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 March 31,September 30, 2021

 

OR

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

 

For the transition period from toto________________

Commission File No. 001-38826

Microvast Holdings, Inc.

(Exact name of registrant as specified in its charter)

TUSCAN HOLDINGS CORP.Delaware
(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☒

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 May 21,November 12, 2021, there were 35,470,512300,522,394 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

 

PART I.Page
PART I. FINANCIAL INFORMATION1
Item 1.Financial Statements (Unaudited)1
 
 
ITEM 1.Condensed Balance SheetFINANCIAL STATEMENTS1
   
 Condensed Statements of OperationsCondensed Consolidated Balance Sheets as of March 31, 2021 (unaudited) and December 31, 202013
   
 Condensed Statement of Comprehensive LossCondensed Consolidated Statements of Operations for the Three Months Ended March 31, 2021 and 2020 (unaudited)24
   
 Condensed Consolidated Statements of Changes in Stockholders’ (Deficit)Shareholders’ Equity for the Three Months Ended March 31, 2021 and 2020 (unaudited)35
   
 Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2021 and 2020 (unaudited)47
   
 Notes to Unaudited Condensed Consolidated Financial Statements (unaudited)59
   
ITEMItem 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations33
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Item 3.Quantitative and Qualitative Disclosures About Market Risk45
21
Item 4.Controls and Procedures45
 
PART II. OTHER INFORMATION48
  
ITEM 3.Item 1.Legal Proceedings48
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 1A.Risk Factors48
26
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds from Registered Securities48
   
ITEM 4.Item 3.Defaults Upon Senior Securities48
CONTROLS AND PROCEDURES
Item 4.Mine Safety Disclosures2648
   
PART II.Item 5.Other InformationOTHER INFORMATION48
   
ITEM 1A.Item 6.ExhibitsRISK FACTORS28
ITEM 5.UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS28
ITEM 6.EXHIBITS28
SIGNATURES2949

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 STATEMENTSFinancial Statements (Unaudited)

MICROVAST HOLDINGS, INC.

TUSCAN HOLDINGS CORP.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS

  

March 31,

2021

  

December 31,

2020

 
  (Unaudited)  (Audited) 
ASSETS      
Current assets      
Cash $44,096  $135,961 
Prepaid expenses and other current assets  18,801   22,499 
Total Current Assets  62,897   158,460 
         
Cash and marketable securities held in Trust Account  282,291,194   282,254,978 
TOTAL ASSETS $282,354,091  $282,413,438 
         
LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY        
Current liabilities        
Accounts payable and accrued expenses $638,523  $320,978 
Income taxes payable  302,547   302,547 
Advances from related party  —   22,179 
Total Current Liabilities  941,070   645,704 
         
Convertible promissory notes – related party  1,056,000   200,000 
Warrant liability  3,064,020   4,204,440 
Deferred tax liability  —   21,468 
TOTAL LIABILITIES  5,061,090   5,071,612 
         
Commitments        
         
Common stock subject to possible redemption, 27,596,802 and 26,675,733 as of March 31, 2021 and December 31, 2020, respectively  281,764,233   272,341,820 
         
Stockholders’ (Deficit) Equity        
Preferred stock, $0.0001 par value; 1,000,000 shares authorized, NaN issued and outstanding  —   — 
Common stock, $0.0001 par value; 65,000,000 shares authorized; 7,887,000 and 8,808,069 shares issued and outstanding (excluding 27,596,802 and 26,675,733 shares subject to possible redemption) at March 31, 2021 and December 31, 2020, respectively  789   881 
Additional paid in capital  —   4,028,907 
(Accumulated deficit)/Retained earnings  (4,472,021)  970,218 
Total Stockholders’ (Deficit) Equity  (4,471,232)  5,000,006 
TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT) EQUITY $282,354,091  $282,413,438 

The accompanying notes are an integral part(In thousands of the condensed consolidated financial statements.U.S. dollars, except share and per share data, or as otherwise noted)

  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

 

TUSCAN HOLDINGS CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

  Three Months Ended March 31, 
  2021  2020 
     (Restated) 
Operating and formation costs $890,929  $228,749 
Loss from operations  (890,929)  (228,749)
         
Other income (expense):        
Interest income earned on marketable securities held in Trust Account  35,796   1,027,157 
Unrealized gain on marketable securities held in Trust Account  420   1,438,240 
Change in the fair value of convertible promissory notes – related party  (356,000)  — 
Change in fair value of warrant liability  1,140,420   137,400 
Other income, net  820,636   2,602,797 
         
(Loss) income before income taxes  (70,293)  2,374,048 
Benefit (provision) for income taxes  21,468   (470,593)
Net (loss) income $(48,825) $1,903,455 
         
Basic and diluted weighted average shares outstanding, Common stock subject to possible redemption  26,675,733   27,086,524 
         
Basic and diluted net income per share, Common stock subject to possible redemption $0.00  $0.07 
         
Basic weighted average shares outstanding, Non-redeemable common stock  8,808,069   8,400,476 
         
Basic net loss per common share, Non-redeemable common stock $(0.01) $(0.00)
         
Diluted weighted average shares outstanding, Non-redeemable common stock  17,137,983   8,400,476 
         
Diluted net loss per common share, Non-redeemable common stock $(0.07) $(0.00)

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


TUSCAN HOLDINGS CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ (DEFICIT) EQUITY

(Unaudited)

 

THREE MONTHS ENDED MARCH 31, 2021MICROVAST HOLDINGS, INC.

UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS - continued

  Common Stock  Additional
Paid-in		  

Retained

Earnings/

(Accumulated

  

Total
Stockholders’

Equity

 
  Shares  Amount  Capital  Deficit)  (Deficit) 
Balance – January 1, 2021  8,808,069  $881  $4,028,907  $970,218  $5,000,006 
                     
Change in value of common stock subject to possible redemption  (921,069)  (92)  (4,028,907)  (5,393,414)  (9,422,413)
                     
Net loss  —   —   —   (48,825)  (48,825)
Balance – March 31, 2021  7,887,000  $789  $—  $(4,472,021) $(4,471,232)

THREE MONTHS ENDED MARCH 31, 2020(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)

(Restated)

  Common Stock  

Additional

Paid-in

  Retained  

Total

Stockholders’

 
  Shares  Amount  Capital  Earnings  Equity 
Balance – January 1, 2020  8,400,476  $840  $1,605,302  $3,393,867  $5,000,009 
                     
Change in value of common stock subject to possible redemption  30,197   3   (1,605,302)  (298,163)  (1,903,462)
                     
Net income  —   —   —   1,903,455   1,903,455 
Balance – March 31, 2020  8,430,673  $843  $—  $4,999,159  $5,000,002 

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


TUSCAN HOLDINGS CORP.

  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 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

  Three Months Ended March 31, 
  2021  2020 
     (Restated) 
Cash Flows from Operating Activities:      
Net (loss) income $(48,825) $1,903,455 
Adjustments to reconcile net (loss) income to net cash used in operating activities:        
Change in fair value of warrant liability  (1,140,420)  (137,400)
Change in fair value of convertible promissory notes – related party  356,000   — 
Interest earned on marketable securities held in Trust Account  (35,796)  (1,027,157)
Unrealized loss on marketable securities held in Trust Account  (420)  (1,438,240)
Deferred tax liability  (21,468)  274,962 
Changes in operating assets and liabilities:        
Prepaid expenses and other current assets  3,698   (29,827)
Prepaid income taxes  —   69,818 
Accounts payable and accrued expenses  317,545   (155,023)
Income taxes payable  —   125,813 
Due to affiliate  —   303,677 
Net cash used in operating activities  (569,686)  (109,922)
         
Cash Flows from Investing Activities:        
Cash withdrawn from Trust Account to pay income taxes  —   165,598 
Net cash provided by investing activities  —   165,598 
         
Cash Flows from Financing Activities:        
Repayment of advances from related party  (22,179)  — 
Proceeds from convertible promissory notes – related party  500,000   — 
Net cash provided by financing activities  477,821   — 
         
Net Change in Cash  (91,865)  55,676 
Cash – Beginning  135,961   140,303 
Cash – Ending $44,096  $195,979 
         
Non-cash investing and financing activities:        
Change in value of common stock subject to possible redemption $9,422,413  $1,903,462 

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

 

2

MICROVAST HOLDINGS, INC.

UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(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 
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.
NOTES TOUNAUDITED CONDENSED FINANCIALCONSOLIDATED STATEMENTS
MARCH 31, 2021
(Unaudited) OF CASH FLOWS

(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 has one subsidiary, TSCN Merger Sub Inc., a wholly owned subsidiary of the Company incorporated in Delaware on January 21, 2021 (“Merger Sub”) (see Note 6).

All activity through March 31, 2021 relates to the Company’s formation, the initial public offering (“Initial Public Offering”), which is described below, identifying a target company for a Business Combination, and activities in connection with the proposed acquisition of Microvast, Inc., a Delaware corporation (“Microvast”) (see Note 6). 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.


TUSCAN HOLDINGS CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021
(Unaudited)

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.

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 had until December 7, 2020 to complete a Business Combination. On December 3, 2020, the Company held a special meeting pursuant to which the Company’s stockholders approved extending the Combination Period from December 7, 2020 to April 30, 2021 (the “Extension Date”). In connection with the approval of the extension, stockholders elected to redeem an aggregate of 3,198 shares of the Company’s common stock. As a result, an aggregate of approximately $32,700 (or approximately $10.22 per share) was released from the Company’s Trust Account to pay such stockholders. Additionally, on May 10, 2021, at a reconvened annual meeting of stockholders initially convened on April 28, 2021, the Company received stockholder approval to further extend the date by which the Company is required to complete a business combination from April 30, 2021 to July 31, 2021 (the “Combination Period”). In connection with such extension, holders of an aggregate of 13,290 Public Shares exercised their right to redeem their shares for cash.


TUSCAN HOLDINGS CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021
(Unaudited)

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.

Risks and Uncertainties

Management continues to evaluate the impact of the COVID-19 pandemic 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.

Nasdaq Compliance

On January 6, 2021, the Company received a notice from the Listing Qualifications Department of The Nasdaq Stock Market stating that the Company failed to hold an Annual Meeting of stockholders within 12 months after its fiscal year ended December 31, 2019, as required by Nasdaq Listing Rule 5620(a). In accordance with Nasdaq Listing Rule 5810(c)(2)(G), the Company submitted a plan to regain compliance on February 4, 2021. Nasdaq accepted the plan and granted the Company an extension through June 29, 2021 to hold an annual meeting. Nasdaq’s decision is subject to certain conditions, including that the Company provide periodic updates with respect to its proposed business combination with Microvast. On April 28, 2021, the Company held an annual meeting of stockholders, in compliance with its plan.

Liquidity and Going Concern

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 March 31, 2021, the Company had $44,096 held outside of the Trust Account. As of April 21, 2020, the Sponsor entered into a convertible promissory note with the Company for an aggregate principal amount of $300,000, of which $200,000 was drawn upon on such date. On February 12, 2021, the Sponsor entered into a convertible promissory note with the Company for an aggregate principal amount of $1,200,000. As a result of the February 12, 2021 convertible promissory note, the Sponsor had committed to the Company an aggregate of $1,500,000, of which a total of $700,000 has been drawn upon as of March 31, 2021. The loans are 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. (see Note 5).


TUSCAN HOLDINGS CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021
(Unaudited)

Until the consummation of a Business Combination, the Company will be using the funds not held in the Trust Account for identifying and evaluating prospective acquisition candidates, performing due diligence on prospective target businesses, paying for travel expenditures, selecting the target business to acquire, and structuring, negotiating and consummating the Business Combination.

The Company will need to raise further additional capital through loans or additional investments from its Sponsor, stockholders, officers, directors, or third parties. In addition to the loan commitment described herein, the Company’s officers, directors and Sponsor may, but are not obligated to, loan the Company funds, from time to time or at any time, in whatever amount they deem reasonable in their sole discretion, to meet the Company’s working capital needs. Accordingly, the Company may not be able to obtain additional financing. If the Company is unable to raise additional capital, it may be required to take additional measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing operations, suspending the pursuit of a potential transaction, and reducing overhead expenses. The Company cannot provide any assurance that new financing will be available to it on commercially acceptable terms, if at all. These conditions raise substantial doubt about the Company’s ability to continue as a going concern through July 31, 2021, the current 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. These financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.Europe.

 

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 consolidated 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 Annual Report on Form 10-K/Aaudited consolidated financial statements for the yearperiod ended December 31, 2020 asincluded in the Company’s Current Report on Form 8-K filed with the SEC on June 1,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. The interimreflect all adjustments (which include normal recurring adjustments) necessary for a fair statement of financial results for the interim periods presented. The Company believes that the disclosures are adequate to make the information presented not misleading.

The results of operations for the three and nine months ended March 31,September 30, 2021 are not necessarily indicative of the results to be expected for any subsequent quarter or for the fiscal year ending December 31, 2021 or for any future interim periods.

Principles of Consolidation2021.

 

The accompanyingfinancial information as of December 31, 2020 included on the condensed consolidated balance sheets is derived from the Group’s audited consolidated financial statements includefor the accounts of the Company and its wholly-owned subsidiary. All significant intercompany balances and transactions have been eliminated in consolidation.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 emerging 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 those otherwise applicable to non-emerging growth companies or (ii) within the same time periods as private companies. The Company is an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), as modified by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it mayintends 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.

Revenue recognition

Nature of Goods and Services

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

 


10

 

TUSCANMICROVAST HOLDINGS, CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021
(Unaudited)INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Further, Section 102(b)(1)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

For the JOBS Act exempts emerging growth companiesthree months ended September 30, 2020 and 2021, the Group derived revenues of $23,945 and $31,792 from being requiredthe 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 2021, the Group derived revenues of $42,632 and $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 comply with newconsideration is unconditional. The allowance for doubtful accounts reflects the best estimate of probable losses inherent to the accounts receivable balance. Contract liabilities, recorded in advance from customers in the consolidated balance sheet, represent payment received in advance or revised financial accounting standards until private companies (that is, those that have not hadpayment received related to a Securities Act registration statement declared effectivematerial right provided to a customer to acquire additional goods or do not haveservices at a classdiscount in a future period. During the three months ended September 30, 2020 and 2021, the Group recognized $13 and $60 of securities registered underrevenue previously included in advance from customers as of July 1, 2020 and July 1, 2021, respectively. During the Exchange Act) are requirednine 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 comply with the new or revised financial accounting standards. The JOBS Act provides that a company can elect to opt outits sales 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.lithium batteries.

 

Use of EstimatesShare-based compensation

 

Share-based payment transactions with employees are measured based on the 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 preparationCompany reassesses the probability of condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affectachieving the reported amounts of assets and liabilities and disclosure of contingent assets and liabilitiesperformance 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 financial statementsaward, 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 the reported amounts of revenues and expenses during the reporting period.per share data, or as otherwise noted)

 

2. SIGNIFICANT ACCOUNTING POLICIES - continued

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 EquivalentsWarrant Liability

 

The Company considers all short-term investments with an original maturity of three months or less when purchased to be cash equivalents. The Company did not have any cash equivalents as of March 31, 2021 and December 31, 2020.

Marketable Securities Held in Trust Account

At March 31, 2021 and December 31, 2020, the assets held in the Trust Account were substantially held in U.S. Treasury Bills. Through March 31, 2021, the Company withdrew approximately $1,417,000 of interest earned in the Trust Account to pay its franchise and income taxes, of which no amounts were withdrawn during the three months ended March 31, 2021.

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 at their fair value and adjusts the Private Warrants to fair value at each reporting period.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 statementstatements of operations. The Private Warrants for periods where no observable traded price was available are valued using a binomial latticeMonte Carlo simulation model. For periods subsequentmodel on the detachmentbasis of the Private Warrants from the Units, the Public Warrant quoted market price was used as the fair value as of each relevant date.


Public Warrants.

TUSCAN HOLDINGS CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021
(Unaudited)

Common Stock Subject to Possible Redemption3. REVERSE RECAPITALIZATION

 

The Company accounts for its common stock subjectOn 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 possible redemption in accordancethe terms of the Merger Agreement, the Framework Agreement1 and subscription agreements entered into with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.holders of an aggregate of $57.5 million outstanding convertible notes issued by Microvast (the “Bridge Notes,” Common stock subjectrefer to mandatory redemption is classified as a liability instrumentNote 11) 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 holder or subject to redemption upon the occurrence of uncertain events not solely within 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 considered to be outside of the Company’s 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 the Company’s condensed consolidated balance sheets.

