The accompanying notes are an integral
part of the condensed financial statements.
The accompanying notes are an integral
part of the condensed financial statements.
The accompanying notes are an integral
part of the condensed financial statements.
The accompanying notes are an integral
part of these condensed financial statements.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2020
(Unaudited)
NOTE 1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS
Tuscan Holdings Corp. (the “Company”)
was incorporated in Delaware on November 5, 2018. The Company was formed for the purpose of entering into a merger, share exchange,
asset acquisition, stock purchase, recapitalization, reorganization or similar business combination with one or more businesses
or entities (the “Business Combination”).
Although the Company is not limited to
a particular industry or sector for purposes of consummating a Business Combination, the Company is focusing its search on companies
in the cannabis industry. The Company is an early stage and emerging growth company and, as such, the Company is subject to all
of the risks associated with early stage and emerging growth companies.
All activity through June 30, 2020 relates
to the Company’s formation, the initial public offering (“Initial Public Offering”), which is described below,
and, after the Initial Public Offering, identifying a target company for a Business Combination. The Company will not generate
any operating revenues until after the completion of a Business Combination, at the earliest. The Company generates non-operating
income in the form of interest income from the proceeds derived from the Initial Public Offering.
The registration statement for the Company’s
Initial Public Offering was declared effective on March 5, 2019. On March 7, 2019, the Company consummated the Initial Public Offering
of 24,000,000 units (the “Units” and, with respect to the shares of common stock included in the Units sold, the “Public
Shares”) at $10.00 per Unit, generating gross proceeds of $240,000,000, which is described in Note 3.
Simultaneously with the closing of the
Initial Public Offering, the Company consummated the sale of 615,000 units (the “Private Units”) at a price of $10.00
per Private Unit in a private placement to Tuscan Holdings Acquisition LLC (the “Sponsor”) and EarlyBirdCapital, Inc.
(“EarlyBirdCapital”) and its designee, generating gross proceeds of $6,150,000, which is described in Note 4.
Following the closing of the Initial Public
Offering on March 7, 2019, an amount of $240,000,000 ($10.00 per Unit) from the net proceeds of the sale of the Units in the Initial
Public Offering and the sale of the Private Units was placed in a trust account (“Trust Account”) which are invested
in U.S. government securities, within the meaning set forth in Section 2(a)(16) of the Investment Company Act of 1940, as amended
(the “Investment Company Act”), with a maturity of 180 days or less or in any open-ended investment company that holds
itself out as a money market fund meeting the conditions of Rule 2a-7 of the Investment Company Act of 1940, as amended (the “Investment
Company Act”), as determined by the Company, until the earlier of: (i) the completion of a Business Combination or (ii) the
distribution of the Trust Account, as described below.
On March 12, 2019, the underwriters exercised
their over-allotment option in full, resulting in the sale of an additional 3,600,000 Units for $36,000,000, less the underwriters’
discount of $720,000. In connection with the underwriters’ exercise of their over-allotment option, the Company also consummated
the sale of an additional 72,000 Private Units at $10.00 per Private Unit, generating total gross proceeds of $720,000. A total
of $36,000,000 was deposited into the Trust Account from the sale of the additional Units pursuant to the over-allotment option
and the additional sale of Private Units, bringing the aggregate proceeds held in the Trust Account to $276,000,000.
Transaction costs amounted to $6,059,098,
consisting of $5,520,000 of underwriting fees and $539,098 of other offering costs. In addition, as of June 30, 2020, cash of $144,474
was held outside of the Trust Account and is available for working capital purposes.
The Company’s management has broad
discretion with respect to the specific application of the net proceeds of the Initial Public Offering and the sale of the Private
Units, although substantially all of the net proceeds are intended to be applied generally toward consummating a Business Combination.
The Company’s Business Combination must be with one or more target businesses that together have a fair market value of at
least 80% of the assets held in the Trust Account (excluding taxes payable on income earned on the Trust Account) at the time of
the agreement to enter into a Business Combination. The Company will only complete a Business Combination if the post-transaction
company owns or acquires 50% or more of the outstanding voting securities of the target or otherwise acquires a controlling interest
in the target sufficient for it not to be required to register as an investment company under the Investment Company Act. There
is no assurance that the Company will be able to complete a Business Combination successfully.
