The following discussion and analysis of the Company's financial condition and
results of operations should be read in conjunction with our audited financial
statements and the notes related thereto which are included in "Item 15.
Exhibits and Financial Statement Schedules" of this Amendment. Certain
information contained in the discussion and analysis set forth below includes
forward-looking statements. Our actual results may differ materially from those
anticipated in these forward-looking statements as a result of many factors,
including those set forth under "Special Note Regarding Forward-Looking
Statements," "Item 1A. Risk Factors" and elsewhere in this Amendment and the
Original 10-K.
This Management's Discussion and Analysis of Financial Condition and Results of
Operations has been amended and restated to give effect to the restatement and
revision of our financial statements as more fully described in the Explanatory
Note and in "Note 2-Restatement of Previously Issued Financial Statements" to
our accompanying financial statements. For further detail regarding the
restatement adjustments, see Explanatory Note and Item 9A: Controls and
Procedures, both contained herein.
Overview
We are a blank check company incorporated on November 5, 2018 as a Delaware
corporation 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 IPO and the sale of the private units, our capital stock, debt or a
combination of cash, stock and debt.
Our entire activity since inception relates to our formation, to prepare for our
IPO, which was consummated on March 7, 2019, searching for a business
combination candidate, and activities in connection with the proposed
acquisition of Microvast.
Recent Developments
Microvast Business Combination
On February 1, 2021, Tuscan entered into an Agreement and Plan of Merger (as
amended, the "Merger Agreement"), among Tuscan, TSCN Merger Sub Inc., a newly
formed Delaware corporation and wholly owned subsidiary of Tuscan ("Merger
Sub"), and Microvast, Inc., a Delaware corporation ("Microvast"). 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
Tuscan. 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, Tuscan and Microvast will jointly acquire 100% ownership of MPS and
will discharge certain convertible loans of MPS.
The Merger will be accounted for as a reverse recapitalization in accordance
with accounting principles generally accepted in the United States of America
("U.S. GAAP"). Under this method of accounting, Tuscan will be treated as the
"acquired" company for accounting purposes and the Business Combination will be
treated as the equivalent of Microvast issuing stock for the net assets of
Tuscan, accompanied by a recapitalization. The net assets of Tuscan will be
stated at historical cost, with no goodwill or other intangible assets recorded.
Additionally, the Merger Agreement provides that Tuscan will issue an aggregate
of 6,736,111 shares of common stock in connection with the Bridge Note
Conversion.
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Further, on February 1, 2021, Tuscan, the Sponsor, Microvast and certain
stockholders of Tuscan entered into the Sponsor Support Agreement, pursuant to
which the Sponsor Group agreed, among other things, to vote all equity interests
of Tuscan held by such member of the Sponsor Group 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.
The Sponsor also agreed that, to the extent that certain expenses of Tuscan 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 Tuscan 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.
Contemporaneously with the execution of the Merger Agreement, certain investors
entered into Subscription Agreements pursuant to which such investors subscribed
for an aggregate value of $482,500,000, representing 48,250,000 shares of Tuscan
common stock at a purchase price of $10.00 per share in a private placement to
be consummated immediately prior to the consummation of the Transactions.
Affiliates of InterPrivate, an advisor to the Sponsor, subscribed to purchase
6.5 million shares in the PIPE Financing for an aggregate purchase price of $65
million.
Immediately following the Closing, the former equityholders of Microvast will
hold approximately 69.9% of the issued and outstanding shares of common stock
and the current stockholders of Tuscan will hold approximately 9.2% of the
issued and outstanding shares of common stock, which pro forma ownership
(1) assumes no Public Stockholder exercises its conversion rights in connection
with the business combination, and (2) reflects the issuance of an aggregate of
48,250,000 shares of Common Stock in the PIPE Financing and 6,736,111 shares of
common stock in the Bridge Notes Conversion, but does not include the effect of
any other financing of Tuscan. If the maximum number of Public Shares are
converted into cash such that Microvast does not have the right to terminate the
Merger Agreement (i.e., Tuscan has at least $5,000,001 of net tangible assets
immediately prior to or upon consummation of the business combination), such
percentages will be approximately 76.8% and 0.2%, respectively.
Extension Amendment
On December 3, 2020, Tuscan received stockholder approval to extend the date by
which it must complete an initial business combination from December 7, 2020 to
April 30, 2021. In connection with such extension, holders of 3,198 Public
Shares exercised their right to convert their shares into cash at a conversion
price of approximately $10.22 per share, for an aggregate conversion amount of
approximately $32,684.