The Company recognizes changes in redemption value immediately as they occur and adjusts the carrying value of redeemable common stock to equal the redemption value at the end of each reporting period. Increases or decreasesinvestors in the carrying amount of redeemable common stock are affected by charges against additional paid in capital and accumulated deficit.PIPE Financing:

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 recognized 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 recovered 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 March 31, 2021 and December 31, 2020. 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.

Net Income (Loss) Per Common Share

Net income (loss) per common share is computed by dividing net income (loss) by the weighted-average number of shares of common stock outstanding during the period.

The Company’s statement of operations includes a presentation of income (loss) per share for common stock subject to possible redemption in a manner similar to the two-class method of income (loss) per share. Net income per common share, basic and diluted, for common stock subject to possible redemption is calculated by dividing the proportionate share of income on marketable securities held by the Trust Account, net of applicable franchise and income taxes, by the weighted average number of shares of common stock subject to possible redemption outstanding for the periods.

Net loss per common share, basic, for non-redeemable common stock is calculated by dividing the net income, adjusted for income on marketable securities attributable to Common Stock subject to possible redemption, by the weighted average number of non-redeemable common stock outstanding for the period. Net loss per common share, diluted, for non-redeemable common stock is calculated by dividing the non-redeemable net income, adjusted for the change in the fair value of the warrant liability, by the weighted average number of non-redeemable common stock outstanding for the periods, including the effects of any potentially dilutive securities. Diluted loss per common share gives effect to all dilutive potential of shares of common stock outstanding during the period, including warrants, using the treasury stock method. Diluted loss per common share excludes all dilutive potential of shares of common stock if their effect is anti-dilutive.


TUSCAN HOLDINGS CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021
(Unaudited)

Non-redeemable common stock includes Founder Shares and non-redeemable shares of common stock as these shares do not have any redemption features. Non-redeemable common stock participates in the income on marketable securities based on non-redeemable common stock shares’ proportionate interest.

  

Three Months Ended March 31,

 
  2021  2020 
Common stock subject to possible redemption        
Numerator: Earnings allocable to common stock subject to possible redemption        
Interest earned on marketable securities held in Trust Account $35,796  $1,007,949 
Unrealized gain on marketable securities held in Trust Account  420   1,411,345 
Less: Company’s portion available to pay taxes  (28,532)  (510,858)
Net earnings allocable to common stock subject to possible redemption $7,684  $1,908,436 
Denominator: Weighted average common stock subject to possible redemption        
Basic and diluted weighted average shares outstanding  26,675,733   27,086,524 
Basic and diluted net income per common share $0.00  $0.07 
         
Non-Redeemable Common Stock        
Basic Loss per Share        
Numerator Net (Loss) Income minus Net Earnings        
Net (loss) income $(48,825) $1,903,455 
Less: Net earnings allocable to common stock subject to possible redemption  (7,684)  (1,908,436)
Non-Redeemable Net Loss – Basic $(56,509) $(4,981)
Denominator: Weighted Average Non-Redeemable Common Stock        
Basic weighted average shares outstanding  8,808,069   8,400,476 
Basic net loss per common share $(0.01) $(0.00)
         
Diluted Loss per Share        
Numerator: Non-Redeemable Net Loss minus Change in fair value of warrant liability        
Non-Redeemable Net Loss – Basic $(56,509) $(4,981)
Less: Change in fair value of warrant liability  (1,140,420)  - 
Non-Redeemable Net Loss – Diluted (1) $(1,196,929) $(4,981)
Denominator: Weighted Average Non-Redeemable Common Stock        
Diluted weighted average shares outstanding (1)  17,137,983   8,400,476 
Diluted net loss per common share $(0.07) $(0.00)

(1)As of March 31, 2020, non-redeemable net loss – diluted is not adjusted for the change in fair value of warrant liability and diluted shares do not include the effect of warrants to purchase 28,287,000 shares of common stock as the inclusion of such warrants would be anti-dilutive.


TUSCAN HOLDINGS CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021
(Unaudited)

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 consolidated balance sheets, primarily due to their short-term nature, except for the Private Warrants (see Note 9).

Fair Value Measurements

Fair value is defined as the price that would be received for sale of an asset or paid for transfer of a liability, in an orderly transaction between market participants at the measurement date. GAAP establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:

●Level 1, defined as observable inputs such as quoted prices (unadjusted) for identical instruments in active markets;

 

 ●Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active;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;

 ●Level 3, defined as unobservable inputsThe 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 which little or no market data exists, therefore requiringthe 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 entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable.exercise price of $11.50 per share; and

In some circumstances, the inputs used to measure fair value might be categorized within different levels of the fair value hierarchy. In those instances, the fair value measurement is categorized in its entirety in the fair value hierarchy based on the lowest level input that is significant to the fair value measurement.

 

Derivative Financial Instruments

The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC Topic 815, “Derivatives and Hedging”. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value on the grant date and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be required within 12 months of the balance sheet date.


TUSCAN HOLDINGS CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021
(Unaudited)

Recently Issued Accounting Standards

In August 2020, the FASB issued ASU No. 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”), which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, with early adoption permitted. The Company adopted ASU 2020-06 effective as of January 1, 2021. The adoption of ASU 2020-06 did not have an impact on the Company’s financial statements.

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

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).

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.


TUSCAN HOLDINGS CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021
(Unaudited)

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.

Administrative Service Fee

Vogel Partners, LLP, an affiliate of Mr. Vogel, has agreed that, until the earlier of the consummation of an initial business combination or the Company’s liquidation, it will make available to the Company certain general and administrative services, including office space, utilities and administrative support, as the Company may require from time to time. The Company has agreed to pay Vogel Partners, LLP $10,000 per month for these services. For the three months ended March 31, 2021 and 2020, the Company incurred $30,000 in fees for these services. At March 31, 2021 and December 31, 2020, fees amounting to $10,000 are included in accounts payable and accrued expenses in the accompanying condensed consolidated balance sheets.

Related Party Loans

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 will 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 21, 2020, the Company issued an unsecured promissory note to the Sponsor in the aggregate amount of $300,000 (the “Note”), of which $200,000 was drawn upon on such date. On February 12, 2021, the Company issued an unsecured promissory note to the Sponsor in the aggregate amount of $1,200,000 (together, with the Note, the “Convertible Promissory Notes”). The Convertible Promissory Notes are non-interest bearing and payable upon the consummation of a Business Combination. The Convertible Promissory Notes are 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 Convertible Promissory 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 March 31, 2021 and December 31, 2020, the aggregate fair market value of the Convertible Promissory Notes was $1,056,000 and $200,000 (see Note 9).


TUSCAN HOLDINGS CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021
(Unaudited)

NOTE 6. COMMITMENTS

Registration Rights

Pursuant to a registration rights agreement entered into on March 7, 2019, the holders 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.

Business Combination Marketing Agreement

The Company has engaged EarlyBirdCapital as an advisor in connection with a Business Combination to assist the Company in holding meetings with its shareholders to discuss 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 connection with the Business Combination. The Company 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 the Company’s sole discretion to other FINRA members that assist the Company in identifying and consummating a Business Combination.

Engagement of Morgan Stanley

The Company has engaged Morgan Stanley & Co. LLC (“Morgan Stanley”) to provide financial advisory services in connection with the Microvast business combination (see below), and, upon consummation of the transaction with Microvast, the Company will pay Morgan Stanley a transaction fee of $5.5 million, plus expenses. Morgan Stanley also acted as placement agent in connection with the PIPE Financing (see below), and the Company is obligated to pay Morgan Stanley a placement fee equal to (i) 3.5% of the sum of (x) the aggregate gross proceeds raised in the PIPE Financing up to $300 million (not including funds from the sale of certain excluded securities) and (y) any borrowings pursuant to a bridge financing provided in connection with the proposed business combination by investors introduced by Morgan Stanley, and (ii) 2.5% of the aggregate gross proceeds raised in the PIPE Financing above $300 million. The fee will not be payable in the event the Company does not consummate a Business Combination.