TUSCAN HOLDINGS CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2020
(Unaudited)
The Company will provide its holders of
the outstanding Public Shares (the “public stockholders”) with the opportunity to redeem all or a portion of their
Public Shares upon the completion of a Business Combination either (i) in connection with a stockholder meeting called to approve
the Business Combination or (ii) by means of a tender offer. The decision as to whether the Company will seek stockholder approval
of a Business Combination or conduct a tender offer will be made by the Company, solely in its discretion. The public stockholders
will be entitled to redeem their Public Shares for a pro rata portion of the amount then in the Trust Account ($10.00 per
Public Share, plus any pro rata interest earned on the funds held in the Trust Account and not previously released to the
Company to pay its franchise and income tax obligations). There will be no redemption rights upon the completion of a Business
Combination with respect to the Company’s warrants.
The Company will proceed with a Business
Combination only if the Company has net tangible assets of at least $5,000,001 upon such consummation of a Business Combination
and, solely if the Company seeks stockholder approval, a majority of the shares voted are voted in favor of the Business Combination.
If a stockholder vote is not required by law and the Company does not decide to hold a stockholder vote for business or other legal
reasons, the Company will, pursuant to its Amended and Restated Certificate of Incorporation (the “Amended and Restated Certificate
of Incorporation”), conduct the redemptions pursuant to the tender offer rules of the U.S. Securities and Exchange Commission
(“SEC”) and file tender offer documents with the SEC prior to completing a Business Combination. If, however, stockholder
approval of the transaction is required by law, or the Company decides to obtain stockholder approval for business or legal reasons,
the Company will offer to redeem shares in conjunction with a proxy solicitation pursuant to the proxy rules and not pursuant to
the tender offer rules. If the Company seeks stockholder approval in connection with a Business Combination, the Company’s
Sponsor and EarlyBirdCapital have agreed to vote their Founder Shares (as defined in Note 5), Private Shares (as defined in Note
4) and any Public Shares purchased after the Initial Public Offering in favor of approving a Business Combination and not to convert
any shares in connection with a stockholder vote to approve a Business Combination or sell any shares to the Company in a tender
offer in connection with a Business Combination. Additionally, each public stockholder may elect to redeem their Public Shares
irrespective of whether they vote for or against the proposed transaction or do not vote at all.
The Sponsor and EarlyBirdCapital have agreed
(a) to waive their rights to liquidating distributions from the Trust Account with respect to the Founder Shares and Private Shares
if the Company fails to consummate a Business Combination and (b) not to propose an amendment to the Amended and Restated Certificate
of Incorporation that would affect a public stockholders’ ability to convert or sell their shares to the Company in connection
with a Business Combination or affect the substance or timing of the Company’s obligation to redeem 100% of its Public Shares
if the Company does not complete a Business Combination, unless the Company provides the public stockholders with the opportunity
to redeem their Public Shares in conjunction with any such amendment.
The Company will have until December 7,
2020 to complete a Business Combination (the “Combination Period”). If the Company is unable to complete a Business
Combination within the Combination Period, the Company will (i) cease all operations except for the purpose of winding up, (ii)
as promptly as reasonably possible but not more than ten business days thereafter, redeem the Public Shares, at a per-share price,
payable in cash, equal to the aggregate amount then on deposit in the Trust Account including interest earned on the funds held
in the Trust Account and not previously released to the Company to pay franchise and income taxes, divided by the number of then
outstanding Public Shares, which redemption will completely extinguish public stockholders’ rights as stockholders (including
the right to receive further liquidating distributions, if any), subject to applicable law, and (iii) as promptly as reasonably
possible following such redemption, subject to the approval of the Company’s remaining stockholders and the Company’s
board of directors, dissolve and liquidate, subject in each case to the Company’s obligations under Delaware law to provide
for claims of creditors and the requirements of other applicable law. There will be no redemption rights or liquidating distributions
with respect to the Company’s warrants, which will expire worthless if the Company fails to complete a Business Combination
within the Combination Period.
In order to protect the amounts held in
the Trust Account, the Sponsor has agreed to be liable to the Company if and to the extent any claims by a third party for services
rendered or products sold to the Company, or a prospective target business with which the Company has discussed entering into a
transaction agreement, reduce the amount of funds in the Trust Account to below $10.00 per Public Share, except as to any claims
by a third party who executed an agreement with the Company waiving any right, title, interest or claim of any kind they may have
in or to any monies held in the Trust Account and except as to any claims under the Company’s indemnity of the underwriters
of Initial Public Offering against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the
“Securities Act”). Moreover, in the event that an executed waiver is deemed to be unenforceable against a third party,
the Insiders will not be responsible to the extent of any liability for such third-party claims. The Company will seek to reduce
the possibility that the Sponsor will have to indemnify the Trust Account by endeavoring to have all vendors, service providers,
prospective target businesses or other entities with which the Company does business, execute agreements with the Company waiving
any right, title, interest or claim of any kind in or to monies held in the Trust Account.
