UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 2021

 

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from to________________

 

Microvast Holdings, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware   001-38826   83-2530757
(State or other jurisdiction
of incorporation or organization)
  (Commission File Number)   (IRS Employer
Identification No.)

 

12603 Southwest Freeway, Suite 210
Stafford, Texas
  77477
(Address Of Principal Executive Offices)   (Zip Code)

 

(281) 491-9505

(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
Common stock, par value $0.0001 per share   MVST   The Nasdaq Stock Market LLC
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. Yes ☒ No ☐

 

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). Yes ☒ No ☐

 

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
Non-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 300,522,394 shares of the Company’s common stock, par value $0.0001, issued and outstanding.

 

 

 

 

 

 

MICROVAST HOLDINGS, INC.

Form 10-Q

For the Quarter Ended September 30, 2021

 

Table of Contents

 

    Page
PART I. FINANCIAL INFORMATION 1
     
Item 1. Financial Statements (Unaudited) 1
     
  Condensed Balance Sheet 1
     
  Condensed Statements of Operations 3
     
  Condensed Statement of Comprehensive Loss 4
     
  Condensed Statements of Changes in Shareholders’ Equity 5
     
  Condensed Statements of Cash Flows 7
     
  Notes to Unaudited Condensed Financial Statements 9
     
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 33
     
Item 3. Quantitative and Qualitative Disclosures About Market Risk 45
     
Item 4. Controls and Procedures 45
   
PART II. OTHER INFORMATION 48
     
Item 1. Legal Proceedings 48
     
Item 1A. Risk Factors 48
     
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds from Registered Securities 48
     
Item 3. Defaults Upon Senior Securities 48
     
Item 4. Mine Safety Disclosures 48
     
Item 5. Other Information 48
     
Item 6. Exhibits 49

 

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  $21,496   $572,609 
Restricted cash   19,700    39,900 
Accounts receivable (net of allowance for doubtful accounts of $5,047 and $4,796 as of December 31, 2020 and September 30, 2021, respectively)   76,298    67,243 
Notes receivable   20,839    10,260 
Inventories, net   44,968    47,820 
Prepaid expenses and other current assets   6,022    12,964 
Amount due from related parties   
-
    128 
Total Current Assets   189,323    750,924 
Property, plant and equipment, net   198,017    222,771 
Land use rights, net   14,001    13,935 
Acquired intangible assets, net   2,279    2,024 
Other non-current assets   890    702 
Total Assets  $404,510   $990,356 
           
Liabilities          
Current liabilities:          
Accounts payable  $42,007   $36,557 
Advance from customers   2,446    2,343 
Accrued expenses and other current liabilities   60,628    48,065 
Income tax payables   664    665 
Short-term bank borrowings   12,184    22,851 
Notes payable   35,782    43,131 
Bonds payable   29,915    
-
 
Total Current Liabilities   183,626    153,612 
Deposit liability for series B2 convertible preferred shares (“Series B2 Preferred”)   21,792    
-
 
Long-term bonds payable   73,147    73,147 
Warrant liability   
-
    2,461 
Share-based compensation liability   
-
    8,841 
Other non-current liabilities   110,597    35,511 
Total Liabilities  $389,162   $273,572 

 

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$0.01 par value; 26,757,258 authorized, issued and outstanding as of December 31, 2020 and nil authorized, issued and outstanding as of September 30, 2021)  $80,581   $
-
 
Series C2 convertible redeemable preferred shares (“Series C2 Preferred”) (US$0.01 par value; 20,249,450 authorized, issued and outstanding as of December 31, 2020 and nil authorized, issued and outstanding as of September 30, 2021)   81,966    
-
 
Series D1 convertible redeemable preferred shares (“Series D1 Preferred”) (US$0.01 par value; 22,311,516 authorized, issued and outstanding as of December 31, 2020 and nil authorized, issued and outstanding as of September 30, 2021)   146,583    
-
 
Redeemable noncontrolling interests   90,820    
-
 
Total Mezzanine Equity  $399,950   $
-
 
           
Commitments and contingencies (Note 21)   
 
    
 
 
           
Shareholders’ Equity          
Common Stock (par value of US$0.0001 per share, 240,450,000 and 750,000,000 shares authorized as of December 31, 2020 and September 30, 2021; 99,028,297 and 300,522,394 shares issued, and 99,028,297 and 298,834,894 shares outstanding as of December 31, 2020 and September 30, 2021)  $6   $30 
Additional paid-in capital   
-
    1,291,199 
Statutory reserves   6,032    6,032 
Accumulated deficit   (397,996)   (585,460)
Accumulated other comprehensive income   7,356    4,983 
Total Shareholders’ (Deficit)/Equity   (384,602)   716,784 
Total Liabilities, Mezzanine Equity and Shareholders’ Equity  $404,510   $990,356 