TUSCAN HOLDINGS CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021
(Unaudited)

Proposed Business Combination

On February 1, 2021, the Company entered into an agreement and plan of merger (the “Merger Agreement”) with Microvast and Merger Sub. Pursuant to the Merger Agreement, Merger Sub will merge with and into Microvast and Microvast will survive the merger and become a wholly owned subsidiary of the Company. Under the Merger Agreement, all of the equity interestsformer owners of Microvast will be converted into an aggregate of 210,000,000 shares of common stock (“closing shares”). The Microvast shareholdersHolders”) and the MPS minority investors in Microvast’s majority-owned subsidiary, Microvast Power System (Houzhou) Co. Ltd. (“MPS”), will also have the ability to earn, in the aggregate, an additional 20,000,00019,999,988 shares of common stockCommon Stock (“earnout shares”Earn-Out Shares”) if the daily volume weighted average price of the common stockCommon 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 stockCommon Stock receiving a per share price equal to or in excess of $18.00), during the period commencing on the closing dateClosing Date and ending on the third anniversary of the closing date. ConcurrentlyClosing Date. In accordance with ASC 815-40, the executionEarn-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, will jointly acquire 100% ownershipInc.’s operations prior to the acquisition comprising the only ongoing operations of MPSthe Company, and will discharge certain convertible loans(3) Microvast, Inc.’s senior management comprising a majority of MPS.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

 

Additionally,Accounts receivable consisted of the Merger Agreement provides that the Company will issue an aggregatefollowing:

  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 6,736,111 shares of common stock upon conversion (the “Bridge Notes Conversion”) of an aggregate of $57,500,000 outstanding promissory notes issued by Microvast.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 

5. INVENTORIES, NET

 

Further,Inventories consisted of the 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.

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 February 1,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 Sponsor, Microvast and certain stockholdersCompany’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 entered into the Sponsor Support Agreement (the “Sponsor Support Agreement”), pursuant to which the Sponsor and certain officers and directors of the Company (collectively, the “Sponsor Group”) agreed, among other things, to vote all equity interests of the Company held by such member of the Sponsor Groupis in favor of the approval and adoption of the proposed business combination with Microvast. Additionally, such members of the Sponsor Group have agreed not to (a) transfer any of their equity interests in the Company (or enter into any arrangement with respect thereto) other than as set forth therein or (b) exercise any conversion rights of any equity interests held by such member of the Sponsor Group in connectionnegotiation with the approvalsupplier 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 the proposed business combination.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 Sponsor also agreed that, to the extent that certain expenses of the Company are in excess of $46,000,000 (unless such expenses shall have been approved by Microvast), the Sponsor will either (i) pay any such excess amount in cash or (ii) forfeit to the Company such number of shares of common stock held by the Sponsor that would haveGroup entered into loan agreements and bank facilities with Chinese banks and a value equal to such excess. The Sponsor also agreed to amend the escrow agreement to make certain adjustments to the terms of the escrow of its shares of common stock as set forth in the Sponsor Support Agreement.German bank.

 

Contemporaneously with the executionThe original terms of the Merger Agreement, certain investors entered into subscription agreements (the “Subscription Agreements”), pursuantloans from Chinese banks range from 6 to which such investors subscribed for an aggregate value12 months and the interest rates range from 5.00% to 6.00% per annum. As of $482,500,000, representing 48,250,000 sharesSeptember 30, 2021, the balance of the Company’s common stock at a purchase price of $10.00 per share in a private placement (the “PIPE Financing”) to be consummated immediately prior to the consummation of the Transactions. Affiliates of InterPrivate, a co-sponsor of the Company, subscribed to purchase 6.5 million shares in the PIPE Financing for an aggregate purchase price of $65 million.loans from Chinese bank was $13,191.

 

ConsummationThe 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 proposed business combination8-year maturity term loan is subject to customary conditions and covenantsEURIBOR plus a margin rate determined by the financial leverage ratio of the respective parties, including approvalGroup. The $4.7 million (EUR4 million) revolving facility at 6.00% annual interest, needs to be renewed every year (60 days in advance). During the nine months ended September 30, 2021, the Group drew down the 8-year maturity term loan to the amount of $9,660. On October 1, 2021, the Company’s stockholdersCompany had entered into the termination agreement with the German Bank to cancel the German 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 bank borrowings as of September 30, 2021 and Tuscan having available cashDecember 31, 2020 are current borrowings.

16

MICROVAST HOLDINGS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(In thousands of at least $250,000,000.U.S. dollars, except share and 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
MARCH 31,SEPTEMBER 30, 2021
(Unaudited)(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)

 

NOTE 7. STOCKHOLDERS’ EQUITY11. BONDS PAYABLE - continued

Preferred Stock —The Company is authorized to issue 1,000,000 shares of preferred stock with a parfair value of $0.0001 per share with such designation, rights and preferences as may be determined from time to time byoption was elected for the Company’s board of directors. At March 31, 2021 and December 31, 2020, there were 0 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. Holdersmeasurement of the common stock are entitled to one voteconvertible notes. Changes in fair value, a loss of $3,018 and $9,861 were recorded in the unaudited condensed consolidated statements of operations for each share. At March 31,the three and nine months ended September 30, 2021, and December 31, 2020, there were 7,887,000 and 8,808,069 shares of common stock issued and outstanding, excluding 27,596,802 and 26,675,733 shares of common stock subject to possible redemption, respectively.

 

The Company determined the common stock subject to redemption to be equal to the redemption value of approximately $10.21 per share of common stock while also taking into consideration a redemption cannot result in net tangible assets being less than $5,000,001. Upon considering the impact of the PIPE Financing and associated Subscription Agreements, it was concluded that the redemption value should include all shares of common stock Public Shares resulting in the common stock subject to possible redemption being equal to $281,764,233. This resulted in a measurement adjustment to the initial carrying value of the common stock subject to redemption with the offset recorded to additional paid-in capital and accumulated deficit.

Representative Shares

In November 2018, the Company issued to the designees of EarlyBirdCapital, for a nominal consideration, 300,000 shares (after giving effect to the Stock Dividend) of common stock (the “Representative Shares”). The Company accounted for the Representative Shares as an offering cost 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 basedOn July 23, 2021, upon the price of the Founder Shares issued to the Sponsor. The holders of the Representative Shares have agreed not to transfer, assign or sell any such shares until 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, the convertible promissory notes were converted into 6,736,106 shares of Common Stock of the combined company 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.

NOTE 8.

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 30 days after the completion of a Business Combination.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.

 


TUSCAN HOLDINGS CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021
(Unaudited)

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 complete a Business Combination within the Combination Period and the Company liquidates the funds held in the Trust Account, holders of warrants will not receive any of such funds with respect to their warrants, nor will they receive any distribution from the Company’s assets held outside of the Trust Account with the respect to such warrants. Accordingly, the warrants may expire worthless.Warrants.

 

19

MICROVAST HOLDINGS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

(In addition, if (x) the Company issues additional sharesthousands 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 $9.50U.S. dollars, except share and per share of common stock (with such issue pricedata, 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% of the total equity proceeds, and interest thereon, available for the funding of an initial Business Combination on the date of the consummation of an initial Business Combination (net of redemptions), and (z) the volume weighted average trading price of the common stock 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.as otherwise noted)

 

12. WARRANTS - continued


The Private Warrants were initially recognized as a liability on July 23, 2021 at a fair value of $3,574 and the private warrant liability was remeasured to fair value based upon the market 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 condensed consolidated statements of operations.

 

The Private Warrants were valued using the following assumptions under the Monte Carlo Model that assumes optimal exercise of the 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 own 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 warrants. The dividend yield was estimated by the Company based on its expected dividend policy over the expected term of the warrants.

TUSCAN HOLDINGS CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
MARCH 31, 2021
(Unaudited)


NOTE 9.13. FAIR VALUE MEASUREMENTSMEASUREMENT

 

The Company follows the guidance in ASC 820 for its financial assets and liabilities that are re-measured and reportedMeasured or disclosed at fair value at each reporting period, and non-financial assets and liabilities that are re-measured and reported at fair value at least annually.on a recurring basis

 

The following table presentsGroup 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

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 recurring basis-continued

As of December 31, 2020 and September 30, 2021, information about inputs for the Company’sfair value measurements of the Group’s assets and liabilities that are measured at fair value on a recurring basis at March 31, 2021 and December 31, 2020 and indicates the fair value hierarchy of the valuation inputs the Company utilizedin periods subsequent to determine such fair value:their initial recognition is as follow:

 

Description Level  March 31,
2021		  December 31,
2020		 
Assets:           
Cash and marketable securities held in Trust Account 1  $282,291,194  $282,254,978 
            
Liabilities:           
Warrant Liability – Private Warrants 3   3,064,020   4,204,440 
Convertible Promissory Notes – Related Party 3   1,056,000   200,000 
  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 Private Warrants were accountedfollowing is a reconciliation of the beginning and ending balances for Level 3 convertible notes during the nine 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 beginning and ending balances for Level 3 warrant liability during the 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

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 liabilities in accordance with ASC 815-40 and are presented within warrant liabilities in the condensed balance sheet. The warrant liabilities are measuredotherwise noted)

13. FAIR VALUE MEASUREMENT - continued

Measured or disclosed at fair value at inception and on a recurringnonrecurring basis with changes in fair value presented within change in fair value of warrant liabilities in the condensed statement of operations.