TUSCAN HOLDINGS CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2020
(Unaudited)
Liquidity
The Company has principally financed its
operations from inception using proceeds from the sale of its equity securities to its stockholders prior to the Initial Public
Offering and such amount of proceeds from the Initial Public Offering that were placed in an account outside of the Trust Account
for working capital purposes. As of June 30, 2020, the Company had $144,474 held outside of the Trust Account. As of April 20,
2020, the Sponsor committed to provide an aggregate of $500,000 in loans to the Company. The loans shall be non-interest bearing,
unsecured and due upon the consummation of a Business Combination. In the event that a Business Combination does not close, the
loans would be repaid only out of funds held outside the Trust Account to the extent such funds are available. Otherwise, all amounts
loaned to the Company would be forgiven. On April 21, 2020, the Sponsor loaned the Company an aggregate of $200,000 (see Note 5).
Based on the foregoing, the Company believes it will have sufficient cash to meet its needs through the earlier of consummation
of a Business Combination or December 7, 2020, the date that the Company will be required to cease all operations except for the
purpose of winding up, if a Business Combination is not consummated.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
Basis of Presentation
The accompanying unaudited condensed financial
statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”)
for interim financial information and in accordance with the instructions to Form 10-Q and Article 8 of Regulation S-X of the SEC.
Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been
condensed or omitted, pursuant to the rules and regulations of the SEC for interim financial reporting. Accordingly, they do not
include all the information and footnotes necessary for a complete presentation of financial position, results of operations, or
cash flows. In the opinion of management, the accompanying unaudited condensed financial statements include all adjustments, consisting
of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash
flows for the periods presented.
The accompanying unaudited condensed financial
statements should be read in conjunction with the Company’s Annual Report on Form 10-K for the year ended December 31, 2019
as filed with the SEC on March 13, 2020, which contains the audited financial statements and notes thereto. The financial information
as of December 31, 2019 is derived from the audited financial statements presented in the Company’s Annual Report on Form
10-K for the year ended December 31, 2019. The interim results for the three and six months ended June 30, 2020 are not necessarily
indicative of the results to be expected for the year ending December 31, 2020 or for any future interim periods.
Emerging Growth Company
The Company is an “emerging growth
company,” as defined in Section 2(a) of the Securities Act of 1933, as amended (the “Securities Act”), as modified
by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”), and it may take advantage of certain exemptions
from various reporting requirements that are applicable to other public companies that are not emerging growth companies including,
but not limited to, not being required to comply with the independent registered public accounting firm attestation requirements
of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in its periodic reports
and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and
stockholder approval of any golden parachute payments not previously approved.
Further, Section 102(b)(1) of the JOBS
Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private
companies (that is, those that have not had a Securities Act registration statement declared effective or do not have a class of
securities registered under the Exchange Act) are required to comply with the new or revised financial accounting standards. The
JOBS Act provides that a company can elect to opt out of the extended transition period and comply with the requirements that apply
to non-emerging growth companies but any such election to opt out is irrevocable. The Company has elected not to opt out of such
extended transition period which means that when a standard is issued or revised and it has different application dates for public
or private companies, the Company, as an emerging growth company, can adopt the new or revised standard at the time private companies
adopt the new or revised standard. This may make comparison of the Company’s financial statements with another public company
which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition
period difficult or impossible because of the potential differences in accounting standards used.
TUSCAN HOLDINGS CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2020
(Unaudited)
Use of Estimates
The preparation of condensed financial
statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts
of revenues and expenses during the reporting period.
Making estimates requires management to
exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or
set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate,
could change in the near term due to one or more future events. Accordingly, the actual results could differ significantly from
those estimates.
Cash and Cash Equivalents
The Company considers all short-term investments
with an original maturity of three months or less when purchased to be cash equivalents. The Company did not have any cash equivalents
as of June 30, 2020 and December 31, 2019.
Marketable Securities Held in Trust
Account
At June 30, 2020 and December 31, 2019,
the assets held in the Trust Account were substantially held in U.S. Treasury Bills. Through June 30, 2020, the Company withdrew
approximately $1,284,000 of interest earned in the Trust Account to pay its franchise and income taxes, of which approximately
$346,000 was withdrawn during the six months ended June 30, 2020.