 

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  $30,753   $36,894   $59,400   $85,204 
Cost of revenues   (27,075)   (72,779)   (50,950)   (129,100)
Gross profit/(loss)   3,678    (35,885)   8,450    (43,896)
Operating expenses:                    
General and administrative expenses   (4,721)   (57,058)   (12,670)   (67,810)
Research and development expenses   (4,558)   (13,518)   (12,518)   (23,199)
Selling and marketing expenses   (3,456)   (7,380)   (9,464)   (14,242)
Total operating expenses   (12,735)   (77,956)   (34,652)   (105,251)
Subsidy income   (39)   545    802    2,676 
Loss from operations   (9,096)   (113,296)   (25,400)   (146,471)
Other income and expenses:                    
Interest income   66    97    502    304 
Interest expense   (1,397)   (1,247)   (4,234)   (4,630)
Loss on changes in fair value of convertible notes   
-
    (3,018)   
-
    (9,861)
Gain on change in fair value of warrant liability   
-
    1,113    
-
    1,113 
Other income (expense), net   68    (19)   63    25 
Loss before provision for income taxes   (10,359)   (116,370)   (29,069)   (159,520)
Income tax benefit (expense)   270    (106)   (5)   (324)
Net loss  $(10,089)  $(116,476)  $(29,074)  $(159,844)
Less: Accretion of Series C1 Preferred   975    251    2,923    2,257 
Less: Accretion of Series C2 Preferred   2,216    570    6,650    5,132 
Less: Accretion of Series D1 Preferred   4,662    1,190    13,986    10,708 
Less: Accretion for noncontrolling interests   4,002    1,516    11,924    9,523 
Net loss attributable to common stock shareholders of Microvast Holdings, Inc.  $(21,944)  $(120,003)  $(64,557)  $(187,464)
Net loss per share attributable to common stock shareholders of Microvast Holdings, Inc.                    
Basic and diluted  $(0.22)  $(0.49)  $(0.65)  $(1.27)
Weighted average shares used in calculating net loss per share of common stock                    
Basic and diluted   99,028,297    243,861,780    99,028,297    147,836,650 

 

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  $(10,089)  $(116,476)  $(29,074)  $(159,844)
Foreign currency translation adjustment   10,867    (3,130)   6,223    (2,373)
Comprehensive income/(loss)  $778   $(119,606)  $(22,851)  $(162,217)

 

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     99,028,297     $      6     $
-
    $ (359,646 )   $ (13,910 )   $ 6,032     $ (367,518 )
Net loss     -      
-
     
-
      (10,089 )    
-
     
-
      (10,089 )
Accretion for Series C1 Preferred     -      
-
     
-
      (975 )    
-
     
-
      (975 )
Accretion for Series C2 Preferred     -      
-
     
-
      (2,216 )    
-
     
-
      (2,216 )
Accretion for Series D1 Preferred     -      
-
     
-
      (4,662 )    
-
     
-
      (4,662 )
Accretion for the exiting noncontrolling interests     -      
-
     
-
      (1,425 )    
-
     
-
      (1,425 )
Foreign currency translation adjustments     -      
-
     
-
     
-
      10,867      
-
      10,867  
Accretion for redeemable noncontrolling interests     -      
-
     
-
      (2,577 )    
-
     
-
      (2,577 )
Balance as of September 30, 2020     99,028,297     $ 6     $
-
    $ (381,590 )   $ (3,043 )   $ 6,032     $ (378,595 )
                                                         
    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     99,028,297     $      6     $ 3,727     $ (320,760 )   $ (9,266 )   $ 6,032     $ (320,261 )
Net loss     -      
-
     
-
      (29,074 )    
-
     
-
      (29,074 )
Accretion for Series C1 Preferred     -      
-
      (2,923 )    
-
     
-
     
-
      (2,923 )
Accretion for Series C2 Preferred     -      
-
      (804 )     (5,846 )    
-
     
-
      (6,650 )
Accretion for Series D1 Preferred     -      
-
     
-
      (13,986 )    
-
     
-
      (13,986 )
Accretion for the exiting noncontrolling interests     -      
-
     
-
      (4,243 )    
-
     
-
      (4,243 )
Foreign currency translation adjustments     -      
-
     
-
     
-
      6,223      
-
      6,223  
Accretion for redeemable noncontrolling interests     -      
-
     
-
      (7,681)      
-
     
-
      (7,681 )
Balance as of September 30, 2020     99,028,297     $ 6     $
-
    $ (381,590 )   $ (3,043 )   $ 6,032     $ (378,595 )

 

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
Holdings, Inc.

