References in this report (the "Quarterly Report") to "we," "us" or the
"Company" refer to Tuscan 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. The following discussion and
analysis of the Company's financial condition and results of operations should
be read in conjunction with the financial statements and the notes thereto
contained elsewhere in this Quarterly 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 Statements
This Quarterly Report includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act
that are not historical facts and involve risks and uncertainties that could
cause actual results to differ materially from those expected and projected. All
statements, other than statements of historical fact included in this Form 10-Q
including, without limitation, statements in this "Management's Discussion and
Analysis of Financial Condition and Results of Operations" regarding the
Company's financial position, business strategy and the plans and objectives of
management for future operations, are forward-looking statements. Words such as
"expect," "believe," "anticipate," "intend," "estimate," "seek" and variations
and similar words and expressions are intended to identify such forward-looking
statements. Such forward-looking statements relate to future events or future
performance, but reflect management's current beliefs, based on information
currently available. A number of factors could cause actual events, performance
or results to differ materially from the events, performance and results
discussed in the forward-looking statements. For information identifying
important factors that could cause actual results to differ materially from
those anticipated in the forward-looking statements, please refer to the Risk
Factors section of the Company's Annual Report on Form 10-K filed with the U.S.
Securities and Exchange Commission (the "SEC"). The Company's securities filings
can be accessed on the EDGAR section of the SEC's website at www.sec.gov. Except
as expressly required by applicable securities law, the Company disclaims any
intention or obligation to update or revise any forward-looking statements
whether as a result of new information, future events or otherwise.
Overview
We are a blank check company incorporated on November 5, 2018 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 Initial Public Offering and the sale of the Private Units, our capital
stock, debt or a combination of cash, stock and debt.
Our entire activity since inception relates to our formation, to prepare for our
Initial Public Offering, which was consummated on March 7, 2019, and identifying
a company for a Business Combination.
Results of Operations
Our only activities from November 5, 2018 (inception) through June 30, 2020 were
organizational activities, those necessary to consummate the Initial Public
Offering, described below, and, after the Initial Public Offering, searching for
a target company for a Business Combination. We do not expect to generate any
operating revenues until after the completion of our Business Combination. We
generate non-operating income in the form of interest income on marketable
securities held in the Trust Account. We incur expenses as a result of being a
public company (for legal, financial reporting, accounting and auditing
compliance), as well as for due diligence expenses.
For the three months ended June 30,2020, we had a net loss of $163,197, which
consisted of operating costs of $251,714 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 $1,602,858, which
consisted of interest income on marketable securities held in the Trust Account
of $2,010,565 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 $1,264,809, 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 and a provision for
income taxes of $343,630.
For the six months ended June 30, 2019, we had net income of $1,548,134, which
consisted of interest income on marketable securities held in the Trust Account
of $2,080,258 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.
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Liquidity and Capital Resources
On March 7, 2019, we consummated our Initial Public Offering of 24,000,000
Units, at a price of $10.00 per Unit, generating gross proceeds of $240,000,000.
Simultaneously with the closing of the Initial Public Offering, we consummated
the sale of 615,000 Private Units to our Sponsor and EarlyBirdCapital and its
designee, generating gross proceeds of $6,150,000.
On March 12, 2019, in connection with the underwriters' exercise of their
over-allotment option in full, we consummated the sale of an additional
3,600,000 Units at a price of $10.00 per Unit, generating total gross proceeds
of $36,000,000. In addition, we also consummated the sale of an additional
72,000 Private Units to our Sponsor and EarlyBirdCapital and its designee at
$10.00 per Private Unit, generating total gross proceeds of $720,000.
Following the Initial Public Offering, the exercise of the over-allotment option
and the sale of the Private Units, a total of $276,000,000 was placed in the
Trust Account. We incurred $6,059,098 in Initial Public Offering related costs,
including $5,520,000 of underwriting fees, and $539,098 of other costs.
