” Deferred tax assets and liabilities are recognizedin exchange for the estimated future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recoveredgoods or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.

ASC 740 prescribes a recognition threshold and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of September 30, 2020 and December 31, 2019. The Company is currently not aware of any issues under review that could result in significant payments, accruals or material deviation from its position. The Company is subject to income tax examinations by major taxing authorities since inception.

On March 27,2020, President Trump signed the Coronavirus Aid, Relief and Economic Security “CARES” Act into law. The CARES Act includes several significant business tax provisions that, among other things, would eliminate the taxable income limit for certain net operating losses (“NOL) and allow business to carry back NOLs arising in 2018, 2019 and 2020 to the five prior years, suspend the excess business loss rules, accelerate refunds of previously generated corporate alternative minimum tax credits, generally loosen the business interest limited under IRC section 163 (j) from 30 percent to 50 percent among other technical corrections included in the Tax Cuts and Jobs Act tax provisions. The Company does not believe that the CARES Act will have a significant impact on Company’s financial position or statement of operations.


TUSCAN HOLDINGS CORP.

NOTES TO CONDENSED FINANCIAL STATEMENTS

SEPTEMBER 30, 2020

(Unaudited)

Net Loss Per Common Share

Net loss per common share is computed by dividing net loss by the weighted average number of common shares outstanding for the period. The Company applies the two-class method in calculating earnings per share. Shares of common stock subject to possible redemption at September 30, 2020 and 2019, which are not currently redeemable and are not redeemable at fair value, have been excluded from the calculation of basic net loss per common share since such shares, if redeemed, only participate in their pro rata share of the Trust Account earnings. The Company has not considered the effect of warrants sold in the Initial Public Offering and the private placement to purchase 28,287,000 shares of common stock in the calculation of diluted loss per share, since the exercise of the warrants are contingent upon the occurrence of future events. As a result, diluted net loss per common share is the same as basic net loss per common share for the periods presented.

Reconciliation of Net Loss Per Common Share

The Company’s net (loss) income is adjusted for the portion of income that is attributable to common stock subject to redemption, as these shares only participate in the earnings of the Trust Account and not the income or losses of the Company. Accordingly, basic and diluted loss per share is calculated as follows:

  

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

 
  2020  2019  2020  2019 
Net (loss) income $(101,287) $896,594  $1,501,571  $2,444,728 
Less: Income attributable to common stock subject to possible redemption  (22,645)  (1,091,123)  (1,970,861)  (2,777,233)
Adjusted net loss $(123,932) $(194,529) $(469,290) $(332,505)
                 
Weighted average shares outstanding, basic and diluted  8,387,847   8,274,315   8,384,294   7,792,096 
                 
Basic and diluted net loss per common share $(0.01) $(0.02) $(0.06) $(0.04)

Concentration of Credit Risk

Financial instruments that potentially subject the Company to concentrations of credit risk consist of a cash account in a financial institution which, at times may exceed the Federal Depository Insurance Coverage of $250,000. The Company has not experienced losses on this account and management believes the Company is not exposed to significant risks on such account.

Fair Value of Financial Instruments

The fair value of the Company’s assets and liabilities, which qualify as financial instruments under ASC 820, “Fair Value Measurement,” approximates the carrying amounts represented in the accompanying condensed balance sheets, primarily due to their short-term nature.

Recently Issued Accounting Standards

Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s condensed financial statements.

Risks and Uncertainties

Management continues to evaluate the impact of the COVID-19 pandemic on the industry and has concluded that while it is reasonably possible that the virus could have a negative effect on the Company’s financial position, results of its operations and/or search for a target company, the specific impact is not readily determinable as of the date of these financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

NOTE 3. INITIAL PUBLIC OFFERING

On March 7, 2019, the Company consummated the Initial Public Offering and sold 24,000,000 units at a price of $10.00 per Unit. Each Unit consists of one share of common stock and one warrant (“Public Warrant”). On March 12, 2019, in connection with the underwriters’ exercise of the over-allotment option in full, the Company sold an additional 3,600,000 Units at a price of $10.00 per Unit. Each Public Warrant entitles the holder to purchase one share of common stock at a price of $11.50 per share, subject to adjustment (see Note 7).


TUSCAN HOLDINGS CORP.

NOTES TO CONDENSED FINANCIAL STATEMENTS

SEPTEMBER 30, 2020

(Unaudited)

NOTE 4. PRIVATE PLACEMENT

Simultaneously with the closing of the Initial Public Offering, the Sponsor and EarlyBirdCapital and its designee purchased an aggregate of 615,000 Private Units at a price of $10.00 per Private Unit, for an aggregate purchase price of $6,150,000. The Sponsor purchased 500,047 Private Units and EarlyBirdCapital and its designee purchased an aggregate of 114,953 Private Units. On March 12, 2019, in connection with the underwriters’ exercise of the over-allotment option in full, the purchasers purchased an aggregate of an additional 72,000 additional Private Units, of which 58,542 Private Units were purchased by the Sponsor and 13,458 Private Units were purchased by EarlyBirdCapital and its designee, for an aggregate purchase price of $720,000. Each Private Unit consists of one share of common stock (“Private Share”) and one warrant (“Private Warrant”). Each Private Warrant is exercisable to purchase one share of common stock at an exercise price of $11.50 per share, subject to adjustment (see Note 7). The proceeds from the Private Units were added to the proceeds from the Initial Public Offering held in the Trust Account. If the Company does not complete a Business Combination within the Combination Period, the proceeds from the sale of the Private Units will be used to fund the redemption of the Public Shares (subject to the requirements of applicable law), and the Private Units and all underlying securities will be worthless.

NOTE 5. RELATED PARTY TRANSACTIONS

Founder Shares

In November 2018, the Sponsor purchased 5,750,000 shares (the “Founder Shares”) of the Company’s common stock for an aggregate price of $25,000. On March 5, 2019, the Company effected a stock dividend of 0.2 shares of common stock for each outstanding share (the “Stock Dividend”), resulting in 6,900,000 Founder Shares being issued and outstanding. The 6,900,000 Founder Shares included an aggregate of up to 900,000 shares subject to forfeiture by the Sponsor to the extent that the underwriters’ over-allotment was not exercised in full or in part, so that the holders of the Founder Shares would collectively own 20% of the Company’s issued and outstanding shares after the Initial Public Offering (assuming the holders did not purchase any Public Shares in the Initial Public Offering and excluding the Private Units and Representative Shares (see Note 7). In connection with the underwriters’ exercise of the over-allotment option in full on March 12, 2019, 900,000 Founder Shares are no longer subject to forfeiture.

The holders of the Founder Shares have agreed, subject to certain limited exceptions, not to transfer, assign or sell any of the Founder Shares until, with respect to 50% of the Founder Shares, the earlier of one year after the consummation of a Business Combination and the date on which the closing price of the common stock equals or exceeds $12.50 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations and the like) for any 20 trading days within a 30-trading day period commencing after a Business Combination and, with respect to the remaining 50% of the Founder Shares, until the one year after the consummation of a Business Combination, or earlier, in either case, if, subsequent to a Business Combination, the Company completes a liquidation, merger, stock exchange or other similar transaction which results in all of the Company’s stockholders having the right to exchange their shares of common stock for cash, securities or other property.

Advance from Related Party

The Company’s Chief Executive Officer advanced the Company an aggregate of $86,748 to be used for the payment of costs related to the Initial Public Offering. The advances were non-interest bearing, unsecured and due on demand. The advances were repaid upon the consummation of the Initial Public Offering on March 7, 2019.

Due to Affiliate

During the nine months ended September 30, 2020, an affiliate of the Company paid expenses on behalf of the Company that were mainly settled during the same period.

Promissory Note – Related Party

In November 2018, the Company issued an unsecured promissory note to the Company’s Chief Executive Officer (the “Promissory Note”), pursuant to which the Company borrowed an aggregate principal amount of $90,342. The Promissory Note was non-interest bearing and payable on the earlier of (i) November 1, 2019, (ii) the consummation of the Initial Public Offering or (iii) the date on which the Company determines not to proceed with the Initial Public Offering. The Promissory Note was repaid upon the consummation of the Initial Public Offering on March 7, 2019.services.

 


10

 

TUSCAN HOLDINGS CORP.

NOTES TO CONDENSED FINANCIAL STATEMENTS

SEPTEMBER 30, 2020

(Unaudited)

Related Party LoansMICROVAST HOLDINGS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)

2. SIGNIFICANT ACCOUNTING POLICIES - continued

Disaggregation of revenue

In addition, in order to finance transaction costs in connection with a Business Combination, the Sponsor or certain of the Company’s officers and directors or their affiliates may, but are not obligated to, loan the Company funds as may be required (“Working Capital Loans”). If the Company completes a Business Combination, the Company would repay the Working Capital Loans out of the proceeds of the Trust Account released to the Company. Otherwise, the Working Capital Loans would be repaid only out of funds held outside the Trust Account to the extent such funds are available. In the event that a Business Combination does not close, the Company may use a portion of proceeds held outside the Trust Account to repay the Working Capital Loans, but no proceeds held in the Trust Account would be used to repay the Working Capital Loans. The Working Capital Loans would either be repaid upon consummation of a Business Combination, without interest, or, at the lender’s discretion, up to $1,500,000 of such Working Capital Loans may be convertible into units of the post Business Combination entity at a price of $10.00 per unit. The units would be identical to the Private Units.

On April 20, 2020, the Sponsor committed to provide an aggregate of $500,000 in loans to the Company. The loans shall be non-interest bearing, unsecured and due upon the consummation of a Business Combination. In the event that a Business Combination does not close, the loans would be repaid only out of funds held outside the Trust Account to the extent such funds are available. Otherwise, all amounts loaned to the Company would be forgiven.

On April 21, 2020, the Company issued an unsecured promissory note to the Sponsor in the aggregate amount of $300,000 (the “Note”). The Note is non-interest bearing and payable upon the consummation of a Business Combination. The Note is convertible, at the lender’s option, into units of the post Business Combination entity at a price of $10.00 per unit. The units would be identical to the Private Units. If a Business Combination is not consummated, the notes will not be repaid by the Company and all amounts owed thereunder by the Company will be forgiven except to the extent that the Company has funds available to it outside of its Trust Account. As of September 30, 2020, there was $200,000 outstanding under the Note.

Administrative Support Agreement

The Company entered into an agreement whereby, commencing on the March 5, 2019 through the earlier of the Company’s consummation of a Business Combination and its liquidation, to pay an affiliate of the Company’s Chief Executive Officer a total of $10,000 per month for office space, utilities and secretarial and administrative support. For each of the three months ended September 30, 2020 and 2019,2021, the Company incurred $30,000 in fees for these services. Group derived revenues of $23,945 and $31,792 from the Asia & Pacific region, $6,446 and $4,908 from Europe and $362 and $194 from other geographic regions where the customers are located, respectively.

For the nine months ended September 30, 2020 and 2019,2021, the Company incurred $90,000Group derived revenues of $42,632 and $70,000$73,360 from the Asia & Pacific region, $16,376 and $11,466 from Europe and $392 and $378 from other geographic regions where the customers are located, respectively.

Contract balances

Contract balances include accounts receivable and advances from customers. Accounts receivable represent cash not received from customers and are recorded when the rights to consideration is unconditional. The allowance for doubtful accounts reflects the best estimate of probable losses inherent to the accounts receivable balance. Contract liabilities, recorded in fees for theseadvance from customers in the consolidated balance sheet, represent payment received in advance or payment received related to a material right provided to a customer to acquire additional goods or services respectively. Atat a discount in a future period. During the three months ended September 30, 2020 and December 31, 2019, fees amounting to $30,0002021, the Group recognized $13 and $0, respectively, are$60 of revenue previously included in accounts payableadvance from customers as of July 1, 2020 and accrued expensesJuly 1, 2021, respectively. During the nine months ended September 30, 2020 and 2021, the Group recognized $459 and $1,381 of revenue previously included in advance from customers as of January 1, 2020 and January 1, 2021, respectively, which consist of payments received in advance related to its sales of lithium batteries.

Share-based compensation

Share-based payment transactions with employees are measured based on the accompanying condensed balance sheets. grant date fair value of the equity instrument and recognized as compensation expense on a straight-line basis over the requisite service period, with a corresponding impact reflected in additional paid-in capital. For share-based awards granted with performance condition, the compensation cost is recognized when it is probable that the performance condition will be achieved. The Company reassesses the probability of achieving the performance condition at the end of each reporting date and records a cumulative catch-up adjustment for any changes to its assessment. For performance-based awards with a market condition, such as awards based on total shareholder return (“TSR”), compensation expense is recognized on a straight-line basis over the estimated service period of the award, regardless of whether the market condition is satisfied. Forfeitures are recognized as they occur. Liability-classified awards are remeasured at their fair-value-based measurement as of each reporting date until settlement.

11

MICROVAST HOLDINGS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)

 

NOTE 6. COMMITMENTS2. SIGNIFICANT ACCOUNTING POLICIES - continued

Warrant Liability

The Company accounts for warrants in accordance with the guidance contained in ASC 815-40 under which the warrants do not meet the criteria for equity treatment and must be recorded as liabilities. As the Private Warrants (as defined below) meet the definition of a derivative as contemplated in ASC 815, the Company classifies the Private Warrants as liabilities. This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the condensed statements of operations. The Private Warrants are valued using a Monte Carlo simulation model on the basis of the quoted market price of Public Warrants.

3. REVERSE RECAPITALIZATION

On July 23, 2021, Tuscan merged with Microvast, Inc., with Microvast, Inc. surviving the merger. As a result of the Merger, Tuscan was renamed “Microvast Holdings, Inc.” On the Closing Date, pursuant to the terms of the Merger Agreement, the Framework Agreement1 and subscription agreements entered into with the holders of an aggregate of $57.5 million outstanding convertible notes issued by Microvast (the “Bridge Notes,” refer to Note 11) and the investors in the PIPE Financing:

●The Company issued 209,999,991 shares of Common Stock of the Company (“Common Stock”) to the former owners of Microvast, Inc. pursuant to the Merger Agreement, which number is inclusive of the shares being issued to the CL Investors and MPS minority investors pursuant to the Framework Agreement;
●The Company issued 6,736,106 shares of Common Stock to the holders of the Bridge Notes;
●The Company issued 48,250,000 shares of Common Stock to the PIPE investors for a purchase price of $10.00 per share and an aggregate purchase price of $482.5 million;
●The Company issued 150,000 private placement units to Tuscan Holdings Acquisition LLC (the “Sponsor”) upon conversion of notes payable by the Company in the amount of $1.5 million; such private placement units consist of (i) 150,000 shares of Common Stock and (ii) warrants to purchase 150,000 shares of Common Stock at an exercise price of $11.50 per share; and

Pursuant to the Merger Agreement, the former owners of Microvast (“Microvast Holders”) and the MPS minority investors will have the ability to earn, in the aggregate, an additional 19,999,988 shares of Common Stock (“Earn-Out Shares”) if the daily volume weighted average price of the Common Stock is greater than or equal to $18.00 for any 20 trading days within a 30 trading day period (or a change of control of the Company occurs that results in the holders of Common Stock receiving a per share price equal to or in excess of $18.00), during the period commencing on the Closing Date and ending on the third anniversary of the Closing Date. In accordance with ASC 815-40, the Earn-Out Shares were indexed to the Common Stock and were classified as equity.

Each of the options to purchase Microvast, Inc.’s common stock that was outstanding before the Merger was converted into options to acquire Common Stock by computing the number of shares and converting the exercise price based on the exchange ratio of 160.3 (the “Common Exchange Ratio”). Refer to Note 17.

1In connection with the Merger Agreement, Tuscan, Microvast Power System (Huzhou) Co., Ltd., a majority owned subsidiary of Microvast, Inc. (“MPS”), certain MPS convertible loan investors (the “CL Investors”, refer to Note 11), some MPS minority investors, and certain other parties entered into a framework agreement (the “Framework Agreement”), pursuant to which, (1) the CL Investors waived their convertible loans issued on November 2, 2018, by MPS, in exchange for 6,719,845 shares of Common Stock of the Company and (2) the MPS minority investors waived their rights in MPS's equity in exchange for 17,253,182 shares of Common Stock of the Company (refer to Note 14).

12

MICROVAST HOLDINGS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021

(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)

3. REVERSE RECAPITALIZATION - continued

Each capped non-vested share unit of Microvast, Inc. that was outstanding before the Merger was converted into a non-vested share unit of the Company by computing the number of shares and converting the capped price based on the Common Exchange Ratio. Refer to Note 17.