Common Stock Subject to Possible Redemption
The Company accounts for its common stock
subject to possible redemption in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480
“Distinguishing Liabilities from Equity.” Common stock subject to mandatory redemption is classified as a liability
instrument and is measured at fair value. Conditionally redeemable common stock (including common stock that feature redemption
rights that is either within the control of the holder or subject to redemption upon the occurrence of uncertain events not solely
within the Company’s control) is classified as temporary equity. At all other times, common stock is classified as stockholders’
equity. The Company’s common stock features certain redemption rights that are considered to be outside of the Company’s
control and subject to occurrence of uncertain future events. Accordingly, common stock subject to possible redemption is presented
at redemption value as temporary equity, outside of the stockholders’ equity section of the Company’s condensed balance
sheets.
Income Taxes
The Company follows the asset and liability
method of accounting for income taxes under ASC 740, “Income Taxes.” Deferred tax assets and liabilities are recognized
for the estimated future tax consequences attributable to differences between the financial statements carrying amounts of existing
assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that included
the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected
to be realized.
ASC 740 prescribes a recognition threshold
and a measurement attribute for the financial statement recognition and measurement of tax positions taken or expected to be taken
in a tax return. For those benefits to be recognized, a tax position must be more likely than not to be sustained upon examination
by taxing authorities. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as income tax
expense. There were no unrecognized tax benefits and no amounts accrued for interest and penalties as of June 30, 2020 and
December 31, 2019. The Company is currently not aware of any issues under review that could result in significant payments, accruals
or material deviation from its position. The Company is subject to income tax examinations by major taxing authorities since inception.
TUSCAN HOLDINGS CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2020
(Unaudited)
On March 27, 2020, President Trump signed
the Coronavirus Aid, Relief, and Economic Security “CARES” Act into law. The CARES Act includes several significant
business tax provisions that, among other things, would eliminate the taxable income limit for certain net operating losses (“NOL)
and allow businesses to carry back NOLs arising in 2018, 2019 and 2020 to the five prior years, suspend the excess business loss
rules, accelerate refunds of previously generated corporate alternative minimum tax credits, generally loosen the business interest
limitation under IRC section 163(j) from 30 percent to 50 percent among other technical corrections included in the Tax Cuts and
Jobs Act tax provisions. The Company does not believe that the CARES Act will have a significant impact on Company's financial
position or statement of operations.
Net Loss Per Common Share
Net loss per common share is computed by
dividing net loss by the weighted average number of common shares outstanding for the period. The Company applies the two-class
method in calculating earnings per share. Shares of common stock subject to possible redemption at June 30, 2020 and 2019, which
are not currently redeemable and are not redeemable at fair value, have been excluded from the calculation of basic net loss per
common share since such shares, if redeemed, only participate in their pro rata share of the Trust Account earnings. The Company
has not considered the effect of warrants sold in the Initial Public Offering and the private placement to purchase 28,287,000
shares of common stock in the calculation of diluted loss per share, since the exercise of the warrants are contingent upon the
occurrence of future events. As a result, diluted net loss per common share is the same as basic net loss per common share for
the periods presented.
Reconciliation of Net Loss Per Common
Share
The Company’s net (loss) income is
adjusted for the portion of income that is attributable to common stock subject to redemption, as these shares only participate
in the earnings of the Trust Account and not the income or losses of the Company. Accordingly, basic and diluted loss per share
is calculated as follows:
|
|
Three Months Ended
June 30,
|
|
|
Six Months Ended
June 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Net (loss) income
|
|
$
|
(163,197
|
)
|
|
$
|
1,264,809
|
|
|
$
|
1,602,858
|
|
|
$
|
1,548,134
|
|
Less: Income attributable to common stock subject to possible redemption
|
|
|
(37,820
|
)
|
|
|
(1,390,417
|
)
|
|
|
(1,947,423
|
)
|
|
|
(1,689,537
|
)
|
Adjusted net loss
|
|
$
|
(201,017
|
)
|
|
$
|
(125,608
|
)
|
|
$
|
(344,565
|
)
|
|
$
|
(141,403
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding, basic and diluted
|
|
|
8,404,474
|
|
|
|
8,305,310
|
|
|
|
8,382,499
|
|
|
|
7,546,990
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per common share
|
|
$
|
(0.02
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.04
|
)
|
|
$
|
(0.02
|
)
|
Concentration of Credit Risk
Financial instruments that potentially
subject the Company to concentrations of credit risk consist of a cash account in a financial institution which, at times may exceed
the Federal Depository Insurance Coverage of $250,000. The Company has not experienced losses on this account and management believes
the Company is not exposed to significant risks on such account.
