UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
For
the quarterly period ended
OR
For the transition period from to________________
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (Commission File Number) | (IRS Employer Identification No.) |
| (Address Of Principal Executive Offices) | (Zip Code) |
(Registrant’s telephone number, including area code)
Tuscan Holdings Corp. 135 E. 57th Street, 18th Floor New York, NY 10022 |
| (Former name, former address and former fiscal year, if changed since last report) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of exchange on which registered | ||
| Redeemable warrants, exercisable for shares of common stock at an exercise price of $11.50 per share | MVSTW | The Nasdaq Stock Market LLC |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As
of November 12, 2021, there were
MICROVAST HOLDINGS, INC.
Form 10-Q
For the Quarter Ended September 30, 2021
Table of Contents
i
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements include, but are not limited to, statements about future financial and operating results, our objectives, expectations and intentions with respect to future operations, products and services; and other statements identified by words such as “will likely result,” “are expected to,” “will continue,” “is anticipated,” “estimated,” “believe,” “intend,” “plan,” “projection,” “outlook” or words of similar meaning. These forward-looking statements include, but are not limited to, statements regarding our industry and market sizes, future opportunities, our estimated future results and the Business Combination (as defined below). Such forward-looking statements are based upon the current beliefs and expectations of management and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are difficult to predict and generally beyond our control. Actual results and the timing of events may differ materially from the results anticipated in these forward-looking statements.
There are important risks, uncertainties, events and factors that could cause our actual results or performance to differ materially from those in the forward-looking statements contained in this document, including:
| ● | risks of operations in the People’s Republic of China; |
| ● | a delay or failure to realize the expected benefits from the Business Combination; |
| ● | the risks related to disruption of management time from ongoing business operations due to the Business Combination; |
| ● | the impact of the ongoing COVID-19 pandemic; |
| ● | changes in the highly competitive market in which we compete, including with respect to our competitive landscape, technology evolution or regulatory changes; |
| ● | changes in the markets that we target; |
| ● | the risk that we may not be able to execute our growth strategies or achieve profitability; |
| ● | the risk that we are unable to secure or protect our intellectual property; |
| ● | the risk that our customers or third-party suppliers are unable to meet their obligations fully or in a timely manner; |
| ● | the risk that our customers will adjust, cancel or suspend their orders for our products; |
| ● | the risk that we will need to raise additional capital to execute our business plan, which may not be available on acceptable terms or at all; |
| ● | the risk of product liability or regulatory lawsuits or proceedings relating to our products or services; |
| ● | the risk that we may not be able to develop and maintain effective internal controls; |
| ● | the outcome of any legal proceedings that may be instituted against us or any of our directors or officers; and |
| ● | the failure to realize anticipated pro forma results and underlying assumptions. |
The foregoing list of factors is not exhaustive and new factors may emerge from time to time that could also affect actual performance and results. For more information, please see the risk factors included in our Annual Report on Form 10-K/A for the year ended December 31, 2020 in Part I, Item 1A and in the Registration Statement on Form S-1, (File No. 333-258978), which was initially filed on August 20, 2021, and as further amended, and subsequent filings with the SEC.
Actual results, performance or achievements may differ materially, and potentially adversely, from any projections and forward-looking statements and the assumptions on which those forward-looking statements are based. There can be no assurance that the data contained herein is reflective of future performance to any degree. You are cautioned not to place undue reliance on forward-looking statements as a predictor of future performance as projected financial information and other information are based on estimates and assumptions that are inherently subject to various significant risks, uncertainties and other factors, many of which are beyond our control.
All information set forth herein speaks only as of the date hereof, and we disclaim any intention or obligation to update any forward-looking statements as a result of developments occurring after the date hereof except as may be required under applicable securities laws. Forecasts and estimates regarding our industry and end markets are based on sources we believe to be reliable, however there can be no assurance these forecasts and estimates will prove accurate in whole or in part. Annualized, pro forma, projected and estimated numbers are used for illustrative purpose only, are not forecasts and may not reflect actual results.
ii
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
MICROVAST HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)
| December 31, 2020 | September 30, 2021 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Accounts receivable (net of allowance for doubtful accounts of $ | ||||||||
| Notes receivable | ||||||||
| Inventories, net | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Amount due from related parties | ||||||||
| Total Current Assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Land use rights, net | ||||||||
| Acquired intangible assets, net | ||||||||
| Other non-current assets | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Advance from customers | ||||||||
| Accrued expenses and other current liabilities | ||||||||
| Income tax payables | ||||||||
| Short-term bank borrowings | ||||||||
| Notes payable | ||||||||
| Bonds payable | ||||||||
| Total Current Liabilities | ||||||||
| Deposit liability for series B2 convertible preferred shares (“Series B2 Preferred”) | ||||||||
| Long-term bonds payable | ||||||||
| Warrant liability | ||||||||
| Share-based compensation liability | ||||||||
| Other non-current liabilities | ||||||||
| Total Liabilities | $ | $ | ||||||
1
MICROVAST HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS - continued
(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)
| December 31, 2020 | September 30, 2021 | |||||||
| Mezzanine Equity (Note 14 and Note 16) | ||||||||
| Series C1 convertible redeemable preferred shares (“Series C1 Preferred”) (US$ | $ | $ | ||||||
| Series C2 convertible redeemable preferred shares (“Series C2 Preferred”) (US$ | ||||||||
| Series D1 convertible redeemable preferred shares (“Series D1 Preferred”) (US$ | ||||||||