As of the Closing Date and following the completion of the Merger, the ownership interests of the Company’s stockholders were as follows:

Shares
Existing Microvast Equity Holders(a)209,999,991
Existing Microvast Convertible Noteholders6,736,106
Tuscan public stockholders27,493,140
Sponsor Group(b)(c)7,608,589
EarlyBirdCapital428,411
PIPE investors immediately after Merger48,250,000
Common Stock300,516,237

(a)Excludes the Earn-Out Shares, but is inclusive of the shares being issued pursuant to the Framework Agreement to the CL Investors and MPS minority investors.
(b)The Sponsor Group includes Common Stock owned by the Sponsor, Stefan M. Selig, Richard O. Rieger and Amy Butte.
(c)Includes 1,687,500 shares that may be subject to cancellation in accordance with the amended escrow agreement.

The Merger is accounted for as a reverse recapitalization under U.S. GAAP. This determination is primarily based on (1) Microvast, Inc.’s stockholders comprising a relative majority of the voting power of the Company and having the ability to nominate the members of the Board, (2) Microvast, Inc.’s operations prior to the acquisition comprising the only ongoing operations of the Company, and (3) Microvast, Inc.’s senior management comprising a majority of the senior management of the Company. Under this method of accounting, Tuscan is treated as the “acquired” company for financial reporting purposes. Accordingly, the financial statements of the Company represent a continuation of the financial statements of Microvast, Inc. with the Merger being treated as the equivalent of Microvast, Inc. issuing stock for the net assets of Tuscan, accompanied by a recapitalization. The net assets of Tuscan are stated at historical costs, with no goodwill or other intangible assets recorded and are consolidated with Microvast Inc.’s financial statements on the Closing Date. Operations prior to the Merger are presented as those of Microvast, Inc. The shares and net loss per share available to holders of the Company’s Common Stock, prior to the Merger, have been retroactively restated as shares reflecting the Common Exchange Ratio established in the Merger Agreement.

In connection with the Merger, the Company raised approximately $708.4 million of proceeds including the contribution of $281.7 million of cash held in Tuscan’s trust account from its initial public offering, net of redemptions of Tuscan public stockholders of $0.9 million, and $482.5 million of cash in connection with the PIPE financing. The total transaction costs was $58.3 million, consisting of banking, legal, and other professional fees, among which $42.8 million was recorded as a reduction to additional paid-in-capital and the remaining $15.5 million was recorded as expense by Tuscan immediately prior to the merger.

In connection with the Merger, the Sponsor and related parties entered into the amended escrow agreement, pursuant to which 1,687,500 shares owned by the Sponsor Group (“Escrow Shares”) are subject to cancellation on conditions that: (i) 50% of 1,687,500 shares shall be cancelled if the last sale price of the Common Stock does not equal or exceed $12.00 per share for any 20 trading days within any 30-trading day period prior to the fifth anniversary of the Closing, and (ii) 50% of 1,687,500 shares shall be cancelled if the last sale price of the Common Stock does not equal or exceed $15.00 per share for any 20 trading days within any 30-trading day period prior to the fifth anniversary of the Closing. In accordance with ASC 815-40, the Escrow Shares were indexed to the Common Stock and were classified as equity. 

13

MICROVAST HOLDINGS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021

(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)

4. ACCOUNTS RECEIVABLE

 

Accounts receivable consisted of the following:

  December 31,
2020		  September 30,
2021		 
Accounts receivable $81,345  $72,039 
Allowance for doubtful accounts  (5,047)  (4,796)
Accounts receivable, net $76,298  $67,243 

Movement of allowance for doubtful accounts was as follows:

  Three Months Ended
September 30,		  Nine Months Ended
September 30,		 
  2020  2021  2020  2021 
Balance at beginning of the period $4,534  $4,743  $5,537  $5,047 
Charge to expenses  2   457   (861)  261 
Write off  -   (415)  -   (546)
Exchange difference  173   11   33   34 
Balance at end of the period $4,709  $4,796  $4,709  $4,796 

Registration Rights5. INVENTORIES, NET

 

Pursuant to a registration rights agreement entered into on March 7, 2019, the holdersInventories consisted of the Founder Shares, Representative Shares, Private Units, and any units that may be issued upon conversion of Working Capital Loans (and all underlying securities) are entitled to registration rights. The holders of the majority of these securities are entitled to make up to two demands that the Company register such securities. The holders of the majority of the Founder Shares can elect to exercise these registration rights at any time commencing three months prior to the date on which the Founder Shares are to be released from escrow. The holders of a majority of the Representative Shares, Private Units or units issued in payment of working capital loans made to the Company (or underlying securities) can elect to exercise these registration rights at any time commencing after the Company consummates a Business Combination. Notwithstanding anything to the contrary, EarlyBirdCapital and its designee may only make a demand on one occasion and only during the five-year period beginning on the effective date of the Initial Public Offering. In addition, the holders have certain “piggy-back” registration rights with respect to registration statements filed subsequent to the consummation of a Business Combination; provided, however, that EarlyBirdCapital and its designee may participate in a “piggy-back” registration only during the seven-year period beginning on the effective date of the Initial Public Offering. The Company will bear the expenses incurred in connection with the filing of any such registration statements.following:

  December 31,
2020		  September 30,
2021		 
Work in process $22,167  $18,222 
Raw materials  17,451   20,725 
Finished goods  5,350   8,873 
Total $44,968  $47,820 

 

Provision for obsolete inventories at $680 and $6,569 were recognized for the three months ended September 30, 2020 and 2021, respectively. Provision for obsolete inventory at $1,326 and $12,667 were recognized for the nine months ended September 30, 2020 and 2021, respectively.

Business Combination Marketing Agreement

14

MICROVAST HOLDINGS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021

(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)

6. PREPAID EXPENSES AND OTHER CURRENT ASSETS

  December 31,
2020		  September 30,
2021		 
Advances to suppliers $2,117  $4,681 
Other receivables  688   6,330 
VAT receivables  2,471   1,207 
Deposits  746   746 
Total $6,022  $12,964 

The balance of the VAT receivables represented the amount available for future deduction against VAT payable.

7. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES

  December 31,
2020		  September 30,
2021		 
Payables to exiting investors $30,000  $- 
Payables for purchase of property, plant and equipment  15,122   13,017 
Product warranty  4,296   18,690 
Other current liabilities  3,959   8,469 
Accrued payroll and welfare  2,704   2,818 
Interest payable  1,379   2,674 
Accrued expenses  1,696   1,972 
Other tax payable  1,472   425 
Total $60,628  $48,065 

The payables to exiting investors represents the amount due in a year for the redemption of the shares owned by certain noncontrolling shareholders of a subsidiary. See Note 14.

8. PRODUCT WARRANTY

Movement of product warranty was as follows:

  Three Months Ended
September 30,		  Nine Months Ended
September 30,		 
  2020  2021  2020  2021 
Balance at beginning of the period $17,358  $25,543  $18,416  $19,356 
Provided for new sales during the period  1,517   1,498   2,468   3,761 
Provided for pre-existing legacy product  -   34,055   -   40,849 
Utilized during the period  (313)  (9,229)  (2,322)  (12,099)
Balance at end of the period $18,562  $51,867  $18,562  $51,867 

Warranty provisions are based upon historical experience. Changes in provisions related to pre-existing legacy products were made based on actual claims and intensive testing and analysis on the legacy products. In 2021, as a result of the increases in the repairing cost and frequency of claims with respect to a legacy product sold in 2017 and 2018, the Company conducted intensive experiments and a root cause analysis, which was completed in October 2021. The Company concluded that a component purchased from a supplier was not meeting the Company’s performance standards. As a result, the Company expects that the impacted legacy products sold will need to be replaced before the expiration of the warranty term. This reassessment resulted in a change in estimate for additional accrual of $34.1 million for such legacy product sold. As the component was not incorporated into other products, no additional accrual was made to other existing products sold. The Company is in negotiation with the supplier for compensation and will take legal action if necessary.

15

MICROVAST HOLDINGS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)

8. PRODUCT WARRANTY - continued

  December 31,
2020		  September 30,
2021		 
Product warranty – current $4,296  $18,690 
Product warranty – non-current  15,060   33,177 
Total $19,356  $51,867 

9. BANK BORROWINGS

 

The Company has engaged EarlyBirdCapital as an advisorGroup entered into loan agreements and bank facilities with Chinese banks and a German bank.

The original terms of the loans from Chinese banks range from 6 to 12 months and the interest rates range from 5.00% to 6.00% per annum. As of September 30, 2021, the balance of the loans from Chinese bank was $13,191.

The bank facility agreement with the German bank includes a $13.0 million (EUR11 million) 8-year maturity term loan and a $4.7 million (EUR4 million) revolving facility (“German Bank Facility Agreement”). The interest rate of the 8-year maturity term loan is EURIBOR plus a margin rate determined by the financial leverage ratio of the Group. The $4.7 million (EUR4 million) revolving facility at 6.00% annual interest, needs to be renewed every year (60 days in connection with a Business Combinationadvance). During the nine months ended September 30, 2021, the Group drew down the 8-year maturity term loan to assistthe amount of $9,660. On October 1, 2021, the Company in holding meetings with its shareholders to discusshad entered into the potential Business Combination and the target business’ attributes, introduce the Company to potential investors that are interested in purchasing the Company’s securities in connection with a Business Combination, assist the Company in obtaining shareholder approval for the Business Combination and assist the Company with its press releases and public filings in connectiontermination agreement with the Business Combination. The Company will pay EarlyBirdCapital a cash fee for such services uponGerman Bank to cancel the consummationGerman Bank Facility Agreement. All outstanding amounts under the loan were repaid on October 8, 2021.

Changes in bank borrowings are as follows:

  Three Months Ended
September 30,		  Nine Months Ended
September 30,		 
  2020  2021  2020  2021 
Beginning balance $9,412  $26,458  $11,922  $12,184 
Proceeds from bank borrowings  5,757   -   15,230   26,603 
Repayments of principal  (5,696)  (3,400)  (17,590)  (15,665)
Exchange difference  321   (207)  232   (271)
Ending balance $9,794  $22,851  $9,794  $22,851 

All balance of a Business Combination in an amount equal to $9,660,000 (exclusivebank borrowings as of any applicable finders’ fees which might become payable); provided that up to 30%September 30, 2021 and December 31, 2020 are current borrowings.

16

MICROVAST HOLDINGS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(In thousands of the fee may be allocated at the Company’s sole discretion to other FINRA members that assist the Company in identifyingU.S. dollars, except share and consummating a Business Combination.per share data, or as otherwise noted)

 

9. BANK BORROWINGS - continued

Certain assets of the Group had been pledged to secure the above banking facilities granted to the Group. The aggregate carrying amount of the assets pledged by the Group as of December 31, 2020 and September 30, 2021 are as follows:


  December 31,
2020		  September 30,
2021		 
Buildings $22,732  $31,479 
Machinery and equipment  19,297   17,173 
Land use rights  2,789   4,448 
Total $44,818  $53,100 

In addition, the Group’s related parties Ochem Chemical Co., Ltd (“Ochem”) and Ochemate Material Technologies Co., Ltd (“Ochemate”) provided $20,874 of guarantees to secure certain bank facilities granted to the Group as of December 31, 2020.

10. OTHER NON-CURRENT LIABILITIES

  December 31,
2020		  September 30,
2021		 
Payable to exiting investors $94,316  $- 
Product warranty - non-current  15,060   33,177 
Deferred subsidy income- non-current  1,221   2,334 
Total $110,597  $35,511 

The payable to exiting investors represents the amount to be paid for the redemption of the shares owned by certain noncontrolling interest holders of a subsidiary. See Note 14. The balance was paid out as of September 30, 2021.

11. BONDS PAYABLE

  December 31,
2020		  September 30,
2021		 
Bonds payable      
Third-party investors $29,915  $- 
Total $29,915  $- 
         
Long–term bonds payable        
Huzhou Saiyuan $73,147  $73,147 
Total $73,147  $73,147 

17

MICROVAST HOLDINGS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)

11. BONDS PAYABLE - continued

Convertible Bonds issued to Huzhou Saiyuan

On December 29, 2018, MPS signed an agreement with Huzhou Saiyuan, an entity established by the local government, to issue convertible bonds to Huzhou Saiyuan for a total consideration of $87,776 (RMB600 million), of which $29,259 (RMB200 million) was converted from the existing non-interest-bearing loan with Huzhou Saiyuan as of December 31, 2018. The Company pledged its 12.39% equity holding over MPS to Huzhou Saiyuan to facilitate the issuance of convertible bonds. Besides the previous converted bond $29,259 (RMB200 million), Huzhou Saiyuan further subscribed for $14,629 (RMB100 million) on January 9, 2019 and $29,259 (RMB200 million) on February 1, 2019, respectively.

If the subscribed bonds are not repaid by the maturity date, Huzhou Saiyuan has the right to dispose of the equity interests pledged by the Company in proportion to the amount of matured bonds, or convert the bond to the equity interests of MPS within 60 days after the maturity date. If Huzhou Saiyuan decides to convert the bonds to equity interests of MPS, the equity interests pledged would be released and the convertible bonds should be converted to the equity interest of MPS based on the entity value of MPS at $950,000.

On September 28, 2020, MPS signed a supplemental agreement for extension on repayment of convertible bonds to Huzhou Saiyuan, and the terms on repayments and interests are as follows:

Issuance DateSubscribed AmountMaturity DateRepayment AmountAnnual
Interest
Rate
February 1, 2019$29,259 (RMB200 million)June 30, 2023$29,259 (RMB200 million)3%~4%
December 31, 2018$29,259 (RMB200 million)April 28, 2024$14,629 (RMB100 million)0%~4%
July 11, 2024$7,315 (RMB50 million)0%~4%
October 1, 2024$7,315 (RMB50 million)0%~4%
January 1, 2020$14,629 (RMB100 million)April 13, 2026$14,629 (RMB100 million)3%~4%

An additional one-year extension could be granted to the Group if the Group submits a written application before the extended maturity date. As of September 30, 2021, the outstanding balance of the convertible bonds to Huzhou Saiyuan totaled at $73,147 (RMB500 million).

Convertible Bonds issued to third-party investors

On November 2, 2018, MPS signed a convertible bond agreement with two third-party investors (the “CL Investors”), through which the CL Investors agreed to provide a non-interest bearing loan in an aggregate amount of $58,516 (RMB400 million) or up to $73,147 (RMB500 million) to MPS, and the CL Investors could convert the bonds into a number of Series D2 preferred shares of the Company (the “Series D2 Preferred”) once approvals from the PRC and US government were obtained. As of December 31, 2020, $29,915 (RMB204.5 million) was subscribed by the CL Investors.

On July 23, 2021, upon the completion of the Merger between Microvast, Inc. and Tuscan, the convertible bonds were settled and converted into 6,719,845 shares of Common Stock of the combined company. Refer to Note 3.

Convertible Notes at Fair Value (the “Bridge Notes”)

On January 4, 2021, the Company entered into a note purchase agreement to issue $57,500 convertible promissory notes to certain investors, fully due and payable on the third anniversary of the initial closing date. The notes bore no interest, provided, however, if a liquidity event (“Liquidity Event”) had not occurred prior to June 30, 2022, an interest rate of 6% would be applied retrospectively from the date of initial closing. The conversion of the promissory notes was contingent upon the occurrence of a Private Investment in Public Equity (“PIPE”) financing, a Liquidity Event or a new financing after June 30, 2022 but before the maturity date (“Next Financing”). The first tranche and second tranche of the convertible promissory notes were issued in January 2021 and February 2021 at amounts of $25,000 and $32,500, respectively. A discounted rate of 80% or 90% was required to be applied upon conversion, depending on the circumstances of PIPE financing, Liquidity Event or Next Financing.

18

 

 

TUSCANMICROVAST HOLDINGS, CORP.INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)

NOTES TO CONDENSED FINANCIAL STATEMENTS

SEPTEMBER 30, 2020

(Unaudited)

NOTE 7. STOCKHOLDERS’ EQUITY11. BONDS PAYABLE - continued

Preferred Stock —The Company is authorized to issue 1,000,000 sharesfair value option was elected for the measurement of preferred stock withthe convertible notes. Changes in fair value, a par valueloss of $0.0001 per share with such designation, rights$3,018 and preferences as may be determined from time to time by$9,861 were recorded in the Company’s boardunaudited condensed consolidated statements of directors. Atoperations for the three and nine months ended September 30, 2020 and December 31, 2019, there were no shares of preferred stock issued or outstanding. 

