UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
CURRENT REPORT
(Amendment No. 1)
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date
of Report (Date of earliest event reported): August 16, 2021 (
(Exact name of registrant as specified in its charter)
| (State
or other jurisdiction of incorporation) |
(Commission File Number) | (IRS. Employer Identification No.) |
(Address of principal executive offices, including zip code)
(Registrant’s telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) | |
| Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) | |
| Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) | |
| Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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.
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| The Stock Market LLC | ||||
| The Stock Market LLC |
Introductory Note
On July 23, 2021 (the “Closing Date”), the registrant, Microvast Holdings, Inc. (formerly known as Tuscan Holdings Corp.) consummated the previously announced acquisition of Microvast, Inc., a Delaware corporation (“Microvast”), pursuant to the Agreement and Plan of Merger (the “Merger Agreement”) dated February 1, 2021, between the Tuscan Holdings Corp., 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”). Unless the context otherwise requires, “Tuscan” refers to the registrant prior to the Closing, and “we,” “us,” “our” and the “Company” refer to the registrant and its subsidiaries, including Microvast, following the Closing.
In connection with the Merger Agreement, Tuscan, MVST SPV Inc., a wholly owned subsidiary of Tuscan (“MVST SPV”), Tuscan, 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 CL Investors (“CL Affiliates”) subscribed for 6,719,845 shares of common stock, $0.0001 par value per share (“common stock”), of Tuscan in a private placement in exchange for MPS convertible loans (the “CL Private Placement”).
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 (the “Bridge Notes Conversion”) of the Bridge Notes, and (b) a number of outside investors who agreed to purchase an aggregate of 48,250,000 shares of common stock at a price of $10.00 per share, for an aggregate purchase price of $482,500,000 (the “PIPE Financing”).
The CL Private Placement, the Bridge Notes Conversion and the PIPE Financing closed contemporaneously with the closing under the Merger Agreement (collectively, the “Closing”). Upon the Closing of the Merger, the CL Private Placement, the Bridge Notes Conversion, the PIPE Financing and related transactions (collectively, the “Business Combination”), Microvast became a wholly-owned subsidiary of the Company, with the stockholders of Microvast becoming stockholders of the Company, and with the Company renamed “Microvast Holdings, Inc.”
Following the completion of the Business Combination, Microvast is the Company’s accounting predecessor. This amendment to the Original Form 8-K is being filed to include the financial statements of Microvast for the six months ended June 30, 2021, including pro forma financial statements as of such time period.
1
Item 9.01. Financial Statements and Exhibits.
| (a) | Financial Statements of Businesses Acquired |
The historical financial statements of Microvast, Inc. for the three years ended December 31, 2020 and at and as of the three months ended March 31, 2021 included in the Proxy Statement beginning on page F-52 are incorporated herein by reference. The historical financial statements of Microvast at and as of the six months ended June 30, 2021 are included herein as Exhibit 99.3.
| (b) | Pro Forma Financial Information |
The unaudited pro forma condensed consolidated combined financial information of Tuscan for the year ended December 31, 2020 and at and as of the three months ended March 31, 2021 are included herein as Exhibit 99.2. The unaudited pro forma condensed consolidated combined financial information of Tuscan for the year ended December 31, 2020 and at and as of the six months ended June 30, 2021 are included herein as Exhibit 99.4.
| (d) | Exhibits |
2
| * | Incorporated by reference to the Company’s Current Report filed July 28, 2021 |
3
SIGNATURES
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 hereunto duly authorized.
| MICROVAST HOLDINGS, INC. | ||
| Date: August 16, 2021 | ||
| By: | /s/ Yanzhuan Zheng | |
| Name: | Yanzhuan Zheng | |
| Title: | Chief Financial Officer | |
4
Exhibit 99.3
| MICROVAST, INC. | |
| Unaudited
Condensed Consolidated Financial Statements For The Three and Six Months Ended June 30, 2020 and 2021 |
MICROVAST, INC.
INDEX TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- i -
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)
| December 31, | June 30, | |||||||
| 2020 | 2021 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 21,496 | $ | 13,367 | ||||
| Restricted cash | 19,700 | 20,460 | ||||||
| Accounts receivable (net of allowance for doubtful accounts of $5,047 and $4,743 as of December 31, 2020 and June 30, 2021, respectively) | 76,298 | 65,253 | ||||||
| Notes receivable | 20,839 | 17,693 | ||||||
| Inventories, net | 44,968 | 55,400 | ||||||
| Prepaid expenses and other current assets | 6,022 | 8,192 | ||||||
| Total Current Assets | 189,323 | 180,365 | ||||||
| Property, plant and equipment, net | 198,017 | 217,686 | ||||||
| Land use rights, net | 14,001 | 13,987 | ||||||
| Acquired intangible assets, net | 2,279 | 2,067 | ||||||
| Other non-current assets | 890 | 710 | ||||||
| Total Assets | $ | 404,510 | $ | 414,815 | ||||
| Liabilities | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 42,007 | $ | 43,814 | ||||
| Advance from customers | 2,446 | 2,636 | ||||||
| Accrued expenses and other current liabilities | 60,628 | 35,597 | ||||||
| Income tax payables | 664 | 665 | ||||||