Fair Value of Financial Instruments
The fair value of the Company’s assets
and liabilities, which qualify as financial instruments under ASC 820, “Fair Value Measurement,” approximates the carrying
amounts represented in the accompanying condensed balance sheets, primarily due to their short-term nature.
Recently Issued Accounting Standards
Management does not believe that any recently
issued, but not yet effective, accounting standards, if currently adopted, would have a material effect on the Company’s
condensed financial statements.
Risks and Uncertainties
Management continues to evaluate the impact
of the COVID-19 pandemic on the industry and has concluded that while it is reasonably possible that the virus could have a negative
effect on the Company’s financial position, results of its operations and/or search for a target company, the specific impact
is not readily determinable as of the date of these financial statements. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
TUSCAN HOLDINGS CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2020
(Unaudited)
NOTE 3. INITIAL PUBLIC OFFERING
On March 7, 2019, the Company consummated
the Initial Public Offering and sold 24,000,000 units at a price of $10.00 per Unit. Each Unit consists of one share of common
stock and one warrant (“Public Warrant”). On March 12, 2019, in connection with the underwriters’ exercise of
the over-allotment option in full, the Company sold an additional 3,600,000 Units at a price of $10.00 per Unit. Each Public Warrant
entitles the holder to purchase one share of common stock at a price of $11.50 per share, subject to adjustment (see Note 7).
NOTE 4. PRIVATE PLACEMENT
Simultaneously with the closing of the
Initial Public Offering, the Sponsor and EarlyBirdCapital and its designee purchased an aggregate of 615,000 Private Units at a
price of $10.00 per Private Unit, for an aggregate purchase price of $6,150,000. The Sponsor purchased 500,047 Private Units
and EarlyBirdCapital and its designee purchased an aggregate of 114,953 Private Units. On March 12, 2019, in connection with the
underwriters’ exercise of the over-allotment option in full, the purchasers purchased an aggregate of an additional 72,000
additional Private Units, of which 58,542 Private Units were purchased by the Sponsor and 13,458 Private Units were purchased by
EarlyBirdCapital and its designee, for an aggregate purchase price of $720,000. Each Private Unit consists of one share of common
stock (“Private Share”) and one warrant (“Private Warrant”). Each Private Warrant is exercisable to purchase
one share of common stock at an exercise price of $11.50 per share, subject to adjustment (see Note 7). The proceeds from
the Private Units were added to the proceeds from the Initial Public Offering held in the Trust Account. If the Company does not
complete a Business Combination within the Combination Period, the proceeds from the sale of the Private Units will be used to
fund the redemption of the Public Shares (subject to the requirements of applicable law), and the Private Units and all underlying
securities will be worthless.
NOTE 5. RELATED PARTY TRANSACTIONS
Founder Shares
In November 2018, the Sponsor purchased
5,750,000 shares (the “Founder Shares”) of the Company’s common stock for an aggregate price of $25,000. On March
5, 2019, the Company effected a stock dividend of 0.2 shares of common stock for each outstanding share (the “Stock Dividend”),
resulting in 6,900,000 Founder Shares being issued and outstanding. The 6,900,000 Founder Shares included an aggregate of up to
900,000 shares subject to forfeiture by the Sponsor to the extent that the underwriters’ over-allotment was not exercised
in full or in part, so that the holders of the Founder Shares would collectively own 20% of the Company’s issued and outstanding
shares after the Initial Public Offering (assuming the holders did not purchase any Public Shares in the Initial Public Offering
and excluding the Private Units and Representative Shares (see Note 7). In connection with the underwriters’ exercise of
the over-allotment option in full on March 12, 2019, 900,000 Founder Shares are no longer subject to forfeiture.
The holders of the Founder Shares have
agreed, subject to certain limited exceptions, not to transfer, assign or sell any of the Founder Shares until, with respect to
50% of the Founder Shares, the earlier of one year after the consummation of a Business Combination and the date on which the closing
price of the common stock equals or exceeds $12.50 per share (as adjusted for stock splits, stock dividends, reorganizations, recapitalizations
and the like) for any 20 trading days within a 30-trading day period commencing after a Business Combination and, with respect
to the remaining 50% of the Founder Shares, until the one year after the consummation of a Business Combination, or earlier, in
either case, if, subsequent to a Business Combination, the Company completes a liquidation, merger, stock exchange or other similar
transaction which results in all of the Company’s stockholders having the right to exchange their shares of common stock
for cash, securities or other property.