 
    Common Stock     paid-in     Accumulated     Comprehensive     Statutory     Shareholders’  
    Shares     Amount     capital     deficit     Income (loss)     reserves     (Deficit)/Equity  
                                           
Balance as of June 30, 2021     99,028,297     $ 6     $
-
    $ (465,457 )   $ 8,113     $ 6,032     $ (451,306 )
Net loss     -      
-
     
-
      (116,476 )    
-
     
-
      (116,476 )
Accretion for Series C1 Preferred     -      
-
     
-
      (251 )    
-
     
-
      (251 )
Accretion for Series C2 Preferred     -      
-
     
-
      (570 )    
-
     
-
      (570 )
Accretion for Series D1 Preferred     -      
-
     
-
      (1,190 )    
-
     
-
      (1,190 )
Accretion for redeemable noncontrolling interests     -      
-
     
-
      (658 )    
-
     
-
      (658 )
Accretion for the exiting noncontrolling interests     -      
-
     
-
      (858 )    
-
     
-
      (858 )
Issuance of common stock upon the reverse recapitalization, net of issuance costs of $42.8 million (Note 3)     191,254,950       23       1,241,648      
-
     
-
     
-
      1,241,671  
Share-based compensation     8,551,647       1       49,551      
-
     
-
     
-
      49,552  
Foreign currency translation adjustments     -      
-
     
-
              (3,130    
      (3,130
Balance as of September 30, 2021     298,834,894     $ 30     $ 1,291,199     $ (585,460 )   $ 4,983     $ 6,032     $ 716,784  
                                                         
    Nine Months Ended September 30, 2021  
                Additional           Accumulated other           

Total

Microvast
Holdings, Inc.

 
    Common Stock     paid-in     Accumulated     Comprehensive     Statutory     Shareholders’  
    Shares     Amount     capital     deficit     income (loss)     reserves     (Deficit)/Equity  
                                           
Balance as of January 1, 2021     99,028,297     $ 6     $
-
    $ (397,996 )   $ 7,356     $ 6,032     $ (384,602 )
Net loss     -      
-
     
-
      (159,844 )    
-
     
-
      (159,844 )
Accretion for Series C1 Preferred     -      
-
     
-
      (2,257 )    
-
     
-
      (2,257 )
Accretion for Series C2 Preferred     -      
-
     
-
      (5,132 )    
-
     
-
      (5,132 )
Accretion for Series D1 Preferred     -      
-
     
-
      (10,708 )    
-
     
-
      (10,708 )
Accretion for redeemable noncontrolling interests     -      
-
     
-
      (5,841 )    
-
     
-
      (5,841 )
Accretion for the exiting noncontrolling interests     -      
-
     
-
      (3,682 )    
-
     
-
      (3,682 )
Issuance of common stock upon the reverse recapitalization, net of issuance costs of $42.8 million (Note 3)     191,254,950       23       1,241,648      
-
     
-
     
-
      1,241,671  
Share-based compensation     8,551,647       1       49,551      
-
     
-
     
-
      49,552  
Foreign currency translation adjustments     -      
-
     
-
     
-
      (2,373 )    
-
      (2,373 )
Balance as of September 30, 2021     298,834,894     $ 30     $ 1,291,199     $ (585,460 )   $ 4,983     $ 6,032     $ 716,784  

 

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  $(29,074)  $(159,844)
Adjustments to reconcile net loss to net cash used in operating activities:          
Loss on disposal of property, plant and equipment   205    6 
Depreciation of property, plant and equipment   11,384    14,398 
Amortization of land use right and intangible assets   529    499 
Share-based compensation   
-
    58,290 
Changes in fair value of warrant liability   
-
    (1,113)
Changes in fair value of convertible notes   
-
    9,861 
(Reversal) allowance of doubtful accounts   (861)   261 
Provision for obsolete inventories   1,326    12,667 
Impairment loss from property, plant and equipment   645    867 
Product warranty   2,468    44,610 
Changes in operating assets and liabilities:          
Notes receivable   10,630    10,782 
Accounts receivable   11,782    9,425 
Inventories   6,021    (15,127)
Prepaid expenses and other current assets   (625)   (6,874)
Amount due from/to related parties   1,859    (128)
Other non-current assets   (154)   52 
Notes payable   (8,612)   6,868 
Accounts payable   (2,545)   (5,944)
Advance from customers   (1,165)   (130)
Accrued expenses and other liabilities   1,981    (6,371)
Other non-current liabilities   
-
    2,292 
Income tax payables   5    
-
 