On March 12, 2021, Tuscan filed a preliminary proxy statement seeking approval
from its stockholders to amend Tuscan's charter to further extend the date by
which Tuscan is required to complete its initial business combination from April
30, 2021 to July 31, 2021 and to hold an annual meeting for the election of
directors in accordance with Nasdaq listing rules. On April 28, 2021, Tuscan
convened its annual meeting of stockholders (the "Annual Meeting") virtually. At
the Annual Meeting, Tuscan'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 Tuscan 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.
19
At 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, Tuscan 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 Sixth of Tuscan's certificate of incorporation ("Article Sixth").
According to Article Sixth, as of May 1, 2021, the vote required for approval of
the Extension Amendment Proposal will be 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, Tuscan reconvened
the Annual Meeting, at which the Extension Amendment Proposal was approved by
Tuscan's stockholders. Following the Annual Meeting, Tuscan filed an amendment
to its certificate of incorporation extending the date by which Tuscan must
complete its initial business combination from April 30, 2021 to July 31, 2021.
Loan Commitment
On February 12, 2021, the Sponsor extended a loan to Tuscan in the aggregate
principal amount totaling $1.2 million, of which $400,000 was drawn upon on such
date. This loan was in addition to the previous $200,000 drawn upon the $300,000
convertible note that was committed by the Sponsor on April 21, 2020. As a
result of the February 12, 2021 commitment, the Sponsor had committed to the
Company a total of $1.5 million, of which a total of $600,000 has been drawn
upon, with $400,000 of the drawn amount pursuant to the February 12, 2021 note.
The Sponsor intends to convert the $1.5 million total loan balance into 150,000
Units immediately prior to the closing of the proposed business combination with
Microvast. Such Units will have terms identical to the terms of the Company's
Private Units and will consist of (i) 150,000 shares of common stock and (ii)
warrants to purchase 150,000 shares of common stock at an exercise price of
$11.50 per share, subject to adjustment.
Nasdaq Notification
On January 6, 2021, we received a notice from the Listing Qualifications
Department of The Nasdaq Stock Market stating that we failed 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 plan 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.
Results of Operations
Our only activities from November 5, 2018 (inception) through December 31, 2020
were organizational activities, those necessary to consummate the IPO, described
below, and, after the IPO, searching for a target company for a business
combination. We do not expect to generate any operating revenues until after the
completion of our business combination. We generate non-operating income in the
form of interest income on marketable securities held in the trust account. We
incur expenses as a result of being a public company (for legal, financial
reporting, accounting and auditing compliance), as well as for due diligence
expenses.
As a result of the restatement described in Note 2 of the notes to the financial
statements included herein, we classify the Private Warrants as liabilities at
their fair value and adjust the warrant instrument 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.
For the year ended December 31, 2020, we had net loss of $2,423,649, which
consisted of operating costs of $921,665, a change in fair value of warrant
liability of $3,799,110, and a provision for income taxes of $366,764, offset
byinterest income on marketable securities held in the Trust Account of
$2,654,140 and an unrealized gain on marketable securities held in the Trust
Account of $9,750.
For the year ended December 31, 2020, income earned on the investment held in
the trust account decreased $2,258,206, or 46.0% to $2,654,140 from $4,912,346
for the year ended December 31, 2019. As a result of the Covid-19 pandemic, the
average annual yield on the investment held in the trust account dropped to
0.10% in the second quarter of 2020 down from an average of 1.73% for 2019 and
the first quarter of 2020.
20
For the year ended December 31, 2019, we had net income of $3,394,659, which
consisted of interest income on marketable securities held in the trust account
of $4,912,346 and an unrealized gain on marketable securities held in the trust
account of $128,899, partially offset by a change in fair value of warrant
liability of $27,480, operating costs of $778,815 and a provision for income
taxes of $895,251.
For the three months ended September 30,2020, we had a net loss of $48,045,
which consisted of operating costs of $174,340 and an unrealized loss on
marketable securities held in the Trust Account of $532,988, offset by interest
income on marketable securities held in the Trust Account of $579,117, a change
in fair value of warrant liability of $53,242 and an income tax benefit of
$26,924.
For the nine months ended September 30,2020, we had net income of $1,558,248,
which consisted of interest income on marketable securities held in the Trust
Account of $2,589,682 and a change in fair value of warrant liability of
$56,667, offset by operating costs of $654,803, an unrealized loss on marketable
securities held in the Trust Account of $33,021, and a provision for income
taxes of $400,287.
