SEC Filing - Microvast Holdings, Inc.

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mvst-20230630

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2023

o 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 300 Stafford, Texas						77477
(Address Of Principal Executive Offices)						(Zip Code)

(281) 491-9505

(Registrant’s telephone number, including area code)


N/A
(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 x No o

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 x No o

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	o	Accelerated filer	x
Non-accelerated filer	o	Smaller reporting company	o
Emerging growth company	x

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. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

As of August 2, 2023, there were 316,307,715 shares of the Company’s common stock, par value $0.0001, issued and outstanding.

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MICROVAST HOLDINGS, INC.

FORM 10-Q

For the Quarter Ended June 30, 2023

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		Page
PART I. FINANCIAL INFORMATION		1

Item 1.	Financial Statements (Unaudited)	1

	Unaudited Condensed Consolidated Balance Sheets	1

	Unaudited Condensed Consolidated Statements of Operations	3

	Unaudited Condensed Consolidated Statements of Comprehensive Loss	4

	Unaudited Condensed Consolidated Statements of Changes in Shareholders’ Equity	5

	Unaudited Condensed Consolidated Statements of Cash Flows	7

	Notes to Unaudited Condensed Consolidated Financial Statements	9

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	28

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	38

Item 4.	Controls and Procedures	39

PART II. OTHER INFORMATION		40

Item 1.	Legal Proceedings	40

Item 1A.	Risk Factors	40

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds from Registered Securities	40

Item 3.	Defaults Upon Senior Securities	40

Item 4.	Mine Safety Disclosures	40

Item 5.	Other Information	40

Item 6.	Exhibits	41

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This report ("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 “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “might,” “objective,” “plan,” “project,” “predict,” “outlook” “should,” “will,” “would,” or the negative of these terms, or other comparable terminology intended to identify statements about the future. These forward-looking statements include, but are not limited to, statements regarding our industry and market sizes, and future opportunities for us. 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.

In addition to factors identified elsewhere in this Report, the following factors, among others, could cause actual results and the timing of events to differ materially from the anticipated results or other expectations expressed in the forward-looking statements:

•changes in the highly competitive market in which we compete, including with respect to our competitive landscape, technology evolution or regulatory changes;

•risk that we may not be able to execute our growth strategies or achieve profitability;

•risks of operations in China;

•the impact of inflation;

•changes in availability and price of raw materials;

•changes in the markets that we target;

•heightened awareness of environmental issues and concern about global warming and climate change;

•risk that we are unable to secure or protect our intellectual property;

•risk that our customers or third-party suppliers are unable to meet their obligations fully or in a timely manner;

•risk that our customers will adjust, cancel or suspend their orders for our products;

•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;

•risk of product liability or regulatory lawsuits or proceedings relating to our products or services;

•economic, financial and other impacts of public health crises, including pandemics (such as COVID-19) and epidemics and any related company or government policies or actions; and

•the ongoing conflict between Russia and Ukraine and any restrictive actions that have been or may be taken by the U.S. and/or other countries in response thereto, such as sanctions or export controls.

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 for the year ended December 31, 2022 in Part I, Item 1A.

Actual results, performance or achievements may differ materially, and potentially adversely, from any 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 forward-looking statements are based on

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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.

iii

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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, 2022		June 30, 2023
Assets
Current assets:
Cash and cash equivalents	$	231,420	$	142,766
Restricted cash, current	70,732		27,542
Short-term investments	25,070		25,490
Accounts receivable (net of allowance for credit losses of $4,407 and $3,468 as of December 31, 2022 and June 30, 2023, respectively)	119,304		106,094
Notes receivable	2,196		17,724
Inventories, net	84,252		86,760
Prepaid expenses and other current assets	12,093		20,620
Total Current Assets	545,067		426,996
Restricted cash, non-current	465		11
Property, plant and equipment, net	335,140		497,847
Land use rights, net	12,639		11,878
Acquired intangible assets, net	1,636		3,343
Operating lease right-of-use assets	16,368		21,001
Other non-current assets	73,642		36,596
Total Assets	$	984,957	$	997,672

Liabilities
Current liabilities:
Accounts payable	$	44,985	$	54,319
Notes payable	68,441		50,114
Accrued expenses and other current liabilities	66,720		116,449
Advance from customers	54,207		53,058
Short-term bank borrowings	17,398		18,117
Income tax payables	658		653
Total Current Liabilities	252,409		292,710
Long-term bonds payable	43,888		43,888
Long-term bank borrowings	28,997		31,029
Warrant liability	126		109
Share-based compensation liability	131		170
Operating lease liabilities	14,347		18,003
Other non-current liabilities	32,082		32,046
Total Liabilities	$	371,980	$	417,955
Commitments and contingencies (Note 16)

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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, 2022		June 30, 2023
Shareholders’ Equity
Common Stock (par value of US$0.0001 per share, 750,000,000 and 750,000,000 shares authorized as of December 31, 2022 and June 30, 2023; 309,316,011 and 309,626,443 shares issued, and 307,628,511 and 307,938,943 shares outstanding as of December 31, 2022 and June 30, 2023)	$	31	$	31
Additional paid-in capital	1,416,160		1,452,189
Statutory reserves	6,032		6,032
Accumulated deficit	(791,165)		(846,835)
Accumulated other comprehensive loss	(18,081)		(33,745)
Total Microvast Holding, Inc. shareholders’ equity	612,977		577,672
Noncontrolling interests	$	—	$	2,045
Total Equity	$	612,977	$	579,717
Total Liabilities and Equity	$	984,957	$	997,672