Advance from Related Party
The Company’s Chief Executive Officer
advanced the Company an aggregate of $86,748 to be used for the payment of costs related to the Initial Public Offering. The advances
were non-interest bearing, unsecured and due on demand. The advances were repaid upon the consummation of the Initial Public Offering
on March 7, 2019.
Due to Affiliate
During the six months ended June 30, 2020,
an affiliate of the Company paid expenses on behalf of the Company that were mainly settled during the same period. The outstanding
balance of $2,833 was settled in the subsequent period.
TUSCAN HOLDINGS CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2020
(Unaudited)
Promissory Note – Related Party
In November 2018, the Company issued an
unsecured promissory note to the Company’s Chief Executive Officer (the “Promissory Note”), pursuant to which
the Company borrowed an aggregate principal amount of $90,342. The Promissory Note was non-interest bearing and payable on the
earlier of (i) November 1, 2019, (ii) the consummation of the Initial Public Offering or (iii) the date on which the Company determines
not to proceed with the Initial Public Offering. The Promissory Note was repaid upon the consummation of the Initial Public Offering
on March 7, 2019.
Related Party Loans
In addition, in order to finance transaction
costs in connection with a Business Combination, the Sponsor or certain of the Company’s officers and directors or their
affiliates may, but are not obligated to, loan the Company funds as may be required (“Working Capital Loans”). If the
Company completes a Business Combination, the Company would repay the Working Capital Loans out of the proceeds of the Trust Account
released to the Company. Otherwise, the Working Capital Loans would be repaid only out of funds held outside the Trust Account
to the extent such funds are available. In the event that a Business Combination does not close, the Company may use a portion
of proceeds held outside the Trust Account to repay the Working Capital Loans, but no proceeds held in the Trust Account would
be used to repay the Working Capital Loans. The Working Capital Loans would either be repaid upon consummation of a Business Combination,
without interest, or, at the lender’s discretion, up to $1,500,000 of such Working Capital Loans may be convertible into
units of the post Business Combination entity at a price of $10.00 per unit. The units would be identical to the Private Units.
On April 20, 2020, the Sponsor committed
to provide an aggregate of $500,000 in loans to the Company. The loans shall be non-interest bearing, unsecured and due upon the
consummation of a Business Combination. In the event that a Business Combination does not close, the loans would be repaid only
out of funds held outside the Trust Account to the extent such funds are available. Otherwise, all amounts loaned to the Company
would be forgiven.
On April 21, 2020, the Company issued an
unsecured promissory note to the Sponsor in the aggregate amount of $300,000 (the “Note”). The Note is non-interest
bearing and payable upon the consummation of a Business Combination. The Note is convertible, at the lender’s option, into
units of the post Business Combination entity at a price of $10.00 per unit. The units would be identical to the Private Units.
If a Business Combination is not consummated, the notes will not be repaid by the Company and all amounts owed thereunder by the
Company will be forgiven except to the extent that the Company has funds available to it outside of its Trust Account. As of June
30, 2020, there was $200,000 outstanding under the Note.
Administrative Support Agreement
The Company entered into an agreement whereby,
commencing on the March 5, 2019 through the earlier of the Company’s consummation of a Business Combination and its liquidation,
to pay an affiliate of the Company’s Chief Executive Officer a total of $10,000 per month for office space, utilities and
secretarial and administrative support. For each of the three months ended June 30, 2020 and 2019, the Company incurred $30,000
in fees for these services. For the six months ended June 30, 2020 and 2019, the Company incurred $60,000 and $40,000 in fees for
these services, respectively. At June 30, 2020 and December 31, 2019, fees amounting to $10,000 and $0, respectively, are included
in accounts payable and accrued expenses in the accompanying condensed balance sheets.
TUSCAN HOLDINGS CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2020
(Unaudited)
NOTE 6. COMMITMENTS
Registration Rights
Pursuant to a registration rights
agreement entered into on March 7, 2019, the holders of the Founder Shares, Representative Shares, Private Units, and any
units that may be issued upon conversion of Working Capital Loans (and all underlying securities) are entitled to
registration rights. The holders of the majority of these securities are entitled to make up to two demands that the Company
register such securities. The holders of the majority of the Founder Shares can elect to exercise these registration rights
at any time commencing three months prior to the date on which the Founder Shares are to be released from escrow. The holders
of a majority of the Representative Shares, Private Units or units issued in payment of working capital loans made to the
Company (or underlying securities) can elect to exercise these registration rights at any time commencing after the Company
consummates a Business Combination. Notwithstanding anything to the contrary, EarlyBirdCapital and its designee may only make
a demand on one occasion and only during the five-year period beginning on the effective date of the Initial Public Offering.