 

The Private WarrantsGroup 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 March 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 eight investors of MPS which requested to redeem in aggregate 14.05% equity interests in MPS (“Exiting Investors”), at a redemption value equal to the initial 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 financing 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 valued using a binomial lattice simulation model, which is consideredconverted 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 Level 3 fair value measurement. The binomial lattice model’s primary unobservable input utilized in determining the fairpar 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 Private Warrants isshares issued and outstanding prior to July 23, 2021 to give effect to the expected volatilityCommon Exchange Ratio of 160.3 established in the Merger Agreement. As of September 30, 2021, there were 300,522,394 shares of Common Stock issued and 298,834,894 shares outstanding.

22

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)

16. PREFERRED SHARES

As of December 31, 2020, the Company had preferred shares issued and outstanding as follows (share number of the common stock. The expected volatilityCompany’s preferred shares prior to the Merger have been retroactively restated to reflect the Common Exchange Ratio of 160.3 established in the Merger 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 the Initial Public Offering date was derived from observable public warrant pricing on comparable ‘blank-check’ companies without an identified target. The expected volatilityMerger 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 of subsequent valuation dates was implied from the Company’s own public warrant pricing.disclosed in Note 3.

 

The estimated fair valuechanges in the balance of Series Preferred and redeemable noncontrolling interests included in the Private Warrants was based onmezzanine equity for the following significant inputs:nine months ended September 30, 2020 and 2021 were as follows:

 

  March 31,
2021		  December 31,
2020		 
Exercise price $11.50  $11.50 
Stock price $12.30  $17.10 
Volatility  38.3%  19.5%
Term  5.00   5.00 
Risk-free rate  0.86%  0.26%
Dividend yield  0.0%  0.0%
(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

 

The following table presents the changes in the fair value

MICROVAST HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(In thousands of the Level 3 warrant liabilities:U.S. dollars, except share and per share data, or as otherwise noted)

17. SHARE-BASED PAYMENT

 

Fair value as of January 1, 2021 $4,204,440 
Change in fair value  (1,140,420)
Fair value as of March 31, 2021 $3,064,020 

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, respectively, using the Common Exchange Ratio of 160.3 as described in Note 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 Share-Based Payments (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 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 non-qualified stock option, restricted stock units, restricted share awards, stock appreciation awards, and cash-based awards to employees, directors, and 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 stock options was determined using the Binomial-Lattice Model with the following assumptions:

After
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

 

 

TUSCANMICROVAST HOLDINGS, CORP.
INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31,

SEPTEMBER 30, 2021
(Unaudited)

(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 electedthrough the fair value option forapplicable vesting date, and the Convertible Promissory Notes. 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 Convertible Promissory Notes was determinedprice 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 a binomial lattice simulation model,the Monte Carlo valuation method. Compensation cost for these awards is recognized based on the grant date fair value which is consideredrecognized 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 Level 3 fair value measurement.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 estimated fair value ofnon-vested shares activity for the Convertible Promissory Notesnine months ended September 30, 2020 and 2021 was based on the following significant inputs:as follows:

 

  March 31,
2021		 
Exercise price $11.50 
Stock price $19.89 
Volatility  47.3%
Term  5.00 
Risk-free rate  0.42%
Dividend yield  0.0%

  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 

ThereThe 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 no transfersissued 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 or outwhich 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 Level 3 from other levels$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 fair value hierarchy duringPRC 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 Group
OchemControlled by CEO
OchemateControlled by CEO

(1)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

MPS received certain interest-free loans from related parties, Ochemate and Ochem, for the three months and nine months ended MarchSeptember 30, 2020 and 2021 with accumulative amounts of $7,607 and nil, $18,063 and $8,426, respectively.

The outstanding balance for the amount due from Ochem was nil as of December 31, 2021.2020 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.

20. NET LOSS PER SHARE

 

The following table presentssets forth the changes incomputation of basic and diluted net loss per share for the fair value of the Level 3 Convertible Promissory Notes:periods indicated:

 

Fair value as of January 1, 2021 $200,000 
Proceeds received Convertible Promissory Notes  500,000 
Change in fair value  356,000 
Fair value as of March 31, 2021 $1,056,000 
  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

NOTE 10. SUBSEQUENT EVENTSMICROVAST 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)

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 Company evaluated subsequent eventsoutcome of any litigation is inherently uncertain and transactions that occurred after the balance sheet date up toamount of potential loss if any, associated with the date thatresolution of such litigation, cannot be reasonably estimated. As such, no accrual for contingency loss was recorded in the condensed consolidated financial statements were issued. Based upon this review, other than as described below,for the Company did not identify any subsequent events that would have required adjustment or disclosure in the condensed consolidated financial statements.three and nine months ended September 30, 2020 and 2021.

 

On April 28, 2021, the Company convened its annual meeting of stockholders (the “Annual MeetingCapital commitments”) virtually. At the Annual Meeting, the Company’s shareholders approved a proposal to elect Amy Butte as a Class I director, and approved a proposal to adjourn the Annual Meeting to a later date if there had been insufficient votes at the time of the Annual Meeting to approve the proposal to extend the date by which the Company must complete its initial business combination from April 30, 2021 to July 31, 2021 (the “Extension Amendment Proposal”). The Annual Meeting was adjourned to May 10, 2021 solely with respect to the voting on the Extension Amendment Proposal.

 

AtCapital 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 time the Annual Meeting was convened on April 28, 2021, a quorum representing at least a majority of shares outstanding on the record date of March 17, 2021 was present in person or by proxy. However, the Company had not received the approval of holders of 65% of its shares outstanding on the record date then necessary to approve the Extension Amendment Proposal, as provided in Article Sixthconstruction of the Company’s certificatelithium battery production line.

31

MICROVAST HOLDINGS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2021

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

Article Sixth”). According to Article Sixth,

21. COMMITMENTS AND CONTINGENCIES - continued

Lease commitments

Future minimum payments under lease commitments as of May 1, 2021, the vote required for approval of the Extension Amendment Proposal was reduced from 65% of the shares outstanding to a majority of the shares outstanding on the record date, based on the following provisions. Article Sixth provides that at any time during the “Target Business Acquisition Period,” any amendment to Article Sixth requires the affirmative vote of the holders of at least 65% of the then outstanding shares of common stock. The “Target Business Acquisition Period” ends on the “Termination Date,” which is defined in Article Sixth as April 30, 2021. Therefore, the 65% vote threshold in Article Sixth will no longer apply as of May 1, 2021, and the Extension Amendment Proposal may be approved by a majority of the shares outstanding on the record date. On May 10, 2021, the Company reconvened the Annual Meeting, at which the Extension Amendment Proposal was approved by the Company’s stockholders. Following the Annual Meeting, the Company filed an amendment to its certificate of incorporation extending the date by which the Company must complete its initial business combination from AprilSeptember 30, 2021 to July 31, 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 May 28,October 27, 2021, the Company received a notice fromgranted 265,399 RSUs and 265,399 PSUs to employees, subject to service and market conditions. The service condition requires the Listing Qualifications Department of The Nasdaq Stock Market stating that because we failed to timely file our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, we were not in compliance with Nasdaq Listing Rule 5250(c)(1). This Quarterly Report on Form 10-Q constitutes such filing and, accordingly, as of the date of this filing we should regain complianceparticipant’s continued employment with the listing rule.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.

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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 27AMicrovast, Inc., a Delaware corporation (“Microvast”), pursuant to the Agreement and Plan 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 merger (the “Merger”).