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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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 June 30,				Six Months Ended June 30,
	2022		2023		2022		2023
Revenues	$	64,414	$	74,953	$	101,082	$	121,926
Cost of revenues	(59,573)		(63,492)		(96,228)		(105,607)
Gross profit	4,841		11,461		4,854		16,319
Operating expenses:
General and administrative expenses	(34,335)		(23,560)		(60,436)		(43,945)
Research and development expenses	(10,244)		(9,507)		(21,553)		(20,368)
Selling and marketing expenses	(5,810)		(5,897)		(11,808)		(10,885)
Total operating expenses	(50,389)		(38,964)		(93,797)		(75,198)
Subsidy income	576		637		713		714
Loss from operations	(44,972)		(26,866)		(88,230)		(58,165)
Other income and expenses:
Interest income	420		1,518		734		2,899
Interest expense	(895)		(487)		(1,691)		(946)
Changes in fair value of warrant liability	1,255		—		820		17
Other income, net	10		(243)		409		546
Loss before provision for income taxes	(44,182)		(26,078)		(87,958)		(55,649)
Income tax expense	—		—		—		—
Net loss	$	(44,182)	$	(26,078)	$	(87,958)	$	(55,649)
Less: net income attributable to noncontrolling interests	—		11		—		21
Net loss attributable to Microvast Holdings, Inc.'s shareholders	$	(44,182)	$	(26,089)	$	(87,958)	$	(55,670)
Net loss per common share
Basic and diluted	$	(0.15)	$	(0.08)	$	(0.29)	$	(0.18)
Weighted average shares used in calculating net loss per share of common stock
Basic and diluted	300,565,515		307,742,032		299,709,069		307,728,460

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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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 June 30,				Six Months Ended June 30,
	2022		2023		2022		2023
Net loss	$	(44,182)	$	(26,078)	$	(87,958)	$	(55,649)
Foreign currency translation adjustment	(17,596)		(18,002)		(16,610)		(15,814)
Comprehensive loss	$	(61,778)	$	(44,080)	$	(104,568)	$	(71,463)
Comprehensive income attributable to non-controlling interests	—		(107)		—		(129)
Total comprehensive loss attributable to Microvast Holding, Inc.'s shareholders	$	(61,778)	$	(43,973)	$	(104,568)	$	(71,334)

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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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 June 30, 2022
	Common Stock			Additional paid-in capital		Accumulated deficit		Accumulated other Comprehensive Income (loss)		Statutory reserves		Total Microvast Holdings, Inc. Shareholders’ Equity
	Shares	Amount

Balance as of March 31, 2022	298,851,140	$	30	$	1,320,367	$	(676,741)	$	7,687	$	6,032	$	657,375
Net loss	—	—		—		(44,182)		—		—		(44,182)
Issuance of common stock in connection with vesting of restricted stock units	2,008,126	—		—		—		—		—		—
Share-based compensation	—	—		58,407		—		—		—		58,407
Foreign currency translation adjustments	—	—		—		—		(17,596)		—		(17,596)
Balance as of June 30, 2022	300,859,266	$	30	$	1,378,774	$	(720,923)	$	(9,909)	$	6,032	$	654,004


	Six Months Ended June 30, 2022
	Common Stock			Additional paid-in capital		Accumulated deficit		Accumulated other Comprehensive Income (loss)		Statutory reserves		Total Microvast Holdings, Inc. Shareholders’ Equity
	Shares	Amount

Balance as of December 31, 2021	298,843,016	$	30	$	1,306,034	$	(632,099)	$	6,701	$	6,032	$	686,698
Net loss	—	—		—		(87,958)		—		—		(87,958)
Cumulative effect adjustment related to opening retained earnings for adoption of ASU2016-13, Financial instruments- Credit losses (Topic 326)	—	—		—		(866)		—		—		(866)
Issuance of common stock in connection with vesting of restricted stock units	2,016,250	—		—		—		—		—		—
Share-based compensation	—	—		72,740		—		—		—		72,740
Foreign currency translation adjustments	—	—		—		—		(16,610)		—		(16,610)
Balance as of June 30, 2022	300,859,266	$	30	$	1,378,774	$	(720,923)	$	(9,909)	$	6,032	$	654,004

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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 June 30, 2023
	Common Stock			Additional paid-in capital		Accumulated deficit		Accumulated other Comprehensive Income (loss)		Statutory reserves		Total Microvast Holdings, Inc. Shareholders’ Equity		Non- controlling Interests		Total Equity
	Shares	Amount

Balance as of March 31, 2023	307,739,948	$	31	$	1,434,221	$	(820,746)	$	(15,861)	$	6,032	$	603,677	$	2,152	$	605,829
Net loss	—	—		—		(26,089)		—		—		(26,089)		11		(26,078)
Issuance of common stock in connection with vesting of share-based awards	198,995	—		—		—		—		—		—		—		—
Share-based compensation	—	—		17,968		—		—		—		17,968		—		17,968
Foreign currency translation adjustments	—	—		—		—		(17,884)		—		(17,884)		(118)		(18,002)
Balance as of June 30, 2023	307,938,943	$	31	$	1,452,189	$	(846,835)	$	(33,745)	$	6,032	$	577,672	$	2,045	$	579,717


	Six Months Ended June 30, 2023
	Common Stock			Additional paid-in capital		Accumulated deficit		Accumulated other Comprehensive Income (loss)		Statutory reserves		Total Microvast Holdings, Inc. Shareholders’ Equity		Non-controlling Interests		Total Equity
	Shares	Amount