In addition, the holders have certain “piggy-back” registration rights with respect to registration statements
filed subsequent to the consummation of a Business Combination; provided, however, that EarlyBirdCapital and its designee may
participate in a “piggy-back” registration only during the seven-year period beginning on the effective date of
the Initial Public Offering. The Company will bear the expenses incurred in connection with the filing of any such
registration statements.
Business Combination Marketing Agreement
The Company has engaged EarlyBirdCapital
as an advisor in connection with a Business Combination to assist the Company in holding meetings with its shareholders to discuss
the potential Business Combination and the target business’ attributes, introduce the Company to potential investors that
are interested in purchasing the Company’s securities in connection with a Business Combination, assist the Company in obtaining
shareholder approval for the Business Combination and assist the Company with its press releases and public filings in connection
with the Business Combination. The Company will pay EarlyBirdCapital a cash fee for such services upon the consummation of a Business
Combination in an amount equal to $9,660,000 (exclusive of any applicable finders’ fees which might become payable); provided
that up to 30% of the fee may be allocated at the Company’s sole discretion to other FINRA members that assist the Company
in identifying and consummating a Business Combination.
NOTE 7. STOCKHOLDERS’ EQUITY
Preferred Stock — The Company
is authorized to issue 1,000,000 shares of preferred stock with a par value of $0.0001 per share with such designation, rights
and preferences as may be determined from time to time by the Company’s board of directors. At June 30, 2020 and December
31, 2019, there were no shares of preferred stock issued or outstanding.
Common Stock — The Company
is authorized to issue 65,000,000 shares of common stock with a par value of $0.0001 per share. Holders of the common stock are
entitled to one vote for each share. At June 30, 2020 and December 31, 2019, there were 8,387,847 and 8,360,523 shares of common
stock issued and outstanding, excluding 27,099,153 and 27,126,477 shares of common stock subject to possible redemption, respectively.
Warrants — The Public Warrants
will become exercisable on the later of (a) 30 days after the completion of a Business Combination or (b) March 7, 2020. No warrants
will be exercisable for cash unless the Company has an effective and current registration statement covering the shares of common
stock issuable upon exercise of the warrants and a current prospectus relating to such shares of common stock. Notwithstanding
the foregoing, if a registration statement covering the shares of common stock issuable upon exercise of the public warrants is
not effective within 90 days following the consummation of a Business Combination, warrant holders may, until such time as there
is an effective registration statement and during any period when the Company shall have failed to maintain an effective registration
statement, exercise warrants on a cashless basis pursuant to the exemption provided by Section 3(a)(9) of the Securities Act, provided
that such exemption is available. If that exemption, or another exemption, is not available, holders will not be able to exercise
their warrants on a cashless basis. The Public Warrants will expire five years after the completion of a Business Combination or
earlier upon redemption or liquidation.
Once the Public Warrants become exercisable,
the Company may redeem the Public Warrants:
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in whole and not in part;
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●
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at a price of $0.01 per warrant;
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●
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upon not less than 30 days’ prior written notice of redemption;
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●
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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
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●
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If, and only if, there is a current registration statement in effect with respect to the shares of common stock underlying the warrants.
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TUSCAN HOLDINGS CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2020
(Unaudited)
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
“cashless basis,” as described in the warrant agreement.
The Private Warrants are identical to
the Public Warrants underlying the Units sold in the Initial Public Offering, except that the Private Warrants will be
exercisable for cash or on a cashless 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 Initial Public Offering.
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. If the Company is unable to complete a Business Combination within the Combination Period and the Company liquidates
the funds held in the Trust Account, holders of warrants will not receive any of such funds with respect to their warrants, nor
will they receive any distribution from the Company’s assets held outside of the Trust Account with the respect to such warrants.
Accordingly, the warrants may expire worthless.