In connection with the Merger Agreement, Tuscan, MVST SPV LLC, a wholly owned subsidiary of Tuscan (“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 framework agreement (the “Framework Agreement”), pursuant to which, among other things, (1) the CL Investors waived certain rights with respect to the convertible loans (the “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 Securities ActCL Investors (“CL Affiliates”) subscribed for 6,719,845 shares of 1933 and Section 21Ecommon 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”).

In connection with the Merger 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 Exchange Act that are not historical factsBridge Notes (the “Bridge Notes Conversion”), and involve risks and uncertainties that could cause actual results(b) a number of outside investors who agreed to differ materially from those expected and projected. All statements, other than statementspurchase an aggregate of historical fact included in this Form 10-Q including, without limitation, statements in this “Management’s Discussion and Analysis48,250,000 shares of Financial Condition and Resultscommon stock at a price of Operations” regarding$10.00 per share, for an aggregate purchase price of $482,500,000 (the “PIPE Financing”).

The CL Private Placement, the Company’s financial position, business strategyBridge Notes Conversion 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 fromPIPE Financing closed contemporaneously with the events, performance and results discussed inclosing under the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated inMerger Agreement (collectively, the forward-looking statements, please refer to“Closing”). Upon the Risk Factors sectionClosing of the Company’s Annual Report on Form 10-K/A filedMerger, 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 U.S. Securities and Exchange Commission (the “SEC”) on June 1, 2021. The Company’s securities filings can be accessed on the EDGAR sectionstockholders of Microvast becoming stockholders of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law,Company, and with 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.renamed “Microvast Holdings, Inc.”

 

OverviewCompany’s Business following the Business Combination

 

We are a blank check company incorporated on November 5, 2018technology 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 a Delaware corporationconvenient 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 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. 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.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 preferred chemistry into our cell, module and pack manufacturing capabilities. Our entire activity since inception relatesstrategic priority is to our formation, to prepareoffer these battery solutions for our Initial Public Offering, which was consummatedcommercial 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 March 7, 2019,high-performance applications such grid management and identifying a company for a Business Combination.frequency regulation.

 

Recent Developments

Microvast Business Combination

On February 1, 2021, we entered into the Merger Agreement with Microvast and Merger Sub. Pursuant to the Merger Agreement, Merger Sub will merge with and into Microvast and Microvast will survive the merger and become our wholly owned subsidiary. Under the Merger Agreement, all of the equity interests of Microvast will be converted into an aggregate of 210,000,000 shares of common stock. The Microvast shareholders and the investors in Microvast’s majority-owned subsidiary, MPS, will also have the ability to earn an additional 20,000,000 shares of common stock 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 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. Concurrently with the execution of the Merger Agreement, we and Microvast will jointly acquire 100% ownership of MPS and will discharge certain convertible loans of MPS.


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Additionally, as a vertically integrated battery company, we design, develop and manufacture the Merger Agreement provides that wefollowing battery components: cathode, anode, electrolyte and separator. We will issue an aggregate of 6,736,111 shares of common stock in connection with the Bridge Note Conversion.also market our FCG cathode and polyaramid separator to passenger car original equipment manufacturers (“OEMs”) and consumer electronics manufacturers.

 

Further, on February 1,Since we launched our first ultra-fast battery system in 2009, we have sold and delivered approximately 2,422.3 MWh of battery systems. As of September 30, 2021, we had a backlog order of approximately $52.7 million for our battery systems equivalent to approximately 214.6 MWh, compared to the Sponsor, Microvast and certainbacklog order of approximately $31.9 million for our stockholders entered intobattery systems equivalent to approximately 90.8 MWh as of September 30, 2020. Our revenue for the Sponsor Support Agreement, pursuantthree months ended September 30, 2021 increased $6.1 million, or 20.0%, compared to which the Sponsor Group agreed, among other things, to vote all equity interests of the Company held by such member of the Sponsor Groupsame period in favor of the approval and adoption of the proposed business combination with Microvast. Additionally, such members of the Sponsor Group have agreed not to (a) transfer any of their equity interests in the Company (or enter into any arrangement with respect thereto) other than as set forth therein or (b) exercise any conversion rights of any equity interests held by such member of the Sponsor Group in connection with the approval of the proposed business combination.2020.

 

The Sponsor also agreed that,After initially focusing on the PRC and Asia & Pacific region, we have expanded our presence and product promotion to Europe and the extent that certain of our expenses are in excess of $46,000,000 (unless such expenses shall have been approved by Microvast), the Sponsor will either (i) pay any such excess amount in cash or (ii) forfeitUnited States to us such number of shares of common stock held by the Sponsor that would have a value equal to such excess. The Sponsor also agreed to amend the escrow agreement to make certain adjustments to the terms of the escrow of its shares of common stock as set forth in the Sponsor Support Agreement.capitalize on their rapidly growing electrification markets.

 

ContemporaneouslyIn Europe, we have delivered over 1,500 units of 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 executiongrowth 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 is driven by the growth of the Merger Agreement, certain investors entered into Subscription Agreements pursuantcommercial and passenger electric vehicle and energy storage markets. Many factors contribute to which such investors subscribedthe 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 an aggregate valueelectric vehicles, and as a result, battery systems and components, governmental economic incentives are being gradually reduced or eliminated, any reduction or elimination of $482,500,000, representing 48,250,000 sharesgovernmental economic incentives may result in reduced demand for our products and adversely affect our financial performance.

Manufacturing Capacity

Our growth depends on being 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 common stock at a purchasesupporting infrastructure, further development of our sales and marketing team, expansion of our customer base and strengthened quality control.

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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 PRC, making them less sensitive to the price of $10.00 per shareour products than are similarly situated buyers in the PRC. Therefore, the geographic source of our revenue will have an impact on our revenue and gross margins.

Manufacturing 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 private placementcost-efficient manner. In addition, we expect that an increase in our sales volume will enable us to be consummated immediately priorlower 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, 2021, we faced unanticipated challenges caused by the continued impact of global pandemic. Certain customers deferred their purchases due to the consummationpandemic. Due to precautionary measures related to COVID-19 and resulting global economic impacts, we may experience further reductions in demand for certain of the Transactions. Affiliatesour products.

Basis of InterPrivate,Presentation

We currently conduct our co-sponsor, subscribed to purchase 6.5 million sharesbusiness 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 PIPE Financing for an aggregate purchase priceamount of $65$572.6 million.

 

Extension AmendmentAs of September 30, 2021, we had bank borrowings of $22.9 million, the terms of which range 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 rates ranging from 0% to 4%. The convertible bonds are due as follows: $29.2 million in 2023; $29.2 million in 2024; and $14.7 million in 2026. As of September 30, 2021, we were in compliance with all material terms and covenants of our loan agreements, credit agreements, bonds and notes.

35

The consolidated net cash position as of September 30, 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 need 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 foreseeable future and intend to retain all of the available funds and any future earnings for use in the operation and expansion of our business in the PRC, the EU and the United States.

 

On December 3, 2020,July 23, 2021, the Business Combination was completed. The net proceeds from the Merger include $708.4 million cash to be retained for the purposes of working capital, business expansion and capital expenditure. We believe we received stockholder approvalwill be able to extendmeet our working capital requirements for at least the date bynext 12 months.

Cash Flows

The following table provides a summary of our cash flow data for the periods 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 it must complete an initial business combination$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 December 7, 2020operating assets and liabilities including $20.2 million cash inflow due to Aprilcollection of accounts receivable and notes receivable.

Cash Flows from Investing Activities

During the nine months ended September 30, 2021. In2021, 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 such extension, holdersour 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 3,198 Public Shares exercised their right$26.6 million proceeds from bank borrowings, $57.5 million proceeds from the issuance of convertible notes to convert their shares into cash at a conversion pricenew 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 approximately $10.22 per share, for an aggregate conversion amountResults of approximately $32,684. Additionally, on May 10, 2021, at a reconvened annual meetingOperations

Revenue

We derive revenue from the sales of stockholders initially convened on April 28, 2021,our electric battery products, including LpTO, LpCO, MpCo and HnCo battery power systems. While we received stockholder approval to further extendhave historically marketed and sold our products primarily in the date by whichPRC, we are requiredalso 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 complete a business combinationperiod. The following table summarizes net revenues from April 30, 2021customers 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 July 31, 2021. In connection with such extension, holdersthe manufacturing of an aggregateproducts.