| Redeemable noncontrolling interests | ||||||||
| Total Mezzanine Equity | $ | $ | ||||||
| Commitments and contingencies (Note 21) | ||||||||
| Shareholders’ Equity | ||||||||
| Common Stock (par value of US$ | $ | $ | ||||||
| Additional paid-in capital | ||||||||
| Statutory reserves | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income | ||||||||
| Total Shareholders’ (Deficit)/Equity | ( | ) | ||||||
| Total Liabilities, Mezzanine Equity and Shareholders’ Equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
MICROVAST HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2020 | 2021 | 2020 | 2021 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of revenues | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Gross profit/(loss) | ( | ) | ( | ) | ||||||||||||
| Operating expenses: | ||||||||||||||||
| General and administrative expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Research and development expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Selling and marketing expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total operating expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Subsidy income | ( | ) | ||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income and expenses: | ||||||||||||||||
| Interest income | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss on changes in fair value of convertible notes | ( | ) | ( | ) | ||||||||||||
| Gain on change in fair value of warrant liability | ||||||||||||||||
| Other income (expense), net | ( | ) | ||||||||||||||
| Loss before provision for income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax benefit (expense) | ( | ) | ( | ) | ( | ) | ||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Less: Accretion of Series C1 Preferred | ||||||||||||||||
| Less: Accretion of Series C2 Preferred | ||||||||||||||||
| Less: Accretion of Series D1 Preferred | ||||||||||||||||
| Less: Accretion for noncontrolling interests | ||||||||||||||||
| Net loss attributable to common stock shareholders of Microvast Holdings, Inc. | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Net loss per share attributable to common stock shareholders of Microvast Holdings, Inc. | ||||||||||||||||
| Basic and diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Weighted average shares used in calculating net loss per share of common stock | ||||||||||||||||
| Basic and diluted | ||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
MICROVAST HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2020 | 2021 | 2020 | 2021 | |||||||||||||
| Net loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Foreign currency translation adjustment | ( | ) | ( | ) | ||||||||||||
| Comprehensive income/(loss) | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
MICROVAST HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ (DEFICIT)/EQUITY
(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)
| Three Months Ended September 30, 2020 | ||||||||||||||||||||||||||||
| Additional | Accumulated other |
Total Microvast Holdings, Inc. |
||||||||||||||||||||||||||
| Common Stock | paid-in | Accumulated | Comprehensive | Statutory | Shareholders’ | |||||||||||||||||||||||
| Shares | Amount | capital | deficit | loss | reserves | Deficit | ||||||||||||||||||||||
| Balance as of June 30, 2020 | $ | |
$ | $ | ( |
) | $ | ( |
) | $ | $ | ( |
) | |||||||||||||||
| Net loss | - | ( |
) | ( |
) | |||||||||||||||||||||||
| Accretion for Series C1 Preferred | - | ( |
) | ( |
) | |||||||||||||||||||||||
| Accretion for Series C2 Preferred | - | ( |
) | ( |
) | |||||||||||||||||||||||
| Accretion for Series D1 Preferred | - | ( |
) | ( |
) | |||||||||||||||||||||||
| Accretion for the exiting noncontrolling interests | - | ( |
) | ( |
) | |||||||||||||||||||||||
| Foreign currency translation adjustments | - | |||||||||||||||||||||||||||
| Accretion for redeemable noncontrolling interests | - | ( |
) | ( |
) | |||||||||||||||||||||||
| Balance as of September 30, 2020 | $ | $ | $ | ( |
) | $ | ( |
) | $ | $ | ( |
) | ||||||||||||||||
| Nine Months Ended September 30, 2020 | ||||||||||||||||||||||||||||
| Additional | Accumulated other |
Total Microvast Holdings, Inc. |
||||||||||||||||||||||||||
| Common Stock | paid-in | Accumulated | Comprehensive | Statutory | Shareholders’ | |||||||||||||||||||||||
| Shares | Amount | capital | deficit | loss | reserves | Deficit | ||||||||||||||||||||||
| Balance as of January 1, 2020 | $ | |
$ | $ | ( |
) | $ | ( |
) | $ | $ | ( |
) | |||||||||||||||
| Net loss | - | ( |
) | ( |
) | |||||||||||||||||||||||
| Accretion for Series C1 Preferred | - | ( |
) | ( |
) | |||||||||||||||||||||||
| Accretion for Series C2 Preferred | - | ( |
) | ( |
) | ( |
) | |||||||||||||||||||||
| Accretion for Series D1 Preferred | - | ( |
) | ( |
) | |||||||||||||||||||||||
| Accretion for the exiting noncontrolling interests | - | ( |
) | ( |
) | |||||||||||||||||||||||
| Foreign currency translation adjustments | - | |||||||||||||||||||||||||||
| Accretion for redeemable noncontrolling interests | - | ( |
( |
) | ||||||||||||||||||||||||
| Balance as of September 30, 2020 | $ | $ | $ | ( |
) | $ | ( |
) | $ | $ | ( |
) | ||||||||||||||||
5
MICROVAST HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ (DEFICIT)/EQUITY - continued
(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)
| Three Months Ended September 30, 2021 | ||||||||||||||||||||||||||||
| Additional | Accumulated other | Total Microvast |
||||||||||||||||||||||||||
| Common Stock | paid-in | Accumulated | Comprehensive | Statutory | Shareholders’ | |||||||||||||||||||||||
| Shares | Amount | capital | deficit | Income (loss) | reserves | (Deficit)/Equity | ||||||||||||||||||||||
| Balance as of June 30, 2021 | $ | $ | $ | ( |
) | $ | $ | $ | ( |
) | ||||||||||||||||||
| Net loss | - | ( |
) | ( |
) | |||||||||||||||||||||||
| Accretion for Series C1 Preferred | - | ( |
) | ( |
) | |||||||||||||||||||||||
| Accretion for Series C2 Preferred | - | ( |
) | ( |
) | |||||||||||||||||||||||
| Accretion for Series D1 Preferred | - | ( |
) | ( |
) | |||||||||||||||||||||||
| Accretion for redeemable noncontrolling interests | - | ( |
) | ( |
) | |||||||||||||||||||||||
| Accretion for the exiting noncontrolling interests | - | ( |
) | ( |
) | |||||||||||||||||||||||
| Issuance of common stock upon the reverse recapitalization, net of issuance costs of $ |
||||||||||||||||||||||||||||
| Share-based compensation | ||||||||||||||||||||||||||||
| Foreign currency translation adjustments | - | ( |
) | ( |
) | |||||||||||||||||||||||
| Balance as of September 30, 2021 | $ | $ | $ | ( |
) | $ | $ | $ | ||||||||||||||||||||
| Nine Months Ended September 30, 2021 | ||||||||||||||||||||||||||||
| Additional | Accumulated other | Total Microvast |
||||||||||||||||||||||||||
| Common Stock | paid-in | Accumulated | Comprehensive | Statutory | Shareholders’ | |||||||||||||||||||||||
| Shares | Amount | capital | deficit | income (loss) | reserves | (Deficit)/Equity | ||||||||||||||||||||||
| Balance as of January 1, 2021 | $ | $ | $ | ( |
) | $ | $ | $ | ( |
) | ||||||||||||||||||
| Net loss | - | ( |
) | ( |
) | |||||||||||||||||||||||