Common Stock — The Company is authorized to issue 65,000,000 shares of common stock with a par value of $0.0001 per share. Holders of the common stock are entitled to one vote for each share. At September 30, 2020 and December 31, 2019, there were 8,376,427 and 8,360,523 shares of common stock issued and outstanding, excluding 27,110,573 and 27,126,477 shares of common stock subject to possible redemption,2021, respectively.

 

On July 23, 2021, upon the completion of the Merger between Microvast, Inc. and Tuscan, the convertible promissory notes were converted into 6,736,106 shares of Common Stock of the combined company as disclosed in Note 3.

12. WARRANTS

The Company assumed 27,600,000 publicly-traded warrants (“Public Warrants”) and 837,000 private placement warrants issued to the Sponsor and EarlyBirdCapital, Inc. (“EarlyBirdCapital”) (“Private Warrants” and together with the Public Warrants, — the “Warrants”) upon the Merger, all of which were issued in connection with Tuscan’s initial public offering (other than 150,000 Private Warrants that were issued in connection with the closing of the Merger) and entitle the holder to purchase one share of the Company’s Common Stock at an exercise price of $11.50 per share. During the three and nine months ended September 30, 2021, none of Public Warrants and Private Warrants were exercised.

The Public Warrants will becomebecame exercisable on the later of (a) 30 days after the completion of a Business Combination or (b) March 7, 2020.the Merger. No warrantsWarrants will be exercisable for cash unless the Company has an effective and current registration statement covering the shares of common stockregistered Common Stock issuable upon exercise of the warrants and a current prospectus relating to suchWarrants with the SEC. Since the registration of shares of common stock. Notwithstanding the foregoing, if a registration statement covering the shares of common stock issuable upon exercise of the public warrants iswas not effectivecompleted within 90 days following the consummation of a Business Combination,Merger, warrant holders may until such time as there is an effective registration statement and during any period when the Company shall have failed to maintain an effective registration statement, exercise warrantsWarrants on a cashless basis pursuant to the exemption provided by Section 3(a)(9) of the Securities Act, provided that such exemption is available. If that exemption, or another exemption, is not available, holders will not be able to exercise their warrants on a cashlessnet-share settlement basis. The Public Warrants will expire five years after the completion of a Business Combinationthe Merger or earlier upon redemption or liquidation.

Once the Public Warrants becomebecame exercisable, the Company may redeem the Public Warrants:

 

●in whole and not in part;
●at a price of $0.01 per warrant;
●upon not less than 30 days’ prior written notice of redemption;
●if, and only if, the reported last sale price of the Company’s common stockCommon Stock equals or exceeds $18.00 per share for any 20 trading days within a 30-trading day period ending on the third business day prior to the notice of redemption to the warrant holders; and
●If,if, and only if, there is a current registration statement in effect with respect to the shares of common stockCommon Stock underlying the warrants.

 

If the Company calls the Public Warrants for redemption, management will have the option to require all holders that wish to exercise the Public Warrants to do so on a “cashless basis,” as described in the warrant agreement.net-share settlement basis.

 

The Private Warrants are identical to the Public Warrants, underlying the Units sold in the Initial Public Offering, except that the Private Warrants will be exercisable for cash or on a cashlessnet-share settlement basis, at the holder’s option, and be non-redeemable so long as they are held by the initial purchasers or their permitted transferees. If the Private Warrants are held by someone other than the initial purchasers or their permitted transferees, the Private Warrants will be redeemable by the Company and exercisable by such holders on the same basis as the Public Warrants. In addition, so long as the Private Warrants are held by EarlyBirdCapital and its designee, the Private Warrants will expire five years from the effective date of the Initial Public Offering.Merger.

 

The exercise price and number of shares of common stockCommon Stock issuable upon exercise of the warrantsWarrants may be adjusted in certain circumstances including in the event of a stock dividend, or recapitalization, reorganization, merger or consolidation. However, the warrantsWarrants will not be adjusted for issuance of common stockCommon Stock at a price below its exercise price. Additionally, in no event will the Company be required to net cash settle the warrants. If the Company is unable to completeWarrants.

19

MICROVAST HOLDINGS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)

12. WARRANTS - continued

The Private Warrants were initially recognized as a Business Combination within the Combination Periodliability on July 23, 2021 at a fair value of $3,574 and the Company liquidatesprivate warrant liability was remeasured to fair value based upon the funds heldmarket price as of September 30, 2021, resulting in a gain of $1.1 million for the three months ended September 30, 2021, classified within change in fair value of warrant liabilities in the Trust Account, holderscondensed consolidated statements of warrants will not receive anyoperations.

The Private Warrants were valued using the following assumptions under the Monte Carlo Model that assumes optimal exercise of such funds with respect to their warrants, nor will they receive any distributionthe Company’s redemption option at the earliest possible date:

  July 23,
2021		  September 30,
2021		 
Market price of public stock $10.00  $8.22 
Exercise price $11.50  $11.50 
Expected term (years)  5.00   4.82 
Volatility  54.14%  52.80%
Risk-free interest rate  0.72%  0.94%
Dividend rate  0.00%  0.00%

The market price of public stock is the quoted market price of the Company’s Common Stock as of the valuation date. The exercise price is extracted from the warrant agreements. The expected term is derived from the exercisable years based on the warrant agreements. The expected volatility is a blend of implied volatility from the Company’s assets held outsideown public warrant pricing and the average volatility of peer companies. The risk-free interest rate was estimated based on the market yield of US Government Bond with maturity close to the expected term of the Trust Account withwarrants. The dividend yield was estimated by the respect to suchCompany based on its expected dividend policy over the expected term of the warrants. Accordingly, the warrants may expire worthless.

13. FAIR VALUE MEASUREMENT

 

Measured or disclosed at fair value on a recurring basis


The Group measured its financial assets and liabilities, including cash and cash equivalents, restricted cash, warrants and convertible notes at fair value on a recurring basis as of December 31, 2020 and September 30, 2021. Cash and cash equivalents, restricted cash and convertible notes are classified within Level 1 of the fair value hierarchy because they are valued based on the quoted market price in an active market. The fair value of the warrant liability is based on significant unobservable inputs, which represent Level 3 measurements within the fair value hierarchy. In determining the fair value of the warrant liability, the Company used the Monte Carlo that assumes optimal exercise of the Company’s redemption option at the earliest possible date. See Note 12.

20

 

TUSCANMICROVAST HOLDINGS, CORP.INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 20202021

(Unaudited)(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)

 

In addition, if (x)13. FAIR VALUE MEASUREMENT - continued

Measured or disclosed at fair value on a recurring basis-continued

As of December 31, 2020 and September 30, 2021, information about inputs for the Company issues additional shares of common stock or equity-linked securities for capital raising purposes in connection with the closing of an initial Business Combination at an issue price or effective issue price of less than $9.50 per share of common stock (with such issue price or effective issue price to be determined in good faith by the Company’s board of directors, and in the case of any such issuance to our Sponsor, initial stockholders or their affiliates, without taking into account any founders’ shares held by them prior to such issuance), (y) the aggregate gross proceeds from such issuances represent more than 60%fair value measurements of the total equity proceeds,Group’s assets and interest thereon, available for the funding of anliabilities that are measured at fair value on a recurring basis in periods subsequent to their initial Business Combination on the daterecognition is as follow:

  Fair Value Measurement as of December 31, 2020 
(In thousands) Quoted Prices in Active Market for Identical Assets (Level 1)  Significant Other
Observable Inputs
(Level 2)		  Significant Unobservable Inputs
(Level 3)		  Total 
Cash and cash equivalents $21,496         -         -  $21,496 
Restricted cash  19,700   -   -   19,700 
Total $41,196   -   -  $41,196 

  Fair Value Measurement as of September 30, 2021 
(In thousands) Quoted Prices in Active Market for Identical Assets
(Level 1)		  Significant Other
Observable Inputs
(Level 2)		  Significant Unobservable Inputs
(Level 3)		  Total 
Cash and cash equivalents $572,609        -   -  $572,609 
Restricted cash  39,900   -   -   39,900 
Total financial asset $612,509   -   -  $612,509 
Warrant liability $-   -   2,461  $2,461 
Total financial liability $-   -   2,461  $2,461 

The following is a reconciliation of the consummation of an initial Business Combination (net of redemptions),beginning and (z)ending balances for Level 3 convertible notes during the volume weighted average trading pricenine months ended September 30, 2021:

(In thousands)Convertible Notes
Balance as of January 1, 2021$-
Issuance of convertible notes57,500
Changes in fair value of convertible notes9,861
Conversion as of Merger(67,361)
Balance as of September 30, 2021$-

The following is a reconciliation of the common stockbeginning and ending balances for Level 3 warrant liability during the 20 trading day period starting on the trading day prior to the day on which the Company consummated an initial Business Combination (such price, the “Market Value”) is below $9.50 per share, the exercise price of the warrants will be adjusted (to the nearest cent) to be equal to 115% of the greater of (i) the Market Value or (ii) the price at which the Company issues the additional shares of common stock or equity-linked securities.nine months ended September 30, 2021:

 

(In thousands) Warrant
Liability		 
Balance as of January 1, 2021 $- 
Assumed warrant liability upon Merger  3,574 
Changes in fair value  (1,113)
Balance as of September 30, 2021 $2,461 

21

Representative Shares

MICROVAST HOLDINGS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)

13. FAIR VALUE MEASUREMENT - continued

Measured or disclosed at fair value on a nonrecurring basis

The Group measured the long-lived assets using the income approach—discounted cash flow method, when events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable.

14. NONCONTROLLING INTERESTS

Noncontrolling interests of MPS

 

In NovemberMarch 2017, Microvast, Inc. sold 17.39% equity interest of its wholly-owned subsidiary, MPS, to eight third-party investors (the “Investors”) for total cash consideration of $400,000, which was received in 2017.

In February 2018, Microvast, Inc. signed a series of repurchase and redemption agreements with six out of the Company issuedeight investors of MPS which requested to redeem in aggregate 14.05% equity interests in MPS (“Exiting Investors”), at a redemption value equal to the designeesinitial capital contribution plus 6.00% simple annual interest. To facilitate the repurchase and redemption transaction, MPS and the Exiting Investors entered into certain property mortgage agreements on May 30, 2018.

Pursuant to an extension agreement signed in September 2020, $30,000 was paid to the Exiting Investors in March 2021, and the remaining repayments are scheduled in 2023 and thereafter, depending on the completion of EarlyBirdCapital, forfinancing in 2022 or 2023. On August 31, 2021, an early repayment agreement was entered into between MPS and the Exiting Investors, pursuant to which the remaining amount of $99,038 was fully repaid as of September 30, 2021 to the Exiting Investors.

On July 23, 2021, upon the completion of the Merger between Microvast, Inc. and Tuscan, the equity interest held by the investors who remained noncontrolling shareholders of MPS were converted into 17,253,182 shares of Common Stock of the combined company as disclosed in Note 3.

15. COMMON STOCK

The Company has authorized 800,000,000 shares to be issued at $0.0001 par value, with 750,000,000 shares designated as Common Stock and 50,000,000 shares of redeemable convertible preferred stock.

Immediately following the Merger, there were 300,516,237 shares of Common Stock issued with a nominal consideration, 300,000par value of $0.0001 as disclosed in Note 3. The holder of each share of Common Stock is entitled to one vote. The Company has retroactively adjusted the shares (after givingissued and outstanding prior to July 23, 2021 to give effect to the Common Exchange Ratio of 160.3 established in the Merger Agreement. As of September 30, 2021, there were 300,522,394 shares of Common Stock Dividend)issued and 298,834,894 shares outstanding.

22

MICROVAST HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(In thousands of common stock (the “Representative Shares”). TheU.S. dollars, except share and per share data, or as otherwise noted)

16. PREFERRED SHARES

As of December 31, 2020, the Company accounted for the Representative Shareshad preferred shares issued and outstanding as an offering costfollows (share number of the Initial Public Offering, with a corresponding credit to stockholders’ equity. The Company estimated the fair value of Representative Shares to be $1,200 based upon the price of the Founder Shares issuedCompany’s preferred shares prior to the Sponsor. The holdersMerger have been retroactively restated to reflect the Common Exchange Ratio of 160.3 established in the Representative Shares have agreed not to transfer, assign or sell any such shares untilMerger as described in Note 3):

Preferred SharesNumber of
Shares		Shareholders
Series C1 Preferred

26,757,258

Ashmore Global Special Situations Fund 4 Limited Partnership and Ashmore Global Special Situations Fund 5 Limited Partnership (“Ashmore”) and International Finance Corporation (“IFC”)
Series C2 Preferred

20,249,450

Ashmore Cayman SPC Limited (“Ashmore Cayman”) and IFC
Series D1 Preferred

22,311,516

Evergreen Ever Limited (“EEL”)
Total

69,318,224

On July 23, 2021, upon the completion of a Business Combination. In addition, the holders have agreed (i) to waive their redemption rights (or to sell anyMerger between Microvast, Inc. and Tuscan, all preferred shares were converted into Common Stock of the combined company at the Common Exchange Ratio of 160.3 as disclosed in a tender offer) with respect to such shares in connection with the completion of a Business Combination and (ii) to waive their rights to liquidating distributions from the Trust Account with respect to such shares if the Company fails to complete a Business Combination within the Combination Period.Note 3.

 

The Representative Shares have been deemed compensation by FINRA and are therefore subject to a lock-up for a period of 180 days immediately following the effective date of the registration statement related to the Initial Public Offering pursuant to Rule 5110(g)(1) of FINRA’s NASD Conduct Rules. Pursuant to FINRA Rule 5110(g)(1), these securities will not be the subject of any hedging, short sale, derivative, put or call transaction that would resultchanges in the economic dispositionbalance of the securities by any person for a period of 180 days immediately following March 5, 2019 (“FINRA Restricted Period”), nor may they be sold, transferred, assigned, pledged or hypothecated during the FINRA Restricted Period except to any underwriterSeries Preferred and selected dealer participatingredeemable noncontrolling interests included in the Initial Public Offeringmezzanine equity for the nine months ended September 30, 2020 and their bona fide officers or partners.2021 were as follows:

(In thousands) Series C1
Preferred		  Series C2
Preferred		  Series D1
Preferred		  Redeemable
noncontrolling
interests		 
Balance as of January 1, 2020 $76,684  $73,100  $127,935  $80,561 
Accretion  2,923   6,650   13,986   7,681 
Ending balance as of September 30, 2020 $79,607  $79,750  $141,921  $88,242 
Balance as of January 1, 2021 $80,581  $81,966  $146,583  $90,820 
Accretion from January 1 to July 23  2,257   5,132   10,708  ��5,841 
Conversion as of Merger  (82,838)  (87,098)  (157,291)  (96,661)
Ending balance as of September 30, 2021 $-  $-  $-  $- 

23

MICROVAST HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)

NOTE 8. FAIR VALUE MEASUREMENTS17. SHARE-BASED PAYMENT

 

In 2012, Microvast, Inc. adopted a Share Incentive Plan (the “2012 Plan”). The 2012 Plan permits the grant of options to purchase common stock, share appreciation rights, non-vested shares and non-vested share units. The maximum aggregate number of shares of common stock that may be issued pursuant to all awards under the share incentive plan is 17 percent of the total issued and outstanding company shares on a fully-diluted basis. The share options, non-vested shares and non-vested share units granted to the employees or nonemployees shall vest and become non-forfeitable with respect to one-third of the total number of the non-vested share and non-vested share units immediately upon the occurrence of initial public offering, sale or transfer of all or substantially all of the business, operations or assets of Microvast, Inc. or its subsidiaries, taken as a whole, to a third party, or such other sale or transfer of common stock in Microvast, Inc. as determined, in each case, by Microvast, Inc. pursuant to legal documents and other obligations binding upon it (the “Initial Vesting Date”), and on each of the first and second anniversaries of the Initial Vesting Date; provided that through each applicable vesting date, the employee or nonemployee is employed. The Merger in 2021 did not constitute the satisfaction of a performance condition that would trigger the vesting of equity awards as stipulated in the 2012 Plan.