Gross profit is equal to revenue less cost of 13,290 Public Shares exercised their rightrevenues. Gross profit margin is equal to redeem their shares for cash.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.

 

Loan CommitmentSelling and marketing expenses

On February 12, 2021,. 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 issued an unsecured promissory noteexpect that our selling and marketing expenses will continue to the Sponsorincrease in absolute dollars in the aggregate amount of $1,200,000. The Convertible Promissory Notes are non-interest bearing and payable upon the consummation of a Business Combination. The Convertible Promissory Notes are 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 Convertible Promissory 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.long term as we expand our business.

 

Nasdaq NotificationGeneral 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.

 

On January 6, 2021,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 received a notice from the Listing Qualifications Department of The Nasdaq Stock Market stating thatexpect our research and development expense to increase in absolute dollars as we failedcontinue to hold an Annual Meeting of stockholders within 12 months after our fiscal year ended December 31, 2019, as required by Nasdaq Listing Rule 5620(a). In accordance with Nasdaq Listing Rule 5810(c)(2)(G), we submitted a plan to regain compliance on February 4, 2021. Nasdaq accepted our planmake significant investments in developing new products, applications, functionality and granted us an extension through June 29, 2021 to hold an annual meeting. Nasdaq’s decision is subject to certain conditions, including that we provide periodic updates with respect to our proposed business combination with Microvast. On April 28, 2021, we held an annual meeting of stockholders, in compliance with our plan.other offerings.

On May 28, 2021, the Company received a notice from the Listing Qualifications Department of The Nasdaq Stock Market stating that because we failed to timely file our Quarterly Report on Form 10-Q for the quarter ended March 31, 2021, we were not in compliance with Nasdaq Listing Rule 5250(c)(1). This Quarterly Report on Form 10-Q constitutes such filing and, accordingly, as of the date of this filing we should regain compliance with the listing rule.

 

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.

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Results of Operations

Our only activities through March 31,Comparison of the Three Months Ended September 30, 2021 were organizational activities, those necessary to consummate the Initial Public Offering, described below, searching for a target company for a Business Combination, and activities in connection with the proposed acquisition of Microvast. 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.Three Months Ended September 30, 2020

 

ForThe following table sets forth our historical operating results for the three months ended March 31, 2021, we had a net loss of $48,825, which consisted of operating costs of $890,929 and a change in the fair value of convertible promissory notes of $356,000, offset by a change in fair value of warrants of $1,140,240, interest income of $35,796 and an unrealized gain of $420.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

 

For theOur revenue increased from approximately $30.8 million for three months ended March 31,September 30, 2020 we had a net incometo approximately $36.9 million for the same period in 2021 primarily driven by the increase in sales of $1,903,455, which consisted of changebattery cell products to new customers and the increase in fair value of warrants of $137,400, interest income of $1,027,157 and unrealized gains of $1,438,240, offset by operating costs of $228,749 and a provision for income taxes of $470,593.sales to existing customers in the Asia & Pacific region.

 

LiquidityCost of Revenue and Capital ResourcesGross Profit

 

On March 7, 2019, we consummated our Initial Public OfferingOur cost of 24,000,000 Units, at a price of $10.00 per Unit, generating gross proceeds of $240,000,000. Simultaneously withsales for the closing ofthree months ended September 30, 2021 increased $45.7 million, or 168.8%, compared to 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.same period in 2020.

 

On March 12, 2019,Our gross profit margin decreased from 12.0% for the three months ended September 30, 2020 to (97.3%) for the same period in connection with2021. The increase in cost of sales and the underwriters’ exercisedecrease 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 over-allotment optionoriginal costs to produce, (iv) an increase in full, we consummated the saleshare-based compensation expense recorded since the third quarter of an additional 3,600,000 Units at2021, and (v) a pricelower volume of $10.00orders placed for a specific manufacturing line as a result of the industry-wide semiconductor shortage, which resulted in a higher manufacturing cost 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.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 Initial Public Offering,Company’s performance standards. It is our expectation that these legacy products will need to be replaced before the exerciseexpiration of the over-allotment optionproduct warranty in their respective sales contracts with our customers.

We 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 saleaccrued cost 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.

As of March 31, 2021, we had marketable securities held in the Trust Account of $282,291,194 (including approximately $6,300,000 of interest income and unrealized gains) consisting of U.S. treasury bills with a maturity of 180 days or less. Interest income on the balance in the Trust Account may be used by us to pay taxes. Through March 31, 2021, we withdrew approximately $1,417,000 of interest earned on the Trust Account to pay our franchise and income tax obligations, of which no amounts were withdrawn during$35.6 million for the three months ended Mar h 31,September 30, 2021.

For the three months ended March 31, 2021, cash used in operating activities was $569,686. Net loss of $48,825 was affected by change in fair value of warrants of $1,140,420, interest earned on marketable securities held in Trust Account of $35,796, unrealized gain on marketable securities held in Trust Account of $420 and a change in the fair value of convertible promissory notes of $356,000. Changes in operating assets and liabilities provided $321,243 of cash from operating activities.

For the three months ended March 31, 2020, cash used in operating activities was $109,922. Net income of $1,903,455 was affected by change in fair value of warrants of $137,400, interest earned on marketable securities held in Trust Account $1,027,157, unrealized gain on marketable securities held in Trust Account of $1,438,240, and deferred income tax provision of $274,962. Changes in operating assets and liabilities provided $314,458 of cash from operating activities.

 


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We intend to use substantially all of the funds held 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.Operating Expense

 

As of March 31, 2021, we had cash of $44,096. We intend to use the funds held outside the Trust Account for identifyingSelling 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.Marketing

 

On April 21, 2020,Selling and marketing expenses for the Company issued an unsecured promissory notethree months ended September 30, 2021 increased $3.9 million, or 113.5%, compared to the Sponsorsame 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 aggregate amountincreased share-based compensation expense recorded during the third quarter of $300,000 (the “Note”)2021.

General and Administrative

General and Administrative expenses for the three months ended September 30, 2021 increased $52.3 million, or 1,108.6%, of which $200,000 was drawn upon on such date. On February 12, 2021, the Company issued an unsecured promissory notecompared to the Sponsorsame period in 2020. The increase in General and Administrative expenses was primarily due to increased administrative headcount to support our overall growth and the aggregate amountincreased share-based compensation expense recorded during the third quarter of $1,200,000 (together, with2021.

Research and Development

Research and Development expenses for the Note, the “Convertible Promissory Notes”). The Convertible Promissory Notes are non-interest bearing and payable upon the consummation of a Business Combination. The Convertible Promissory Notes are 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 identicalthree months ended September 30, 2021 increased $9.0 million, or 196.6%, compared to the Private Units. Ifsame 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 Business Combination is not consummated,result of our efforts to further develop and enhance our products; and (iii) the Convertible Promissory Notes will not be repaid byincreased share-based compensation expense recorded during 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 outsidethird quarter of its Trust Account.2021.

Loss on changes in fair value of convertible notes

 

In orderthe three months ended September 30, 2021, we incurred a loss of $3.0 million due to fund working capital deficiencies or finance transaction costschanges in fair value of convertible notes in connection with a Business Combination, the Sponsor or our officersissuance of convertible notes in January and directors or their affiliates may, but are not obligatedFebruary 2021 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 will 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.

As described above, our Sponsor committed to loan us a total of $1.5 million (inclusive of amounts currently outstanding). We will need to raise additional capital through loans or additional investments from our Sponsor, stockholders, officers, directors, or third parties. Other than the $1.5 million loan (inclusive of amounts currently outstanding) committed to us by our Sponsor, our Sponsor, officers, directors, or their affiliates may, but are not obligated to, loan us funds, from time to time or at any time, in whatever amount they deem reasonable in their sole discretion, to meet our working capital needs. Accordingly, we may not be able to obtain additional financing. If we are unable to raise such additional capital, we may be required to take additional measures to conserve liquidity, which could include, but not necessarily be limited to, curtailing operations, suspending the pursuit of a potential transaction, and reducing overhead expenses. We cannot provide any assurance that new financing will be available to us on commercially acceptable terms, if at all. These conditions raise substantial doubt about our ability to continue as a going concern through July 31, 2021, the date that we will be required to cease all operations, except for the purpose of winding up, if a business combination is not consummated. The financial statements included in this Form 10-Q do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should we be unable to continue as a going concern.investors.