Net cash generated from/(used in) operating activities   5,799    (24,653)
           
Cash flows from investing activities          
Purchases of property, plant and equipment   (15,375)   (40,718)
Proceeds on disposal of property, plant and equipment   6    
-
 
Purchase of short-term investments   (2,002)   
-
 
Proceeds from maturity of short-term investments   2,946    
-
 
Net cash used in investing activities   (14,425)   (40,718)
           
Cash flows from financing activities          
Proceeds from borrowings   15,230    26,603 
Repayment of bank borrowings   (17,590)   (15,665)
Loans borrowing from related parties   18,063    8,426 
Repayment of related party loans   (18,063)   (8,426)
Merger and Private Investment in Public Equity (“PIPE”) financing   
-
    747,791 
Payment for transaction fee in connection with the merger   
-
    (42,821)
Payment to exited noncontrolling interests (Note 14)   
-
    (139,038)
Issuance of convertible notes   
-
    57,500 
           
Net cash (used in)/generated from financing activities   (2,360)   634,370 
Effect of exchange rate changes   534    2,314 
(Decrease) Increase in cash, cash equivalents and restricted cash   (10,452)   571,313 
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  $31,332   $612,509 

 

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  $23,099   $572,609 
Restricted cash   8,233    39,900 
Total cash, cash equivalents and restricted cash  $31,332   $612,509 

 

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 $23,945 and $31,792 from the Asia & Pacific region, $6,446 and $4,908 from Europe and $362 and $194 from other geographic regions where the customers are located, respectively.

 

For the nine months ended September 30, 2020 and 2021, the Group derived revenues of $42,632 and $73,360 from the Asia & Pacific region, $16,376 and $11,466 from Europe and $392 and $378 from other geographic regions where the customers are located, respectively.

 

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 $13 and $60 of revenue previously included in advance from customers as of July 1, 2020 and July 1, 2021, respectively. During the nine months ended September 30, 2020 and 2021, the Group recognized $459 and $1,381 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.

 

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 $57.5 million outstanding convertible notes issued by Microvast (the “Bridge Notes,” refer to Note 11) and the investors in the PIPE Financing:

 

  The Company issued 209,999,991 shares of Common Stock of the Company (“Common Stock”) to the former owners of Microvast, Inc. pursuant to the Merger Agreement, which number is inclusive of the shares being issued to the CL Investors and MPS minority investors pursuant to the Framework Agreement;
     
  The Company issued 6,736,106 shares of Common Stock to the holders of the Bridge Notes;
     
  The Company issued 48,250,000 shares of Common Stock to the PIPE investors for a purchase price of $10.00 per share and an aggregate purchase price of $482.5 million;
     
  The Company issued 150,000 private placement units to Tuscan Holdings Acquisition LLC (the “Sponsor”) upon conversion of notes payable by the Company in the amount of $1.5 million; such private placement units consist of (i) 150,000 shares of Common Stock and (ii) warrants to purchase 150,000 shares of Common Stock at an exercise price of $11.50 per share; and

 

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 19,999,988 shares of Common Stock (“Earn-Out Shares”) if the daily volume weighted average price of the Common Stock is greater than or equal to $18.00 for any 20 trading days within a 30 trading day period (or a change of control of the Company occurs that results in the holders of Common Stock receiving a per share price equal to or in excess of $18.00), during the period commencing on the Closing Date and ending on the third anniversary of the Closing Date. In accordance with ASC 815-40, the Earn-Out Shares were indexed to the Common Stock and were classified as equity.

 

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.

 

 

1In 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, (1) the CL Investors waived their convertible loans issued on November 2, 2018, by MPS, in exchange for 6,719,845 shares of Common Stock of the Company and (2) the MPS minority investors waived their rights in MPS's equity in exchange for 17,253,182 shares of Common Stock of the Company (refer to Note 14).

 

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)   209,999,991 
Existing Microvast Convertible Noteholders   6,736,106 
Tuscan public stockholders   27,493,140 
Sponsor Group(b)(c)   7,608,589 
EarlyBirdCapital   428,411 
PIPE investors immediately after Merger   48,250,000 
Common Stock   300,516,237 

 

(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 1,687,500 shares that may be subject to cancellation in accordance with the amended escrow agreement.

 

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 $708.4 million of proceeds including the contribution of $281.7 million of cash held in Tuscan’s trust account from its initial public offering, net of redemptions of Tuscan public stockholders of $0.9 million, and $482.5 million of cash in connection with the PIPE financing. The total transaction costs was $58.3 million, consisting of banking, legal, and other professional fees, among which $42.8 million was recorded as a reduction to additional paid-in-capital and the remaining $15.5 million was recorded as expense by Tuscan immediately prior to the merger.