Balance as of December 31, 2022	307,628,511	$	31	$	1,416,160	$	(791,165)	$	(18,081)	$	6,032	$	612,977	$	—	$	612,977
Net loss	—	—		—		(55,670)		—		—		(55,670)		21		(55,649)
Capital contribution from non-controlling interests	—	—		—		—		—		—		—		2,174		2,174
Issuance of common stock in connection with vesting of share-based awards	310,432	—		—		—		—		—		—		—		—
Share-based compensation	—	—		36,029		—		—		—		36,029		—		36,029
Foreign currency translation adjustments	—	—		—		—		(15,664)		—		(15,664)		(150)		(15,814)
Balance as of June 30, 2023	307,938,943	$	31	$	1,452,189	$	(846,835)	$	(33,745)	$	6,032	$	577,672	$	2,045	$	579,717

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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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)


	Six Months Ended June 30,
	2022		2023
Cash flows from operating activities
Net loss	$	(87,958)	$	(55,649)
Adjustments to reconcile net loss to net cash used in operating activities:
Loss on disposal of property, plant and equipment	13		826
Depreciation of property, plant and equipment	10,377		9,797
Amortization of land use right and intangible assets	283		399
Noncash lease expenses	1,112		1,465
Share-based compensation	53,650		35,779
Changes in fair value of warrant liability	(820)		(17)
Reversal of credit losses	380		(832)
Provision for obsolete inventories	1,919		928
Impairment loss from property, plant and equipment	493		51
Product warranty	6,235		5,450
Changes in operating assets and liabilities:
Notes receivable	(20,647)		(19,808)
Accounts receivable	(21,856)		10,251
Inventories	(15,906)		(16,610)
Prepaid expenses and other current assets	1,689		(6,842)
Amounts due from/to related parties	85		—
Operating lease right-of-use assets	(19,260)		(5,850)
Other non-current assets	111		199
Notes payable	19,237		(15,517)
Accounts payable	808		11,771
Advance from customers	3,230		(968)
Accrued expenses and other liabilities	(13,704)		1,020
Operating lease liabilities	15,838		3,364
Other non-current liabilities	1,156		(215)
Net cash used in operating activities	(63,535)		(41,008)

Cash flows from investing activities
Purchases of property, plant and equipment	(67,915)		(93,630)
Purchase of short-term investments	—		(419)
Proceeds on disposal of property, plant and equipment	2		648
Net cash used in investing activities	(67,913)		(93,401)

Cash flows from financing activities
Proceeds from borrowings	13,466		9,232
Repayment of bank borrowings	(17,332)		(3,939)
Net cash generated from financing activities	(3,866)		5,293
Effect of exchange rate changes	(3,863)		(3,182)
Decrease in cash, cash equivalents and restricted cash	(139,177)		(132,298)
Cash, cash equivalents and restricted cash at beginning of the period	536,109		302,617
Cash, cash equivalents and restricted cash at end of the period	$	396,932	$	170,319

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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)


	Six Months Ended June 30,
	2022		2023
Reconciliation to amounts on unaudited condensed consolidated balance sheets
Cash and cash equivalents	$	333,867	$	142,766
Restricted cash	63,065		27,553
Total cash, cash equivalents and restricted cash	$	396,932	$	170,319


Non-cash investing and financing activities
Payable for purchase of property, plant and equipment	$	28,755	$	82,968

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

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MICROVAST HOLDINGS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2023

(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)

NOTE 1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS

Microvast, Inc. was incorporated under the laws of the State of Texas in the United States of America on October 12, 2006 and re-domiciled to the State of Delaware on December 31, 2015. On July 23, 2021 (the “Closing Date”), Microvast, Inc. and Tuscan Holdings Corp.(“Tuscan”) consummated the previously announced merger (the “Merger”), 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 the Merger Agreement, the Merger Sub merged with and into Microvast, Inc., with Microvast, Inc. surviving the Merger. As a result of the Merger, Tuscan was renamed “Microvast Holdings, Inc.” (the “Company”). The Merger was 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”).

The Company and its subsidiaries (collectively, the “Group”) are primarily engaged in developing, manufacturing, and selling electronic power products for electric vehicles and energy storage across the globe.

NOTE 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 (the "SEC") 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, 2022 included in the Company’s Annual Report on Form 10-K filed with the SEC on March 16, 2023, 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 six months ended June 30, 2023 are not necessarily indicative of the results to be expected for any subsequent quarter or for the fiscal year ending December 31, 2023.

The financial information as of December 31, 2022 included on the condensed consolidated balance sheets is derived from the Group’s audited consolidated financial statements for the year ended December 31, 2022.

There have been no significant changes to the significant accounting policies disclosed in Note 2 of the audited consolidated financial statements for the years ended December 31, 2022.

Significant accounting estimates reflected in the Group’s financial statements include allowance for credit losses, provision for obsolete inventories, impairment of long-lived assets, valuation allowance for deferred tax assets, product warranty, fair value measurement of warrant liability and share based compensation.

All intercompany transactions and balances have been eliminated upon consolidation.

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MICROVAST HOLDINGS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2023

(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)

NOTE 2. SIGNIFICANT ACCOUNTING POLICIES - continued

Emerging Growth Company

Pursuant to the JOBS Act, an emerging growth company (the “EGC”) 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-EGCs 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 EGCs pursuant to the JOBS Act so long as the Company qualifies as an EGC, 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-ion batteries. The obligation of the Group is to provide the battery products. Revenue is recognized at the point of time when control of the promised goods or services is transferred to the customer, in an amount that reflects the consideration the Group expects to be entitled to in exchange for the goods or services.