| Accretion for Series C1 Preferred | - | ( |
) | ( |
) | |||||||||||||||||||||||
| Accretion for Series C2 Preferred | - | ( |
) | ( |
) | |||||||||||||||||||||||
| Accretion for Series D1 Preferred | - | ( |
) | ( |
) | |||||||||||||||||||||||
| Accretion for redeemable noncontrolling interests | - | ( |
) | ( |
) | |||||||||||||||||||||||
| Accretion for the exiting noncontrolling interests | - | ( |
) | ( |
) | |||||||||||||||||||||||
| Issuance of common stock upon the reverse recapitalization, net of issuance costs of $ |
||||||||||||||||||||||||||||
| Share-based compensation | ||||||||||||||||||||||||||||
| Foreign currency translation adjustments | - | ( |
) | ( |
) | |||||||||||||||||||||||
| Balance as of September 30, 2021 | $ | $ | $ | ( |
) | $ | $ | $ | ||||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6
MICROVAST HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)
| Nine Months Ended September 30, | ||||||||
| 2020 | 2021 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Loss on disposal of property, plant and equipment | ||||||||
| Depreciation of property, plant and equipment | ||||||||
| Amortization of land use right and intangible assets | ||||||||
| Share-based compensation | ||||||||
| Changes in fair value of warrant liability | ( | ) | ||||||
| Changes in fair value of convertible notes | ||||||||
| (Reversal) allowance of doubtful accounts | ( | ) | ||||||
| Provision for obsolete inventories | ||||||||
| Impairment loss from property, plant and equipment | ||||||||
| Product warranty | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Notes receivable | ||||||||
| Accounts receivable | ||||||||
| Inventories | ( | ) | ||||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Amount due from/to related parties | ( | ) | ||||||
| Other non-current assets | ( | ) | ||||||
| Notes payable | ( | ) | ||||||
| Accounts payable | ( | ) | ( | ) | ||||
| Advance from customers | ( | ) | ( | ) | ||||
| Accrued expenses and other liabilities | ( | ) | ||||||
| Other non-current liabilities | ||||||||
| Income tax payables | ||||||||
| Net cash generated from/(used in) operating activities | ( | ) | ||||||
| Cash flows from investing activities | ||||||||
| Purchases of property, plant and equipment | ( | ) | ( | ) | ||||
| Proceeds on disposal of property, plant and equipment | ||||||||
| Purchase of short-term investments | ( | ) | ||||||
| Proceeds from maturity of short-term investments | ||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities | ||||||||
| Proceeds from borrowings | ||||||||
| Repayment of bank borrowings | ( | ) | ( | ) | ||||
| Loans borrowing from related parties | ||||||||
| Repayment of related party loans | ( | ) | ( | ) | ||||
| Merger and Private Investment in Public Equity (“PIPE”) financing | ||||||||
| Payment for transaction fee in connection with the merger | ( | ) | ||||||
| Payment to exited noncontrolling interests (Note 14) | ( | ) | ||||||
| Issuance of convertible notes | ||||||||
| Net cash (used in)/generated from financing activities | ( | ) | ||||||
| Effect of exchange rate changes | ||||||||
| (Decrease) Increase in cash, cash equivalents and restricted cash | ( | ) | ||||||
| Cash, cash equivalents and restricted cash at beginning of the period | ||||||||
| Cash, cash equivalents and restricted cash at end of the period | $ | $ | ||||||
7
MICROVAST HOLDINGS, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - continued
(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)
| Nine
Months Ended September 30, | ||||||||
| 2020 | 2021 | |||||||
| Reconciliation to amounts on consolidated balance sheets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash | ||||||||
| Total cash, cash equivalents and restricted cash | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
8
MICROVAST HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)
1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS
Microvast Holdings, Inc.(“Microvast” or 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 accounts of the Company 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 (“U.S. GAAP”) for interim financial reporting. Accordingly, certain information and disclosures normally included in the notes to the annual financial statements prepared in accordance with U.S. GAAP have been omitted from these interim financial statements.
The accompanying unaudited condensed consolidated financial statements should be read in conjunction with the Company’s audited consolidated financial statements for the period ended December 31, 2020 included in the Company’s Current Report on Form 8-K filed with the SEC on July 28, 2021 and as amended and filed with the SEC on August 16, 2021, which provides a more complete discussion of the Company’s accounting policies and certain other information. 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 Company believes that the disclosures are adequate to make the information presented not misleading.
The results of operations for the three and nine months ended September 30, 2021 are not necessarily indicative of the results to be expected for any subsequent quarter or for the fiscal year ending December 31, 2021.
The financial information as of December 31, 2020 included on the condensed consolidated balance sheets is derived from the Group’s audited consolidated financial statements for the year ended December 31, 2020.
Other than the policies noted below, there have been no significant changes to the significant accounting policies disclosed in Note 2 of the audited consolidated financial statements as of December 31, 2020 and 2019 and for the years ended December 31, 2020, 2019, and 2018.
Significant accounting estimates reflected in the Group’s financial statements include allowance for doubtful accounts, provision for obsolete inventories, impairment of long-lived assets, valuation allowance for deferred tax assets, product warranties, fair value measurement of the convertible promissory notes, fair value measurement of warrant liability and share based compensation.
All intercompany transactions and balances have been eliminated upon consolidation.
9
MICROVAST HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)
2. SIGNIFICANT ACCOUNTING POLICIES - continued
Basis of presentation and use of estimates-continued
On July 23, 2021 (the “Closing Date”), Tuscan Holdings Corp. (“Tuscan”), consummated the previously announced merger with Microvast, Inc., a Delaware corporation, pursuant to the Agreement and Plan of Merger (the “Merger Agreement”) dated February 1, 2021, between Tuscan, Microvast, Inc. and TSCN Merger Sub Inc., a Delaware corporation (“Merger Sub”), pursuant to which the Merger Sub merged with and into Microvast, Inc., with Microvast, Inc. surviving the merger (the “Merger,” and, collectively with the other transactions described in the Merger Agreement, the “Reverse Recapitalization”). As a result of the Merger, Tuscan was renamed “Microvast Holdings, Inc.” The Merger is accounted for as a reverse recapitalization as Microvast, Inc. was determined to be the accounting acquirer under Financial Accounting Standards Board’s Accounting Standards Codification Topic 805, Business Combinations (“ASC 805”).