In connection with the Merger, all outstanding share awards granted under the 2012 Plan, 209,906 options and 143,652 capped non-vested share units, were converted into 33,647,927 options and 23,027,399 capped non-vested share units of the Company, followsrespectively, using the guidanceCommon Exchange Ratio of 160.3 as described in ASC 820Note 3. Upon conversion, the Company modified the terms of the equity awards by removing the performance condition of the occurrence of an initial public offering and similar transaction under the 2012 Plan, and adopted a new vesting schedule of one-third of the total number on each of the first, second and third anniversaries of the Closing Date (the “Modification”). The Modification was considered a Type III modification under the Accounting for its financial assetsShare-Based Payments (Topic 718), in which the original awards were canceled, and liabilities that are re-measuredthe modified awards were considered granted on the modification date. Post-modification stock-based compensation expense related to these new awards will be recognized over the remaining service period using modification date fair values. Following the Merger, no further awards will be granted under the 2012 Plan. All stock award activity was retroactively restated to reflect the conversion.

On July 21, 2021, the stockholders of the Company approved the Microvast Holdings, Inc. 2021 Equity Incentive Plan (the “2021 Plan”), effective upon the Closing Date. The 2021 Plan provides for the grant of incentive and reported at fair value at each reporting period,non-qualified stock option, restricted stock units, restricted share awards, stock appreciation awards, and non-financial assetscash-based awards to employees, directors, and liabilities that are re-measured and reported at fair value at least annually.consultants of the Company. Options awarded under the 2021 Plan expire no more than 10 years from the date of grant. The 2021 Plan reserves 5% of the fully-diluted shares of Common Stock outstanding immediately following the Closing Date (not including the shares underlying awards rolled over from the 2012 Plan) for issuance in accordance with the 2021 Plan’s terms. As of September 30, 2021, 76,956,754 shares of Common Stock was available under the 2021 Plan.

Share options

 

During the three months and nine months ended September 30, 2021, the Company recorded stock-based compensation expense of $10.2 million related to the option awards.

The modification date fair value of the Company’s financial assets and liabilities reflects management’s estimate of amounts thatstock options was determined using the Company would have received in connectionBinomial-Lattice Model with the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:assumptions:

 

 Level 1:Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactionsAfter
modification
Exercise price (1)$4.37-6.28
Expected lives (years) (2)4.5-9.4
Volatility (3)47.6%-53.1%
Risk-free interest rate (4)1.26-1.87%
Expected dividend yields (5)0.00%
Weighted average fair value of options modified$4.70-5.36

(1)Exercise price

Exercise price was extracted from option agreements

(2)Expected lives

Expected lives was derived from option agreements.

24

MICROVAST HOLDINGS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)

17. SHARE-BASED PAYMENT - continued

(3)Volatility

The volatility of the underlying common shares during the lives of the options was estimated based on the historical stock price volatility of comparable listed companies over a period comparable to the expected term of the options and the implied volatility of the Company.

(4)Risk-free interest rate

Risk-free interest rate was estimated based on the market yield of US Government Bond with maturity close to the expected term of the options, plus country risk spread.

(5)Expected dividend yield

The dividend yield was estimated by the Company based on its expected dividend policy over the expected term of the options.

Share options -Continued

Share options activity for the nine months ended September 30, 2020 and 2021 was as follows (all stock award activity was retroactively restated to reflect the conversion in July 2021):

Share options life Number of Shares  Weighted Average Exercise Price (US$)  Weighted Average Grant Date Fair Value (US$)  Weighted Average Remaining Contractual 
Outstanding as of January 1, 2020  7,578,503  $5.50  $2.14   7.1 
Grant  27,874,727   6.27   3.06     
Forfeited  (1,196,158)  3.89   2.04     
Outstanding as of September 30, 2020  34,257,072  $6.19  $2.90   9.2 
Expected to vest and exercisable as of September 30, 2020  34,257,072  $6.19  $2.90   9.2 
Outstanding as of January 1, 2021  34,737,967   6.19   2.92   9.0 
Forfeited  (1,186,220)  6.27   3.13     
Outstanding as of September 30, 2021  33,551,747  $6.19  $4.95   8.2 
Expected to vest and exercisable as of September 30, 2021  33,551,747  $6.19  $4.95   8.2 

The total unrecognized equity-based compensation costs as of September 30, 2021 related to the stock options was $150.2 million, which is expected to be recognized over a weighted-average period of 8.2 years. The aggregate intrinsic value of the share options as of September 30, 2021 was $68,267.

25

MICROVAST HOLDINGS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)

17. SHARE-BASED PAYMENT - continued

Capped Non-vested share units

The capped non-vested shares units represent rights for the holder to receive cash determined by the number of shares granted multiplied by the lower of the fair market value and the capped price, which will be settled in the form of cash payments. The capped non-vested shares units were accounted for as liability classified awards. Upon conversion, the Company adjusted the terms of capped non-vested shares units outstanding as described above. The Company recorded stock-based compensation expense of $8.8 million related to these non-vested share units awards based on the fair value determined by the lower of stock market price and the capped price as of September 30, 2021.

Non-vested share units activity for the nine months ended September 30, 2020 and 2021 was as follows (all award activity was retroactively restated to reflect the conversion in July 2021):

  Number on
Non-Vested
Shares		  Weighted Average Grant
Date Fair Value
per Share (US$)		 
Outstanding as of January 1, 2020  19,809,056  $0.90 
Forfeited  (71,494) $1.42 
Transfer from non-vested shares  3,289,837  $1.14 
         
         
Outstanding as of September 30, 2020  23,027,399  $0.93 
Outstanding as of January 1, 2021  23,027,399  $0.93 
Outstanding as of September 30, 2021  23,027,399  $6.27 

The total unrecognized equity-based compensation costs as of September 30, 2021 related to the non-vested share units was $135.7 million.

26

MICROVAST HOLDINGS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)

17. SHARE-BASED PAYMENT - continued

Restricted Stock Units

Following the Merger, the Company granted 133,981 restricted stock units (“RSUs”) and 63,959 performance-based restricted stock unit (“PSU”) awards subject to service, performance and/or market conditions. The service condition requires the participant’s continued services or employment with the Company through the applicable vesting date, and the performance condition requires the achievement of the performance criteria defined in the award agreement. The market condition is based on is based on the Company’s TSR. For RSU awards with performance conditions, stock-based compensation expense is only recognized if the performance conditions become probable to be satisfied.

The fair value of RSUs is determined by the price of Common Stock at the grant date and is amortized over the vesting period on a straight-line basis. The fair value of PSU awards that include vesting based on market conditions are estimated using the Monte Carlo valuation method. Compensation cost for these awards is recognized based on the grant date fair value which is recognized over the vesting period on a straight-line basis. Accordingly, the Company recorded stock-based compensation expense of $135 related to these RSU awards and $31 related to these PSU awards during the nine months ended September 30, 2021.

The following assumptions were used for respective period to calculate the fair value of common shares to be issued under TSR awards on the date of grant using the Monte Carlo pricing model:

Nine Months

Ended September 30,
2021

Expected term (years) (1)2.35
Volatility (2)63.06%
Average correlation coefficient of peer companies (3)0.7960
Risk-free interest rate (4)0.31%
Expected dividend yields (5)0.00%

(1)Expected term

Expected term was derived from award agreements.

27

MICROVAST HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021
(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)

17. SHARE-BASED PAYMENT - continued

(2) Volatility

The volatility of the underlying common shares during the lives of the awards was estimated based on the historical stock price volatility of comparable listed companies over a period comparable to the expected term of the awards.

(3) Average correlation coefficient of peer companies

The correlation coefficients are calculated based upon the price data used to calculate the historical volatilities and is used to model the way in which each entity tends to move in relation to its peers.

(4) Risk-free interest rate

Risk-free interest rate was estimated based on the market yield of US Government Bond with maturity close to the expected term of the options, plus country risk spread.

(5) Expected dividend yield

The dividend yield was estimated by the Company based on its expected dividend policy over the expected term of the options.

The non-vested shares activity for the nine months ended September 30, 2020 and 2021 was as follows:

  Number of
Non-Vested
Shares		  Weighted
Average Grant
Date Fair Value
Per Share (US$)		 
Outstanding as of January 1, 2020  3,289,837  $1.14 
Transfer to non-vested share units  (3,289,837) $1.14 
Outstanding as of September 30, 2020  -   - 
Outstanding as of January 1, 2021  -   - 
Grant  197,940  $9.60 
Vested  (6,157) $8.52 
Outstanding as of September 30, 2021  191,783  $9.63 

The total unrecognized equity-based compensation costs as of September 30, 2021 related to the non-vested shares was $1.6 million.

Series B2 Preferred subscribed by employees

On October 30, 2015, the Company issued 79,107 Series B2 Preferred to certain employees of the Company. The Series B2 Preferred were issued for cash consideration of $366.00 per share (“Series B2 Award”) and all the Series B2 Preferred were fully paid on the date of issuance. The Series B2 Award shall vest with respect to one-fourth of the total number immediately upon the occurrence of a qualified IPO or Initial Vesting Date, and on each of the first, second and third anniversaries of the Initial Vesting Date; provided that through each applicable vesting date, the holder of the Series B2 Award remains employed with the Company. If a holder of the Series B2 Award terminates employment before the vesting, the Company could repurchase the Series B2 Preferred for a per share price equal to the lower of the original Series B2 Preferred subscription price or 70% of the fair market value of such Series B2 Preferred. The Company’s repurchase right upon employment termination is viewed as forfeiture and the Company accounted for the Series B2 Award as a stock option.

28

MICROVAST HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)

17. SHARE-BASED PAYMENT - continued

Series B2 Preferred subscribed by employees-continued

As of December 31, 2020, 53,319 shares were legally issued and outstanding and the Company recorded a deposit liability of $21,792 at the per share price equal to the original Series B2 Preferred subscription price.

Upon the Merger, the Series B2 Preferred were converted into 8,546,502 Common Stock, however, the Series B2 Award was not vested as the performance condition was not reached. In September 2021, the performance and service condition was exempted for the Series B2 holders and the awards were fully vested. The exemption of performance and service condition was considered a Type III modification under the Topic 718, in which the original awards were canceled, and the modified awards were considered granted on the modification date. Post-modification stock-based compensation expense related to these new awards of $39.2 million was recognized using modification date fair values determined based on the difference between the exercise price and Common Stock price on the modification date. Accordingly, the deposit liability was reclassified to equity upon the vesting.

The following summarizes the classification of stock-based compensation:

  Three Months Ended
September 30,
2021		 
Cost of sales $

2,306

 
General and administrative  

44,164

 
Research and development expenses  

8,303

 
Selling and marketing expenses  

3,518

 
Construction in process  103 
Total $

58,394

 

18. MAINLAND CHINA CONTRIBUTION PLAN

Full time employees of the Group in the PRC participate in a government-mandated multiemployer defined contribution plan pursuant to which certain pension benefits, medical care, unemployment insurance, employee housing fund and other welfare benefits are provided to employees. Chinese labor regulations require the Group to accrue for these benefits based on certain percentages of the employees’ salaries. The total provisions for such employee benefits were $618 and $708 for three months ended September 30, 2020 and 2021, respectively. The total provisions for such employee benefits were $1,572 and $1,989 for nine months ended September 30, 2020 and 2021, respectively.

29

MICROVAST HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)

19. RELATED PARTY BALANCES AND TRANSACTIONS

NameRelationship with the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.Group
   
Level 2:Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active.
Ochem Controlled by CEO
Ochemate Level 3:Controlled by CEO

(1)Unobservable inputs based on our assessment of the assumptions that market participants would use in pricing the asset or liability.Related party transaction

  Three Months Ended September 30,  Nine Months Ended September 30, 
  2020  2021  2020  2021 
Raw material sold to Ochem $11  $113  $11  $406 

(2)Interest-free loans

 


TUSCAN HOLDINGS CORP.

NOTES TO CONDENSED FINANCIAL STATEMENTS

SEPTEMBER 30, 2020

(Unaudited)

The following table presents information aboutMPS received certain interest-free loans from related parties, Ochemate and Ochem, for the Company’s assets that are measured at fair value on a recurring basis atthree months and nine months ended September 30, 2020 and December 31, 20192021 with accumulative amounts of $7,607 and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:nil, $18,063 and $8,426, respectively.

 

     September 30,  December 31, 
Description Level  2020  2019 
Assets:         
Marketable securities held in Trust Account  1  $282,180,433  $280,103,245 

The outstanding balance for the amount due from Ochem was nil as of December 31, 2020 and $128 as of September 30, 2021, respectively. Also, Ochem and Ochemate provided certain pledges and credit guarantees for the Group to secure bank facilities. Please refer to Note 9.

NOTE 9. SUBSEQUENT EVENTS20. NET LOSS PER SHARE

 

The Company evaluated subsequent eventsfollowing table sets forth the computation of basic and transactions that occurred afterdiluted net loss per share for the balance sheet date up to the date that the financial statements were issued. Based upon this review, the Company did not identify any subsequent events that would have required adjustmentperiods indicated:

  Three Months Ended September 30,  Nine Months Ended
September 30,		 
  2020  2021  2020  2021 
Numerator:            
Net loss attributable to ordinary shareholders $(21,944) $(120,003) $(64,557) $(187,464)
Denominator:                
Weighted average ordinary shares outstanding used in computing basic and diluted net loss per share  99,028,297   243,861,780   99,028,297   147,836,650 
Basic and diluted net loss per share $(0.22) $(0.49) $(0.65) $(1.27)

30

MICROVAST HOLDINGS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(In thousands of U.S. dollars, except share and per share data, or disclosure in the condensed financial statements.as otherwise noted)

20. NET LOSS PER SHARE - continued

 

For the three and nine months ended September 30, 2020 and 2021, the following shares outstanding were excluded from the calculation of diluted net loss per ordinary share, as their inclusion would have been anti-dilutive for the periods prescribed.


  Three Months Ended September 30,  Nine Months Ended September 30, 
  2020  2021  2020  2021 
Shares issuable upon exercise of share options  26,228,125   33,641,132   16,854,262   33,869,470 
Shares issuable upon vesting of non-vested shares  -   98,094   365,484   33,093 
Shares issuable upon exercise of warrants  -   21,327,750   -   7,187,374 
Shares issuable upon conversion of Series B2 Preferred  8,545,490   7,153,219   8,545,490   8,076,300 
Shares issuable upon conversion of Series C1 Preferred  26,757,258   6,398,475   26,757,258   19,896,422 
Shares issuable upon conversion of Series C2 Preferred  20,249,450   4,842,260   20,249,450   15,057,284 
Shares issuable upon conversion of Series D1 Preferred  22,311,516   5,335,362   22,311,516   16,590,614 
Shares issuable upon conversion of Series D2 Preferred  6,719,845   1,606,919   6,719,845   4,996,808 
Shares issuable upon conversion of non-controlling interests of a subsidiary  17,253,182   4,125,761   17,253,182   12,829,289 
Shares issuable upon vesting of Earn-out shares  -   14,999,991   -   5,054,942 
Shares issuable that may be subject to cancellation  -   1,265,625   -   426,511 

21. COMMITMENTS AND CONTINGENCIES

Litigation

●Mr. Smith

On September 4, 2017, Matthew Smith, a former employee of the Company, sent a demand letter to the Company alleging claims for breach of contract (involving stock options) and discrimination. On October 5, 2017, Mr. Smith filed a charge of discrimination with the United States Equal Employment Opportunity Commission (“EEOC”) alleging the same discrimination claims and also claiming his employment was terminated in retaliation for his prior discrimination complaints. On September 18, 2019, EEOC dismissed Matthew Smith’s claim in its entirety and stated that “No finding is made as to any other issues that might be constructed as having been raised by this charge.”

On February 5, 2018, Mr. Smith filed suit against the Company asserting claims for breach of contract and asserting discrimination and retaliation claims. In this action, Mr. Smith seeks the following relief: (1) a declaration that he owns 2,600 ordinary shares and (2) various damages and other equitable remedies over $1,000. The Company has denied all allegations and wrongful conduct. On November 11, 2021, the case was reset on the court’s docket, which will postpone the trial from November 2021 until early 2022.

The outcome of any litigation is inherently uncertain and the amount of potential loss if any, associated with the resolution of such litigation, cannot be reasonably estimated. As such, no accrual for contingency loss was recorded in the consolidated financial statements for the three and nine months ended September 30, 2020 and 2021.

Capital commitments

Capital commitments for construction of property and purchase of property, plant and equipment were $46,144 as of September 30, 2021, which is mainly for the construction of the lithium battery production line.