Disaggregation of revenue

For the three and six months ended June 30, 2022 and 2023, the Group derived revenues from geographic regions as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2023		2022		2023
People’s Republic of China ("PRC")	$	33,946	$	46,122	$	53,784	$	78,734
Other Asia & Pacific countries	24,622		18,520		38,026		21,669
Asia & Pacific	58,568		64,642		91,810		100,403
Europe	4,880		9,337		7,631		19,522
U.S.	966		974		1,641		2,001
Total	$	64,414	$	74,953	$	101,082	$	121,926

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 are unconditional. The allowance for credit losses reflects the best estimate of probable losses inherent to the accounts receivable balance. Contract liabilities, recorded in advance from customers in the consolidated balance sheets, 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 June 30, 2022 and 2023, the Group recognized $70 and $1,068 of revenue previously included in advance from customers as of April 1, 2022 and April 1, 2023, respectively. During the six months ended June 30, 2022 and 2023, the Group recognized $549 and $2,485 of revenue previously included in advance from customers as of January 1, 2022 and January 1, 2023, respectively.

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MICROVAST HOLDINGS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2023

(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)

NOTE 2. SIGNIFICANT ACCOUNTING POLICIES - continued

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 a 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 using total shareholder return (“TSR”) as a performance metric, 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. Liability-classified awards are remeasured at their fair-value-based measurement as of each reporting date until settlement. Forfeitures are recognized as they occur.

Operating leases

As of June 30, 2023, the Company recorded operating lease right-of-use (ROU) assets of $21,001 and operating lease liabilities of $20,949, including current portion in the amount of $2,946, which was recorded under accrued expenses and other current liabilities on the balance sheet.

The Company determines if an arrangement is a lease or contains a lease at lease inception. Operating leases are required to record in the statement of financial position as right-of-use assets and lease liabilities, initially measured at the present value of the lease payments. The Company has elected the package of practical expedients, which allows the Company not to reassess (1) whether any expired or existing contracts as of the adoption date are or contain a lease, (2) lease classification for any expired or existing leases as of the adoption date and (3) initial direct costs for any expired or existing leases as of the adoption date. The Company also elected the practical expedient not to separate lease and non-lease components of contracts. Lastly, for lease assets other than real estate, such as printing machines and electronic appliances, the Company elected the short-term lease exemption as their lease terms are 12 months or less.

As the rate implicit in the lease is not readily determinable, the Company estimates its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The incremental borrowing rate is estimated in a portfolio approach to approximate the interest rate on a collateralized basis with similar terms and payments in a similar economic environment. Lease expense is recorded on a straight-line basis over the lease term.

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 in Note 11 – Warrants) 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 (as defined in Note 11 – Warrants).

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MICROVAST HOLDINGS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2023

(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)

NOTE 2. SIGNIFICANT ACCOUNTING POLICIES - continued

Recent accounting pronouncements not yet adopted

In August 2020, the FASB issued ASU 2020-06, “Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40)-Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.” The ASU simplifies accounting for convertible instruments by removing major separation models required under current GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for it. The ASU also simplifies the diluted net income per share calculation in certain areas. For SEC filers, excluding smaller reporting companies, ASU 2020-06 is effective for fiscal years beginning after December 15, 2021 including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. For all other entities, ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. The Company is currently evaluating the impact that ASU 2020-06 may have on the condensed consolidated financial statements and related disclosures.

NOTE 3. ACCOUNTS RECEIVABLE

Accounts receivable consisted of the following:


	December 31, 2022		June 30, 2023
Accounts receivable	$	123,711	$	109,562
Allowance for credit losses	(4,407)		(3,468)
Accounts receivable, net	$	119,304	$	106,094

Movement of allowance for credit losses was as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2023		2022		2023
Balance at beginning of the period	$	5,354	$	3,270	$	5,005	$	4,407
Cumulative-effect adjustment upon adoption of ASU2016-13, Financial instruments- Credit losses (Topic 326)	—		—		866		—
Charges (Reversal) of expenses	925		262		380		(832)
Write off	(153)		—		(153)		(66)
Recoveries of credit losses	—		121		—		121
Exchange difference	(298)		(185)		(270)		(162)
Balance at end of the period	$	5,828	$	3,468	$	5,828	$	3,468

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MICROVAST HOLDINGS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2023

(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)

NOTE 4. INVENTORIES

Inventories consisted of the following:


	December 31, 2022		June 30, 2023
Work in process	$	48,747	$	49,333
Raw materials	29,331		20,347
Finished goods	6,174		17,080
Total	$	84,252	$	86,760

Provision for obsolete inventories at $1,448 and $928 were recognized for the three months ended June 30, 2022 and 2023, respectively. Provision for obsolete inventories at $1,919 and $928 were recognized for the six months ended June 30, 2022 and 2023, respectively.

NOTE 5. ACQUIRED INTANGIBLE ASSETS, NET


	December 31, 2022		June 30, 2023
Cost of acquired intangible assets	$	3,493	$	5,420
Less: accumulated amortization	(1,857)		(2,077)
Acquired intangible assets, net	$	1,636	$	3,343

In December, 2022, Microvast Inc. set up a new subsidiary named Microvast Precision Works Co., Ltd ("MPW") together with a third party (the "NCI"). In the first quarter of 2023, the Company invested cash of $5,072 in MPW to hold a 70% shareholding, and the NCI injected patents with a total value of $2,174 for the remaining 30% shareholding. Such patents received are recorded as intangible assets.

The Group recorded amortization expense of $61 and $120 for the three months ended June 30, 2022 and 2023, respectively, and $122 and $249 for the six months ended June 30, 2022 and 2023, respectively. No impairment losses were recognized for the three and six months ended June 30, 2022 and 2023.