 

In connection with the Merger, the Sponsor and related parties entered into the amended escrow agreement, pursuant to which 1,687,500 shares owned by the Sponsor Group (“Escrow Shares”) are subject to cancellation on conditions that: (i) 50% of 1,687,500 shares shall be cancelled if the last sale price of the Common Stock does not equal or exceed $12.00 per share for any 20 trading days within any 30-trading day period prior to the fifth anniversary of the Closing, and (ii) 50% of 1,687,500 shares shall be cancelled if the last sale price of the Common Stock does not equal or exceed $15.00 per share for any 20 trading days within any 30-trading day period prior to the fifth anniversary of the Closing. In accordance with ASC 815-40, the Escrow Shares were indexed to the Common Stock and were classified as equity. 

 

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  $81,345   $72,039 
Allowance for doubtful accounts   (5,047)   (4,796)
Accounts receivable, net  $76,298   $67,243 

 

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  $4,534   $4,743   $5,537   $5,047 
Charge to expenses   2    457    (861)   261 
Write off   
-
    (415)   
-
    (546)
Exchange difference   173    11    33    34 
Balance at end of the period  $4,709   $4,796   $4,709   $4,796 

 

5. INVENTORIES, NET

 

Inventories consisted of the following:

 

   December 31,
2020
   September 30,
2021
 
Work in process  $22,167   $18,222 
Raw materials   17,451    20,725 
Finished goods   5,350    8,873 
Total  $44,968   $47,820 

 

Provision for obsolete inventories at $680 and $6,569 were recognized for the three months ended September 30, 2020 and 2021, respectively. Provision for obsolete inventory at $1,326 and $12,667 were recognized for the nine months ended September 30, 2020 and 2021, respectively.

 

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  $2,117   $4,681 
Other receivables   688    6,330 
VAT receivables   2,471    1,207 
Deposits   746    746 
Total  $6,022   $12,964 

 

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  $30,000   $
-
 
Payables for purchase of property, plant and equipment   15,122    13,017 
Product warranty   4,296    18,690 
Other current liabilities   3,959    8,469 
Accrued payroll and welfare   2,704    2,818 
Interest payable   1,379    2,674 
Accrued expenses   1,696    1,972 
Other tax payable   1,472    425 
Total  $60,628   $48,065 

 

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  $17,358   $25,543   $18,416   $19,356 
Provided for new sales during the period   1,517    1,498    2,468    3,761 
Provided for pre-existing legacy product   
-
    34,055    
-
    40,849 
Utilized during the period   (313)   (9,229)   (2,322)   (12,099)
Balance at end of the period  $18,562   $51,867   $18,562   $51,867 

 

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 $34.1 million for such legacy product sold. As the component was not incorporated into other products, no additional accrual was made to other existing products sold. The Company is in negotiation with the supplier for compensation and will take legal action if necessary.

 

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  $4,296   $18,690 
Product warranty – non-current   15,060    33,177 
Total  $19,356   $51,867 

 

9. 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 September 30, 2021, the balance of the loans from Chinese bank was $13,191.

 

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 6.00% annual interest, needs to be renewed every year (60 days in advance). During the nine months ended September 30, 2021, the Group drew down the 8-year maturity term loan to the amount of $9,660. On October 1, 2021, the Company had entered into the termination agreement with the German Bank to cancel the German Bank Facility Agreement. All outstanding amounts under the loan were repaid on October 8, 2021.

 

Changes in bank borrowings are as follows:

 

   Three Months Ended
September 30,
   Nine Months Ended
September 30,
 
   2020   2021   2020   2021 
Beginning balance  $9,412   $26,458   $11,922   $12,184 
Proceeds from bank borrowings   5,757    
-
    15,230    26,603 
Repayments of principal   (5,696)   (3,400)   (17,590)   (15,665)
Exchange difference   321    (207)   232    (271)
Ending balance  $9,794   $22,851   $9,794   $22,851 

 

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  $22,732   $31,479 
Machinery and equipment   19,297    17,173 
Land use rights   2,789    4,448 
Total  $44,818   $53,100 

 

In addition, the Group’s related parties Ochem Chemical Co., Ltd (“Ochem”) and Ochemate Material Technologies Co., Ltd (“Ochemate”) provided $20,874 of guarantees to secure certain bank facilities granted to the Group as of December 31, 2020.