Please refer to Note 3 “Reverse Recapitalization” for further details of the Merger.
Emerging Growth Company
Pursuant to the JOBS Act, an emerging growth company may adopt new or revised accounting standards that may be issued by FASB or the SEC either (i) within the same periods as those otherwise applicable to non-emerging growth companies or (ii) within the same time periods as private companies. The Company intends to take advantage of the exemption for complying with new or revised accounting standards within the same time periods as private companies. Accordingly, the information contained herein may be different than the information provided by other public companies.
The Company also intends to take advantage of some of the reduced regulatory and reporting requirements of emerging growth companies pursuant to the JOBS Act so long as the Company qualifies as an emerging growth company, including, but not limited to, an exemption from the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation, and exemptions from the requirements of holding non-binding advisory votes on executive compensation and golden parachute payments.
Revenue recognition
Nature of Goods and Services
The Group’s revenue consists primarily of sales of lithium batteries. The obligation of the Group is providing the electronic power products. Revenue is recognized at the point of time when control of the promised goods or services is transferred to the customer, in an amount that reflects the consideration the Group expects to be entitled to in exchange for the goods or services.
10
MICROVAST HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)
2. SIGNIFICANT ACCOUNTING POLICIES - continued
Disaggregation of revenue
For
the three months ended September 30, 2020 and 2021, the Group derived revenues of $
For
the nine months ended September 30, 2020 and 2021, the Group derived revenues of $
Contract balances
Contract
balances include accounts receivable and advances from customers. Accounts receivable represent cash not received from customers and
are recorded when the rights to consideration is unconditional. The allowance for doubtful accounts reflects the best estimate of probable
losses inherent to the accounts receivable balance. Contract liabilities, recorded in advance from customers in the consolidated balance
sheet, represent payment received in advance or 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 September 30, 2020 and 2021, the Group recognized $
Share-based compensation
Share-based payment transactions with employees are measured based on the grant date fair value of the equity instrument and recognized as compensation expense on a straight-line basis over the requisite service period, with a corresponding impact reflected in additional paid-in capital. For share-based awards granted with performance condition, the compensation cost is recognized when it is probable that the performance condition will be achieved. The Company reassesses the probability of achieving the performance condition at the end of each reporting date and records a cumulative catch-up adjustment for any changes to its assessment. For performance-based awards with a market condition, such as awards based on total shareholder return (“TSR”), compensation expense is recognized on a straight-line basis over the estimated service period of the award, regardless of whether the market condition is satisfied. Forfeitures are recognized as they occur. Liability-classified awards are remeasured at their fair-value-based measurement as of each reporting date until settlement.
11
MICROVAST HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)
2. SIGNIFICANT ACCOUNTING POLICIES - continued
Warrant Liability
The Company accounts for warrants in accordance with the guidance contained in ASC 815-40 under which the warrants do not meet the criteria for equity treatment and must be recorded as liabilities. As the Private Warrants (as defined below) meet the definition of a derivative as contemplated in ASC 815, the Company classifies the Private Warrants as liabilities. This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the condensed statements of operations. The Private Warrants are valued using a Monte Carlo simulation model on the basis of the quoted market price of Public Warrants.
3. REVERSE RECAPITALIZATION
On July 23, 2021, Tuscan merged with Microvast,
Inc., with Microvast, Inc. surviving the merger. As a result of the Merger, Tuscan was renamed “Microvast Holdings, Inc.”
On the Closing Date, pursuant to the terms of the Merger Agreement, the Framework Agreement1
and subscription agreements entered into with the holders of an aggregate of $
| ● | The Company issued | |
| ● | The Company issued | |
| ● | The Company issued | |
| ● | The Company issued |
Pursuant to the Merger Agreement, the former owners
of Microvast (“Microvast Holders”) and the MPS minority investors will have the ability to earn, in the aggregate, an additional
Each of the options to purchase Microvast, Inc.’s common stock that was outstanding before the Merger was converted into options to acquire Common Stock by computing the number of shares and converting the exercise price based on the exchange ratio of 160.3 (the “Common Exchange Ratio”). Refer to Note 17.
| 1 | In connection with the Merger Agreement, Tuscan, Microvast Power
System (Huzhou) Co., Ltd., a majority owned subsidiary of Microvast, Inc. (“MPS”), certain MPS convertible loan investors
(the “CL Investors”, refer to Note 11), some MPS minority investors, and certain other parties entered into a framework agreement
(the “Framework Agreement”), pursuant to which, |
12
MICROVAST HOLDINGS, INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)
3. REVERSE RECAPITALIZATION - continued
Each capped non-vested share unit of Microvast, Inc. that was outstanding before the Merger was converted into a non-vested share unit of the Company by computing the number of shares and converting the capped price based on the Common Exchange Ratio. Refer to Note 17.
As of the Closing Date and following the completion of the Merger, the ownership interests of the Company’s stockholders were as follows:
| Shares | ||||
| Existing Microvast Equity Holders(a) | ||||
| Existing Microvast Convertible Noteholders | ||||
| Tuscan public stockholders | ||||
| Sponsor Group(b)(c) | ||||
| EarlyBirdCapital | ||||
| PIPE investors immediately after Merger | ||||
| Common Stock | ||||
| (a) | Excludes the Earn-Out Shares, but is inclusive of the shares being issued pursuant to the Framework Agreement to the CL Investors and MPS minority investors. |
| (b) | The Sponsor Group includes Common Stock owned by the Sponsor, Stefan M. Selig, Richard O. Rieger and Amy Butte. |
| (c) | Includes |
The Merger is accounted for as a reverse recapitalization under U.S. GAAP. This determination is primarily based on (1) Microvast, Inc.’s stockholders comprising a relative majority of the voting power of the Company and having the ability to nominate the members of the Board, (2) Microvast, Inc.’s operations prior to the acquisition comprising the only ongoing operations of the Company, and (3) Microvast, Inc.’s senior management comprising a majority of the senior management of the Company. Under this method of accounting, Tuscan is treated as the “acquired” company for financial reporting purposes. Accordingly, the financial statements of the Company represent a continuation of the financial statements of Microvast, Inc. with the Merger being treated as the equivalent of Microvast, Inc. issuing stock for the net assets of Tuscan, accompanied by a recapitalization. The net assets of Tuscan are stated at historical costs, with no goodwill or other intangible assets recorded and are consolidated with Microvast Inc.’s financial statements on the Closing Date. Operations prior to the Merger are presented as those of Microvast, Inc. The shares and net loss per share available to holders of the Company’s Common Stock, prior to the Merger, have been retroactively restated as shares reflecting the Common Exchange Ratio established in the Merger Agreement.