The annual amortization expense for each of the five succeeding fiscal years and thereafter are as follows:


Six months period ending December 31, 2023	$	244
2024	482
2025	479
2026	477
2027	471
2028	382
Thereafter	808
Total	$	3,343

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MICROVAST HOLDINGS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2023

(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)

NOTE 6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES


	December 31, 2022		June 30, 2023
Product warranty, current	$	13,044	$	7,855
Payables for purchase of property, plant and equipment	29,183		82,968
Other current liabilities	8,608		9,091
Accrued payroll and welfare	4,716		4,274
Accrued expenses	2,641		3,057
Interest payable	298		755
Other tax payable	6,296		5,503
Operating lease liabilities, current	1,934		2,946
Total	$	66,720	$	116,449

NOTE 7. PRODUCT WARRANTY

Movement of product warranty was as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2023		2022		2023
Balance at beginning of the period	$	51,431	$	39,610	$	58,458	$	42,060
Provided during the period	3,550		2,920		6,235		5,450
Utilized during the period	(8,590)		(3,338)		(18,600)		(8,510)
Exchange difference	(2,688)		(2,084)		(2,390)		(1,892)
Balance at end of the period	$	43,703	$	37,108	$	43,703	$	37,108


	December 31, 2022		June 30, 2023
Product warranty – current	$	13,044	$	7,855
Product warranty – non-current	29,016		29,253
Total	$	42,060	$	37,108

NOTE 8. BANK BORROWINGS

On September 27, 2022, the Group entered into a $111 million (RMB800 million) loan facilities agreement with a group of lenders led by a PRC Bank (the "2022 Facility Agreement"). The 2022 Facility Agreement has an effective drawdown period until June 9, 2023 which the Company is currently in negotiations with the lead bank to extend to a later date. The banks are currently going through their internal approval process and although steady progress is being made there is no assurance that the banks will agree to the Company’s request. Should the banks not reach agreement then the Company would lose access to the undrawn amount of $70,111 (RMB500 million). This would have no impact on the amount already drawn of $41,372 (RMB300 million) which would continue to be repaid in accordance with the scheduled repayment dates. The interest rate is prime plus 115 basis points where prime is based on Loan Prime Rate published by the National Inter-bank Funding Center of the PRC. The interest is payable on a quarterly basis and the Company is current with all payments. The loan facilities can only be used for the manufacturing capacity expansion at the Group’s facility located in Huzhou, China. The 2022 Facility Agreement contains certain customary restrictive covenants, including but not limited to disposal of assets and dividend distribution without the consent of the lender, and certain customary events of default.

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MICROVAST HOLDINGS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2023

(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)

NOTE 8. BANK BORROWINGS-continued

As of June 30, 2023, the Group had outstanding borrowings of $38,941 under the 2022 Facility Agreement.


Repayment Date						Repayment Amount
December 10, 2023						$2,741 (RMB19.9 million)
June 10, 2024						$5,171 (RMB37.5 million)
December 10, 2024						$5,171 (RMB37.5 million)
June 10, 2025						$5,171 (RMB37.5 million)
December 10, 2025						$5,171 (RMB37.5 million)
June 10, 2026						$7,758 (RMB56.3 million)
December 10, 2026						$7,758 (RMB56.3 million)

The amount of capitalized interest expenses, which was recorded in construction in progress and property, plant and equipment, was $0 and $504 for the three months ended June 30, 2022 and 2023, respectively, and $0 and $1,028 for the six months ended June 30, 2022 and 2023, respectively.

The Group has also entered into short-term loan agreements and bank facilities with certain Chinese banks. The original terms of these loans are with a maximum maturity of 12 months and the interest rates range from 3.65% to 4.75% per annum.

Changes in bank borrowings are as follows:


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2023		2022		2023
Beginning balance	$	13,335	$	50,964	$	13,301	$	46,395
Proceeds from bank borrowings	13,466		4,848		13,466		9,232
Repayments of principal	(17,332)		(3,939)		(17,332)		(3,939)
Exchange difference	(662)		(2,727)		(628)		(2,542)
Ending balance	$	8,807	$	49,146	$	8,807	$	49,146


Balance of bank borrowings includes:	December 31, 2022		June 30, 2023
Current	$	17,398	$	18,117
Non-current	28,997		31,029
Total	$	46,395	$	49,146

Certain assets of the Group have been pledged to secure the above bank facilities granted to the Group. The aggregate carrying amount of the assets pledged by the Group as of December 31, 2022 and June 30, 2023 are as follows:


	December 31, 2022		June 30, 2023
Buildings	$	27,245	$	25,088
Land use rights	12,639		11,878
Total	$	39,884	$	36,966

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MICROVAST HOLDINGS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2023

(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)

NOTE 9. OTHER NON-CURRENT LIABILITIES


	December 31, 2022		June 30, 2023
Product warranty - non-current	$	29,016	$	29,253
Deferred subsidy income- non-current	3,066		2,793
Total	$	32,082	$	32,046

NOTE 10. BONDS PAYABLE


	December 31, 2022		June 30, 2023
Long–term bonds payable
Huzhou Saiyuan	$	43,888	$	43,888
Total	$	43,888	$	43,888

On December 29, 2018, Microvast Power Systems Co., Ltd.('MPS'), one of the Company's subsidiaries, 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). The Company pledged its 12.39% equity holding over MPS to Huzhou Saiyuan to facilitate the issuance of these convertible bonds.