31

 

MICROVAST HOLDINGS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)

21. COMMITMENTS AND CONTINGENCIES - continued

Lease commitments

Future minimum payments under lease commitments as of September 30, 2021 were as follows:

  2021 
Three months period ending December 31, 2021 $1,004 
2022  3,865 
2023  3,310 
2024  2,535 
2025  2,111 
2026  2,111 
Thereafter  19,100 
Total Lease Liabilities $34,036 

22. SUBSEQUENT EVENTS

New RSU and PSU Grants

On October 27, 2021, the Company granted 265,399 RSUs and 265,399 PSUs to employees, subject to service and market conditions. The service condition requires the participant’s continued employment with the Company through the applicable vesting date, and the market condition requires that the Company’s Common Stock subsequent to the grant date above a specified level for a defined period of time.

Acquisition of Building

In October 2021, the Group acquired a building in Florida, United States, at the cost of $11.0 million for research and development projects.

32

ITEMItem 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSManagement’s Discussion and Analysis of Financial Condition and Results of Operations.

References in this report (the “Quarterly Report”(the “Report”) to “we,the “Company,” “Microvast Holdings, Inc.,” “Microvast,” “our,” “us” or the “Company”“we” refer to TuscanMicrovast Holdings, Corp. References to our “management” or our “management team” refer to our officers and directors, references to the “Sponsor” refer to Tuscan Holdings Acquisition LLC.Inc. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the unaudited interim condensed financial statements and the notes thereto contained elsewhere in this Quarterly Report.report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.

Special Note Regarding Forward-Looking StatementsCompletion of the Business Combination

This Quarterly Report includes “forward-looking statements” withinOn July 23, 2021 (the “Closing Date”), Microvast Holdings, Inc. (formerly known as Tuscan Holdings Corp.) consummated the meaningpreviously announced acquisition of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act that are not historical facts and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Form 10-Q including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of the Company’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”). The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.

Overview

We are a blank check company incorporated on November 5, 2018 asMicrovast, Inc., a Delaware corporation (“Microvast”), pursuant to the Agreement and formed forPlan of Merger (the “Merger Agreement”) dated February 1, 2021, between Tuscan Holdings Corp. (“Tuscan”), Microvast and TSCN Merger Sub Inc., a Delaware corporation (“Merger Sub”), pursuant to which Merger Sub merged with and into Microvast, with Microvast surviving the purposemerger (the “Merger”).

In connection with the Merger Agreement, Tuscan, MVST SPV LLC, a wholly owned subsidiary of enteringTuscan (“MVST SPV”), Microvast Power System (Huzhou) Co., Ltd., Microvast’s majority owned subsidiary (“MPS”), certain MPS convertible loan investors (the “CL Investors”) and certain minority equity investors in MPS (the “Minority Investors” and, together with the CL Investors, the “MPS Investors”) and certain other parties entered into a merger, share exchange, asset acquisition, stock purchase, recapitalization, reorganization or similar Business Combination with one or more businesses or entities. We intend to effectuate our initial Business Combination using cash from the proceeds of the Initial Public Offering and the sale of the Private Units, our capital stock, debt or a combination of cash, stock and debt.

Our entire activity since inception relates to our formation, to prepare for our Initial Public Offering, which was consummated on March 7, 2019, and identifying a company for a Business Combination.

Special Meeting to Extend Combination Period

We have scheduled a special meeting of stockholders for December 3, 2020,framework agreement (the “Framework Agreement”), pursuant to which, among other matters, we will seek stockholder approvalthings, (1) the CL Investors waived certain rights with respect to extend the Combination Period from December 7, 2020 to April 30, 2021convertible loans (the “Extension Meeting”“Convertible Loans”) held by such CL Investors that were issued under that certain Convertible Loan Agreement, dated November 2, 2018, among Microvast, MPS, such CL Investors and the MPS Investors (the “Convertible Loan Agreement”) and, in connection therewith, certain affiliates of the CL Investors (“CL Affiliates”) subscribed for 6,719,845 shares of common stock, $0.0001 par value per share (“Common Stock”), of Tuscan in a private placement in exchange for MPS convertible loans (the “CL Private Placement”). Our public stockholders will be able to elect to redeem their shares in

In connection with the Extension Meeting for a pro rata portionMerger Agreement, Tuscan entered into subscription agreements with (a) the holders of an aggregate of $57,500,000 outstanding promissory notes issued by Microvast (the “Bridge Notes”) pursuant to which Tuscan agreed to issue an aggregate of 6,736,106 shares of common stock upon conversion of the amount then on deposit in the Trust Account ($10.00Bridge Notes (the “Bridge Notes Conversion”), and (b) a number of outside investors who agreed to purchase an aggregate of 48,250,000 shares of common stock at a price of $10.00 per share, plus any pro rata interest earnedfor an aggregate purchase price of $482,500,000 (the “PIPE Financing”).

The CL Private Placement, the Bridge Notes Conversion and the PIPE Financing closed contemporaneously with the closing under the Merger Agreement (collectively, the “Closing”). Upon the Closing of the Merger, the CL Private Placement, the Bridge Notes Conversion, the PIPE Financing and related transactions (collectively, the “Business Combination”), Microvast became a wholly-owned subsidiary of the Company, with the stockholders of Microvast becoming stockholders of the Company, and with the Company renamed “Microvast Holdings, Inc.”

Company’s Business following the Business Combination

We are a technology innovator for lithium batteries. We design, develop and manufacture battery systems for electric vehicles and energy storage that feature ultra-fast charging capabilities, long life and superior safety. Our vision is to solve the key constraints in electric vehicle development and in high-performance energy storage applications. We believe the ultra-fast charging capabilities of our battery systems make charging electric vehicles as convenient as fueling conventional vehicles. We believe that the long battery life of our battery systems also reduces the total cost of ownership of electric vehicles and energy storage applications.

We offer our customers a broad range of cell chemistries: LTO, LFP, NMC-1 and NMC-2. Based on our customer’s application, we design, develop and integrate the funds heldpreferred chemistry into our cell, module and pack manufacturing capabilities. Our strategic priority is to offer these battery solutions for commercial vehicles and energy storage systems. We define commercial vehicles as light, medium, heavy-duty trucks, buses, trains, mining trucks, marine applications, automated guided and specialty vehicles. For energy storage applications, we focus on high-performance applications such grid management and frequency regulation.

33

Additionally, as a vertically integrated battery company, we design, develop and manufacture the following battery components: cathode, anode, electrolyte and separator. We will also market our FCG cathode and polyaramid separator to passenger car original equipment manufacturers (“OEMs”) and consumer electronics manufacturers.

Since we launched our first ultra-fast battery system in the Trust Account and not previously released to us to pay franchise and income taxes). There is no assurance that our stockholders will vote to approve the extension of time with which2009, we have to complete a Business Combination. If we do not obtain stockholder approval, we would wind up its affairssold and liquidate.

Resultsdelivered approximately 2,422.3 MWh of Operations

Our only activities from November 5, 2018 (inception) throughbattery systems. As of September 30, 2020 were organizational activities, those necessary to consummate the Initial Public Offering, described below, and, after the Initial Public Offering, searching for a target company for a Business Combination. We do not expect to generate any operating revenues until after the completion of our Business Combination. We generate non-operating income in the form of interest income on marketable securities held in the Trust Account. We incur expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses.

For the three months ended September 30,2020,2021, we had a net lossbacklog order of $101,287, which consistedapproximately $52.7 million for our battery systems equivalent to approximately 214.6 MWh, compared to the backlog order of operating costsapproximately $31.9 million for our battery systems equivalent to approximately 90.8 MWh as of $174,340 and an unrealized loss on marketable securities held in the Trust Account of $532,988, offset by interest income on marketable securities held in the Trust Account of $579,117 and an income tax benefit of $26,924.

For the nine months ended September 30,2020, we had net income of $1,501,571, which consisted of interest income on marketable securities held in the Trust Account of $2,589,682, offset by operating costs of $654,803, an unrealized loss on marketable securities held in the Trust Account of $33,021, and a provision30, 2020. Our revenue for income taxes of $400,287.

For the three months ended September 30, 2019,2021 increased $6.1 million, or 20.0%, compared to the same period in 2020.

After initially focusing on the PRC and Asia & Pacific region, we had net incomehave expanded our presence and product promotion to Europe and the United States to capitalize on their rapidly growing electrification markets.

In Europe, we have delivered over 1,500 units of $896,594,ultra-fast charging battery systems to bus OEMs and operators as of September 30, 2021. Small-scale prototype projects are ongoing with regard to sports cars, commercial vehicles, trucks, port equipment and marine applications. In addition, we are jointly developing electric power-train solutions with leading commercial vehicle OEMs and a first-tier automotive supplier using LTO, NMC1 and NMC2 technologies.

Key Factors Affecting Our Performance

We believe that our future success will be dependent on several factors, including those discussed below. While these areas represent opportunities for us, they also represent challenges and risks that we must successfully address in order to continue the growth of our business and improve our results of operations.

Technology and Product Innovation

Our financial performance is driven by development and sales of new products with innovative technology. Our ability to develop innovative technology has been and will continue to be dependent on our dedicated research team. In the future, we intend to continue to invest in R&D in order to continually develop and introduce innovative products. We expect our results of operations will continue to be impacted by our ability to develop new products with improved performance and reduced ownership cost, as well as the cost of our R&D efforts.

Market Demand

Our revenue and profitability depend substantially on the demand for battery systems and battery components, which consistedis driven by the growth of interest incomethe commercial and passenger electric vehicle and energy storage markets. Many factors contribute to the development of electric vehicles sector, including product innovation, general economic and political conditions, environmental concerns, energy demand, government support and economic incentives. While governmental economic incentives and mandates can drive market demand for electric vehicles, and as a result, battery systems and components, governmental economic incentives are being gradually reduced or eliminated, any reduction or elimination of governmental economic incentives may result in reduced demand for our products and adversely affect our financial performance.

Manufacturing Capacity

Our growth depends on marketable securities heldbeing able to meet anticipated demand for our products. In order to do this, we will need to increase our manufacturing capacity. We expect to use some of the proceeds from the Business Combination to expand our manufacturing facilities to increase our manufacturing output to address our backlog and to capture growing market opportunities. The capacity expansion will be carried out in a measured manner based on our ongoing assessment of medium- and long-term demand for our solutions. Our planned capacity expansion will require significant capital expenditures and will require corresponding expansion of our supporting infrastructure, further development of our sales and marketing team, expansion of our customer base and strengthened quality control.

34

Sales Geographic Mix

After primarily being focused on the PRC and Asia & Pacific region, we are expanding our presence and product promotion to Europe and the United States to capitalize on the rapidly growing elective vehicle markets in those geographies. As we expand our geographic focus to Europe and the United States, we believe sales of our products in Europe and the United States will generate higher gross margins. It has been our experience that buyers in Europe and the United States are more motivated by the technologies, quality and total cost ownership of our products than are buyers in the Trust AccountPRC, making them less sensitive to the price of $1,577,268 and an unrealized gain on marketable securities heldour products than are similarly situated buyers in the Trust AccountPRC. Therefore, the geographic source of $187,306, offset by operating costs of $262,271our revenue will have an impact on our revenue and a provision for income taxes of $231,097.gross margins.

ForManufacturing Costs

Our profitability may also be affected by our ability to effectively manage our manufacturing costs. Our manufacturing costs are affected by fluctuations in the price of raw materials. If raw material prices increase, we will have to offset these higher costs either through price increases to our customers or through productivity improvements. Our ability to control our raw materials costs is also dependent on our ability to negotiate with our suppliers for a better price, and our ability to source raw materials from reliable suppliers in a cost-efficient manner. In addition, we expect that an increase in our sales volume will enable us to lower our manufacturing costs through economies of scale.

Regulatory Landscape

We operate in an industry that is subject to many established environmental regulations, which have generally become more stringent over time, particularly with respect to hazardous waste generation and disposal and pollution control. These regulations affect the cost of our products and our gross margins. We are also affected by regulations in our target markets such as economic incentives to purchasers of electric vehicles, tax credits for electric vehicle manufacturers, and economic penalties that may apply to a car manufacturer based on its fleet-wide emissions. Each of these regulations may expand the market size of electric vehicles, which would in turn benefit us. We have operations and sales in the PRC, the Asia & Pacific region, Europe and the United States and, as a result, changes in trade restrictions and tariffs could impact our ability to meet projected sales or margins.

COVID-19

To date, COVID-19 has had an adverse impact on our sales, operations, supply chains, and distribution systems, and has resulted in a one-month shutdown of our factories and in delivery delays. During the nine months ended September 30, 2019,2021, we faced unanticipated challenges caused by the continued impact of global pandemic. Certain customers deferred their purchases due to the pandemic. Due to precautionary measures related to COVID-19 and resulting global economic impacts, we may experience further reductions in demand for certain of our products.

Basis of Presentation

We currently conduct our business through one operating segment. Our historical results are reported in accordance with U.S. GAAP and in U.S. dollars.

Liquidity and Capital Resources

Since inception, we have financed our operations primarily from capital contributions from equity holders, issuance of convertible notes and bank borrowings. As of September 30, 2021, our principal sources of liquidity were our cash and cash equivalents in the amount of $572.6 million.

As of September 30, 2021, we had net incomebank borrowings of $2,444,728,$22.9 million, the terms of which consistedrange from 6 months to 12 months. The interest rates of our bank borrowings ranged from 5% to 6.31% per annum. As of September 30, 2021, we had convertible bonds of $73.1 million, with interest income on marketable securities heldrates ranging from 0% to 4%. The convertible bonds are due as follows: $29.2 million in the Trust Account2023; $29.2 million in 2024; and $14.7 million in 2026. As of $3,657,526September 30, 2021, we were in compliance with all material terms and an unrealized gain on marketable securities held in the Trust Accountcovenants of $35,094, offset by operating costs of $527,663our loan agreements, credit agreements, bonds and a provision for income taxes of $650,041.notes.


35

 

Liquidity and Capital Resources

On March 7, 2019, we consummated our Initial Public Offering of 24,000,000 Units, at a price of $10.00 per Unit, generating gross proceeds of $240,000,000. Simultaneously with the closing of the Initial Public Offering, we consummated the sale of 615,000 Private Units to our Sponsor and EarlyBirdCapital and its designee, generating gross proceeds of $6,150,000.

On March 12, 2019, in connection with the underwriters’ exercise of their over-allotment option in full, we consummated the sale of an additional 3,600,000 Units at a price of $10.00 per Unit, generating total gross proceeds of $36,000,000. In addition, we also consummated the sale of an additional 72,000 Private Units to our Sponsor and EarlyBirdCapital and its designee at $10.00 per Private Unit, generating total gross proceeds of $720,000.

Following the Initial Public Offering, the exercise of the over-allotment option and the sale of the Private Units, a total of $276,000,000 was placed in the Trust Account. We incurred $6,059,098 in Initial Public Offering related costs, including $5,520,000 of underwriting fees, and $539,098 of other costs.

AsThe consolidated net cash position as of September 30, 2020,2021 included cash, cash equivalents and restricted cash of $80.7 million held by our PRC subsidiaries that is not available to fund domestic operations unless funds are repatriated. Should we had marketable securitiesneed to repatriate to the U.S. part or all of the funds held by our PRC subsidiaries, we would need to accrue and pay withholding taxes equivalent to 10% of the funds repatriated. We do not intend to pay any cash dividends on our common stock in the Trust Accountforeseeable future and intend to retain all of $282,180,433 (including approximately $6,180,000 of interest incomethe available funds and unrealized gains) consisting of U.S. treasury bills with a maturity of 180 days or less. Interest income on the balanceany future earnings for use in the Trust Account mayoperation and expansion of our business in the PRC, the EU and the United States.

On July 23, 2021, the Business Combination was completed. The net proceeds from the Merger include $708.4 million cash to be used by usretained for the purposes of working capital, business expansion and capital expenditure. We believe we will be able to pay taxes. Through September 30, 2020, we withdrew approximately $1,417,000meet our working capital requirements for at least the next 12 months.

Cash Flows

The following table provides a summary of interest earned onour cash flow data for the Trust Account to pay our franchise and income tax obligations, of which approximately $479,000 was withdrawn duringperiods indicated:

  Nine Months Ended
September 30,		 
  2020  2021 
Amount in thousands      
Net cash provided by (used in) operating activities  5,799   (24,653)
Net cash used in investing activities  (14,425)  (40,718)
Net cash (used in) provided by financing activities  (2,360)  634,370 

Cash Flows from Operating Activities

During the nine months ended September 30, 2021, our operating activities used $24.7 million in cash. This decrease in cash consisted of (1) $19.5 million in cash paid after adjusting our net loss for non-cash and non-operating items, of which $14.4 million is depreciation of property, plant and equipment, $9.9 million loss on change in fair value of convertible notes, and $1.1 million gain on change in fair value of warrant; (2) $5.2 million decrease in cash flows from operating assets and liabilities including $20.2 million cash inflow due to collection of accounts receivable and notes receivable.