| Short-term bank borrowings | 12,184 | 16,572 | ||||||
| Notes payable | 35,782 | 32,173 | ||||||
| Bonds payable | 29,915 | 29,915 | ||||||
| Total Current Liabilities | 183,626 | 161,372 | ||||||
| Deposit liability for series B2 convertible preferred shares (“Series B2 Preferred”) | 21,792 | 21,792 | ||||||
| Long-term bonds payable | 73,147 | 137,490 | ||||||
| Long-term bank borrowings | - | 9,886 | ||||||
| Other non-current liabilities | 110,597 | 114,362 | ||||||
| Total Liabilities | $ | 389,162 | $ | 444,902 | ||||
F-1
MICROVAST, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS - continued
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)
| December 31, | June 30, | |||||||
| 2020 | 2021 | |||||||
| Mezzanine Equity (Note 12 and Note 14) | ||||||||
| Series
C1 convertible redeemable preferred shares (“Series C1 Preferred”) (US$0.01 par value; 166,950 authorized, issued and outstanding as of December 31, 2020 and June 30, 2021) | $ | 80,581 | $ | 82,587 | ||||
| Series
C2 convertible redeemable preferred shares (“Series C2 Preferred”) (US$0.01 par value; 126,345 authorized, issued and outstanding as of December 31, 2020 and June 30, 2021) | 81,966 | 86,528 | ||||||
| Series
D1 convertible redeemable preferred shares (“Series D1 Preferred”) (US$0.01 par value; 139,186 authorized, issued and outstanding as of December 31, 2020 and June 30, 2021) | 146,583 | 156,101 | ||||||
| Redeemable noncontrolling interests | 90,820 | 96,003 | ||||||
| Total Mezzanine Equity | $ | 399,950 | $ | 421,219 | ||||
| Commitments and contingencies (Note 20) | ||||||||
| Shareholders’ Deficit | ||||||||
| Ordinary shares (par value of US$0.01 per share, 1,500,000 shares authorized as of December 31, 2020 and June 30, 2021; 617,880 shares issued and outstanding as of December 31, 2020 and June 30, 2021) | $ | 6 | $ | 6 | ||||
| Statutory reserves | 6,032 | 6,032 | ||||||
| Accumulated deficit | (397,996 | ) | (465,457 | ) | ||||
| Accumulated other comprehensive deficit | 7,356 | 8,113 | ||||||
| Total Shareholders’ Deficit | (384,602 | ) | (451,306 | ) | ||||
| Total Liabilities, Mezzanine Equity and Shareholders’ Deficit | $ | 404,510 | $ | 414,815 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-2
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)
| Three months ended | Six months ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2020 | 2021 | 2020 | 2021 | |||||||||||||
| Revenues | $ | 21,698 | $ | 33,372 | $ | 28,647 | $ | 48,310 | ||||||||
| Cost of revenues | (18,144 | ) | (40,146 | ) | (23,875 | ) | (56,321 | ) | ||||||||
| Gross profit | 3,554 | (6,774 | ) | 4,772 | (8,011 | ) | ||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative expenses | (3,760 | ) | (6,178 | ) | (7,949 | ) | (10,752 | ) | ||||||||
| Research and development expenses | (4,242 | ) | (5,895 | ) | (7,960 | ) | (9,681 | ) | ||||||||
| Selling and marketing expenses | (2,686 | ) | (3,706 | ) | (6,008 | ) | (6,862 | ) | ||||||||
| Total operating expenses | (10,688 | ) | (15,779 | ) | (21,917 | ) | (27,295 | ) | ||||||||
| Subsidy income | 650 | 213 | 841 | 2,131 | ||||||||||||
| Loss from operations | (6,484 | ) | (22,340 | ) | (16,304 | ) | (33,175 | ) | ||||||||
| Other income and expenses: | ||||||||||||||||
| Interest income | 125 | 111 | 436 | 207 | ||||||||||||
| Interest expense | (1,357 | ) | (1,537 | ) | (2,837 | ) | (3,383 | ) | ||||||||
| Loss on changes in fair value of convertible notes | - | (3,243 | ) | - | (6,843 | ) | ||||||||||
| Other expense, net | (4 | ) | 49 | (5 | ) | 44 | ||||||||||
| Loss before provision for income taxes | (7,720 | ) | (26,960 | ) | (18,710 | ) | (43,150 | ) | ||||||||
| Income tax expense | (137 | ) | (109 | ) | (275 | ) | (218 | ) | ||||||||
| Net loss | $ | (7,857 | ) | $ | (27,069 | ) | $ | (18,985 | ) | $ | (43,368 | ) | ||||
| Net loss attributable to Microvast, Inc. | $ | (7,857 | ) | $ | (27,069 | ) | $ | (18,985 | ) | $ | (43,368 | ) | ||||
| Less: Accretion of Series C1 Preferred | 974 | 1,003 | 1,948 | 2,006 | ||||||||||||
| Less: Accretion of Series C2 Preferred | 2,217 | 2,281 | 4,434 | 4,562 | ||||||||||||
| Less: Accretion of Series D1 Preferred | 4,662 | 4,759 | 9,324 | 9,518 | ||||||||||||
| Less: Accretion for noncontrolling interests | 3,961 | 4,036 | 7,922 | 8,007 | ||||||||||||
| Net loss attributable to ordinary shareholders of Microvast, Inc. | $ | (19,671 | ) | $ | (39,148 | ) | $ | (42,613 | ) | $ | (67,461 | ) | ||||
| Net loss per share attributable to ordinary shareholders of Microvast, Inc. | ||||||||||||||||
| Basic and diluted | $ | (31.84 | ) | $ | (63.36 | ) | $ | (68.97 | ) | $ | (109.18 | ) | ||||
| Weighted average shares used in calculating net loss per ordinary share | ||||||||||||||||
| Basic and diluted | 617,880 | 617,880 | 617,880 | 617,880 | ||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-3
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands of U.S. dollars)
| Three months ended | Six months ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2020 | 2021 | 2020 | 2021 | |||||||||||||
| Net loss | $ | (7,857 | ) | $ | (27,069 | ) | $ | (18,985 | ) | $ | (43,368 | ) | ||||
| Foreign currency translation adjustment | (432 | ) | 3,670 | (4,644 | ) | 757 | ||||||||||
| Comprehensive loss | $ | (8,289 | ) | $ | (23,399 | ) | $ | (23,629 | ) | $ | (42,611 | ) | ||||
| Total comprehensive loss attributable to Microvast, Inc. | $ | (8,289 | ) | $ | (23,399 | ) | $ | (23,629 | ) | $ | (42,611 | ) | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-4
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIT
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)
| Three Months Ended June 30, 2020 | ||||||||||||||||||||||||||||
| Additional | Accumulated other | Microvast, Inc. | Total | |||||||||||||||||||||||||