In connection with the Merger, the Company raised
approximately $
In connection with
the Merger, the Sponsor and related parties entered into the amended escrow agreement, pursuant to which
13
MICROVAST HOLDINGS, INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)
4. ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following:
| December 31,
2020 | September 30,
2021 | |||||||
| Accounts receivable | $ | $ | ||||||
| Allowance for doubtful accounts | ( | ) | ( | ) | ||||
| Accounts receivable, net | $ | $ | ||||||
Movement of allowance for doubtful accounts was as follows:
| Three
Months Ended September 30, | Nine
Months Ended September 30, | |||||||||||||||
| 2020 | 2021 | 2020 | 2021 | |||||||||||||
| Balance at beginning of the period | $ | $ | $ | $ | ||||||||||||
| Charge to expenses | ( | ) | ||||||||||||||
| Write off | ( | ) | ( | ) | ||||||||||||
| Exchange difference | ||||||||||||||||
| Balance at end of the period | $ | $ | $ | $ | ||||||||||||
5. INVENTORIES, NET
Inventories consisted of the following:
| December 31,
2020 | September 30,
2021 | |||||||
| Work in process | $ | $ | ||||||
| Raw materials | ||||||||
| Finished goods | ||||||||
| Total | $ | $ | ||||||
Provision
for obsolete inventories at $
14
MICROVAST HOLDINGS, INC.
NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)
6. PREPAID EXPENSES AND OTHER CURRENT ASSETS
| December 31,
2020 | September 30,
2021 | |||||||
| Advances to suppliers | $ | $ | ||||||
| Other receivables | ||||||||
| VAT receivables | ||||||||
| Deposits | ||||||||
| Total | $ | $ | ||||||
The balance of the VAT receivables represented the amount available for future deduction against VAT payable.
7. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
| December 31,
2020 | September 30,
2021 | |||||||
| Payables to exiting investors | $ | $ | ||||||
| Payables for purchase of property, plant and equipment | ||||||||
| Product warranty | ||||||||
| Other current liabilities | ||||||||
| Accrued payroll and welfare | ||||||||
| Interest payable | ||||||||
| Accrued expenses | ||||||||
| Other tax payable | ||||||||
| Total | $ | $ | ||||||
The payables to exiting investors represents the amount due in a year for the redemption of the shares owned by certain noncontrolling shareholders of a subsidiary. See Note 14.
8. PRODUCT WARRANTY
Movement of product warranty was as follows:
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2020 | 2021 | 2020 | 2021 | |||||||||||||
| Balance at beginning of the period | $ | $ | $ | $ | ||||||||||||
| Provided for new sales during the period | ||||||||||||||||
| Provided for pre-existing legacy product | ||||||||||||||||
| Utilized during the period | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Balance at end of the period | $ | $ | $ | $ | ||||||||||||
Warranty provisions are based upon
historical experience. Changes in provisions related to pre-existing legacy products were made based on actual claims and intensive
testing and analysis on the legacy products. In 2021, as a result of the increases in the repairing cost and frequency of claims
with respect to a legacy product sold in 2017 and 2018, the Company conducted intensive experiments and a root cause analysis, which
was completed in October 2021. The Company concluded that a component purchased from a supplier was not meeting the Company’s
performance standards. As a result, the Company expects that the impacted legacy products sold will need to be replaced before the
expiration of the warranty term. This reassessment resulted in a change in estimate for additional accrual of $
15
MICROVAST HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)
8. PRODUCT WARRANTY - continued
| December 31,
2020 | September 30,
2021 | |||||||
| Product warranty – current | $ | $ | ||||||
| Product warranty – non-current | ||||||||
| Total | $ | $ | ||||||
9. BANK BORROWINGS
The Group entered into loan agreements and bank facilities with Chinese banks and a German bank.
The
bank facility agreement with
Changes in bank borrowings are as follows:
| Three
Months Ended September 30, | Nine
Months Ended September 30, | |||||||||||||||
| 2020 | 2021 | 2020 | 2021 | |||||||||||||
| Beginning balance | $ | $ | $ | $ | ||||||||||||
| Proceeds from bank borrowings | ||||||||||||||||
| Repayments of principal | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Exchange difference | ( | ) | ( | ) | ||||||||||||
| Ending balance | $ | $ | $ | $ | ||||||||||||
All balance of bank borrowings as of September 30, 2021 and December 31, 2020 are current borrowings.
16
MICROVAST HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)
9. BANK BORROWINGS - continued
Certain assets of the Group had been pledged to secure the above banking facilities granted to the Group. The aggregate carrying amount of the assets pledged by the Group as of December 31, 2020 and September 30, 2021 are as follows:
| December 31,
2020 | September 30,
2021 | |||||||
| Buildings | $ | $ | ||||||
| Machinery and equipment | ||||||||
| Land use rights | ||||||||
| Total | $ | $ | ||||||
In
addition, the Group’s related parties Ochem Chemical Co., Ltd (“Ochem”) and Ochemate Material Technologies Co., Ltd
(“Ochemate”) provided $
10. OTHER NON-CURRENT LIABILITIES
| December 31,
2020 | September 30,
2021 | |||||||
| Payable to exiting investors | $ | $ | ||||||
| Product warranty - non-current | ||||||||
| Deferred subsidy income- non-current | ||||||||
| Total | $ | $ | ||||||
The payable to exiting investors represents the amount to be paid for the redemption of the shares owned by certain noncontrolling interest holders of a subsidiary. See Note 14. The balance was paid out as of September 30, 2021.