 

10. OTHER NON-CURRENT LIABILITIES

 

   December 31,
2020
   September 30,
2021
 
Payable to exiting investors  $94,316   $
-
 
Product warranty - non-current   15,060    33,177 
Deferred subsidy income- non-current   1,221    2,334 
Total  $110,597   $35,511 

 

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  $29,915   $
-
 
Total  $29,915   $
-
 
           
Long–term bonds payable          
Huzhou Saiyuan  $73,147   $73,147 
Total  $73,147   $73,147 

 

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 $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 for $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 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
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 September 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 “CL Investors”), through which the CL Investors 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 CL Investors 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, $29,915 (RMB204.5 million) was subscribed by the CL Investors.

 

On July 23, 2021, upon the completion of the Merger between Microvast, Inc. and Tuscan, the convertible bonds were settled and converted into 6,719,845 shares of Common Stock of the combined company. Refer to Note 3.

 

Convertible Notes at Fair Value (the “Bridge Notes”)

 

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 bore no interest, provided, however, if a liquidity event (“Liquidity Event”) had not occurred prior to June 30, 2022, an interest rate of 6% would be applied retrospectively from the date of initial closing. The conversion of the promissory notes was contingent upon the occurrence of a Private Investment in Public Equity (“PIPE”) financing, a 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 amounts of $25,000 and $32,500, respectively. A discounted rate of 80% or 90% was required to be applied upon conversion, depending on the circumstances of PIPE financing, Liquidity Event or Next Financing.

 

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 $3,018 and $9,861 were recorded in the unaudited condensed consolidated statements of operations for the three and nine months ended September 30, 2021, respectively.

 

On July 23, 2021, upon the completion of the Merger between Microvast, Inc. and Tuscan, the convertible promissory notes were converted into 6,736,106 shares of Common Stock of the combined company as disclosed in Note 3.

 

12. WARRANTS

 

The Company assumed 27,600,000 publicly-traded warrants (“Public Warrants”) and 837,000 private placement warrants issued to the Sponsor and EarlyBirdCapital, Inc. (“EarlyBirdCapital”) (“Private Warrants” and together with the Public Warrants, the “Warrants”) upon the Merger, all of which were issued in connection with Tuscan’s initial public offering (other than 150,000 Private Warrants that were issued in connection with the closing of the Merger) and entitle the holder to purchase one share of the Company’s Common Stock at an exercise price of $11.50 per share. During the three and nine months ended September 30, 2021, none of Public Warrants and Private Warrants were exercised.

 

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 five years after the completion of the Merger or earlier upon redemption or liquidation.

 

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 five years from the effective date of the Merger.

 

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 $3,574 and the private warrant liability was remeasured to fair value based upon the market price as of September 30, 2021, resulting in a gain of $1.1 million for the three months ended September 30, 2021, classified within change in fair value of warrant liabilities in the condensed consolidated statements of operations.

 

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  $10.00   $8.22 
Exercise price  $11.50   $11.50 
Expected term (years)   5.00    4.82 
Volatility   54.14%   52.80%
Risk-free interest rate   0.72%   0.94%
Dividend rate   0.00%   0.00%

 

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  $21,496    
      -
    
      -
   $21,496 
Restricted cash   19,700    
-
    
-
    19,700 
Total  $41,196    
-
    
-
   $41,196 

 

   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  $572,609    
     -
    
-
   $572,609 
Restricted cash   39,900    
-
    
-
    39,900 
Total financial asset  $612,509    -    -   $612,509 
Warrant liability  $
-
    
-
    2,461   $2,461 
Total financial liability  $
-
    
-
    2,461   $2,461 

 

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   57,500 
Changes in fair value of convertible notes   9,861 
Conversion as of Merger   (67,361)
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   3,574 
Changes in fair value   (1,113)
Balance as of September 30, 2021  $2,461 

 

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 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, 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 14.05% equity interests in MPS (“Exiting Investors”), at a redemption value equal to the initial capital contribution plus 6.00% 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, $30,000 was paid to the Exiting Investors in March 2021, and the remaining repayments are scheduled in 2023 and thereafter, depending on the completion of financing in 2022 or 2023. On August 31, 2021, an early repayment agreement was entered into between MPS and the Exiting Investors, pursuant to which the remaining amount of $99,038 was fully repaid as of September 30, 2021 to the Exiting Investors.

 

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 17,253,182 shares of Common Stock of the combined company as disclosed in Note 3.

 

15. COMMON STOCK

 

The Company has authorized 800,000,000 shares to be issued at $0.0001 par value, with 750,000,000 shares designated as Common Stock and 50,000,000 shares of redeemable convertible preferred stock.