| Ordinary shares | paid-in | Accumulated | comprehensive | Statutory | Shareholders’ | |||||||||||||||||||||||
| Shares | Amount | capital | deficit | loss | reserve | Deficit | ||||||||||||||||||||||
| Balance as of March 31, 2020 | 617,880 | $ | 6 | $ | - | $ | (339,975 | ) | $ | (13,478 | ) | $ | 6,032 | $ | (347,415 | ) | ||||||||||||
| Net loss | - | - | - | (7,857 | ) | - | - | (7,857 | ) | |||||||||||||||||||
| Accretion for Series C1 Preferred | - | - | - | (974 | ) | - | - | (974 | ) | |||||||||||||||||||
| Accretion for Series C2 Preferred | - | - | - | (2,217 | ) | - | - | (2,217 | ) | |||||||||||||||||||
| Accretion for Series D1 Preferred | - | - | - | (4,662 | ) | - | - | (4,662 | ) | |||||||||||||||||||
| Accretion for the exiting noncontrolling interests | - | - | - | (1,409 | ) | - | - | (1,409 | ) | |||||||||||||||||||
| Foreign currency translation adjustments | - | - | - | - | (432 | ) | - | (432 | ) | |||||||||||||||||||
| Accretion for redeemable noncontrolling interests | - | - | - | (2,552 | ) | - | - | (2,552 | ) | |||||||||||||||||||
| Balance as of June 30, 2020 | 617,880 | $ | 6 | $ | - | $ | (359,646 | ) | $ | (13,910 | ) | $ | 6,032 | $ | (367,518 | ) | ||||||||||||
| Six Months Ended June 30, 2020 | ||||||||||||||||||||||||||||
| Additional | Accumulated other | Microvast, Inc. | Total | |||||||||||||||||||||||||
| Ordinary shares | paid-in | Accumulated | comprehensive | Statutory | Shareholders’ | |||||||||||||||||||||||
| Shares | Amount | capital | deficit | loss | reserve | Deficit | ||||||||||||||||||||||
| Balance as of January 1, 2020 | 617,880 | $ | 6 | $ | 3,727 | $ | (320,760 | ) | $ | (9,266 | ) | $ | 6,032 | $ | (320,261 | ) | ||||||||||||
| Net loss | - | - | - | (18,985 | ) | - | - | (18,985 | ) | |||||||||||||||||||
| Accretion for Series C1 Preferred | - | - | (974 | ) | (974 | ) | - | - | (1,948 | ) | ||||||||||||||||||
| Accretion for Series C2 Preferred | - | - | (2,217 | ) | (2,217 | ) | - | - | (4,434 | ) | ||||||||||||||||||
| Accretion for Series D1 Preferred | - | - | (536 | ) | (8,788 | ) | - | - | (9,324 | ) | ||||||||||||||||||
| Accretion for the exiting noncontrolling interests | - | - | - | (2,818 | ) | - | - | (2,818 | ) | |||||||||||||||||||
| Foreign currency translation adjustments | - | - | - | - | (4,644 | ) | - | (4,644 | ) | |||||||||||||||||||
| Accretion for redeemable noncontrolling interests | - | - | - | (5,104 | ) | - | - | (5,104 | ) | |||||||||||||||||||
| Balance as of June 30, 2020 | 617,880 | $ | 6 | $ | - | $ | (359,646 | ) | $ | (13,910 | ) | $ | 6,032 | $ | (367,518 | ) | ||||||||||||
F-5
MICROVAST, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ DEFICIT - continued
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)
| Three Months Ended June 30, 2021 | ||||||||||||||||||||||||||||
| Additional | Accumulated other | Microvast, Inc. | Total | |||||||||||||||||||||||||
| Ordinary shares | paid-in | Accumulated | comprehensive | Statutory | Shareholders’ | |||||||||||||||||||||||
| Shares | Amount | capital | deficit | loss | reserve | Deficit | ||||||||||||||||||||||
| Balance as of March 31, 2021 | 617,880 | $ | 6 | $ | - | $ | (426,309 | ) | $ | 4,443 | $ | 6,032 | $ | (415,828 | ) | |||||||||||||
| Net loss | - | - | - | (27,069 | ) | - | - | (27,069 | ) | |||||||||||||||||||
| Accretion for Series C1 Preferred | - | - | - | (1,003 | ) | - | - | (1,003 | ) | |||||||||||||||||||
| Accretion for Series C2 Preferred | - | - | - | (2,281 | ) | - | - | (2,281 | ) | |||||||||||||||||||
| Accretion for Series D1 Preferred | - | - | - | (4,759 | ) | - | - | (4,759 | ) | |||||||||||||||||||
| Accretion for the exiting noncontrolling interests | - | - | - | (1,430 | ) | - | - | (1,430 | ) | |||||||||||||||||||
| Foreign currency translation adjustments | - | - | - | - | 3,670 | - | 3,670 | |||||||||||||||||||||
| Accretion for redeemable noncontrolling interests | - | - | - | (2,606 | ) | - | - | (2,606 | ) | |||||||||||||||||||
| Balance as of June 30, 2021 | 617,880 | $ | 6 | $ | - | $ | (465,457 | ) | $ | 8,113 | $ | 6,032 | $ | (451,306 | ) | |||||||||||||
| Six Months Ended June 30, 2021 | ||||||||||||||||||||||||||||
| Additional | Accumulated other | Microvast, Inc. | Total | |||||||||||||||||||||||||
| Ordinary shares | paid-in | Accumulated | comprehensive | Statutory | Shareholders’ | |||||||||||||||||||||||
| Shares | Amount | capital | deficit | loss | reserve | Deficit | ||||||||||||||||||||||
| Balance as of January 1, 2021 | 617,880 | $ | 6 | $ | - | $ | (397,996 | ) | $ | 7,356 | $ | 6,032 | $ | (384,602 | ) | |||||||||||||
| Net loss | - | - | - | (43,368 | ) | - | - | (43,368 | ) | |||||||||||||||||||
| Accretion for Series C1 Preferred | - | - | - | (2,006 | ) | - | - | (2,006 | ) | |||||||||||||||||||
| Accretion for Series C2 Preferred | - | - | - | (4,562 | ) | - | - | (4,562 | ) | |||||||||||||||||||
| Accretion for Series D1 Preferred | - | - | - | (9,518 | ) | - | - | (9,518 | ) | |||||||||||||||||||
| Accretion for the exiting noncontrolling interests | - | - | - | (2,824 | ) | - | - | (2,824 | ) | |||||||||||||||||||
| Foreign currency translation adjustments | - | - | - | - | 757 | - | 757 | |||||||||||||||||||||
| Accretion for redeemable noncontrolling interests | - | - | - | (5,183 | ) | - | - | (5,183 | ) | |||||||||||||||||||
| Balance as of June 30, 2021 | 617,880 | $ | 6 | $ | - | $ | (465,457 | ) | $ | 8,113 | $ | 6,032 | $ | (451,306 | ) | |||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-6
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of U.S. dollars, or otherwise noted)
| Six
months ended June 30, | ||||||||
| 2020 | 2021 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | (18,985 | ) | $ | (43,368 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Loss on disposal of property, plant and equipment | 56 | 6 | ||||||