11. BONDS PAYABLE
| December 31, 2020 | September 30, 2021 | |||||||
| Bonds payable | ||||||||
| Third-party investors | $ | $ | ||||||
| Total | $ | $ | ||||||
| Long–term bonds payable | ||||||||
| Huzhou Saiyuan | $ | $ | ||||||
| Total | $ | $ | ||||||
17
MICROVAST HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)
11. BONDS PAYABLE - continued
Convertible Bonds issued to Huzhou Saiyuan
On
December 29, 2018, MPS signed an agreement with Huzhou Saiyuan, an entity established
by the local government, to issue convertible bonds to Huzhou Saiyuan for a total consideration of $
If the subscribed bonds are not repaid by the maturity date, Huzhou Saiyuan has the right to dispose of the equity interests pledged by the Company in proportion to the amount of matured bonds, or convert the bond to the equity interests of MPS within 60 days after the maturity date. If Huzhou Saiyuan decides to convert the bonds to equity interests of MPS, the equity interests pledged would be released and the convertible bonds should be converted to the equity interest of MPS based on the entity value of MPS at $950,000.
On September 28, 2020, MPS signed a supplemental agreement for extension on repayment of convertible bonds to Huzhou Saiyuan, and the terms on repayments and interests are as follows:
| Issuance Date | Subscribed Amount | Maturity Date | Repayment Amount | Annual Interest Rate | ||||
| $ | $ | |||||||
| $ | $ | |||||||
| $ | ||||||||
| $ | ||||||||
| $ | $ |
An
additional one-year extension could be granted to the Group if the Group submits a written application before the extended maturity date.
As of September 30, 2021, the outstanding balance of the convertible bonds to Huzhou Saiyuan totaled at $
Convertible Bonds issued to third-party investors
On November 2, 2018, MPS signed a convertible
bond agreement with two third-party investors (the “CL Investors”), through which the CL Investors agreed to provide a non-interest
bearing loan in an aggregate amount of $
On July 23, 2021, upon the completion of the Merger
between Microvast, Inc. and Tuscan, the convertible bonds were settled and converted into
Convertible Notes at Fair Value (the “Bridge Notes”)
On
January 4, 2021, the Company entered into a note purchase agreement to issue $
18
MICROVAST
HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)
11. BONDS PAYABLE - continued
The
fair value option was elected for the measurement of the convertible notes. Changes in fair value, a loss of $
On
July 23, 2021, upon the completion of the Merger between Microvast, Inc. and Tuscan, the convertible promissory notes were converted
into
12. WARRANTS
The Company assumed
The Public Warrants became exercisable 30 days
after the completion of the Merger. No Warrants will be exercisable for cash unless the Company registered Common Stock issuable upon
exercise of the Warrants with the SEC. Since the registration of shares was not completed within 90 days following the Merger, warrant
holders may exercise Warrants on a net-share settlement basis. The Public Warrants will expire
Once the Public Warrants became exercisable, the Company may redeem the Public Warrants:
| ● | in whole and not in part; |
| ● | at a price of $0.01 per warrant; |
| ● | upon not less than 30 days’ prior written notice of redemption; |
| ● | if, and only if, the reported last sale price of the Company’s Common Stock equals or exceeds $18.00 per share for any 20 trading days within a 30-trading day period ending on the third business day prior to the notice of redemption to the warrant holders; and |
| ● | if, and only if, there is a current registration statement in effect with respect to the shares of Common Stock underlying the warrants. |
If the Company calls the Public Warrants for redemption, management will have the option to require all holders that wish to exercise the Public Warrants to do so on a net-share settlement basis.
The Private Warrants are identical to the Public
Warrants, except that the Private Warrants will be exercisable for cash or on a net-share settlement basis, at the holder’s option,
and be non-redeemable so long as they are held by the initial purchasers or their permitted transferees. If the Private Warrants are held
by someone other than the initial purchasers or their permitted transferees, the Private Warrants will be redeemable by the Company and
exercisable by such holders on the same basis as the Public Warrants. In addition, so long as the Private Warrants are held by EarlyBirdCapital
and its designee, the Private Warrants will expire
The exercise price and number of shares of Common Stock issuable upon exercise of the Warrants may be adjusted in certain circumstances including in the event of a stock dividend, or recapitalization, reorganization, merger or consolidation. However, the Warrants will not be adjusted for issuance of Common Stock at a price below its exercise price. Additionally, in no event will the Company be required to net cash settle the Warrants.
19
MICROVAST HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)
12. WARRANTS - continued
The
Private Warrants were initially recognized as a liability on July 23, 2021 at a fair value of $
The Private Warrants were valued using the following assumptions under the Monte Carlo Model that assumes optimal exercise of the Company’s redemption option at the earliest possible date:
| July 23, 2021 | September 30, 2021 | |||||||
| Market price of public stock | $ | $ | ||||||
| Exercise price | $ | $ | ||||||
| Expected term (years) | ||||||||
| Volatility | % | % | ||||||
| Risk-free interest rate | % | % | ||||||
| Dividend rate | % | % | ||||||
The market price of public stock is the quoted market price of the Company’s Common Stock as of the valuation date. The exercise price is extracted from the warrant agreements. The expected term is derived from the exercisable years based on the warrant agreements. The expected volatility is a blend of implied volatility from the Company’s own public warrant pricing and the average volatility of peer companies. The risk-free interest rate was estimated based on the market yield of US Government Bond with maturity close to the expected term of the warrants. The dividend yield was estimated by the Company based on its expected dividend policy over the expected term of the warrants.
13. 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, warrants and convertible notes at fair value on a recurring basis as of December 31, 2020 and September 30, 2021. Cash and cash equivalents, restricted cash and convertible notes are classified within Level 1 of the fair value hierarchy because they are valued based on the quoted market price in an active market. The fair value of the warrant liability is based on significant unobservable inputs, which represent Level 3 measurements within the fair value hierarchy. In determining the fair value of the warrant liability, the Company used the Monte Carlo that assumes optimal exercise of the Company’s redemption option at the earliest possible date. See Note 12.