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 bonds into equity interests of MPS within 60 days after the maturity date. If Huzhou Saiyuan decides to convert the bonds into equity interests of MPS, the equity interests pledged would be released and the convertible bonds would be converted into equity interest of MPS based on an entity value of MPS of $950,000.

In September 2020 and 2022, MPS entered into two supplement agreements with Huzhou Saiyuan, respectively, to change the repayment schedule as follows: (i) $14,629 (RMB100 million) was repaid, together with interest accrued, on or before November 10, 2022, (ii) $14,630 (RMB100 million) was repaid, together with interest accrued, on or before December 31, 2022, and (iii) the remaining $43,888 (RMB300 million) will be repaid, together with interest accrued, on or before January 31, 2027. The applicable interest rate will be increased to 12% if the Group is in default on the repayment of the bonds at the due date. The remaining terms and conditions of the convertible bonds were unchanged. The Company has complied in full with the amended repayment schedule and accordingly, as of June 30, 2023, the subscription and outstanding balance of the convertible bonds was $43,888 (RMB300 million).

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MICROVAST HOLDINGS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2022

(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)

NOTE 11. WARRANTS

The Company assumed 27,600,000 publicly-traded warrants (“Public Warrants”) and 837,000 private placement warrants issued to Tuscan Holdings Acquisition LLC (the “Sponsor”) and EarlyBirdCapital, Inc. (“EarlyBirdCapital”) (“Private Warrants” and together with the Public Warrants, the “Warrants”) upon the Business Combination, 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 Business Combination) 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 six months ended June 30, 2023, none of the Public Warrants or the Private Warrants were exercised.

The Public Warrants became exercisable 30 days after the completion of the Business Combination. The Public Warrants are only exercisable for cash, however, if the Company were to not maintain the effectiveness of the registration statement covering the shares of Common Stock issuable upon exercise of the Public Warrants, the Public Warrants would be exercisable on a net-share settlement basis. The Public Warrants will expire five years after the completion of the Business Combination or earlier upon redemption or liquidation.

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.

The Company classified the Public Warrants as equity. 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 Business Combination.

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.

The private warrant liability was remeasured at fair value as of June 30, 2023, resulting in a gain of $0 and $17 for the three and six months ended June 30, 2023, classified within changes in fair value of warrant liability in the unaudited condensed consolidated statements of operations, respectively.

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MICROVAST HOLDINGS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2023

(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)

NOTE 11. WARRANTS - continued

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:


	June 30, 2023
Market price of public stock	$	1.60
Exercise price	$	11.50
Expected term (years)	3.07
Volatility	70.89		%
Risk-free interest rate	4.35		%
Dividend rate	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.

NOTE 12. FAIR VALUE MEASUREMENT

Measured or disclosed at fair value on a recurring basis

The Group measured its financial assets and liabilities, including cash and cash equivalents, restricted cash and warrant liability at fair value on a recurring basis as of December 31, 2022 and June 30, 2023. Cash and cash equivalents and restricted cash are classified within Level 1 of the fair value hierarchy because they are valued based on the quoted market price in an active market. The 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 Model that assumes optimal exercise of the Company’s redemption option at the earliest possible date. See Note 11 – Warrants.

As of December 31, 2022 and June 30, 2023, 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 follows:


	Fair Value Measurement as of December 31, 2022
(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	$	231,420	—	—	$	231,420
Restricted cash	71,197		—	—	71,197
Total financial asset	$	302,617	—	—	$	302,617
Warrant liability	$	—	—	126	$	126
Total financial liability	$	—	—	126	$	126

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MICROVAST HOLDINGS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2023

(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)

NOTE 12. FAIR VALUE MEASUREMENT - continued

Measured or disclosed at fair value on a recurring basis-continued


	Fair Value Measurement as of June 30, 2023
(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	$	142,766	—	—	$	142,766
Restricted cash	$	27,553	—	—	$	27,553
Total financial asset	$	170,319	—	—	$	170,319
Warrant liability	$	—	—	109	$	109
Total financial liability	$	—	—	109	$	109

The following is a reconciliation of the beginning and ending balances for Level 3 warrant liability during the six months ended June 30, 2022 and 2023:


(In thousands)	Six Months Ended June 30,
	2022		2023
Balance at the beginning of the period	1,105		$	126
Changes in fair value	(820)		(17)
Balance at end of the period	$	285	$	109

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.

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MICROVAST HOLDINGS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2023

(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)

NOTE 13. LEASES

The Group has operating leases for office spaces and warehouses. Certain leases include renewal options and/or termination options, which are factored into the Group's determination of lease payments when appropriate.

Operating lease cost for the three and six months ended June 30, 2023 was $1,069 and $1,949, which excluded cost of short-term contracts. Short-term lease cost for the three and six months ended June 30, 2023 was $108 and $179.

As of June 30, 2023, the weighted average remaining lease term was 10.3 years and weighted average discount rate was 5.0% for the Group's operating leases.

Supplemental cash flow information of the leases were as follows:


	Six months ended June 30, 2023
Cash payments for operating leases	$	1,958
Right-of-use assets obtained in exchange for new operating lease liabilities	$	5,850

The following is a maturity analysis of the annual undiscounted cash flows for lease liabilities as of June 30, 2023:


	As of June 30, 2023
Six months period ending December 31, 2023	$	2,092
2024	$	3,280
2025	$	2,798
2026	$	2,546
2027	$	2,416
2028	$	1,839
Thereafter	$	11,666
Total future lease payments	$	26,637
Less: Imputed interest	$	(5,688)
Present value of operating lease liabilities	$	20,949

NOTE 14. SHARE-BASED PAYMENT

On July 21, 2021, the Company adopted 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. Concurrently with the closing of the Business Combination, the share awards granted under 2012 Share Incentive Plan of Microvast, Inc. (the "2012 Plan") were rolled over by removing original performance conditions and converting into options and capped non-vested share units with modified vesting schedules, using the Common Exchange Ratio of 160.3. The 2021 Plan reserved 5% of the fully-diluted shares of Common Stock outstanding immediately following the Closing Date plus the shares underlying awards rolled over from the 2012 Plan for issuance in accordance with the 2021 Plan’s terms.