| Depreciation of property, plant and equipment | 7,207 | 9,475 | ||||||
| Amortization of land use right and intangible assets | 352 | 376 | ||||||
| Changes in fair value of convertible notes | - | 6,843 | ||||||
| Reversal of doubtful accounts | (863 | ) | (196 | ) | ||||
| Provision for obsolete inventories | 646 | 6,098 | ||||||
| Impairment loss from property, plant and equipment | 644 | 258 | ||||||
| Product warranty | 951 | 9,057 | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Notes receivable | 14,167 | 3,352 | ||||||
| Accounts receivable | 13,451 | 11,813 | ||||||
| Inventories | 4,269 | (16,134 | ) | |||||
| Prepaid expenses and other current assets | (821 | ) | 175 | |||||
| Other non-current assets | 94 | 33 | ||||||
| Notes payable | (15,094 | ) | (3,989 | ) | ||||
| Accounts payable | (4,747 | ) | 1,390 | |||||
| Advance from customers | (1,058 | ) | 167 | |||||
| Accrued expenses and other liabilities | (9 | ) | (381 | ) | ||||
| Net cash generated from/(used in) operating activities | 260 | (15,025 | ) | |||||
| Cash flows from investing activities | ||||||||
| Purchases of property, plant and equipment | (11,914 | ) | (29,858 | ) | ||||
| Proceeds on disposal of property, plant and equipment | (48 | ) | - | |||||
| Purchase of short-term investments | (1,999 | ) | - | |||||
| Proceeds from maturity of short-term investments | 2,522 | - | ||||||
| Net cash used in investing activities | (11,439 | ) | (29,858 | ) | ||||
| Cash flows from financing activities | ||||||||
| Proceeds from borrowings | 9,473 | 26,603 | ||||||
| Repayment of bank borrowings | (11,894 | ) | (12,265 | ) | ||||
| Loans borrowing from related parties | 10,456 | 8,426 | ||||||
| Repayment of related party loans | (10,033 | ) | (8,426 | ) | ||||
| Repurchase shares from exiting noncontrolling interests | - | (33,047 | ) | |||||
| Issuance of convertible notes | - | 57,500 | ||||||
| Payment for transaction fee in connection with the merger transaction | - | (2,327 | ) | |||||
| Net cash (used in)/generated from financing activities | (1,998 | ) | 36,464 | |||||
| Effect of exchange rate changes | (1,539 | ) | 1,050 | |||||
| Decrease in cash, cash equivalents and restricted cash | (14,716 | ) | (7,369 | ) | ||||
| 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 | $ | 27,068 | $ | 33,827 | ||||
F-7
MICROVAST, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - continued
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)
| Six
months ended June 30, | ||||||||
| 2020 | 2021 | |||||||
| Reconciliation to amounts on consolidated balance sheets | ||||||||
| Cash and cash equivalents | $ | 21,759 | $ | 13,367 | ||||
| Restricted cash | 5,309 | 20,460 | ||||||
| Total cash, cash equivalents and restricted cash | $ | 27,068 | $ | 33,827 | ||||
| Supplemental disclosure of cash flow information | ||||||||
| Interest paid | $ | 1,032 | $ | 1,376 | ||||
| Non-cash investing and financing activities | ||||||||
| Payable for redemption of noncontrolling interest | $ | 119,567 | $ | 97,979 | ||||
| Payable for purchase of property, plant and equipment | $ | 17,096 | $ | 14,103 | ||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-8
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2021
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)
1. ORGANIZATION AND PRINCIPAL ACTIVITIES
Microvast, Inc. (the “Company” or “Microvast”) was incorporated under the laws of the State of Texas in the United States of America (“USA”) on October 12, 2006 and re-domiciled to the State of Delaware on December 31, 2015. The Company and its subsidiaries (collectively, the “Group”) are primarily engaged in developing, manufacturing, and selling electronic power products for electric vehicles primarily in the People’s Republic of China (“PRC”) and Europe.
2. SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation and use of estimates
The accompanying unaudited condensed consolidated financial statements include the financial information of Microvast Inc. and its subsidiaries. The unaudited condensed consolidated financial statements have been prepared in accordance with the rules and regulations of the Security and Exchange Commission and U.S. generally accepted accounting standards for interim financial reporting. Accordingly, certain information and disclosures normally included in the notes to the annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been omitted from these interim financial statements. The results of operations for the three months and six months periods ended June 30, 2020 and 2021 are not necessarily indicative of the results for the full years.
The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Group’s audited consolidated financial statements for each of the three years in the period ended December 31, 2020 included in the definitive proxy statement relating to merger or acquisition between Microvast, Inc. and Tuscan Holding Corp. In the opinion of the management, the accompanying unaudited condensed consolidated financial statements reflect all adjustments (which include normal recurring adjustments) necessary for a fair statement of financial results for the interim periods presented. The Group believes that the disclosures are adequate to make the information presented not misleading.
The financial information as of December 31, 2020 presented in the unaudited condensed financial statements is derived from the Group’s audited consolidated financial statements for the year ended December 31, 2020.
The accompanying unaudited condensed consolidated financial statements have been prepared using the same accounting policies as used in the preparation of the Group’s consolidated financial statements for each of the three years in the period ended December 31, 2020.