20
MICROVAST HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)
13. FAIR VALUE MEASUREMENT - continued
Measured or disclosed at fair value on a recurring basis-continued
As of December 31, 2020 and September 30, 2021, information about inputs for the 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 | ||||||||||||||||
| (In thousands) | Quoted Prices in Active Market for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | ||||||||||||
| Cash and cash equivalents | $ | $ | ||||||||||||||
| Restricted cash | ||||||||||||||||
| Total | $ | $ | ||||||||||||||
| Fair Value Measurement as of September 30, 2021 | ||||||||||||||||
| (In thousands) | Quoted Prices in Active Market for Identical Assets (Level 1) | Significant Other Observable Inputs (Level 2) | Significant Unobservable Inputs (Level 3) | Total | ||||||||||||
| Cash and cash equivalents | $ | $ | ||||||||||||||
| Restricted cash | ||||||||||||||||
| Total financial asset | $ | - | - | $ | ||||||||||||
| Warrant liability | $ | $ | ||||||||||||||
| Total financial liability | $ | $ | ||||||||||||||
The following is a reconciliation of the beginning and ending balances for Level 3 convertible notes during the nine months ended September 30, 2021:
| (In thousands) | Convertible Notes | |||
| Balance as of January 1, 2021 | $ | |||
| Issuance of convertible notes | ||||
| Changes in fair value of convertible notes | ||||
| Conversion as of Merger | ( | ) | ||
| Balance as of September 30, 2021 | $ | |||
The following is a reconciliation of the beginning and ending balances for Level 3 warrant liability during the nine months ended September 30, 2021:
| (In thousands) | Warrant Liability | |||
| Balance as of January 1, 2021 | $ | |||
| Assumed warrant liability upon Merger | ||||
| Changes in fair value | ( | ) | ||
| Balance as of September 30, 2021 | $ | |||
21
MICROVAST HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)
13. FAIR VALUE MEASUREMENT - continued
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.
14. NONCONTROLLING INTERESTS
Noncontrolling interests of MPS
In
March 2017, Microvast, Inc. sold
In
February 2018, Microvast, Inc. signed a series of repurchase and redemption agreements with six out of the eight investors of MPS which
requested to redeem in aggregate
Pursuant to an extension agreement signed in September
2020, $
On
July 23, 2021, upon the completion of the Merger between Microvast, Inc. and Tuscan, the equity interest held by the investors who
remained noncontrolling shareholders of MPS were converted into
The Company has authorized
Immediately following the Merger, there were
22
MICROVAST
HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)
16. PREFERRED SHARES
As of December 31, 2020, the Company had preferred
shares issued and outstanding as follows (share number of the Company’s preferred shares prior to the Merger have been retroactively
restated to reflect the Common Exchange Ratio of
| Preferred Shares | Number
of Shares | Shareholders | ||||
| Series C1 Preferred | ||||||
| Series C2 Preferred | ||||||
| Series D1 Preferred | ||||||
| Total | ||||||
On
July 23, 2021, upon the completion of the Merger between Microvast, Inc. and Tuscan, all preferred shares were converted into Common
Stock of the combined company at the Common Exchange Ratio of
The changes in the balance of Series Preferred and redeemable noncontrolling interests included in the mezzanine equity for the nine months ended September 30, 2020 and 2021 were as follows:
| (In thousands) | Series C1 Preferred | Series C2 Preferred | Series D1 Preferred | Redeemable noncontrolling interests | ||||||||||||
| Balance as of January 1, 2020 | $ | $ | $ | $ | ||||||||||||
| Accretion | ||||||||||||||||
| Ending balance as of September 30, 2020 | $ | $ | $ | $ | ||||||||||||
| Balance as of January 1, 2021 | $ | $ | $ | $ | ||||||||||||
| Accretion from January 1 to July 23 | ||||||||||||||||
| Conversion as of Merger | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Ending balance as of September 30, 2021 | $ | $ | $ | $ | ||||||||||||
23
MICROVAST
HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)
17. SHARE-BASED PAYMENT
In 2012, Microvast, Inc. adopted a Share Incentive
Plan (the “2012 Plan”). The 2012 Plan permits the grant of options to purchase common stock, share appreciation rights, non-vested
shares and non-vested share units. The maximum aggregate number of shares of common stock that may be issued pursuant to all awards under
the share incentive plan is
In connection with the Merger, all outstanding
share awards granted under the 2012 Plan,
On July 21, 2021, the stockholders of the Company
approved the Microvast Holdings, Inc. 2021 Equity Incentive Plan (the “2021 Plan”), effective upon the Closing Date. The 2021
Plan provides for the grant of incentive and non-qualified stock option, restricted stock units, restricted share awards, stock appreciation
awards, and cash-based awards to employees, directors, and consultants of the Company. Options awarded under the 2021 Plan expire no more
than
Share options
During the three months and nine months ended
September 30, 2021, the Company recorded stock-based compensation expense of $
The modification date fair value of the stock options was determined using the Binomial-Lattice Model with the following assumptions:
| After modification | ||||
| Exercise price (1) | $ | |||
| Expected lives (years) (2) | ||||
| Volatility (3) | % | |||
| Risk-free interest rate (4) | % | |||
| Expected dividend yields (5) | % | |||
| Weighted average fair value of options modified | $ | |||
| (1) | Exercise price |
Exercise price was extracted from option agreements
| (2) | Expected lives |
Expected lives was derived from option agreements.
24
MICROVAST HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)
17. SHARE-BASED PAYMENT - continued
| (3) | Volatility |
The volatility of the underlying common shares during the lives of the options was estimated based on the historical stock price volatility of comparable listed companies over a period comparable to the expected term of the options and the implied volatility of the Company.
| (4) | Risk-free interest rate |
Risk-free interest rate was estimated based on the market yield of US Government Bond with maturity close to the expected term of the options, plus country risk spread.
| (5) | Expected dividend yield |
The dividend yield was estimated by the Company based on its expected dividend policy over the expected term of the options.