Cash Flows from Investing Activities

During the nine months ended September 30, 2021, cash used in investing activities totaled $40.7 million. This cash outflow primarily consisted of capital expenditures related to purchase of property and equipment in connection with our expansion plans.

Cash Flows from Financing Activities

During the nine months ended September 30, 2021, cash provided by financing activities totaled $634.4 million. This cash inflow was a result of $26.6 million proceeds from bank borrowings, $57.5 million proceeds from the issuance of convertible notes to new investors and $708.4 million from Merger and PIPE financing, partially offset by $15.7 million repayment on bank borrowings and $139.0 payment to exited noncontrolling interests and $3.4 million payment for transaction fee.

36

Components of Results of Operations

Revenue

We derive revenue from the sales of our electric battery products, including LpTO, LpCO, MpCo and HnCo battery power systems. While we have historically marketed and sold our products primarily in the PRC, we are also expanding our sales presence internationally. The following table sets forth a breakdown of our revenue by major geographic regions in which our customers are located, for the periods indicated:

  Three Months Ended September 30, 
  2020  2021 
(In thousands) Amt  %  Amt  % 
Asia & Pacific Region $23,945   78% $31,792   86%
Europe  6,446   21%  4,908   13%
Others  362   1%  194   1%
Total $30,753   100% $36,894   100%

  Nine Months Ended September 30, 
  2020  2021 
(In thousands) Amt  %  Amt  % 
Asia & Pacific Region $42,632   72% $73,360   87%
Europe  16,376   27%  11,466   13%
Others  392   1%  378   0%
Total $59,400   100% $85,204   100%

We have historically derived a portion of our revenue in a given reporting period from a limited number of key customers, which varied from period to period. The following table summarizes net revenues from customers that accounted for over 10% of our net revenues for the periods indicated:

  Three Months Ended
September 30,		 
  2020  2021 
A  18%  —%
B  —%  17%

  Nine Months Ended
September 30,		 
  2020  2021 
C  11%  —%
A  10%  —%
D  —%  12%
B  —%  11%

Cost of Revenue and Gross Profit

Cost of revenues includes the cost of manufacturer costs of finished goods, salaries and related personnel expenses, including stock-based compensation, warranty costs and depreciation and related expenses that are directly attributable to the manufacturing of products.

Gross profit is equal to revenue less cost of revenues. Gross profit margin is equal to gross profit divided by revenue.

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Operating Expense

Operating expenses consist of selling and marketing, general and administrative and research and development expenses.

Selling and marketing expenses. Selling and marketing expenses consist primarily of personnel-related costs associated with our sales and marketing functions, including stock-based compensation, and other expenses related to advertising and promotions of our products. We intend to hire additional sales personnel, initiate additional marketing programs and build additional relationships with our customers. Accordingly, we expect that our selling and marketing expenses will continue to increase in absolute dollars in the long term as we expand our business.

General and administrative expenses. General and administrative expenses consist primarily of personnel-related expenses associated with our executive, including stock-based compensation, legal, finance, human resource and information technology functions, as well as fees for professional services, depreciation and amortization and insurance expenses. We expect to incur additional costs as we hire personnel and enhance our infrastructure to support the anticipated growth of our business.

Research and development expenses. Research and development expenses consist primarily of personnel-related expenses, including stock-based compensation, raw material expenses relating to materials used for experiments, utility expenses and depreciation expenses attributable to research and development activities. Over time, we expect our research and development expense to increase in absolute dollars as we continue to make significant investments in developing new products, applications, functionality and other offerings.

Subsidy Income

Government subsidies represent government grants received from local government authorities. The amounts of and conditions attached to each subsidy were determined at the sole discretion of the relevant governmental authorities. Our subsidy income is non-recurring in nature.

Other Income and Expenses

Other income and expenses consist primarily of interest expense associated with our debt financing arrangements, interest income earned on our cash balances, gains and losses from foreign exchange conversion, and gains and losses on disposal of assets.

Income Tax Expense

We are subject to income taxes in the United States and foreign jurisdictions in which we do business, namely the PRC, Germany and the United Kingdom. These foreign jurisdictions have statutory tax rates different from those in the United States. Accordingly, our effective tax rates will vary depending on the relative proportion of foreign to U.S. income, the absorption of foreign tax credits, changes in the valuation of our deferred tax assets and liabilities and changes in tax laws. We regularly assess the likelihood of adverse outcomes resulting from the examination of our tax returns by the U.S. Internal Revenue Service (the “IRS”), and other tax authorities to determine the adequacy of our income tax reserves and expense. Should actual events or results differ from our current expectations, charges or credits to our income tax expense may become necessary. Any such adjustments could have a significant impact on our results of operations.

Income tax in the PRC is generally calculated at 25% of the estimated assessable profit of our subsidiaries in the PRC, except that two of our PRC subsidiaries were qualified as “High and New Tech Enterprises” and thus enjoyed a preferential income tax rate of 15%. Federal corporate income tax rate of 21% is applied for our U.S. entity. Income tax in the United Kingdom is calculated at an average tax rate of 19% of the estimated assessable profit of our subsidiary in the United Kingdom. German enterprise income tax, which is a combination of corporate income tax and trade tax, is calculated at 31.9% of the estimated assessable profit of our subsidiary in Germany.

38

Results of Operations

Comparison of the Three Months Ended September 30, 2021 to the Three Months Ended September 30, 2020

The following table sets forth our historical operating results for the periods indicated:

  Three Months Ended September 30,  $  % 
  2020  2021  Change  Change 
Revenues  30,753   36,894   6,141   20.0%
Cost of revenues  (27,075)  (72,779)  (45,704)  168.8%
Gross profit/(loss)  3,678   (35,885)  (39,563)  (1,075.7)%
   12.0%  (97.3)%        
Operating expenses:                
General and administrative expenses  (4,721)  (57,058)  (52,337)  1,108.6%
Research and development expenses  (4,558)  (13,518)  (8,960)  196.6%
Selling and marketing expenses  (3,456)  (7,380)  (3,924)  113.5%
Total operating expenses  (12,735)  (77,956)  (65,221)  512.1%
Subsidy income  (39)  545   584   (1,497.4)%
Operating loss  (9,096)  (113,296)  (104,200)  1,145.6%
                 
Other income and expenses:                
Interest income  66   97   31   47%
Interest expense  (1,397)  (1,247)  150   (10.7)%
Other income (expense), net  68   (19)  (87)  (127.9)%
Loss on changes in fair value of convertible notes  -   (3,018)  (3,018)  (100.0)%
Gain on change in fair value of warrant liability  -   1,113   1,113   100.0%
Loss before income tax  (10,359)  (116,370)  (106,011)  1,023.4%
Income tax benefit (expense)  270   (106)  (376)  (139.3)%
Loss  (10,089)  (116,476)  (106,387)  1,054.5%

Revenue

Our revenue increased from approximately $30.8 million for three months ended September 30, 2020 to approximately $36.9 million for the same period in 2021 primarily driven by the increase in sales of battery cell products to new customers and the increase in sales to existing customers in the Asia & Pacific region.

Cost of Revenue and Gross Profit

Our cost of sales for the three months ended September 30, 2021 increased $45.7 million, or 168.8%, compared to the same period in 2020.

Our gross profit margin decreased from 12.0% for the three months ended September 30, 2020 to (97.3%) for the same period in 2021. The increase in cost of sales and the decrease in gross margin was primarily due to (i) increase in product warranty cost, (ii) increases in material prices since the end of 2020, (iii) disposal of some legacy product at or below their original costs to produce, (iv) an increase in the share-based compensation expense recorded since the third quarter of 2021, and (v) a lower volume of orders placed for a specific manufacturing line as a result of the industry-wide semiconductor shortage, which resulted in a higher manufacturing cost per unit.

Certain legacy products that were sold during 2017 and 2018 to our PRC-based customers did not meet our high standards and experienced performance issues. Following a rigorous root cause analysis completed in October 2021, we determined that a component sourced from a third-party supplier was not meeting the Company’s performance standards. It is our expectation that these legacy products will need to be replaced before the expiration of the product warranty in their respective sales contracts with our customers.

 

ForWe believe this issue is limited to this legacy product which we ceased selling in late 2018, as the component was not incorporated into any other products. Accordingly, we feel it is prudent to take an additional warranty reserve and the accrued cost of $35.6 million for the three months ended September 30, 2021.

39

Operating Expense

Selling and Marketing

Selling and marketing expenses for the three months ended September 30, 2021 increased $3.9 million, or 113.5%, compared to the same period in 2020. The increase in selling and marketing expenses was primarily due to increased personnel-related expenses as we increased headcount of our sales and marketing team and the increased share-based compensation expense recorded during the third quarter of 2021.

General and Administrative

General and Administrative expenses for the three months ended September 30, 2021 increased $52.3 million, or 1,108.6%, compared to the same period in 2020. The increase in General and Administrative expenses was primarily due to increased administrative headcount to support our overall growth and the increased share-based compensation expense recorded during the third quarter of 2021.

Research and Development

Research and Development expenses for the three months ended September 30, 2021 increased $9.0 million, or 196.6%, compared to the same period in 2020. The increase in Research and Development expenses was primarily due to (i) increased costs of materials used for experiments due to more testing activities; (ii) increased personnel-related expenses as we increased headcount of our research team as a result of our efforts to further develop and enhance our products; and (iii) the increased share-based compensation expense recorded during the third quarter of 2021.

Loss on changes in fair value of convertible notes

In the three months ended September 30, 2021, we incurred a loss of $3.0 million due to changes in fair value of convertible notes in connection with the issuance of convertible notes in January and February 2021 to new investors.

Gain on change in fair value of warrant liability

In the three months ended September 30, 2021, we incurred gain of $1.1 million due to change in fair value of warrant liability.

Comparison of the Nine Months Ended September 30, 2021 to the Nine Months Ended September 30, 2020

The following table sets forth our historical operating results for the periods indicated:

  

Nine Months Ended

September 30,

  $  % 
  2020  2021  Change  Change 
Revenues  59,400   85,204   25,804   43.4%
Cost of revenues  (50,950)  (129,100)  (78,150)  153.4%
Gross profit/(loss)  8,450   (43,896)  (52,346)  (619.5)%
                 
Operating expenses:                
General and administrative expenses  (12,670)  (67,810)  (55,140)  435.2%
Research and development expenses  (12,518)  (23,199)  (10,681)  85.3%
Selling and marketing expenses  (9,464)  (14,242)  (4,778)  50.5%
Total operating expenses  (34,652)  (105,251)  (70,599)  203.7%
Subsidy income  802   2,676   1,874   233.7%
Operating loss  (25,400)  (146,471)  (121,071)  476.7%
                 
Other income and expenses:                
Interest income  502   304   (198)  (39.4)%
Interest expense  (4,234)  (4,630)  (396)  9.4%
Other income, net  63   25   (38)  (60.3)%
Loss on changes in fair value of convertible notes  -   (9,861)  (9,861)  (100.0)%
Gain on change in fair value of warrant liability  -   1,113   1,113   100.0%
Loss before income tax  (29,069)  (159,520)  (130,451)  448.8%
Income tax expense  (5)  (324)  (319)  6,380.0%
Loss  (29,074)  (159,844)  (130,770)  449.8%

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Revenue

Our revenue increased from approximately $59.4 million for the nine months ended September 30, 2020 cash usedto approximately $85.2 million for the same period in operating activities was $563,890. Net income2021 primarily driven by the increase in sales of $1,501,571 was affected by interest earned on marketable securities heldbattery cell products to new customers and the increase in sales to existing customers in the Trust Account of $2,589,682, an unrealized loss on marketable securities held in our Trust Account of $33,021 and a deferred income tax benefit of $34,003. Changes in operating assets and liabilities provided $525,203 of cash from operating activities.Asia & Pacific region.

ForCost of Revenue and Gross Profit

Our cost of sales for the nine months ended September 30, 2019, cash used2021 increased $78.2 million, or 153.4%, compared to the same period in operating activities2020.

Our gross profit margin decreased from 14.2% for the nine months ended September 30, 2020 to (51.5)% for the same period in 2021. The increase in cost of sales and the decrease in gross margin was $1,115,949. Net income $2,444,728 was affected by interest earned on marketable securities heldprimarily due to (i) increases in product warranty cost, (ii) increases in material prices since the end of 2020, (v) disposal of some legacy product at or below their original costs to produce, (iv) an increase in the trust accountshare-based compensation expense recorded since the third quarter of $3,657,526, an unrealized gain on marketable securities held2021, (v) the proportionally higher sales to PRC customers with lower average selling price compared with the price to customers outside PRC, and (vi) a lower volume of orders placed for a specific manufacturing line as a result of the industry-wide semiconductor chip shortage, which resulted in a higher manufacturing cost per unit.

Certain products we sold during 2017 and 2018 to our trust accountPRC based customers recently experienced performance that does not meet our high standards. Following a rigorous root cause analysis completed in the third quarter of $35,094 and2021, we determined that a deferred income tax provisioncomponent sourced from a third-party supplier was not meeting the Company’s performance standards. It is our expectation that these legacy products will need to be replaced before the expiration of $7,370. Changesthe product warranty in operating assets and liabilities provided $69,125 of cash from operating activities.their respective sales contracts with our customers.

 

We intendbelieve this issue is limited to use substantially allthis legacy product which we ceased selling in late 2018, as the component was not incorporated into any other products. Accordingly, we feel it is prudent to take an additional warranty reserve and the accrued cost for nine months ended September 30, 2021 was $44.6 million.

Operating Expense

Selling and Marketing

Selling and marketing expenses for the nine months ended September 30, 2021 increased $4.8 million, or 50.5%, compared to the same period in 2020. The increase in selling and marketing expenses was primarily due to the expansion into Europe and the share-based compensation expense recorded during the third quarter of 2021.

General and Administrative

General and Administrative expenses for the funds heldnine months ended September 30, 2021 increased $55.1 million, or 435.2%, compared to the same period in 2020. The increase in General and Administrative expenses was primarily due to increased administrative headcount to support our overall growth and the share-based compensation expense recorded during the third quarter of 2021.

Research and Development

Research and Development expenses for the nine months ended September 30, 2021 increased $10.7 million, or 85.3%, compared to the same period in 2020. The increase in Research and Development expenses was primarily due to (i) increased costs of materials used for experiments due to more testing activities; (ii) increased personnel-related expenses as we increased headcount of our research team as a result of our efforts to further develop and enhance our products; and (iii) the increased share-based compensation expense recorded during the third quarter of 2021.

Subsidy Income

Subsidy income increased from $0.8 million in the Trust Account, to acquire a target business and to pay our expenses relating thereto, including a fee payable to EarlyBirdCapital, upon consummation of our initial Business Combination for assisting us in connection with our initial Business Combination. To the extent that our capital stock is used in whole or in part as consideration to effect a Business Combination, the remaining funds held in the Trust Account will be used as working capital to finance the operations of the target business. Such working capital funds could be used in a variety of ways including continuing or expanding the target business’ operations, for strategic acquisitions and for marketing, research and development of existing or new products. Such funds could also be used to repay any operating expenses or finders’ fees which we had incurred prior to the completion of our Business Combination if the funds available to us outside of the Trust Account were insufficient to cover such expenses.

As ofnine months ended September 30, 2020 we had cashto $2.7 million in the same period in 2021, primarily due to a one-time award granted by local governments in the PRC in the first quarter of $255,886. We intend to use the funds held outside the Trust Account for identifying and evaluating prospective acquisition candidates, performing business due diligence on prospective target businesses, traveling to and from the offices, plants or similar locations of prospective target businesses, reviewing corporate documents and material agreements of prospective target businesses, selecting the target business to acquire and structuring, negotiating and consummating the Business Combination.2021.

On April 20, 2020, the Sponsor committed to provide us an aggregate of $500,000 in loans. The loans shall be non-interest bearing, unsecured and due upon the consummation of a Business Combination. In the event that a Business Combination does not close, the loans would be repaid only out of funds held outside the Trust Account to the extent such funds are available. Otherwise, all amounts loaned to us would be forgiven.