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, share based compensation and going concern assumption.
The unaudited condensed consolidated financial statements of the Group include the financial statements of the Company and its subsidiaries. All intercompany transactions and balances have been eliminated upon consolidation.
The accompanying unaudited condensed consolidated financial statements have been prepared assuming that the Group will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The realization of assets and the satisfaction of liabilities in the normal course of business is dependent on, among other things, the Group’s ability to generate sufficient cash flows from operations, and the Group’s ability to arrange adequate financing arrangements.
F-9
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2021
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)
2. SIGNIFICANT ACCOUNTING POLICIES - continued
Revenue recognition
Nature of Goods and Services
The Group’s sales 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.
Disaggregation of revenue
For the three months ended June 30, 2020 and 2021, the Group derived revenues of $14,802 and $29,084 from Asia&Pacific, $6,890 and $4,231 from Europe and $6 and $57 from other geographic regions where the customers are located, respectively.
For the six months ended June 30, 2020 and 2021, the Group derived revenues of $18,687 and $41,568 from Asia&Pacific, $9,930 and $6,558 from Europe and $30 and $184 from other geographic regions where the customers are located, respectively.
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, represents 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 three months ended June 30, 2020 and 2021, the Group recognized $206 and $135 of revenue previously included in advance from customers as of April 1, 2020 and April 1, 2021, respectively. During the six months ended June 30, 2020 and 2021, the Group recognized $446 and $1,321 of revenue previously included in advance from customers as of January 1, 2020 and January 1, 2021, respectively, which consist of payments received in advance related to its sales of lithium batteries.
3. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following:
| December 31, 2020 | June 30, 2021 | |||||||
| Accounts receivable | $ | 81,345 | $ | 69,996 | ||||
| Allowance for doubtful accounts | (5,047 | ) | (4,743 | ) | ||||
| Accounts receivable, net | $ | 76,298 | $ | 65,253 | ||||
F-10
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2021
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)
3. ACCOUNTS RECEIVABLE - continued
Movement of allowance for doubtful accounts was as follows:
| Three
months ended June 30, | Six
months ended June 30, | |||||||||||||||
| 2020 | 2021 | 2020 | 2021 | |||||||||||||
| Balance at beginning of the period | $ | 4,524 | $ | 4,416 | $ | 5,537 | $ | 5,047 | ||||||||
| Charge to expenses | - | 318 | (863 | ) | (196 | ) | ||||||||||
| Write off | - | (28 | ) | - | (131 | ) | ||||||||||
| Exchange difference | 10 | 37 | (140 | ) | 23 | |||||||||||
| Balance at end of the period | $ | 4,534 | $ | 4,743 | $ | 4,534 | $ | 4,743 | ||||||||
4. INVENTORIES, NET
Inventories consisted of the following:
| December 31, 2020 | June 30, 2021 | |||||||
| Work in process | $ | 22,167 | $ | 21,090 | ||||
| Raw materials | 17,451 | 20,223 | ||||||
| Finished goods | 5,350 | 14,087 | ||||||
| Total | $ | 44,968 | $ | 55,400 | ||||
Provision for obsolete inventory at nil and $5,880 were recognized for the three months ended June 30, 2020 and 2021, respectively. Provision for obsolete inventory at $646 and $6,098 were recognized for the six months ended June 30, 2020 and 2021, respectively.
5. PREPAID EXPENSES AND OTHER CURRENT ASSETS
| December 31, 2020 | June 30, 2021 | |||||||
| Advances to suppliers | $ | 2,117 | $ | 4,857 | ||||
| Other receivables | 688 | 1,242 | ||||||
| VAT receivables | 2,471 | 1,342 | ||||||
| Deposits | 746 | 751 | ||||||
| Total | $ | 6,022 | $ | 8,192 | ||||
The balance of the VAT receivables represented the amount available for future deduction against VAT payable.
F-11
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2021
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)
6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
| December 31, 2020 | June 30, 2021 | |||||||
| Payables to exiting investors | $ | 30,000 | $ | - | ||||
| Payables for purchase of property, plant and equipment | 15,122 | 14,103 | ||||||
| Product warranty | 4,296 | 10,299 | ||||||
| Other current liabilities | 3,959 | 4,148 | ||||||
| Accrued payroll and welfare | 2,704 | 2,789 | ||||||
| Interest payable | 1,379 | 2,239 | ||||||
| Accrued expenses | 1,696 | 1,713 | ||||||
| Other tax payable | 1,472 | 306 | ||||||
| Total | $ | 60,628 | $ | 35,597 | ||||
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 12.
7. PRODUCT WARRANTY
Movement of product warranty was as follows:
| Three
months ended June 30, | Six
months ended June 30, | |||||||||||||||
| 2020 | 2021 | 2020 | 2021 | |||||||||||||
| Balance at beginning of the period | $ | 17,299 | $ | 19,105 | $ | 18,416 | $ | 19,356 | ||||||||
| Provided during the period | 842 | 8,148 | 951 | 9,057 | ||||||||||||
| Utilized during the period | (783 | ) | (1,710 | ) | (2,009 | ) | (2,870 | ) | ||||||||
| Balance at end of the period | $ | 17,358 | $ | 25,543 | $ | 17,358 | $ | 25,543 | ||||||||
| December 31, 2020 | June 30, 2021 | |||||||
| Product warranty – current | $ | 4,296 | $ | 10,299 | ||||
| Product warranty – non-current | 15,060 | 15,244 | ||||||
| Total | $ | 19,356 | $ | 25,543 | ||||
F-12
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2021
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)
8. BANK BORROWINGS
The Group entered into loan agreements and bank facilities with Chinese banks and a German bank.
The original terms of the loans from Chinese banks range from 6 to 12 months and the interest rates range from 5.00% to 6.00% per annum. As of June 30, 2021, the balance of the loans from Chinese bank was $16,572.