Share options -Continued
Share options activity for the nine months ended September 30, 2020 and 2021 was as follows (all stock award activity was retroactively restated to reflect the conversion in July 2021):
| Share options life | Number of Shares | Weighted Average Exercise Price (US$) | Weighted Average Grant Date Fair Value (US$) | Weighted Average Remaining Contractual | ||||||||||||
| Outstanding as of January 1, 2020 | $ | $ | ||||||||||||||
| Grant | ||||||||||||||||
| Forfeited | ( | ) | ||||||||||||||
| Outstanding as of September 30, 2020 | $ | $ | ||||||||||||||
| Expected to vest and exercisable as of September 30, 2020 | $ | $ | ||||||||||||||
| Outstanding as of January 1, 2021 | ||||||||||||||||
| Forfeited | ( | ) | ||||||||||||||
| Outstanding as of September 30, 2021 | $ | $ | ||||||||||||||
| Expected to vest and exercisable as of September 30, 2021 | $ | $ | ||||||||||||||
The
total unrecognized equity-based compensation costs as of September 30, 2021 related to the stock options was $
25
MICROVAST HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)
17. SHARE-BASED PAYMENT - continued
Capped Non-vested share units
The capped non-vested shares units represent rights
for the holder to receive cash determined by the number of shares granted multiplied by the lower of the fair market value and the capped
price, which will be settled in the form of cash payments. The capped non-vested shares units were accounted for as liability classified
awards. Upon conversion, the Company adjusted the terms of capped non-vested shares units outstanding as described above. The Company
recorded stock-based compensation expense of $
Non-vested share units activity for the nine months ended September 30, 2020 and 2021 was as follows (all award activity was retroactively restated to reflect the conversion in July 2021):
| Number on Non-Vested Shares | Weighted Average Grant Date Fair Value per Share (US$) | |||||||
| Outstanding as of January 1, 2020 | $ | |||||||
| Forfeited | ( | ) | $ | |||||
| Transfer from non-vested shares | $ | |||||||
| Outstanding as of September 30, 2020 | $ | |||||||
| Outstanding as of January 1, 2021 | $ | |||||||
| Outstanding as of September 30, 2021 | $ | |||||||
The
total unrecognized equity-based compensation costs as of September 30, 2021 related to the non-vested share units was
$
26
MICROVAST HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)
17. SHARE-BASED PAYMENT - continued
Restricted Stock Units
Following the Merger, the Company granted
The fair value of RSUs is determined by the price
of Common Stock at the grant date and is amortized over the vesting period on a straight-line basis. The fair value of PSU awards that
include vesting based on market conditions are estimated using the Monte Carlo valuation method. Compensation cost for these awards is
recognized based on the grant date fair value which is recognized over the vesting period on a straight-line basis. Accordingly, the Company
recorded stock-based compensation expense of $
The following assumptions were used for respective period to calculate the fair value of common shares to be issued under TSR awards on the date of grant using the Monte Carlo pricing model:
Nine Months Ended September 30, | ||||
| Expected term (years) (1) | ||||
| Volatility (2) | % | |||
| Average correlation coefficient of peer companies (3) | ||||
| Risk-free interest rate (4) | % | |||
| Expected dividend yields (5) | % | |||
| (1) | Expected term |
Expected term was derived from award agreements.
27
MICROVAST HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)
17. SHARE-BASED PAYMENT - continued
(2) Volatility
The volatility of the underlying common shares during the lives of the awards was estimated based on the historical stock price volatility of comparable listed companies over a period comparable to the expected term of the awards.
(3) Average correlation coefficient of peer companies
The correlation coefficients are calculated based upon the price data used to calculate the historical volatilities and is used to model the way in which each entity tends to move in relation to its peers.
(4) Risk-free interest rate
Risk-free interest rate was estimated based on the market yield of US Government Bond with maturity close to the expected term of the options, plus country risk spread.
(5) Expected dividend yield
The dividend yield was estimated by the Company based on its expected dividend policy over the expected term of the options.
The non-vested shares activity for the nine months ended September 30, 2020 and 2021 was as follows:
| Number
of Non-Vested Shares | Weighted Average Grant Date Fair Value Per Share (US$) | |||||||
| Outstanding as of January 1, 2020 | $ | |||||||
| Transfer to non-vested share units | ( | ) | $ | |||||
| Outstanding as of September 30, 2020 | ||||||||
| Outstanding as of January 1, 2021 | ||||||||
| Grant | $ | |||||||
| Vested | ( | ) | $ | |||||
| Outstanding as of September 30, 2021 | $ | |||||||
The
total unrecognized equity-based compensation costs as of September 30, 2021 related to the non-vested shares was $
Series B2 Preferred subscribed by employees
On
October 30, 2015, the Company issued
28
MICROVAST
HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)
17. SHARE-BASED PAYMENT - continued
Series B2 Preferred subscribed by employees-continued
As
of December 31, 2020,
Upon the Merger, the Series B2 Preferred were
converted into
The following summarizes the classification of stock-based compensation:
| Three
Months Ended September 30, 2021 | ||||
| Cost of sales | $ | |||
| General and administrative | ||||
| Research and development expenses | ||||
| Selling and marketing expenses | ||||
| Construction in process | ||||
| Total | $ | |||
18. 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 $
29
MICROVAST
HOLDINGS, INC.
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2021
(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)
19. RELATED PARTY BALANCES AND TRANSACTIONS
| Name | Relationship with the Group | |
| Ochem | ||
| Ochemate |
| (1) | Related party transaction |
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2020 | 2021 | 2020 | 2021 | |||||||||||||
| Raw material sold to Ochem | $ | $ | $ | $ | ||||||||||||
| (2) | Interest-free loans |
MPS
received certain interest-free loans from related parties, Ochemate and Ochem, for the three months and nine months ended September 30,
2020 and 2021 with accumulative amounts of $
The
outstanding balance for the amount due from Ochem was as of December 31, 2020 and $
20. NET LOSS PER SHARE
The following table sets forth the computation of basic and diluted net loss per share for the periods indicated:
| Three Months Ended September 30, | Nine
Months Ended September 30, |
|||||||||||||||
| 2020 | 2021 | 2020 | 2021 | |||||||||||||
| Numerator: | ||||||||||||||||
| Net loss attributable to ordinary shareholders | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||
| Denominator: | ||||||||||||||||
| Weighted average ordinary shares outstanding used in computing basic and diluted net loss per share | ||||||||||||||||
| Basic and diluted net loss per share | $ | ( |
) | $ | ( |
) | $ | ( |
) | $ | ( |
) | ||||