As of June 30, 2020, we had marketable securities held in the Trust Account of
$282,267,303 (including approximately $6,267,000 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 June 30, 2020, we withdrew approximately $1,284,000 of
interest earned on the Trust Account to pay our franchise and income tax
obligations, of which approximately $346,000 was withdrawn during the six months
ended June 30, 2020.
For the six months ended June 30, 2020, cash used in operating activities was
$545,136. Net income of $1,602,858 was affected by interest earned on marketable
securities held in the Trust Account of $2,010,565, 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 six months ended June 30, 2019, cash used in operating activities was
$279,358. Net income $1,548,134 was affected by interest earned on marketable
securities held in the trust account of $2,080,258, 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.
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.
As of June 30, 2020, we had cash of $144,474. 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 "Note"). The Note is non-interest bearing and
payable upon the consummation of a Business Combination. The Note is
convertible, at the lender's option, into units of the post Business Combination
entity at a price of $10.00 per unit. The units would be identical to the
Private Units. If a Business Combination is not consummated, the notes will not
be repaid by us and all amounts owed thereunder by us will be forgiven except to
the extent that we have funds available to it outside of its Trust Account. As
of June 30, 2020, there was $200,000 outstanding under the 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 would repay such loaned amounts. In the
event that our initial Business Combination does not close, we may use a portion
of the working capital held outside the Trust Account to repay such loaned
amounts but no proceeds from our Trust Account would be used for such repayment.
Up to $1,500,000 of notes may be convertible into Private Units, at a price of
$10.00 per unit. The units would be identical to the Private Units.
If our estimates of the costs of identifying a target business, undertaking
in-depth due diligence and negotiating an initial Business Combination are less
than the actual amount necessary to do so, we may have insufficient funds
available to operate our business prior to our Business Combination. Moreover,
we may need to obtain additional financing either to complete our Business
Combination or because we become obligated to redeem a significant number of our
public shares upon completion of our Business Combination, in which case we may
issue additional securities or incur debt in connection with such Business
Combination. If we are unable to complete our initial Business Combination
because we do not have sufficient funds available to us, we will be forced to
cease operations and liquidate the Trust Account.
Off-Balance Sheet Financing Arrangements
We did not have any off-balance sheet arrangements as of June 30, 2020.
Contractual Obligations
We do not have any long-term debt, capital lease obligations, operating lease
obligations or long-term liabilities other than an agreement to pay an affiliate
of our Sponsor a monthly fee of $10,000 for office space, utilities and
secretarial and administrative support. We began incurring these fees on March
5, 2019 and will continue to incur these fees monthly until the earlier of the
completion of the Business Combination and our liquidation.
We have engaged EarlyBirdCapital to act as an advisor in connection with a
Business Combination, to assist us in holding meetings with our shareholders to
discuss the potential Business Combination and the target business' attributes,
introduce us to potential investors that are interested in purchasing our
securities in connection with a Business Combination, assist us in obtaining
shareholder approval for the Business Combination and assist us with our press
releases and public filings in connection with the Business Combination. We will
pay EarlyBirdCapital a cash fee for such services upon the consummation of a
Business Combination in an amount equal to $9,660,000 (exclusive of any
applicable finders' fees which might become payable); provided that up to 30% of
the fee may be allocated at our sole discretion to other FINRA members that
assist us in identifying and consummating a Business Combination.
Critical Accounting Policies
The preparation of condensed financial statements and related disclosures in
conformity with accounting principles generally accepted in the United States of
America 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:
Common Stock Subject to Possible Redemption
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. Common stock
subject to possible redemption which is not currently redeemable and is not
redeemable at fair value, have been excluded from the calculation of basic net
loss per common share since such shares, if redeemed, only participate in their
pro rata share of the Trust Account earnings. Our net income is adjusted for the
portion of income that is attributable to common stock subject to possible
redemption, as these shares only participate in the earnings of the Trust
Account and not our income or losses.
Recent Accounting Standards
Management does not believe that any recently issued, but not yet effective,
accounting standards, if currently adopted, would have a material effect on our
condensed financial statements.
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TUSCAN HOLDINGS 