 

Immediately following the Merger, there were 300,516,237 shares of Common Stock issued with a par value of $0.0001 as disclosed in Note 3. The holder of each share of Common Stock is entitled to one vote. The Company has retroactively adjusted the shares issued and outstanding prior to July 23, 2021 to give effect to the Common Exchange Ratio of 160.3 established in the Merger Agreement. As of September 30, 2021, there were 300,522,394 shares of Common Stock issued and 298,834,894 shares outstanding.

 

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 160.3 established in the Merger as described in Note 3):

 

Preferred Shares  Number of
Shares
   Shareholders
Series C1 Preferred   

26,757,258

   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   

20,249,450

   Ashmore Cayman SPC Limited (“Ashmore Cayman”) and IFC
Series D1 Preferred   

22,311,516

   Evergreen Ever Limited (“EEL”)
Total   

69,318,224

    

 

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 160.3 as disclosed in Note 3.

 

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  $76,684   $73,100   $127,935   $80,561 
Accretion   2,923    6,650    13,986    7,681 
Ending balance as of September 30, 2020  $79,607   $79,750   $141,921   $88,242 
Balance as of January 1, 2021  $80,581   $81,966   $146,583   $90,820 
Accretion from January 1 to July 23   2,257    5,132    10,708    5,841 
Conversion as of Merger   (82,838)   (87,098)   (157,291)   (96,661)
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 17 percent of the total issued and outstanding company shares on a fully-diluted basis. The share options, non-vested shares and non-vested share units granted to the employees or nonemployees shall vest and become non-forfeitable with respect to one-third of the total number of the non-vested share and non-vested share units immediately upon the occurrence of initial public offering, sale or transfer of all or substantially all of the business, operations or assets of Microvast, Inc. or its subsidiaries, taken as a whole, to a third party, or such other sale or transfer of common stock in Microvast, Inc. as determined, in each case, by Microvast, Inc. pursuant to legal documents and other obligations binding upon it (the “Initial Vesting Date”), and on each of the first and second anniversaries of the Initial Vesting Date; provided that through each applicable vesting date, the employee or nonemployee is employed. The Merger in 2021 did not constitute the satisfaction of a performance condition that would trigger the vesting of equity awards as stipulated in the 2012 Plan.

 

In connection with the Merger, all outstanding share awards granted under the 2012 Plan, 209,906 options and 143,652 capped non-vested share units, were converted into 33,647,927 options and 23,027,399 capped non-vested share units of the Company, respectively, using the Common Exchange Ratio of 160.3 as described in Note 3. Upon conversion, the Company modified the terms of the equity awards by removing the performance condition of the occurrence of an initial public offering and similar transaction under the 2012 Plan, and adopted a new vesting schedule of one-third of the total number on each of the first, second and third anniversaries of the Closing Date (the “Modification”). The Modification was considered a Type III modification under the Accounting for Share-Based Payments (Topic 718), in which the original awards were canceled, and the modified awards were considered granted on the modification date. Post-modification stock-based compensation expense related to these new awards will be recognized over the remaining service period using modification date fair values. Following the Merger, no further awards will be granted under the 2012 Plan. All stock award activity was retroactively restated to reflect the conversion.

 

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 10 years from the date of grant. The 2021 Plan reserves 5% of the fully-diluted shares of Common Stock outstanding immediately following the Closing Date (not including the shares underlying awards rolled over from the 2012 Plan) for issuance in accordance with the 2021 Plan’s terms. As of September 30, 2021, 76,956,754 shares of Common Stock was available under the 2021 Plan.

 

Share options

 

During the three months and nine months ended September 30, 2021, the Company recorded stock-based compensation expense of $10.2 million related to the option awards.

 

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)   $4.37-6.28 
Expected lives (years) (2)    4.5-9.4 
Volatility (3)    47.6%-53.1%
Risk-free interest rate (4)    1.26-1.87%
Expected dividend yields (5)    0.00%
Weighted average fair value of options modified   $4.70-5.36 

 

(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   7,578,503   $5.50   $2.14    7.1 
Grant   27,874,727    6.27    3.06    
 
 
Forfeited   (1,196,158)   3.89    2.04    
 
 
Outstanding as of September 30, 2020   34,257,072   $6.19   $2.90    9.2 
Expected to vest and exercisable as of September 30, 2020   34,257,072   $6.19   $2.90    9.2 
Outstanding as of January 1, 2021   34,737,967    6.19    2.92    9.0 
Forfeited   (1,186,220)   6.27    3.13    
 
 
Outstanding as of September 30, 2021   33,551,747   $6.19   $4.95    8.2 
Expected to vest and exercisable as of September 30, 2021   33,551,747   $6.19   $4.95    8.2 

 

The total unrecognized equity-based compensation costs as of September 30, 2021 related to the stock options was $150.2 million, which is expected to be recognized over a weighted-average period of 8.2 years. The aggregate intrinsic value of the share options as of September 30, 2021 was $68,267.