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MICROVAST HOLDINGS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2023

(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)

NOTE 14. SHARE-BASED PAYMENT - continued

Stock options

The grant date fair value of the stock options was determined using the Black Scholes model with the following assumptions:


	Six months ended June 30, 2023
Exercise price	$	1.21
Expected terms (years)	6.00
Volatility	55.59		%
Risk-free interest rate	3.48		%
Expected dividend yields	0.00		%
Fair value of options granted	$	0.67

The exercise prices for each award were extracted from the option agreements. The expected terms for each award were derived using the simplified method, and is estimated to occur at the midpoint of the vesting date and the expiration date. The volatility of the underlying common stock 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. Risk-free interest rate was estimated based on the market yield of US Government Bonds with maturity close to the expected term of the options. The dividend yield was estimated by the Company based on its expected dividend policy over the expected term of the options.

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MICROVAST HOLDINGS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2023

(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)

NOTE 14. SHARE-BASED PAYMENT - continued

Stock options-continued

Stock options activity for the six months ended June 30, 2022 and 2023 was as follows:


Stock options life	Number of Shares	Weighted Average Exercise Price (US$)	Weighted Average Grant Date Fair Value (US$)	Weighted Average Remaining Contractual Life
Outstanding as of December 31, 2021	33,503,657	6.19	4.95	7.9
Grant	2,400,000	5.31	2.97
Forfeited	(120,225)	6.28	4.92
Outstanding as of June 30, 2022	35,783,432	6.13	4.84	7.3
Expected to vest and exercisable as of June 30, 2022	35,783,432	6.13	4.84	7.3
Exercisable as of June 30, 2022	1,122,100	6.28	5.29	8.1
Outstanding as of December 31, 2022	36,091,071	6.08	4.80	6.8
Grant	240,000	1.25	0.67
Forfeited	(347,317)	6.28	4.86
Outstanding as of June 30, 2023	35,983,754	6.04	4.77	6.3
Expected to vest and exercisable as of June 30, 2023	35,983,754	6.04	4.77	6.3
Exercisable as of June 30, 2023	12,563,621	6.14	4.87	6.3

During the three months ended June 30, 2022 and 2023, the Company recorded share-based compensation expense of $18,332 and $13,396 related to the option awards, respectively. During the six months ended June 30, 2022 and 2023, the Company recorded share-based compensation expense of $31,962 and $27,055 related to the option awards, respectively.

The total unrecognized equity-based compensation costs as of June 30, 2023 related to the stock options was $60,805, which is expected to be recognized over a weighted-average period of 1.1 years. The aggregate intrinsic value of the stock options as of June 30, 2023 was $85.

Capped Non-vested share units

The capped non-vested share units ("CRSUs") 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 CRSUs were accounted for as liability classified awards.

On June 27, 2022, the Board of Directors and Compensation Committee approved a modification of the settlement terms of 20,023,699 CRSUs under the 2021 Plan from cash settlement to share settlement (the “Modification”). Pursuant to the Modification, on each vesting date, if the stock price is higher than the capped price, the number of shares to be issued will be calculated based on the following formula:

Number of shares to be issued = Capped price* Number of shares vested /Vesting date stock price

If the stock price is equal to or less than the capped price, the Company will grant a fixed number of shares on each vesting date based on the vesting schedule. All other terms of the CRSUs remain unchanged. The Modification resulted in a change of the CRSUs’ classification from liability to equity, as the predominant feature of the modified CRSUs was the granting of a fixed number of shares on each vesting date instead of a fixed monetary amount. The determination of the predominant feature was based on the estimated probability of how the awards will be settled using the Monte Carlo model.

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MICROVAST HOLDINGS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2023

(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)

NOTE 14. SHARE-BASED PAYMENT - continued

Capped Non-vested share units-continued

At the Modification date, the Company reclassified the amounts previously recorded as a share-based compensation liability to additional paid-in capital. The modified CRSUs were accounted for as an equity award going forward from the date of the Modification with compensation expenses recognized for each tranche at the fair value measured on the modification date.

At the Modification date, the Company used the Monte Carlo valuation model in determining the fair value of the CRSUs with assumptions as follows:


	Modification Date
Expected term (years)	0.07		~	2.07
Volatility	50.93	%	~	73.89	%
Risk-free interest rate	1.15	%	~	3.05	%
Expected dividend yields	0.00%

Expected term was the time left (in years) from the Modification date to the vesting date based on the terms of the applicable award agreements. The volatility of the underlying common stock was estimated based on the historical stock price volatility of comparable listed companies over a period comparable to the expected term of the awards. Risk-free interest rate was estimated based on the market yield of US Government Bonds with maturity close to the expected term of the awards. The dividend yield was estimated by the Company based on its expected dividend policy over the expected term of the awards.

During the three months ended June 30, 2022 and 2023, the Company recorded share-based compensation expense of $11,154 and $3,302, related to these CRSUs awards, respectively. During the six months ended June 30, 2022 and 2023, the Company recorded share-based compensation expense of $25,113 and $6,546, related to these CRSUs awards, respectively.