The bank facility agreement with the German bank includes a $13.0 million (EUR11 million) 8-year maturity term loan and a $4.7 million (EUR4 million) revolving facility (“German Bank Facility Agreement”). The interest rate of the 8-year maturity term loan is EURIBOR plus a margin rate determined by the financial leverage ratio of the Group. The $4.7 million (EUR4 million) revolving facility at 6% annual interest, needs to be renewed every year (60 days in advance). During the six months ended June 30, 2021, the Group drew down the 8-year maturity term loan at the amount of $9,886. The German Bank Facility Agreement contains financial covenants on the equity ratio, leverage ratio and profit distribution, and also it has acceleration clauses about the occurrence of failure to comply with the financial covenants. As of June 30, 2021, the Group’s Germany subsidiary was not in compliance with the financial covenants. The Company obtained a waiver for the covenant violation through September 30, 2021, and subsequently cured the default in August 2020 by capital injection. The Group is and expects to be able to remain fully in compliance with the covenants.
Changes in bank borrowings were are as follows:
| Three
months ended June 30, | Six
months ended June 30, | |||||||||||||||
| 2020 | 2021 | 2020 | 2021 | |||||||||||||
| Beginning balance | $ | 5,649 | $ | 13,156 | $ | 11,922 | $ | 12,184 | ||||||||
| Proceeds from bank borrowings | 3,714 | 13,158 | 9,473 | 26,603 | ||||||||||||
| Repayments of principal | - | - | (11,894 | ) | (12,265 | ) | ||||||||||
| Exchange difference | 22 | (144 | ) | (89 | ) | (64 | ) | |||||||||
| Ending balance | $ | 9,412 | $ | 26,458 | $ | 9,412 | $ | 26,458 | ||||||||
| December 31, 2020 | June 30, 2021 | ||||||||
| Current | $ | 12,184 | $ | 16,572 | |||||
| Non-current | - | 9,886 | |||||||
| Total | $ | 12,184 | $ | 26,458 | |||||
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 June 30, 2021 are as follows:
| December 31, 2020 | June 30, 2021 | |||||||
| Buildings | $ | 22,732 | $ | 31,877 | ||||
| Machinery and equipment | 19,297 | 17,835 | ||||||
| Land use rights | 2,789 | 4,466 | ||||||
| Total | $ | 44,818 | $ | 54,178 | ||||
In addition, the Group’s related parties Ochem Chemical Co., Ltd (“Ochem”) and Ochemate Material Technologies Co., Ltd (“Ochemate”) provided $20,874 and $21,838 of guarantees to secure certain bank facilities granted to the Group as of December 31, 2020 and June 30, 2021, respectively.
F-13
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2021
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)
9. OTHER NON-CURRENT LIABILITIES
| December 31, | June 30, | |||||||
| 2020 | 2021 | |||||||
| Payable to exiting investors | $ | 94,316 | $ | 97,979 | ||||
| Product warranty - non-current | 15,060 | 15,244 | ||||||
| Deferred subsidy income- non-current | 1,221 | 1,139 | ||||||
| Total | $ | 110,597 | $ | 114,362 | ||||
The payable to exiting investors represent the amount to be paid for the redemption of the shares owned by certain noncontrolling interests holders of a subsidiary. See Note 12.
10. BONDS PAYABLE
| December 31, | June 30, | |||||||
| 2020 | 2021 | |||||||
| Bonds payable | ||||||||
| Third-party investors | $ | 29,915 | $ | 29,915 | ||||
| Total | $ | 29,915 | $ | 29,915 | ||||
| Long–term bonds payable | ||||||||
| Huzhou Saiyuan | $ | 73,147 | $ | 73,147 | ||||
| PIPE investors | - | 64,343 | ||||||
| Total | $ | 73,147 | $ | 137,490 | ||||
Convertible Bonds issued to Huzhou Saiyuan
On December 29, 2018, Microvast Power Systems Co., Ltd. (“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 $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 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 should 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.
F-14
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2021
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)
10. BONDS PAYABLE - continued
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 were agreed as below:
| Issuance Date | Subscribed Amount | Maturity Date | Repayment Amount | Annual 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 June 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 “Bond Holders”), through which the Bond Holders 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 Bond Holders 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 and June 30, 2021, $29,915 (RMB204.5 million) was subscribed by the Bond Holders.
On July 23, 2021, upon the completion of the merger between Microvast and Tuscan Holdings Corp., the convertible bonds were settled and converted into 6,719,845 common shares of the combined company as disclosed in Note 21.
Convertible Notes at Fair Value
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 bear no interest, provided, however, if a liquidity event has not occurred prior to June 30, 2022, an interest rate of 6% shall be applied retrospectively from the date of initial closing. The conversion of the promissory notes are contingent upon the occurrence of a Private Investment in Public Equity (“PIPE”) financing, a liquidity event (“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 amount of $25,000 and $32,500, respectively. A discounted rate of 80% or 90% would be applied to the then share issuance price upon conversion, depending on the circumstances of PIPE financing, Liquidity Event or Next Financing.
The fair value option was elected for the measurement of the convertible notes. As of June 30, 2021, the fair value of the convertible notes was $64,343. Changes in fair value, a loss of $3,243 and $6,843 were recorded in the unaudited condensed consolidated statements of operations for the three and six months ended June 30, 2021, respectively.
On July 23, 2021, upon the completion of the merger between Microvast and Tuscan Holdings Corp., the convertible promissory notes were converted into 6,736,106 common shares of the combined company.
F-15
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2021
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)
11. FAIR VALUE MEASUREMENT
Measured or disclosed at fair value on a recurring basis
The Group measured its financial assets and liabilities, including cash and cash equivalents, restricted cash and convertible notes at fair value on a recurring basis as of December 31, 2020 and June 30, 2021. Cash and cash equivalents and restricted cash 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 Group determines the fair value of convertible notes, with the assistance of an independent third-party appraiser, based on Level 3 inputs. To determine the fair value of the convertible notes, the Group used probability expected return method.