For the three months ended September 30, 2019, we had net income of $910,334,
which consisted of interest income on marketable securities held in the Trust
Account of $1,577,268 and a change in fair value of warrant liability of
$13,740, offset by operating costs of $262,271, an unrealized loss on marketable
securities held in the Trust Account of $187,306 and a provision for income
taxes of $231,097.
For the nine months ended September 30, 2019, we had net income of $2,355,418,
which consisted of interest income on marketable securities held in the Trust
Account of $3,657,526 and a change in fair value of warrant liability of
$89,310, offset by operating costs of $527,663, an unrealized loss on marketable
securities held in the Trust Account of $35,094 and a provision for income taxes
of $650,041.
For the three months ended June 30,2020, we had a net loss of $297,162, which
consisted of operating costs of $251,714, a change in fair value of warrant
liability of $133,965 and an unrealized loss on marketable securities held in
the Trust Account of $938,273, offset by interest income on marketable
securities held in the Trust Account of $983,408 and an income tax benefit of
$43,382.
For the six months ended June 30,2020, we had net income of $1,606,293, which
consisted of interest income on marketable securities held in the Trust Account
of $2,010,565, a change in fair value of warrant liability of $3,435 and an
unrealized gain on marketable securities held in the Trust Account of $499,967,
offset by operating costs of $480,463 and a provision for income taxes of
$427,211.
For the three months ended June 30, 2019, we had net income of $1,209,849, which
consisted of interest income on marketable securities held in the Trust Account
of $1,670,719 and an unrealized gain on marketable securities held in the Trust
Account of $133,070, offset by operating costs of $195,350, a change in fair
value of warrant liability of $54,960 and a provision for income taxes of
$343,630.
For the six months ended June 30, 2019, we had net income of $1,445,084, which
consisted of interest income on marketable securities held in the Trust Account
of $2,080,258, a change in fair value of warrant liability of $103,050 and an
unrealized gain on marketable securities held in the Trust Account of $152,212,
offset by operating costs of $265,392 and a provision for income taxes of
$418,944.
For the three months ended March 31,2020, we had net income of $1,903,455, which
consisted of interest income on marketable securities held in the Trust Account
of $1,027,157, a change in fair value of warrant liability of $137,400 and an
unrealized gain on marketable securities held in the Trust Account of
$1,438,240, offset by operating costs of $228,749 and provision for income taxes
of $470,593.
For the three months ended March 31, 2019, we had net income of $235,235, which
consisted of interest income on marketable securities held in the Trust Account
of $409,539, a change in fair value of warrant liability of $48,090 and an
unrealized gain on marketable securities held in the Trust Account of $19,142,
offset by operating costs of $70,042 and provision for income taxes of $75,314.
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Liquidity and Capital Resources
On March 7, 2019, we consummated our IPO of 24,000,000 units, at a price of
$10.00 per unit, generating gross proceeds of $240,000,000. Simultaneously with
the closing of the IPO, we consummated the sale of 615,000 private units to our
Sponsor and EarlyBirdCapital and its designee, generating gross proceeds of
$6,150,000. On March 12, 2019, in connection with the underwriters' exercise of
their over-allotment option in full, we consummated the sale of an additional
3,600,000 units at a price of $10.00 per unit, generating total gross proceeds
of $36,000,000. In addition, we also consummated the sale of an additional
72,000 private units to our Sponsor and EarlyBirdCapital and its designee at
$10.00 per private unit, generating total gross proceeds of $720,000. Following
the IPO, the exercise of the over-allotment option and the sale of the private
units, a total of $276,000,000 was placed in the trust account. We incurred
$6,059,098 in IPO related costs, including $5,520,000 of underwriting fees, and
$539,098 of other costs.
As of December 31, 2020, we had marketable securities held in the Trust Account
of $282,254,978 (including approximately $6,255,000 of interest income and
unrealized gains less interest withdrawn) consisting of U.S. treasury bills with
a maturity of 180 days or less. As of September 30, 2020, we had marketable
securities held in the Trust Account of $282,180,433. As of June 30, 2020, we
had marketable securities held in the Trust Account of $282,267,303. As of March
31, 2020, we had marketable securities held in the Trust Account of
$282,403,044. As of December 31, 2019, we had marketable securities held in the
trust account of $280,103,245. As of September 30, 2019, we had marketable
securities held in the trust account of $278,902,432. As of June 30, 2019, we
had marketable securities held in the trust account of $277,762,470. As of March
31, 2019, we had marketable securities held in the trust account of
$276,428,681. Interest income on the balance in the Trust Account may be used by
us to pay taxes. Through December 31, 2020, we withdrew approximately $1,417,000
of interest earned on the Trust Account to pay our franchise and income tax
obligations, of which approximately $479,000 was withdrawn during the year ended
December 31, 2020.