Activity on the CRSUs for the six months ended June 30, 2022 and 2023 was as follows:


	Number on Non-Vested Shares	Weighted Average Grant Date Fair Value per Share (US$)
Outstanding as of December 31, 2021	23,027,399	8.74	1
Vested	(2,860,713)	8.74
Outstanding as of June 30, 2022	20,166,686	2.47
Outstanding as of December 31, 2022	13,444,469	2.38
Outstanding as of June 30, 2023	13,444,469	2.38

The total unrecognized equity-based compensation costs as of June 30, 2023 related to the CRSUs was $5,903.

1 The amount represents the Modification date value per share as of July 25, 2021. As of the Modification date, the settled price was the capped price as described above.

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MICROVAST HOLDINGS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2023

(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)

NOTE 14. SHARE-BASED PAYMENT - continued

Restricted Stock Units

Following the Business Combination, the Company granted 2,187,777 restricted stock units (“RSUs”) and 2,680,372 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 the Company’s TSR relative to a comparator group during a specified performance period.

The fair value of RSUs is determined by the market closing price of Common Stock at the grant date and is amortized over the vesting period on a straight-line basis. The fair value of PSUs that include vesting based on market conditions are estimated using the Monte Carlo valuation method. For PSU awards with performance conditions, share-based compensation expense is only recognized if the performance conditions become probable to be satisfied. Compensation cost for these awards is amortized on a straight-line basis over the vesting period based on the grant date fair value, regardless of whether the market condition is satisfied. Accordingly, the Company recorded share-based compensation expense of $512 and $959 related to these RSUs and $789 and $1,508 related to these PSUs during the three and six months ended June 30, 2023, respectively. During the three and six months ended June 30, 2022, the Company recorded share-based compensation expense of $360 and $704 related to these RSUs and $673 and $1,032 related to these PSUs, respectively.

The following assumptions were used for the respective period to calculate the fair value of common stock to be issued under TSR awards on the date of grant using the Monte Carlo model:


	Six months ended June 30, 2023
Expected term (years)	2.92
Volatility	61.89	%
Risk-free interest rate	3.83	%
Expected dividend yields	0.00	%

The expected term was derived based on the remaining time from the grant date through the end of the performance period. The volatility of the underlying common stock 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. Risk-free interest rate was estimated based on the market yield of US Government Bond with maturity close to the expected term of the awards. The dividend yield was estimated by the Company based on its expected dividend policy over the expected term of the awards.

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MICROVAST HOLDINGS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2023

(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)

NOTE 14. SHARE-BASED PAYMENT - continued

Restricted Stock Units-continued

The non-vested shares activity for the six months ended June 30, 2022 and 2023 was as follows:


	Number of Non-Vested Shares	Weighted Average Grant Date Fair Value Per Share (US$)
Outstanding as of December 31, 2021	671,441	9.08
Grant	983,999	5.64
Vested	(16,250)	8.52
Forfeited	(26,802)	8.26
Outstanding as of June 30, 2022	1,612,388	7.00
Outstanding as of December 31, 2022	1,222,837	6.92
Grant	2,900,695	1.86
Vested	(310,432)	3.85
Forfeited	(51,036)	4.21
Outstanding as of June 30, 2023	3,762,064	3.31

The total unrecognized equity-based compensation costs as of June 30, 2023 related to the non-vested shares was $7,827.

The following summarizes the classification of share-based compensation:


	Three Months Ended June 30,				Six Months Ended June 30,
	2022		2023		2022		2023
Cost of revenues	$	1,882	$	1,525	$	3,816	$	3,029
General and administrative expenses	24,558		12,419		42,694		24,587
Research and development expenses	2,649		2,693		7,788		5,707
Selling and marketing expenses	1,328		1,213		4,249		2,456
Construction in process	102		149		264		289
Total	$	30,519	$	17,999	$	58,811	$	36,068

NOTE 15. 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 June 30,				Six Months Ended June 30,
	2022		2023		2022		2023
Numerator:
Net loss attributable to common stock shareholders	$	(44,182)	$	(26,089)	$	(87,958)	$	(55,670)
Denominator:
Weighted average common stock used in computing basic and diluted net loss per share	300,565,515		307,742,032		299,709,069		307,728,460
Basic and diluted net loss per share	$	(0.15)	$	(0.08)	$	(0.29)	$	(0.18)

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MICROVAST HOLDINGS, INC.

NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2023

(In thousands of U.S. dollars, except share and per share data, or as otherwise noted)

NOTE 15. NET LOSS PER SHARE - continued

For the three and six months ended June 30, 2022 and 2023, the following Common Stock outstanding were excluded from the calculation of diluted net loss per share, as their inclusion would have been anti-dilutive for the periods prescribed.


	Three Months Ended June 30,		Six Months Ended June 30,
	2022	2023	2022	2023
Shares issuable upon exercise of stock options	34,145,152	36,123,034	33,815,815	36,088,798
Shares issuable upon vesting of non-vested shares	1,347,060	3,979,361	1,011,788	3,527,440
Shares issuable upon vesting of Capped non-vested shares	660,122	13,349,144	331,885	13,349,144
Shares issuable upon exercise of warrants	28,437,000	28,437,000	28,437,000	28,437,000
Shares issuable upon vesting of Earn-out shares	19,999,988	19,999,988	19,999,988	19,999,988
Shares issuable that may be subject to cancellation	1,687,500	1,687,500	1,687,500	1,687,500

NOTE 16. COMMITMENTS AND CONTINGENCIES