The key assumptions used in valuation of convertible notes as of June 30, 2021 are summarized in the table below:
| Probability for Conversion | 90% | |||
| Probability for Redemption | 10% | |||
| Remaining life | 0.1 - 2.5 years |
As of December 31, 2020 and June 30, 2021, information about inputs for the fair value measurements of the Group’s assets and liabilities that are measured at fair value on a recurring basis in periods subsequent to their initial recognition is as follow:
| Fair Value Measurement as of December 31, 2020 | ||||||||||||||||
| Quoted
Prices in Active Market for Identical Assets | Significant
Other Observable Inputs | Significant Unobservable Inputs | Total | |||||||||||||
| (Level 1) | (Level 2) | (Level 3) | ||||||||||||||
| Cash and cash equivalents | $ | 21,496 | - | - | $ | 21,496 | ||||||||||
| Restricted cash | 19,700 | - | - | 19,700 | ||||||||||||
| Total | $ | 41,196 | - | - | $ | 41,196 | ||||||||||
| Fair Value Measurement as of June 30, 2021 | ||||||||||||||||
| Quoted
Prices in Active Market for Identical Assets | Significant
Other Observable Inputs | Significant Unobservable Inputs | Total | |||||||||||||
| (Level 1) | (Level 2) | (Level 3) | ||||||||||||||
| Cash and cash equivalents | $ | 13,367 | - | - | $ | 13,367 | ||||||||||
| Restricted cash | 20,460 | - | - | 20,460 | ||||||||||||
| Convertible notes | - | - | 64,343 | 64,343 | ||||||||||||
| Total | $ | 33,827 | - | 64,343 | $ | 98,170 | ||||||||||
F-16
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2021
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)
11. FAIR VALUE MEASUREMENT - continued
Measured or disclosed at fair value on a recurring basis - continued
The following is a reconciliation of the beginning and ending balances for assets and liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during the three and six months ended June 30, 2021:
| Convertible notes | ||||
| Balance as of January 1, 2021 | $ | - | ||
| Issuance of convertible notes | 57,500 | |||
| Changes in fair value of convertible notes | 3,600 | |||
| Balance as of March 31, 2021 | $ | 61,100 | ||
| Changes in fair value of convertible notes | 3,243 | |||
| Balance as of June 30, 2021 | $ | 64,343 | ||
Measured or disclosed at fair value on a nonrecurring basis
The Group measured the long-lived assets using the income approach—discounted cash flow method, when events or changes in circumstances indicate that the carrying amount of an asset may no longer be recoverable.
12. NONCONTROLLING INTERESTS
Noncontrolling interests of MPS
In March 2017, the Company 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, the Company signed a series of repurchase and redemption agreements with 6 out of the 8 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% 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, the Group paid $30,000 (RMB214.2 million) in March 2021. See Note 6. Further, if the Group completes a qualified financing before 2022 with total amount of $200,000, the Group would pay the exiting Investors $30,000 (RMB214.2 million) which shall be made no later than September 30, 2023. If the Group completes new round financing in 2022 or 2023, the Group will pay the exiting Investors an amount calculated based on the proceeds received in the financing, and in no case will the repayment be less than $30,000 (RMB214.2 million). The repayment amount should be calculated based on the following rules:
| a) | Minimum repayment of $30,000 (RMB214.2 million) should be paid if the proceeds received in the financing is up to $200,000. |
| b) | 15% of the incremental proceeds should be paid if the proceeds received in the financing is between $200,000 and $400,000. |
| c) | 20% of the incremental proceeds and up to a maximum of the overdue payable amount should be paid if the proceeds received in the financing is above $400,000. |
On July 23, 2021, upon the completion of the merger between Microvast and Tuscan Holdings Corp., the equity interest held by the investors who remained as noncontrolling shareholders of MPS were converted into 17,253,182 common shares of the combined company as disclosed in Note 21.
F-17
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2021
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)
13. ORDINARY SHARES
The Company’s Amended and Restated Certificate of Incorporation authorizes 100,000,000 ordinary shares with a par value of $0.01 per share.
As of December 31, 2020 and June 30, 2021, the Company had 617,880 ordinary shares issued and outstanding.
On July 23, 2021, upon the completion of the merger between Microvast and Tuscan Holdings Corp., all of the ordinary shares were converted into common shares of the combined company at an exchange ratio of 160.3 as disclosed in Note 21.
14. PREFERRED SHARES
As of December 31, 2020 and June 30, 2021, the Company had preferred shares issued and outstanding as follows:
| Preferred Shares | Number of Shares | Shareholders | |||
| Series C1 Preferred | 166,950 | 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 | 126,345 | Ashmore Cayman SPC Limited (“Ashmore Cayman”) and IFC | |||
| Series D1 Preferred | 139,186 | Evergreen Ever Limited (“EEL”) | |||
| Total | 432,481 |
The changes in the balance of Series Preferred and redeemable noncontrolling interests included in the mezzanine equity for the six months ended June 30, 2020 and 2021 were as follows:
| 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 | 974 | 2,217 | 4,662 | 2,552 | ||||||||||||
| Ending balance as of March 31, 2020 | $ | 77,658 | $ | 75,317 | $ | 132,597 | $ | 83,113 | ||||||||
| Accretion | 974 | 2,217 | 4,662 | 2,552 | ||||||||||||
| Ending balance as of June 30, 2020 | $ | 78,632 | $ | 77,534 | $ | 137,259 | $ | 85,665 | ||||||||
| Balance as of January 1, 2021 | $ | 80,581 | $ | 81,966 | $ | 146,583 | $ | 90,820 | ||||||||
| Accretion | 1,003 | 2,281 | 4,759 | 2,577 | ||||||||||||
| Ending balance as of March 31, 2021 | $ | 81,584 | $ | 84,247 | $ | 151,342 | $ | 93,397 | ||||||||
| Accretion | 1,003 | 2,281 | 4,759 | 2,606 | ||||||||||||
| Ending balance as of June 30, 2021 | $ | 82,587 | $ | 86,528 | $ | 156,101 | $ | 96,003 | ||||||||
On July 23, 2021, upon the completion of the merger between Microvast and Tuscan Holdings Corp., all preferred shares were converted into common shares of the combined company at an exchange ratio of 160.3 as disclosed in Note 21.