 

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 $8.8 million related to these non-vested share units awards based on the fair value determined by the lower of stock market price and the capped price as of September 30, 2021.

 

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   19,809,056   $0.90 
Forfeited   (71,494)  $1.42 
Transfer from non-vested shares   3,289,837   $1.14 
           
           
Outstanding as of September 30, 2020   23,027,399   $0.93 
Outstanding as of January 1, 2021   23,027,399   $0.93 
Outstanding as of September 30, 2021   23,027,399   $6.27 

 

The total unrecognized equity-based compensation costs as of September 30, 2021 related to the non-vested share units was $135.7 million.

 

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 133,981 restricted stock units (“RSUs”) and 63,959 performance-based restricted stock unit (“PSU”) awards subject to service, performance and/or market conditions. The service condition requires the participant’s continued services or employment with the Company through the applicable vesting date, and the performance condition requires the achievement of the performance criteria defined in the award agreement. The market condition is based on is based on the Company’s TSR. For RSU awards with performance conditions, stock-based compensation expense is only recognized if the performance conditions become probable to be satisfied.

 

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 $135 related to these RSU awards and $31 related to these PSU awards during the nine months ended September 30, 2021.

 

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,
2021

 
Expected term (years) (1)   2.35 
Volatility (2)   63.06%
Average correlation coefficient of peer companies (3)   0.7960 
Risk-free interest rate (4)   0.31%
Expected dividend yields (5)   0.00%

 

(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   3,289,837   $1.14 
Transfer to non-vested share units   (3,289,837)  $1.14 
Outstanding as of September 30, 2020   
-
    
-
 
Outstanding as of January 1, 2021   
-
    
-
 
Grant   197,940   $9.60 
Vested   (6,157)  $8.52 
Outstanding as of September 30, 2021   191,783   $9.63 

 

The total unrecognized equity-based compensation costs as of September 30, 2021 related to the non-vested shares was $1.6 million.

 

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 (“Series B2 Award”) 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 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 Company. If a holder of the Series B2 Award terminates employment before the vesting, the Company could repurchase the Series B2 Preferred for a per share price equal to the lower of the original Series B2 Preferred subscription price or 70% of the fair market value of such Series B2 Preferred. The Company’s repurchase right upon employment termination is viewed as forfeiture and the Company accounted for the Series B2 Award as a stock option.

 

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, 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.

 

Upon the Merger, the Series B2 Preferred were converted into 8,546,502 Common Stock, however, the Series B2 Award was not vested as the performance condition was not reached. In September 2021, the performance and service condition was exempted for the Series B2 holders and the awards were fully vested. The exemption of performance and service condition was considered a Type III modification under the Topic 718, in which the original awards were canceled, and the modified awards were considered granted on the modification date. Post-modification stock-based compensation expense related to these new awards of $39.2 million was recognized using modification date fair values determined based on the difference between the exercise price and Common Stock price on the modification date. Accordingly, the deposit liability was reclassified to equity upon the vesting.

 

The following summarizes the classification of stock-based compensation:

 

   Three Months Ended
September 30,
2021
 
Cost of sales  $

2,306

 
General and administrative   

44,164

 
Research and development expenses   

8,303

 
Selling and marketing expenses   

3,518

 
Construction in process   103 
Total  $

58,394

 

 

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 $618 and $708 for three months ended September 30, 2020 and 2021, respectively. The total provisions for such employee benefits were $1,572 and $1,989 for nine months ended September 30, 2020 and 2021, respectively.

 

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   Controlled by CEO
Ochemate   Controlled by CEO

 

(1)Related party transaction

 

   Three Months Ended September 30,   Nine Months Ended September 30, 
   2020   2021   2020   2021 
Raw material sold to Ochem  $11   $113   $11   $406 

 

(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 $7,607 and nil, $18,063 and $8,426, respectively.

 

The outstanding balance for the amount due from Ochem was nil as of December 31, 2020 and $128 as of September 30, 2021, respectively. Also, Ochem and Ochemate provided certain pledges and credit guarantees for the Group to secure bank facilities. Please refer to Note 9.

 

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   $ (21,944 )   $ (120,003 )   $ (64,557 )   $ (187,464 )
Denominator:                                
Weighted average ordinary shares outstanding used in computing basic and diluted net loss per share     99,028,297       243,861,780       99,028,297       147,836,650  
Basic and diluted net loss per share   $ (0.22 )   $ (0.49 )   $ (0.65 )   $ (1.27 )