For the year ended December 31, 2020, cash used in operating activities was
$705,994. Net loss of $2,423,649 was affected by a non-cash charge for the fair
value of warrant liabilities of $3,799,110, interest earned on marketable
securities held in the Trust Account of $2,654,140, an unrealized gain on
marketable securities held in our Trust Account of $9,750 and a deferred income
tax benefit of $5,601. Changes in operating assets and liabilities provided
$588,036 of cash from operating activities.
For the nine months ended September 30, 2020, cash used in operating activities
was $563,890. Net income of $1,558,248 was affected by interest earned on
marketable securities held in the Trust Account of $2,589,682, a noncash charge
for the fair value of warrant liabilities of $56,667, an unrealized loss on
marketable securities held in our Trust Account of $33,021 and a deferred income
tax benefit of $34,003. Changes in operating assets and liabilities provided
$525,203 of cash from operating activities.
For the six months ended June 30, 2020, cash used in operating activities was
$545,136. Net income of $1,606,293 was affected by interest earned on marketable
securities held in the Trust Account of $2,010,565, a noncash charge for the
fair value of warrant liabilities of $3,435, an unrealized gain on marketable
securities held in our Trust Account of $499,967 and a deferred income tax
provision of $77,924. Changes in operating assets and liabilities provided
$284,614 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 interest earned on marketable
securities held in the Trust Account of $1,027,157, a noncash charge for the
fair value of warrant liabilities of $137,400, an unrealized gain on marketable
securities held in our Trust Account of $1,438,240 and a deferred income tax
provision of $274,962. Changes in operating assets and liabilities provided
$314,458 of cash from operating activities.
For the year ended December 31, 2019, cash used in operating activities was
$1,634,432. Net income of $3,394,659 was affected by interest earned on
marketable securities held in the trust account of $4,912,346, a non-cash charge
for the fair value of warrant liabilities of $27,480, an unrealized gain on
marketable securities held in our trust account of $128,899 and a deferred
income tax provision of $27,069. Changes in operating assets and liabilities
provided $12,565 of cash from operating activities.
22
For the nine months ended September 30, 2019, cash used in operating activities
was $1,115,949. Net income $2,355,418 was affected by interest earned on
marketable securities held in the trust account of $3,657,526, a noncash charge
for the fair value of warrant liabilities of $89,310, an unrealized loss on
marketable securities held in our trust account of $35,094 and a deferred income
tax provision of $7,370. Changes in operating assets and liabilities provided
$69,125 of cash from operating activities.
For the six months ended June 30, 2019, cash used in operating activities was
$279,358. Net income $1,445,084 was affected by interest earned on marketable
securities held in the trust account of $2,080,258, a noncash charge for the
fair value of warrant liabilities of $103,050, an unrealized gain on marketable
securities held in our trust account of $152,212 and a deferred income tax
provision of $31,965. Changes in operating assets and liabilities provided
$373,013 of cash from operating activities.
For the three months ended March 31, 2019, cash used in operating activities was
$27,594. Net income $235,235 was affected by interest earned on marketable
securities held in the Trust Account of $409,539, a non-cash charge for the fair
value of warrant liabilities of $48,090, an unrealized gain on marketable
securities held in our Trust Account of $19,142 and deferred income taxes of
$4,020. Changes in operating assets and liabilities provided $113,742 of cash
from operating activities.
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
fees payable to EarlyBirdCapital and Morgan Stanley, upon consummation of our
initial business combination for assisting us in connection with our initial
business combination. To the extent that our capital stock is used in whole or
in part as consideration to effect a business combination, the remaining funds
held in the trust account will be used as working capital to finance the
operations of the target business. Such working capital funds could be used in a
variety of ways including continuing or expanding the target business'
operations, for strategic acquisitions and for marketing, research and
development of existing or new products. Such funds could also be used to repay
any operating expenses or finders' fees which we had incurred prior to the
completion of our business combination if the funds available to us outside of
the trust account were insufficient to cover such expenses.