F-18
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2021
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)
15. SHARE-BASED PAYMENT
The share options, non-vested shares and non-vested share units may be vested only upon and after the occurrence of initial public offering, sale or transfer of all or substantially all of the business, operations or assets of the Company or its subsidiaries, taken as a whole, to a third party, or such other sale or transfer of ordinary shares in the Company as determined, in each case, by the Company pursuant to legal documents and other obligations binding upon it. As of June 30, 2021, it was not considered probable that the above performance condition would be achieved and accordingly no compensation expense was recorded.
Share options
Share options activity for the six months ended June 30, 2020 and 2021 was as follows:
| Share options | Number of shares | Weighted average exercise price | Weighted average grant date fair value | Weighted average remaining contractual life | |||||||||||
| (US$) | (US$) | ||||||||||||||
| Outstanding as of January 1, 2020 | 47,277 | $ | 881.97 | $ | 343.83 | 7.1 | |||||||||
| Forfeited | (4,462 | ) | 366.00 | 285.11 | |||||||||||
| Outstanding as of March 31, 2020 | 42,815 | $ | 935.74 | $ | 349.95 | 7.0 | |||||||||
| Outstanding as of June 30, 2020 | 42,815 | $ | 935.74 | $ | 349.95 | 6.8 | |||||||||
| Expected to vest and exercisable as of June 30, 2020 | 42,815 | $ | 935.74 | $ | 349.95 | 6.8 | |||||||||
| Outstanding as of January 1, 2021 | 216,706 | 991.99 | 468.60 | 9.0 | |||||||||||
| Forfeited | (5,700 | ) | 1005.85 | 475.71 | |||||||||||
| Outstanding as of March 31, 2021 | 211,006 | $ | 991.62 | $ | 468.41 | 8.7 | |||||||||
| Forfeited | (800 | ) | 1005.85 | 475.71 | |||||||||||
| Outstanding as of June 30, 2021 | 210,206 | $ | 991.57 | $ | 468.38 | 8.5 | |||||||||
| Expected to vest and exercisable as of June 30, 2021 | 210,206 | $ | 991.57 | $ | 468.38 | 8.5 | |||||||||
Non-vested share
No non-vested shares activity occurred for the six months ended June 30, 2021. The non-vested shares activity for the six months ended June 30, 2020 was as follows:
| Weighted | ||||||||
| average | ||||||||
| Number of | grant date | |||||||
| non-vested | fair value | |||||||
| shares | per share | |||||||
| (US$) | ||||||||
| Outstanding as of January 1, 2020 | 20,523 | $ | 182.13 | |||||
| Transfer to non-vested share units | (20,523 | ) | $ | 182.13 | ||||
| Outstanding as of March 31, 2020 | - | $ | - | |||||
| Outstanding as of June 30, 2020 | - | $ | - | |||||
F-19
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2021
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)
15. SHARE-BASED PAYMENT - continued
Non-vested share units
The non-vested shares units will be settled in the form of cash payments. Most of them will be settled at price per unit equal to the fair market value on initial vesting date, and others will be settled at price per unit equal to the lesser of the fair market value on initial vesting date or the value of $1,005.85.
| Weighted | ||||||||
| average | ||||||||
| Number of | grant date | |||||||
| non-vested | fair value | |||||||
| shares | per share | |||||||
| (US$) | ||||||||
| Outstanding as of January 1, 2020 | 123,575 | $ | 143.89 | |||||
| Forfeited | (446 | ) | $ | 227.24 | ||||
| Transfer from non-vested shares | 20,523 | $ | 182.13 | |||||
| Outstanding as of March 31, 2020 | 143,652 | $ | 149.10 | |||||
| Outstanding as of June 30, 2020 | 143,652 | $ | 149.10 | |||||
| Outstanding as of January 1, 2021 | 143,652 | $ | 149.10 | |||||
| Forfeited | - | $ | - | |||||
| Outstanding as of June 30, 2021 | 143,652 | $ | 149.10 | |||||
Subsequent to the completion of the merger between Microvast and Tuscan Holdings Corp., the options granted under Microvast’s stock incentive plan were converted into options to purchase common stock of the combined company at exchange ratio of 160.3 with three-year vesting period starting from the first anniversary of the closing. And the non-vested share units granted under Microvast’s stock incentive plan will be settled in cash at price per unit determined by the fair value market of the common stock of the combined company, with three-year vesting period starting from the first anniversary of the closing. The Company is in the process of assessing the accounting impact.
Series B2 Preferred subscribed by employees
On October 30, 2015, the Company issued 79,107 Series B2 Preferred to certain employees of the Company. The Series B2 Preferred were issued for cash consideration of $366.00 per share 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 of the Series B2 Award 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 Group.
As of December 31, 2020 and June 30, 2021, 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.
Subsequent to the completion of the merger between Microvast and Tuscan Holdings Corp., the Series B2 Award were converted into options to purchase common stock of the combined company at exchange ratio of 160.3, with three-year vesting period starting from the first anniversary of the closing. The Company is in the process of assessing the accounting impact.
F-20
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2020 AND 2021
(In thousands of U.S. dollars, except share and per share data, or otherwise noted)
16. MAINLAND CHINA CONTRIBUTION PLAN
Full time employees of the Group in the PRC participate in a government-mandated multiemployer defined contribution plan pursuant to which certain pension benefits, medical care, unemployment insurance, employee housing fund and other welfare benefits are provided to employees. Chinese labor regulations require the Group to accrue for these benefits based on certain percentages of the employees’ salaries. The total provisions for such employee benefits were $418 and $640 for three months ended June 30, 2020 and 2021, respectively. The total provisions for such employee benefits were $954 and $1,281 for six months ended June 30, 2020 and 2021, respectively.
17. SEGMENT INFORMATION
Operating segments are defined as components of an enterprise engaging in businesses activities for which separate financial information is available that is regularly evaluated by the Group’s chief operating decision makers (“CODM”) in deciding how to allocate resources and assess performance. The Group’s CODM has been identified as the Chief Executive Officer (“CEO”), who reviews consolidated results including revenue, gross profit and operating profit at a consolidated level only and does not distinguish between products for the purpose of making decisions about resources allocation and performance assessment. As such, the Group concluded that it has one operating segment and one reporting segment.
Long-lived assets, classified by major geographic regions are as follows.
| December 31, | June 30, | |||||||||||||||