On April 21, 2020, we issued an unsecured promissory note to the Sponsor in the aggregate amount of $300,000 (the “Note”). The Note is non-interest bearing and payable upon the consummation of a Business Combination. The Note is convertible, at the lender’s option, into units of the post Business Combination entity at a price of $10.00 per unit. The units would be identical to the Private Units. If a Business Combination is not consummated, the notes will not be repaid by us and all amounts owed thereunder by us will be forgiven except to the extent that we have funds available to it outside of its Trust Account. As of September 30, 2020, there was $200,000 outstanding under the Note.

In order to fund working capital deficiencies or finance transaction costs in connection with a Business Combination, the Sponsor or our officers and directors or their affiliates may, but are not obligated to, loan us funds on a non-interest basis as may be required, except as described above. If we complete our initial Business Combination, we would repay such loaned amounts. In the event that our initial Business Combination does not close, we may use a portion of the working capital held outside the Trust Account to repay such loaned amounts but no proceeds from our Trust Account would be used for such repayment. Up to $1,500,000 of notes may be convertible into Private Units, at a price of $10.00 per unit. The units would be identical to the Private Units. 


41

 

IfLoss on Changes in Fair Value of Convertible Notes

In the nine months ended September 30, 2021, we incurred a loss of $9.9 million due to changes in fair value of convertible notes in connection with the issuance of convertible notes in January and February 2021 to new investors.

Gain on change in fair value of warrant liability

In the nine months ended September 30, 2021, we incurred a gain of $1.1 million due to change in fair value of warrant liability.

Contractual Obligations

Our capital expenditures amounted to $18.6 million and $40.7 million for the nine months ended September 30, 2020 and 2021, respectively. Our capital expenditures for the nine months ended September 30, 2020 and 2021 related primarily to the construction of manufacturing facilities under our expansion plan.

In 2021, we started our capacity expansion plans in Huzhou, China, Berlin, Germany and Clarkesville, Tennessee. Both projects are expected to be completed by Q2 2023 to increase our existing production capacity by 4 GWH.  We expect the total capital expenditures related to the capacity expansion to be approximately $420 million, which we plan to finance primarily through the proceeds from the Business Combination.

Our planned capital expenditure amounts are based on management’s current estimates of theand may be subject to change. There can be no assurance that we will execute our capital expenditure plans as contemplated at or below estimated costs, of identifyingand we may also from time to time determine to undertake additional capital projects and incur additional capital expenditures. As a target business, undertaking in-depth due diligence and negotiating an initial Business Combination areresult, actual capital expenditures in future years may be more or less than the actual amount necessary to do so, we may have insufficient funds available to operateamounts shown.

The following table summarizes our business prior to our Business Combination. Moreover, we may need to obtain additional financing either to complete our Business Combination or because we become obligated to redeem a significant numbercontractual obligations and other commitments for cash expenditures as of our public shares upon completion of our Business Combination,December 31, 2020 and the years in which case we may issue additional securities or incur debt in connection with such Business Combination. If wethese obligations are unable to complete our initial Business Combination because we do not have sufficient funds available to us, we will be forced to cease operations and liquidate the Trust Account.due:

  Payments Due by Period 
  Total  Less than 1 Year  1 – 3 Years  3 – 5 Years  More than 5 years 
Amount in thousands               
Bond Payable* $29,915  $29,915  $—  $—  $— 
Deposit liability for series B2 convertible preferred shares*  21,792   21,792   —   —   — 
Interest  42,180   11,298   24,976   5,741   165 
– Short-term bank borrowings  113   113   —   —   — 
– Bond payable  8,534   1,712   4,919   1,738   165 
– Payable for redemption of noncontrolling interest  33,533   9,473   20,057   4,003   — 
Lease commitments  34,042   3,539   6,377��  4,451   19,675 
Purchase obligations  8,396   8,396   —   —   — 
Capital commitments  30,706   29,264   1,442   —   — 
Total $167,031  $104,204  $32,795  $10,192  $19,840 

*The convertible bond and deposit liability for series B2 convertible preferred shares were convert to equity in connection with the Business Combination.

 

Off-Balance Sheet Financing Arrangements

We did not have any off-balance sheet arrangements as of September 30, 2020.

Contractual Obligations

We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities other than an agreement to pay an affiliate of our Sponsor a monthly fee of $10,000 for office space, utilities and secretarial and administrative support. We began incurring these fees on March 5, 2019 and will continue to incur these fees monthly until the earlier of the completion of the Business Combination and our liquidation.

We have engaged EarlyBirdCapital to act as an advisor in connection with a Business Combination, to assist us in holding meetings with our shareholders to discuss the potential Business Combination and the target business’ attributes, introduce us to potential investors that are interested in purchasing our securities in connection with a Business Combination, assist us in obtaining shareholder approval for the Business Combination and assist us with our press releases and public filings in connection with the Business Combination. We will pay EarlyBirdCapital a cash fee for such services upon the consummation of a Business Combination in an amount equal to $9,660,000 (exclusive of any applicable finders’ fees which might become payable); provided that up to 30% of the fee may be allocated at our sole discretion to other FINRA members that assist us in identifying and consummating a Business Combination.

Critical Accounting Policies

Our consolidated financial statements are prepared in accordance with U.S. GAAP. The preparation of condensedthese consolidated financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires managementus to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and liabilities, disclosure of contingent assetsrelated disclosures. We evaluate our estimates and liabilities atassumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the date of the financial statements, and income and expenses during the periods reported. Actualcircumstances. Our actual results could materially differ from thosethese estimates.

We have identifiedbelieve the following critical accounting policies:policies involve a higher degree of judgment and complexity than our other accounting policies. Therefore, these are the policies we believe are the most critical to understanding and evaluating our consolidated financial condition and results of operations.

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Revenue Recognition

 

Common Stock SubjectNature of Goods and Services

Our sales revenue consists primarily of sales of lithium batteries. Our obligation is providing electronic power products. Revenue is recognized at the point of time when control of the promised goods or services is transferred to Possible Redemptionthe customer, in an amount that reflects the consideration we expect to be entitled to in exchange for the goods or services.

Disaggregation of Revenue

For the year ended December 31, 2020 and the nine months ended September 30, 2021, we derived revenues of $82.7 million and $73.4 million from the Asia & Pacific region, $24.3 million and $11.5 million from Europe, and $0.5 million and $0.4 million from other geographic regions where the customers are located, respectively.

Sales Incentive

In 2018, we provided sales incentives to some of our customers, which mainly relates the reduced sales prices. The sales incentives are discounts to be applied to future sales to the customer which cannot be exchanged for cash. To the extent that the sales incentives represent a material right or option to acquire additional goods or services at a discount in the future period, the material right is recognized as a separate performance obligation at the outset of the arrangement based on the most likely amount of incentive to be provided to the customer. Amounts allocated to a material right are recognized as revenue when those future goods are sold to the customers. During 2020 and the nine months ended September 30, 2021, no such sales incentives were granted to customers.

Contract Balances

Contract balances include accounts receivable and advance from customers. Accounts receivable represent cash not received from customers and are recorded when the right to consideration is unconditional. The allowance for doubtful accounts reflects the best estimate of probable losses inherent to the account receivable balance. Contract liabilities, recorded in advance from customers in the consolidated balance sheet, represent payment received in advance or payment received related to a material right provided to a customer to acquire additional goods or services at a discount in a future period. During the year ended December 31, 2020 and the nine months ended September 30, 2021, we recognized $0.6 million and $1.4 million of revenue previously included in advance from customers as of January 1, 2020 and 2021, respectively, which consist of payments received in advance related to our sales of lithium batteries.

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Product Warranty

We provide product warranties, which entail repair or replacement of non-conforming items, in conjunction with sales of products. Estimated costs related to warranties are recorded in the period in which the related product sales occur. The warranty liability recorded at each balance sheet date reflects management’s best estimates of its product warranties based on historical information and other currently available evidence.

Our product warranties generally range from one to eight years. We established a reserve for the estimated cost of the product warranty at the time revenue is recognized. The portion of the warranties we expect to incur within the next 12 months is recorded in accrued expenses and other current liabilities, while the remainder is recorded in other non-current liabilities on the consolidated balance sheets. Warranty reserves are recorded as a cost of revenue.

In 2021, as a result of the increases in the repairing cost and frequency of claims with respect to a legacy product sold in 2017 and 2018, we conducted intensive experiments and a root cause analysis, which was completed in October 2021. We concluded that a component purchased from a supplier was not meeting the Company’s performance standards. As a result, we expect that the impacted legacy products sold will need to be replaced before the expiration of warranty term. This reassessment resulted in a change in estimate for additional accrual of $34.1 million for such legacy product sold in the third quarter of 2021. As the component was not incorporated into other products, no additional accrual was made to other existing products sold. We are in negotiation with the supplier for compensation and will take legal action if necessary.

Inventories

Our inventories consist of raw materials, work in process and finished goods. Inventories are stated at the lower of cost or net realizable value. Inventory costs include expenses that are directly or indirectly incurred in the acquisition, including shipping and handling costs charged to us by suppliers, and production of manufactured product for sale. Costs of materials and supplies used in production, direct labor costs and allocated overhead costs are all included in the inventory costs. The allocated overhead cost includes the depreciation, insurance, employee benefits, and indirect labor. Cost is determined using the weighted average method. Inventories are written down to net realizable value taking into consideration estimates of future demand, technology developments, market conditions and reasonably predicative costs of completion or disposal.

We record inventory impairment losses of $1.3 million and $12.7 million during the nine months ended September 30, 2020 and 2021, respectively as we had to sell certain products that did not qualify for the revised subsidies at lower prices. We monitor the inventory impairments periodically and since battery technology continues to advance, we may incur inventory impairment losses in the future.

Income Taxes

Current income taxes are provided for in accordance with the laws of the relevant tax authorities. Deferred income taxes are recognized when temporary differences exist between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements. Net operating loss carry forwards and credits are applied using enacted statutory tax rates applicable to future years. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more-likely-than-not that a portion of or all of the deferred tax assets will not be realized.

We account for uncertain tax positions by reporting a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return. Tax benefits are recognized from uncertain tax positions when we believe that it is more likely than not that the tax position will be sustained on examination by the taxing authorities based on the technical merits of the position. We recognize interest and penalties, if any, related to unrecognized tax benefits in income tax expense.

Stock-Based Compensation

 

We accountrecognize compensation expense on a straight-line basis over the service period that awards are expected to vest, based on the estimated fair value of the awards on the date of the grant. We recognize forfeitures as they occur. Fair value excludes the effect of non-market based vesting conditions. The fair value of RSUs with service conditions is based on the grant date share price. We estimate the fair value of options utilizing the Binomial-Lattice Model. The fair value of non-vested shares that vest based on market conditions are estimated using the Monte Carlo valuation method. These fair value estimates of stock related awards and assumptions inherent therein are estimates and, as a result, may not be reflective of future results or amounts ultimately realized by recipients of the grants. For these awards with performance conditions, we recognize compensation expense when the performance goals are achieved, or when it becomes probable that the performance goals will be achieved. Management performs the probability assessment on a quarterly basis by reviewing external factors, such as macroeconomic conditions and the analog industry revenue forecasts, and internal factors, such as our business and operational objectives and revenue forecasts. Changes in the probability assessment of achievement of the performance conditions are accounted for common stockin the period of change by recording a cumulative catch-up adjustment as if the new estimate had been applied since the service inception date. As a result, our stock-based compensation expense is subject to possible redemptionvolatility and may fluctuate significantly each quarter due to changes in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” Common stock subject to mandatory redemption is classified as a liability instrument and is measured at fair value. Conditionally redeemable common stock (including common stock that feature redemption rights that is either within the controlour probability assessment of achievement of the holderperformance conditions or subject to redemption upon the occurrenceactual results being different from projections made by management. Liability-classified awards are remeasured at their fair-value-based measurement as of uncertain events not solely within our control) is classified as temporary equity. At all other times, common stock is classified as stockholders’ equity. Our common stock features certain redemption rights that are considered to be outside of our control and subject to occurrence of uncertain future events. Accordingly, common stock subject to possible redemption is presented at redemption value as temporary equity, outside of the stockholders’ equity section of our condensed balance sheets.each reporting date until settlement.

Net Loss Per Common Share

We apply the two-class method in calculating earnings per share. Common stock subject to possible redemption which is not currently redeemable and is not redeemable at fair value, have been excluded from the calculation of basic net loss per common share since such shares, if redeemed, only participate in their pro rata share of the Trust Account earnings. Our net income is adjusted for the portion of income that is attributable to common stock subject to possible redemption, as these shares only participate in the earnings of the Trust Account and not our income or losses.

Recent Accounting Standards

Management does not believe that any recently issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on our condensed financial statements.


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ITEMItem 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKQuantitative and Qualitative Disclosures About Market Risk

AsInterest Rate Risk

Our cash and cash equivalents consist of cash and money market accounts. Such interest-earning instruments carry a degree of interest rate risk. To date, fluctuations in interest income have not been significant. Our borrowings under our line of credit carry variable interest rates so such risks are limited as it relates to our current borrowings.

The primary objective of our investment activities is to preserve principal while maximizing income without significantly increasing risk. Because our cash equivalents have a short maturity, our portfolio’s fair value is relatively insensitive to interest rate changes. We do not believe that an increase or decrease in interest rates of 100 basis points would have a material effect on our operating results or financial condition. In future periods, we will continue to evaluate our investment policy in order to ensure that we continue to meet our overall objectives.

Foreign Currency Risk

Our major operational activities are carried out in the PRC and a majority of the transactions are denominated in Renminbi. The volatility of exchange rates depends on many factors that we cannot forecast with reliable accuracy. We have experienced and will continue to experience fluctuations in our operating results as a result of transaction gains and losses related to translating certain cash balances, trade accounts receivable and payable balances, and intercompany balances that are denominated in currencies other than the U.S. Dollar, principally Renminbi. The effect of an immediate 10% adverse change in foreign exchange rates on Renminbi-denominated accounts as of September 30, 2020, we were not subject to any market or interest rate risk. The net proceeds held2021, including intercompany balances, would result in a foreign currency loss of $1.7 million. In the event our foreign sales and expenses increase, our operating results may be more greatly affected by fluctuations in the Trust Accountexchange rates of the currencies in which we do business. At this time, we do not, but we may be invested in U.S. government treasury bills, notesthe future, enter into derivatives or bonds with a maturityother financial instruments in an attempt to hedge our foreign currency exchange risk. It is difficult to predict the impact hedging activities would have on our results of 180 days or less, or in certain money market funds that invest solely in U.S. treasuries. Due to the short-term nature of these investments, we believe there will be no associated material exposure to interest rate risk when and if the net proceeds are invested in such securities.operations.

Credit Risk

Our credit risk primarily relates to our trade and other receivables, restricted cash, cash equivalents and amounts due from related parties. We generally grant credit only to clients and related parties with good credit ratings and also closely monitor overdue debts. In this regard, we consider that the credit risk arising from our balances with counterparties is significantly reduced.

In order to minimize the credit risk, we have delegated a team responsible for determining credit limits, credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. In addition, we review the recoverable amount of each individual debtor at the end of each reporting period to ensure that adequate impairment losses are made for irrecoverable amounts. We will negotiate with the counterparties of the debts for settlement plans or changes in credit terms, should the need arise. In this regard, we consider that our credit risk is significantly reduced.

Seasonality

We typically experience higher sales during our third and fourth fiscal quarters as compared to our first and second fiscal quarters due to reduced purchases from our customers, who are mainly Chinese bus OEMs, during the Chinese Spring Festival holiday season in our first fiscal quarter. However, our limited operational history makes it difficult for us to judge the exact nature or extent of the seasonality of our business.

ITEMItem 4. CONTROLS AND PROCEDURESControls and Procedures

Evaluation of Disclosure controlsControls and procedures are controlsProcedures

Under supervision and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted underwith the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated toparticipation of our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.

Evaluation of Disclosure Controls and Procedures

As required by Rules 13a-15 and 15d-15 underwe evaluated the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of September 30, 2020.2021. Based upon theirthat evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (aswere not effective as of September 30, 2021, based on two material weaknesses identified below. In light of these material weaknesses, we performed additional analysis as deemed necessary to ensure that our financial statements were prepared in accordance with U.S. GAAP. Based on such analysis and notwithstanding the identified material weaknesses, management, including our Chief Executive Officer and Chief Financial Officer, believe the condensed consolidated financial statements included in this Report fairly represent in all material respects our financial condition, results of operations and cash flows at and for the periods presented in accordance with U.S. GAAP.

