References in this report (the "Quarterly Report") to "we," "us" or the
"Company" refer to Tuscan Holdings Corp. II. References to our "management" or
our "management team" refer to our officers and directors, and references to the
"Sponsor" refer to Tuscan Holdings Acquisition II 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 formed under the laws of the State of Delaware on
March 5, 2019 for the purpose of effecting a merger, capital stock exchange,
asset acquisition, stock purchase, reorganization or other similar Business
Combination with one or more businesses. We intend to effectuate our Business
Combination using cash from the proceeds of the Initial Public Offering and the
sale of the Private Securities, our capital stock, debt or a combination of
cash, stock and debt.
All activity through March 31, 2020 relates to our formation, Initial Public
Offering, and search for a prospective initial Business Combination target.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date.
Our only activities from March 5, 2019 (inception) through March 31, 2020 were
organizational activities, those necessary to prepare for the Initial Public
Offering, described below, and, after our Initial Public Offering, identifying 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 after the Initial Public Offering. 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 March 31, 2020, we had net income of $865,318, which
consisted of interest income on marketable securities held in the Trust Account
of $630,888 and an unrealized gain on marketable securities held in the Trust
Account of $607,197, offset by operating costs of $142,755 and a provision for
income taxes of $230,012.
For the period from March 5, 2019 (inception) through March 31, 2019, we had net
loss of $342, which consisted of formation and operating costs.
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Liquidity and Capital Resources
On July 16, 2019, we consummated the Initial Public Offering of 15,000,000 Units
at a price of $10.00 per Unit, generating gross proceeds of $150,000,000.
Simultaneously with the closing of the Initial Public Offering, we consummated
the sale of 215,000 Private Units at a price of $10.00 per Private Unit and the
sale of 2,150,000 Private Warrants at a price of $1.00 per Private Warrant in a
private placement to the Sponsor and EarlyBirdCapital and its designee,
generating gross proceeds of $4,300,000.
On July 18, 2019, the underwriters exercised their over-allotment option in
full, resulting in an additional 2,250,000 Units issued on July 19, 2019 for
$22,500,000, less the underwriters' discount of $450,000. In connection with the
underwriters' exercise of their over-allotment option, the Company also
consummated the sale of an additional 22,500 Private Units at $10.00 per Private
Unit and the sale of an additional 225,000 Private Warrants at $1.00 per Private
Warrant, generating total proceeds of $450,000. A total of $22,500,000 was
deposited into the Trust Account.
Following the Initial Public Offering, the exercise of the over-allotment option
and the sale of the Private Securities, a total of $172,500,000 was placed in
the Trust Account. We incurred $3,954,190 in transaction costs, including
$3,450,000 of underwriting fees, and $504,190 of other offering costs.
As of March 31, 2020, we had marketable securities held in the Trust Account of
$174,678,261 (including approximately $2,178,000 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. During the three months ended March 31, 2020, we withdrew $384,088
of interest income from the Trust Account, of which $250,000 was withdrawn for
working capital purposes and $134,088 was withdrawn to pay our franchise taxes.
For the three months ended March 31, 2020, cash used in operating activities was
$584,389. Net income of $865,318 was affected by interest earned on marketable
securities held in the Trust Account of $630,888, an unrealized gain on
marketable securities held in our Trust Account of $607,197 and a deferred tax
provision of $119,830. Changes in operating assets and liabilities used $331,452
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 March 31, 2020, we had cash of $219,002. 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.
In order to fund working capital deficiencies or finance transaction costs in
connection with a Business Combination, the Insiders, or certain of our officers
and directors or their affiliates may, but are not obligated to, loan us funds
as may be required. If we complete a Business Combination, we would repay such
loaned amounts. In the event that a 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 $750,000 of such loans may be convertible into units and
up to $750,000 of such loans may be convertible into warrants identical to the
Private Units and Private Warrants, at a price of $10.00 per unit and $1.00 per
warrant at the option of the lender, respectively.
We do not believe we will need to raise additional funds in order to meet the
expenditures required for operating our business. However, if our estimate of
the costs of identifying a target business, undertaking in-depth due diligence
and negotiating a 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 consummation
of our Business Combination, in which case we may issue additional securities or
incur debt in connection with such Business Combination. Subject to compliance
with applicable securities laws, we would only complete such financing
simultaneously with the completion of our Business Combination. If we are unable
to complete our Business Combination because we do not have sufficient funds
available to us, we will be forced to cease operations and liquidate the Trust
Account. In addition, following our Business Combination, if cash on hand is
insufficient, we may need to obtain additional financing in order to meet our
obligations.
16
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of March 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 July
11, 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 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 $6,037,500 (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.
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 pronouncements, if currently adopted, would have a material effect on
our condensed financial statements.
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TUSCAN HOLDINGS CORP. II 