In addition, if (x) the Company issues
additional shares of common stock or equity-linked securities for capital raising purposes in connection with the closing of an
initial Business Combination at an issue price or effective issue price of less than $9.50 per share of common stock (with such
issue price or effective issue price to be determined in good faith by the Company’s board of directors, and in the case
of any such issuance to our Sponsor, initial stockholders or their affiliates, without taking into account any founders’
shares held by them prior to such issuance), (y) the aggregate gross proceeds from such issuances represent more than 60% of the
total equity proceeds, and interest thereon, available for the funding of an initial Business Combination on the date of the consummation
of an initial Business Combination (net of redemptions), and (z) the volume weighted average trading price of the common stock
during the 20 trading day period starting on the trading day prior to the day on which the Company consummated an initial Business
Combination (such price, the “Market Value”) is below $9.50 per share, the exercise price of the warrants will be adjusted
(to the nearest cent) to be equal to 115% of the greater of (i) the Market Value or (ii) the price at which the Company issues
the additional shares of common stock or equity-linked securities.
Representative Shares
In November 2018, the Company issued to
the designees of EarlyBirdCapital, for a nominal consideration, 300,000 shares (after giving effect to the Stock Dividend) of common
stock (the “Representative Shares”). The Company accounted for the Representative Shares as an offering cost of the
Initial Public Offering, with a corresponding credit to stockholders’ equity. The Company estimated the fair value of Representative
Shares to be $1,200 based upon the price of the Founder Shares issued to the Sponsor. The holders of the Representative Shares
have agreed not to transfer, assign or sell any such shares until the completion of a Business Combination. In addition, the holders
have agreed (i) to waive their redemption rights (or to sell any shares in a tender offer) with respect to such shares in connection
with the completion of a Business Combination and (ii) to waive their rights to liquidating distributions from the Trust Account
with respect to such shares if the Company fails to complete a Business Combination within the Combination Period.
The Representative Shares have been deemed
compensation by FINRA and are therefore subject to a lock-up for a period of 180 days immediately following the effective date
of the registration statement related to the Initial Public Offering pursuant to Rule 5110(g)(1) of FINRA’s NASD Conduct
Rules. Pursuant to FINRA Rule 5110(g)(1), these securities will not be the subject of any hedging, short sale, derivative, put
or call transaction that would result in the economic disposition of the securities by any person for a period of 180 days immediately
following March 5, 2019 (“FINRA Restricted Period”), nor may they be sold, transferred, assigned, pledged or hypothecated
during the FINRA Restricted Period except to any underwriter and selected dealer participating in the Initial Public Offering and
their bona fide officers or partners.
TUSCAN HOLDINGS CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
JUNE 30, 2020
(Unaudited)
NOTE 8. FAIR VALUE MEASUREMENTS
The Company follows the guidance in ASC
820 for its financial assets and liabilities that are re-measured and reported at fair value at each reporting period, and non-financial
assets and liabilities that are re-measured and reported at fair value at least annually.
The fair value of the Company’s financial
assets and liabilities reflects management’s estimate of amounts that the Company would have received in connection with
the sale of the assets or paid in connection with the transfer of the liabilities in an orderly transaction between market participants
at the measurement date. In connection with measuring the fair value of its assets and liabilities, the Company seeks to maximize
the use of observable inputs (market data obtained from independent sources) and to minimize the use of unobservable inputs (internal
assumptions about how market participants would price assets and liabilities). The following fair value hierarchy is used to classify
assets and liabilities based on the observable inputs and unobservable inputs used in order to value the assets and liabilities:
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Level 1:
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Quoted prices in active markets for identical assets or liabilities. An active market for an asset or liability is a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis.
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Level 2:
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Observable inputs other than Level 1 inputs. Examples of Level 2 inputs include quoted prices in active markets for similar assets or liabilities and quoted prices for identical assets or liabilities in markets that are not active.
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|
|
|
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Level 3:
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Unobservable inputs based on our assessment of the assumptions that market participants would use in pricing the asset or liability.
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The following table presents information
about the Company’s assets that are measured at fair value on a recurring basis at June 30, 2020 and December 31, 2019 and
indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:
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June 30,
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December 31,
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Description
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Level
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2020
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2019
|
|
Assets:
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|
|
|
|
|
|
|
|
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Marketable securities held in Trust Account
|
|
1
|
|
|
$
|
282,267,303
|
|
|
$
|
280,103,245
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NOTE 9. SUBSEQUENT EVENTS
The Company evaluated subsequent events
and transactions that occurred after the balance sheet date up to the date that the financial statements were issued. Based upon
this review, the Company did not identify any subsequent events that would have required adjustment or disclosure in the condensed
financial statements.