As of December 31, 2020, we had cash of $135,961. As of September 30, 2020, we
had cash of $255,886. As of June 30, 2020, we had cash of $144,474. As of March
31, 2020, we had cash of $195,979. As of December 31, 2019, we had cash of
$140,303. As of September 30, 2019, we had cash of $440,786. As of June 30,
2019, we had cash of $1,027,377. As of March 31, 2019, we had cash of $809,141
We intend to use the funds held outside the trust account for identifying and
evaluating prospective acquisition candidates, performing business due diligence
on prospective target businesses, traveling to and from the offices, plants or
similar locations of prospective target businesses, reviewing corporate
documents and material agreements of prospective target businesses, selecting
the target business to acquire and structuring, negotiating and consummating the
business combination.
On April 20, 2020, the Sponsor committed to provide us an aggregate of $500,000
in loans. The loans shall be non-interest bearing, unsecured and due upon the
consummation of a business combination. In the event that a business combination
does not close, the loans would be repaid only out of funds held outside the
Trust Account to the extent such funds are available. Otherwise, all amounts
loaned to us would be forgiven.
On April 21, 2020, we issued an unsecured promissory note to the Sponsor in the
aggregate amount of $300,000 (the "Sponsor Note"), of which $200,000 was drawn
upon on such date. The Sponsor Note is non-interest bearing and payable upon the
consummation of a business combination. The Sponsor Note is convertible, at the
lender's option, into units of the post-business combination entity at a price
of $10.00 per unit. The units would be identical to the Private Units. If a
business combination is not consummated, the Sponsor Notes will not be repaid by
us and all amounts owed thereunder by us will be forgiven except to the extent
that we have funds available to us outside of our Trust Account. As of December
31, 2020, there was $200,000 outstanding under the Sponsor Note.
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In order to fund working capital deficiencies or finance transaction costs in
connection with a business combination, the Sponsor or our officers and
directors or their affiliates may, but are not obligated to, loan us funds on a
non-interest basis as may be required, except as described above. If we complete
our initial business combination, we 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) in aggregate principal amount prior
to the consummation of the proposed business combination with Microvast. 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 April 30, 2021 (or July 31, 2021, if our
stockholders approve an amendment to our charter), 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-K 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.
Off-Balance Sheet Financing Arrangements
We did not have any off-balance sheet arrangements as of December 31, 2020.
Contractual Obligations
We do not have any long-term debt, capital lease obligations, operating lease
obligations or long-term liabilities other than an agreement to pay an affiliate
of our Sponsor a monthly fee of $10,000 for office space, utilities and
secretarial and administrative support. We began incurring these fees on March
5, 2019 and will continue to incur these fees monthly until the earlier of the
completion of the business combination and our liquidation.
We have engaged EarlyBirdCapital to act as an advisor in connection with a
business combination, to assist us in holding meetings with our shareholders to
discuss the potential business combination and the target business' attributes,
introduce us to potential investors that are interested in purchasing our
securities in connection with a business combination, assist us in obtaining
shareholder approval for the business combination and assist us with our press
releases and public filings in connection with the business combination. We will
pay EarlyBirdCapital a cash fee for such services upon the consummation of a
business combination in an amount equal to $9,660,000 (exclusive of any
applicable finders' fees which might become payable); provided that up to 30% of
the fee may be allocated at our sole discretion to other FINRA members that
assist us in identifying and consummating a business combination.
We engaged Morgan Stanley to provide financial advisory services in connection
with the Microvast business combination, and, upon consummation of the
transaction with Microvast, we must pay that firm a transaction fee of $5.5
million, plus expenses. Morgan Stanley also acted as placement agent in
connection with the PIPE Financing, and we are 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.
24
Critical Accounting Policies
The preparation of financial statements and related disclosures in conformity
with accounting principles generally accepted in the United States of America
("GAAP") requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosure of contingent assets and
liabilities at the date of the financial statements, and income and expenses
during the periods reported. Actual results could materially differ from those
estimates. We have identified the following critical accounting policies:
Warrant Liability
We account for warrants in accordance with the guidance contained in ASC
815-40-15-7D 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 adjust 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 are valued using a binomial
lattice model. For periods subsequent to the detachment of the Private Warrants
from the Units, the Public Warrant quoted market price was used as the fair
value as of each relevant date (see Note 12).
Common Stock Subject to Possible Redemption
We account for our common stock subject to possible conversion 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
features redemption rights that are 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 balance sheets.
Net Income (Loss) Per Common Share
Our statement of operations includes a presentation of income per share for
common shares subject to possible redemption in a manner similar to the
two-class method of 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 Common stock subject to possible redemption outstanding since
original issuance.
Net loss per share, basic and diluted, 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.
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.
Recent Accounting Pronouncements
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 financial statements.
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