 

Off-Balance Sheet Financing ArrangementsGain 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 to approximately $85.2 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 nine months ended September 30, 2021 increased $78.2 million, or 153.4%, compared to the same period in 2020.

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 primarily 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 share-based compensation expense recorded since the third quarter of 2021, (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 PRC based customers recently experienced performance that does not meet our high standards. Following a rigorous root cause analysis completed in the third quarter of 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.

We didbelieve this issue is limited to this legacy product which we ceased selling in late 2018, as the component was not haveincorporated into any off-balance sheet arrangementsother 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 nine 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 March 31,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 nine months ended September 30, 2020 to $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 2021.

 


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Loss 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

 

We do not have any long-term debt,Our capital lease obligations, operating lease obligations or long-term liabilities other than an agreementexpenditures amounted to pay an affiliate of our Sponsor a monthly fee of $10,000$18.6 million and $40.7 million for office space, utilitiesthe nine months ended September 30, 2020 and secretarial2021, respectively. Our capital expenditures for the nine months ended September 30, 2020 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 and Morgan Stanley to provide financial advisory services in connection with our initial business combination, for which such firms will receive fees upon consummation of the transaction with Microvast, as described in more detail in Note 62021 related primarily to the financial statements. We also engaged Morgan Stanley as placement agent in connection with the PIPE Financing, for which such firm will receive a fee as described in more detail in Note 6 to the financial statements. 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 and 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, and we may also from time to time determine to undertake additional capital projects and incur additional capital expenditures. As a result, actual capital expenditures in future years may be more or less than the amounts shown.

The following table summarizes our contractual obligations and other commitments for cash expenditures as of December 31, 2020 and the years in which these obligations are 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.

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 identified the following critical accounting policies:

 

We believe the following critical accounting 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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Warrant LiabilityRevenue Recognition

Nature 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 the 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 warrantsuncertain tax positions by reporting a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in accordance witha tax return. Tax benefits are recognized from uncertain tax positions when we believe that it is more likely than not that the guidance containedtax 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 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 meet the definition of a derivative as contemplated in ASC 815, we classify the Private Warrants as liabilities at their fair value and adjusts the Private Warrants to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in our statement of operations. The Private Warrants for periods where no observable traded price was available were valued using a binomial lattice model.income tax expense.

 

Common Stock SubjectStock-Based Compensation

We recognize compensation expense on a straight-line basis over the service period that awards are expected to Possible Redemptionvest, 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 in 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 volatility and may fluctuate significantly each quarter due to changes in our probability assessment of achievement of the performance conditions or actual results being different from projections made by management. Liability-classified awards are remeasured at their fair-value-based measurement as of each reporting date until settlement.

 

We account for 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 holder or subject to redemption upon the occurrence 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.


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Net Loss Per Common Share

We apply the two-class method in calculating earnings per share. Net income (loss) per common share, basic and diluted for common stock subject to possible redemption is calculated by dividing the interest income earned on the Trust Account, net of applicable taxes, if any, by the weighted average number of shares of common stock subject to possible redemption outstanding for the period. Net income (loss) per share, basic and diluted for and non-redeemable common stock is calculated by dividing net loss less income attributable to common stock subject to possible redemption, by the weighted average number of shares of non-redeemable common stock outstanding for the period presented.

Recent Accounting Standards

In August 2020, the FASB issued ASU No. 2020-06, “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity” (“ASU 2020-06”), which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. ASU 2020-06 removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and it also simplifies the diluted earnings per share calculation in certain areas. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, with early adoption permitted. We adopted ASU 2020-06 effective as of January 1, 2021. The adoption of ASU 2020-06 did not have an impact on our financial statements.

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

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

Interest Rate Risk

 

Not requiredOur 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, 2021, 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 exchange rates of the currencies in which we do business. At this time, we do not, but we may in the future, enter into derivatives or other 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 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 smallerdetermining 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 companies.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, we evaluated the effectiveness 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, 2021. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were 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 allowensure 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 the 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 decisions regarding required disclosure.basis.

 

EvaluationOne 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 accordance 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 Disclosurecomprehensive 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.

Neither 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 material 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 assurance 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 required 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

 

Under the supervision and with the participation of ourOur management, including our principal executive officerChief Executive Officer and principal financial and accounting officer, we conducted an evaluation of the effectiveness ofChief Financial Officer, believes that our disclosure controls and procedures asand internal control over financial reporting are designed to provide reasonable assurance of achieving their objectives and are effective at the end of the fiscal quarter ended March 31, 2021, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our principal executive officer and principal financial and accounting officer have concluded that, solely due to the events that led to the Company’s restatement of its financial statements to reclassify the Company’s Private Warrants as liabilities (which are described in the Company’s Amendment No. 1 to its Annual Report on Form 10-K/A filed on June 1, 2021) (the “Restatement”), during the period covered by this report, a material weakness existed and our disclosure controls and procedures were not effective.

We doreasonable 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 instances of fraud. Disclosure controls and procedures,A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the disclosure controls and procedurescontrol system are met. Further, the design of disclosure controls and procedures must reflect the fact that there are resource constraints, and the benefits must be considered relative to their costs. Because of the inherent limitations in all disclosure controls and procedures,control systems, no evaluation of disclosure controls and procedures can provide absolute assurance that we have detected all our control deficienciesissues and instances of fraud, if any.any, within the company have been detected. The design of disclosureany system of controls and procedures also is based partly onin 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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Changes in Internal Control Over Financial Reporting

During the most recently completed fiscal quarter, there has been no change in our internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting, as the circumstances that led to the Restatement of our financial statements had not yet been identified. Due solely to the events that led to our Restatement of our financial statements, management has identified a material weakness in our internal control over financial reporting relating to the accounting for our Private Warrants. To respond to this material weakness, we have devoted, and plan to continue to devote, significant effort and resources to the remediation and improvement of our internal control over financial reporting. While we have processes to identify and appropriately apply applicable accounting requirements, we plan to enhance these processes to better evaluate our research and understanding of the nuances of the complex accounting standards that apply to our financial statements. Our plans at this time include providing enhanced access to accounting literature, research materials and documents and increased communication among our personnel and third-party professionals with whom we consult regarding complex accounting applications. The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects.


 

 

PART II - OTHER INFORMATION

ITEMItem 1. LEGAL PROCEEDINGSLegal Proceedings

 

None.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

 

Factors that could cause our actual results to differ materially from those in this report includeAs a result of the closing of the Business Combination on July 23, 2021, certain of the risk factors describedpreviously disclosed in Part I, Item 1A of our Annual Report on Form 10-K/A10-K for the fiscal year ended December 31, 2020, 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 with the SEC on June 1, 2021. As of the date of this Report, there have been no material changes toAugust 20, 2021, and as further amended, including the risk factors disclosedincorporated 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 factors or disclose additional factors from time to time in our Annual Report filedfuture filings with the SEC.

 

ITEMItem 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDSUnregistered Sales of Equity Securities and Use of Proceeds

 

None.Information regarding all equity securities of the registrant sold by the Company during the period covered by this Report that were not registered under the Securities Act were included in a Current Report on Form 8-K filed by the Company, and therefore is not required to be furnished herein.

 

ITEMItem 3. DEFAULTS UPON SENIOR SECURITIESDefaults upon Senior Securities

 

None.

 

ITEMItem 4. MINE SAFETY DISCLOSURESMine Safety Disclosures

 

None.Not applicable.

 

ITEMItem 5. OTHER INFORMATIONOther Information

None.

 

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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 Number DescriptionExhibit Title
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.SCH*Inline XBRL Taxonomy Extension Schema Document
101.CAL* Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.SCH*XBRL Taxonomy Extension Schema Document
101.DEF* Inline XBRL Taxonomy Extension DefinitionDefinitions Linkbase Document
101.LAB* Inline XBRL Taxonomy Extension LabelsLabel 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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SIGNATURESSIGNATURE

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: June 1, 2021By:/s/ Stephen A. VogelYanzhuan Zheng
 Name:Stephen A. Vogel
Title:Chief Executive Officer
(Principal Executive Officer)
Date: June 1, 2021/s/ Ruth Epstein
Name:Ruth EpsteinYanzhuan Zheng
 Title:Chief Financial Officer
(Principal Financial and Accounting Officer)

50


0 0 26675733 0 0 false --12-31 Q1 0001760689 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).
iso4217:USD xbrli:shares