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Material Weakness

In the course of auditing our consolidated financial statements as of and for the years ended December 31, 2018, 2019 and 2020 in accordance with PCAOB auditing standards, Microvast and its independent registered public accounting firm identified two material weaknesses and certain information technology related deficiencies in our internal control over financial reporting. As defined in Rules 13a-15 (e) and 15d-15 (e) under the Exchange Act) were effective.standards established by the PCAOB, a “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our company’s annual or interim financial statements will not be prevented or detected on a timely basis.

ChangesOne material weakness that has been identified related to the insufficient financial reporting and accounting personnel with appropriate U.S. GAAP knowledge and SEC reporting requirements to properly address complex U.S. GAAP technical accounting issues and to prepare and review financial statements and related disclosures in Internal Control Over Financial Reportingaccordance with U.S. GAAP and financial reporting requirements set forth by the SEC. The other material weakness that has been identified related to the lack of comprehensive accounting policies and procedures manual including comprehensive book closing procedures in accordance with U.S. GAAP. Either of these material weaknesses, if not timely remedied, may lead to significant misstatements in our consolidated financial statements in the future. For example, due to the lack of comprehensive book closing procedures, a cutoff error was rectified by restatement of the consolidated balance sheet and statement of operations as of and for the year ended December 31, 2019. In the future, we may identify additional material weaknesses. In addition, if our independent registered public accounting firm attests to, and reports on, the management assessment of the effectiveness of our internal controls, our independent registered public accounting firm may disagree with our management’s assessment of the effectiveness of our internal controls.

DuringNeither Microvast nor its independent registered public accounting firm undertook a comprehensive assessment of our internal control for purposes of identifying and reporting material weakness and other control deficiencies in its internal control over financial reporting. Had Microvast performed a formal assessment of its internal control over financial reporting or had its independent registered public accounting firm performed an audit of its internal control over financial reporting, additional deficiencies may have been identified. We continue to evaluate steps to remediate the most recently completed fiscal quarter, there has beenmaterial weaknesses. While we have processes to identify and appropriately apply applicable accounting requirements, we plan to enhance our system of evaluating and implementing the complex accounting standards that apply to our financial statements. Our plans at this time include hiring additional qualified accounting personnel, streamlining the reporting processes, developing compliance processes, and documenting key controls identified through risk assessments and walkthroughs.

The elements of our remediation plan can only be accomplished over time, and we can offer no changeassurance that these initiatives will ultimately have the intended effects. Following the identification of the material weakness, we have taken measures and plans to continue to take measures to remediate these control deficiencies. However, the implementation of these measures may not fully address the material weaknesses in our internal control over financial reporting, and we cannot conclude that they have been fully remediated. Our failure to correct the material weaknesses or our failure to discover and address any other deficiencies could result in inaccuracies in our financial statements and impair our ability to comply with applicable financial reporting requirements and related regulatory filings on a timely basis.

Changes in Internal Control Over Financial Reporting

As discussed elsewhere in this Report, we completed the Business Combination on July 23, 2021. Prior to the Business Combination, we have been a private company with limited accounting personnel and other resources with which to address our internal control and procedures over financial reporting.

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The Company’s operations prior to the Business Combination were materially different compared to the Company post-Business Combination. The design and implementation of internal control over financial reporting for the post-Business Combination Company has materially affected, or isrequired and will continue to require significant time and resources from management and other personnel. In connection with the Business Combination consummated during the three months ended September 30, 2021, we began establishing standards and procedures at the acquired subsidiaries, controls over accounting systems and over the preparation of financial statements in accordance with generally accepted accounting principles to ensure that we have in place appropriate internal control over financial reporting at the acquired subsidiaries. We are continuing to integrate the acquired operations of each subsidiary into our overall internal control over financial reporting process.

We plan to implement a number of measures to address the material weaknesses that have been identified in connection with the audits of our consolidated financial statements as of and for the years ended December 31, 2018, 2019 and 2020 under PCAOB standards. We have hired and will continue to hire additional qualified financial and accounting staff with working experience of U.S. GAAP and SEC reporting requirements. We have established a comprehensive manual of accounting policies and procedures and have trained our accounting staff to follow these policies and procedures in order to allow early detection, prevention and correction of financial reporting errors. We have also done with risk assessments and evaluated entity level of controls and established a sub-certification process for SOX 302. To mitigate the deficiencies in IT general controls, we have implemented IT policies, implemented access right controls, rigorous password protection controls companywide. We will formally document internal control activities for 404(a) and 404(b) compliance. We intend to conduct regular and continuous U.S. GAAP accounting and financial reporting programs and send our financial staff to attend external U.S. GAAP training courses. We also intend to hire additional resources to strengthen the financial reporting function and set up a financial and system control framework. These changes to the Company’s internal control over financial reporting are reasonably likely to materially affect, the Company’s internal control over financial reporting.

As an emerging growth company, we may take advantage of an exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2002 with respect to management’s assessment of our internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

Our management, including our Chief Executive Officer and Chief Financial Officer, believes that our disclosure controls and procedures and internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the reasonable assurance level. However, management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.


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PART II - OTHER INFORMATION

Item 1. Legal Proceedings

From time to time we may be involved in various legal proceedings and subject to claims that arise in the ordinary course of business. Although the results of litigation and claims are inherently unpredictable and uncertain, we are not currently a party to any legal proceedings the outcome of which, if determined adversely to us, are believed to, either individually or taken together, have a material adverse effect on our business, operating results, cash flows or financial condition. However, the results of litigation and claims are inherently unpredictable. Regardless of the outcome, litigation has the potential to have an adverse impact on us because of defense and settlement costs, diversion of management resources and other factors. See Note 21 to the consolidated financial statements, which is incorporated in Item 1 by reference.

ITEMItem 1A. RISK FACTORSRisk Factors

As a result of the dateclosing of this Quarterly Report, except as set forth below, there have been no material changes tothe Business Combination on July 23, 2021, certain of the risk factors previously disclosed in Part I, Item 1A of our Annual Report on Form 10-K for the fiscal year ended December 31, 20192020, may no longer apply. For risk factors relating to our business following the Business Combination, please refer to the section entitled “Risk Factors” in the  Registration Statement on Form S-1 (File No. 333-258978), which was subsequently amended, filed withon August 20, 2021, and as further amended, including the SEC. The following risk factorfactors incorporated by reference therein. Any of these factors could result in a significant or material adverse effect on our results of operations or financial condition. Additional risk factors not presently known to us or that we currently deem immaterial may also impair our business or results of operations. We may disclose changes to such risk factors or disclose additional risk factors from time to time in our future filings with the SEC.

The securities in which we invest the funds held in the Trust Account could bear a negative rate of interest, which could reduce the value of the assets held in trust such that the per-share redemption amount received by public stockholders may be less than $10.00 per share.

The proceeds held in the Trust Account are invested only in U.S. government treasury obligations with a maturity of 185 days or less or in money market funds meeting certain conditions under Rule 2a-7 under the Investment Company Act, which invest only in direct U.S. government treasury obligations. While short-term U.S. government treasury obligations currently yield a positive rate of interest, they have briefly yielded negative interest rates in recent years. Central banks in Europe and Japan pursued interest rates below zero in recent years, and the Open Market Committee of the Federal Reserve has not ruled out the possibility that it may in the future adopt similar policies in the United States. In the event that we are unable to complete our initial business combination or make certain amendments to our amended and restated certificate of incorporation, our public stockholders are entitled to receive their pro-rata share of the proceeds held in the Trust Account, plus any interest income not released to us, net of taxes payable. Negative interest rates could impact the per-share redemption amount that may be received by public stockholders.

ITEM 5. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

In November 2018, we issued 5,750,000 Founder Shares for an aggregate price of $25,000 to our Sponsor. On March 5, 2019, we effected a stock dividend of 0.2 shares of common stock for each outstanding share, resulting in 6,900,000 Founder Shares issued and outstanding. The foregoing issuance was made pursuant to the exemption from registration contained in Section 4(a)(2)Information regarding all equity securities of the Securities Act of 1933, as amended (“Securities Act”).

On March 7, 2019, we consummatedregistrant sold by the Initial Public Offering of 24,000,000 units. On March 12, 2019, we consummatedCompany during the sale of an additional 3,600,000 units subject to the underwriters’ over-allotment option. The units sold in the Initial Public Offering, including pursuant to the over-allotment option,period covered by this Report that were sold at an offering price of $10.00 per unit, generating total gross proceeds of $276,000,000. EarlyBirdCapital, Inc. acted as sole book-running manager and I-Bankers Securities, Inc. acted as co-manager of the Initial Public Offering. The securities in the offering werenot registered under the Securities Act were included in a Current Report on registration statements on Forms S-1 (Nos. 333-229657Form 8-K filed by the Company, and 333-230068). Thetherefore is not required to be furnished herein.

Item 3. Defaults upon Senior Securities and Exchange Commission declared the registration statement (No. 333-229657) effective on March 5, 2019 and the post-effective registration statement (333-230068) became effective upon its filing.

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

 

Simultaneous with the consummation of the Initial Public Offering, we consummated the private placement of an aggregate of 615,000 units (“Private Units”) to our Sponsor and EarlyBirdCapital and its designee at a price of $10.00 per Private Unit, generating total proceeds of $6,150,000. Simultaneous with the consummation of the underwriters’ over-allotment option, we consummated the private placement of an additional 72,000 Private Units to the Sponsor and EarlyBirdCapital and its designee at a price of $10.00 per Private Unit, generating total proceeds of $720,000. These issuances were made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act.None.

The Private Units are identical to the units sold in the Initial Public Offering, except the warrants included in the Private Units are non-redeemable, may be exercised on a cashless basis, and may be exercisable for unregistered shares of common stock if the prospectus relating to the common stock issuable upon exercise of the warrants is not current and effective, in each case so long as they continue to be held by the initial purchasers or their permitted transferees. The Sponsor and EarlyBirdCapital and its designee have also agreed (A) to vote any shares of common stock included in the Private Units in favor of any proposed Business Combination, (B) not to convert any such shares of common stock into the right to receive cash from the Trust Account in connection with a shareholder vote to approve any proposed initial Business Combination or sell such shares of common stock to us in a tender offer in connection with a proposed initial Business Combination and (C) that such shares of common stock shall not participate in any liquidating distribution from the Trust Account upon winding up if a Business Combination is not consummated within the required time period. Additionally, the purchasers have agreed not to transfer, assign or sell any of the Private Units and underlying securities (except to certain permitted transferees) until the completion of an initial Business Combination.

Of the gross proceeds received from the Initial Public Offering and private placement of Private Units, $276,000,000 was placed in a Trust Account.

We paid a total of $5,520,000 in underwriting discounts and commissions and $539,098 for other costs and expenses related to our formation and the Initial Public Offering.

For a description of the use of the proceeds generated in our Initial Public Offering, see Part I, Item 2 of this Form 10-Q.


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ITEMItem 6. EXHIBITS.Exhibits.

The following exhibits are filedfurnished as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.

No.Exhibit NumberDescription of Exhibit Title
31.1*2.1+Agreement and Plan of Merger, dated as of February 1, 2021, by and among Tuscan Holdings Corp., TSCN Merger Sub Inc., and Microvast, Inc. (incorporated by reference to the Company’s definitive proxy statement on Schedule 14A, filed with the SEC on July 2, 2021).
3.1Second Amended and Restated Certificate of Incorporation of Microvast Holdings, Inc. (incorporated by reference from Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed with the SEC on July 28, 2021).
3.2Amended and Restated Bylaws of Microvast Holdings, Inc. (incorporated by reference from Exhibit 3.2 to the Company’s Current Report on Form 8-K, filed with the SEC on July 28, 2021).
4.1Specimen Common Stock Certificate (incorporated by reference from Exhibit 4.4 to the Company’s Current Report on Form 8-K, filed with the SEC on July 28, 2021).
4.2Registration Rights and Lock-Up Agreement dated as of July 26, 2021, by and among (a) Microvast Holdings, Inc., (b) the Microvast Equity Holders, (c) the CL Holders, (d) Tuscan Holdings Acquisition LLC, Stefan M. Selig, Richard O. Rieger and Amy Butte, and (e) EarlyBirdCapital, Inc. (incorporated by reference from Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed with the SEC on July 28, 2021).
4.3Stockholders Agreement dated July 26, 2021 by and among (a) Microvast Holdings, Inc., (b) Yang Wu and (c) Tuscan Holdings Acquisition LLC. (incorporated by reference from Exhibit 4.2 to the Company’s Current Report on Form 8-K, filed with the SEC on July 28, 2021).
10.1Form of Indemnity Agreement (incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed with the SEC on July 28, 2021).
10.2Employment Agreement, dated as of February 1, 2021, by and between Microvast, Inc. and Yang Wu (incorporated by reference from Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed with the SEC on July 28, 2021).
10.3Employment Agreement, dated as of February 1, 2021, by and between Microvast, Inc. and Yanzhuan Zheng (incorporated by reference from Exhibit 10.3 to the Company’s Current Report on Form 8-K, filed with the SEC on July 28, 2021).
10.4Employment Agreement, dated as of February 1, 2021, by and between Microvast, Inc. and Wenjuan Mattis, Ph.D. (incorporated by reference from Exhibit 10.4 to the Company’s Current Report on Form 8-K, filed with the SEC on July 28, 2021).
10.5Employment Agreement, dated as of June 1, 2017, by and between Microvast, Inc. and Sascha Rene Kelterborn (incorporated by reference from Exhibit 10.5 to the Company’s Current Report on Form 8-K, filed with the SEC on July 28, 2021).
10.6Microvast Holdings, Inc. 2021 Equity Incentive Plan (incorporated by reference from Exhibit 10.6 to the Company’s Current Report on Form 8-K, filed with the SEC on July 28, 2021).
10.7Amendment No. 1 to Escrow Agreement, between the Registrant, Continental Stock Transfer & Trust Company and the Company’s Initial Stockholder (incorporated by reference from Exhibit 10.13 to the Company’s Current Report on Form 8-K, filed with the SEC on July 28, 2021).
31.1*Certification of Principal Executive Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 20022002.
31.2*Certification of Principal Financial Officer Pursuant to Securities Exchange Act Rules 13a-14(a) and 15(d)-14(a), as adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 20022002.
32.1**Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 20022002.
32.2**Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 20022002.
101.INS*Inline XBRL Instance Document
101.CAL*101.SCH*Inline XBRL Taxonomy Extension Schema Document
101.CAL*Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.SCH*101.DEF*Inline XBRL Taxonomy Extension SchemaDefinitions Linkbase Document
101.DEF*101.LAB*Inline XBRL Taxonomy Extension DefinitionLabel Linkbase Document
101.LAB*101.PRE*XBRL Taxonomy Extension Labels Linkbase Document
101.PRE*Inline XBRL Taxonomy Extension Presentation Linkbase Document
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

*Filed herewith.

**Furnished.

+Certain schedules to this Exhibit have been omitted in accordance with Item 601(b)(2) of Regulation S-K. The Company hereby agrees to hereby furnish supplementally a copy of all omitted schedules to the SEC upon request.


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SIGNATURES

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereuntohereunto duly authorized.

Dated: November 15, 2021TUSCANMICROVAST HOLDINGS, CORP.INC.
Date: November 9, 2020By:/s/ Stephen A. VogelYanzhuan Zheng
Name: Stephen A. VogelYanzhuan Zheng
Title:Chief Executive Officer
(Principal Executive Officer)
Date: November 9, 2020/s/ Ruth Epstein
Name:Ruth Epstein
Title:Chief Financial Officer
(Principal Financial and Accounting Officer)

21

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27110573 27157275 1091123 1970861 2777233 22645 Net loss per common share - basic and diluted excludes income attributable to common stock subject to possible redemption of $22,645 and $1,091,123 for the three months ended September 30, 2020 and 2019 and $1,970,861 and $2,777,233 for the nine months ended September 30, 2019, respectively. Excludes an aggregate of 27,110,573 and 27,157,275 iso4217:USD xbrli:shares subject to possible redemption at September 30, 2020 and 2019 false --12-31 Q3 0001760689 Each Private Warrant is exercisable to purchase one share of common stock at an exercise price of $11.50 per share, subject to adjustment (see Note 7). ● in whole and not in part; ● at a price of $0.01 per warrant; ● upon not less than 30 days’ prior written notice of redemption; ● if, and only if, the reported last sale price of the Company’s common stock equals or exceeds $18.00 per share for any 20 trading days within a 30-trading day period ending on the third business day prior to the notice of redemption to the warrant holders; and ● If, and only if, there is a current registration statement in effect with respect to the shares of common stock underlying the warrants.