NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 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 September 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 September 30, 2020, cash of $255,886 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.
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.
TUSCAN HOLDINGS CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(Unaudited)
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.
Special
Meeting to Extend Combination Period
The
Company has scheduled a special meeting of stockholders for December 3, 2020, pursuant to which, among other matters, it will
seek stockholder approval to extend the Combination Period from December 7, 2020 to April 30, 2021 (the “Extension Meeting”).
The Company’s public stockholders will be able to elect to redeem their shares in connection with the Extension Meeting
for a pro rata portion of the amount then on deposit in the Trust Account ($10.00 per share, plus any pro rata interest earned
on the funds held in the Trust Account and not previously released to the Company to pay franchise and income taxes). There is
no assurance that the Company's stockholders will vote to approve the extension of time with which the Company has to complete
a Business Combination. If the Company does not obtain stockholder approval, the Company would wind up its affairs and liquidate.
TUSCAN HOLDINGS CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 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 September 30, 2020, the Company had $255,886 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
nine months ended September 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
SEPTEMBER 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 September 30, 2020 and December 31, 2019.
Marketable
Securities Held in Trust Account
At
September 30, 2020 and December 31, 2019, the assets held in the Trust Account were substantially held in U.S. Treasury Bills.
Through September 30, 2020, the Company withdrew approximately $1,417,000 of interest earned in the Trust Account to pay its franchise
and income taxes, of which approximately $479,000 was withdrawn during the nine months ended September 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 September 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.
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 business 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 limited 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.
TUSCAN HOLDINGS CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(Unaudited)
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 September 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
September 30,
|
|
|
Nine Months Ended
September 30,
|
|
|
|
2020
|
|
|
2019
|
|
|
2020
|
|
|
2019
|
|
Net (loss) income
|
|
$
|
(101,287
|
)
|
|
$
|
896,594
|
|
|
$
|
1,501,571
|
|
|
$
|
2,444,728
|
|
Less: Income attributable to common stock subject to possible redemption
|
|
|
(22,645
|
)
|
|
|
(1,091,123
|
)
|
|
|
(1,970,861
|
)
|
|
|
(2,777,233
|
)
|
Adjusted net loss
|
|
$
|
(123,932
|
)
|
|
$
|
(194,529
|
)
|
|
$
|
(469,290
|
)
|
|
$
|
(332,505
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding, basic and diluted
|
|
|
8,387,847
|
|
|
|
8,274,315
|
|
|
|
8,384,294
|
|
|
|
7,792,096
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per common share
|
|
$
|
(0.01
|
)
|
|
$
|
(0.02
|
)
|
|
$
|
(0.06
|
)
|
|
$
|
(0.04
|
)
|
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.
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).
TUSCAN HOLDINGS CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(Unaudited)
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 nine months ended September 30, 2020, an affiliate of the Company paid expenses on behalf of the Company that were mainly settled during the same period.
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.
TUSCAN HOLDINGS CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(Unaudited)
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 September 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 September
30, 2020 and 2019, the Company incurred $30,000 in fees for these services. For the nine months ended September 30, 2020 and 2019,
the Company incurred $90,000 and $70,000 in fees for these services, respectively. At September 30, 2020 and December 31, 2019,
fees amounting to $30,000 and $0, respectively, are included in accounts payable and accrued expenses in the accompanying condensed
balance sheets.
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.
TUSCAN HOLDINGS CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(Unaudited)
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 September 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 September 30, 2020 and December 31, 2019, there were 8,376,427
and 8,360,523 shares of common stock issued and outstanding, excluding 27,110,573 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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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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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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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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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.
TUSCAN HOLDINGS CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(Unaudited)
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.
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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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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TUSCAN HOLDINGS CORP.
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2020
(Unaudited)
The
following table presents information about the Company’s assets that are measured at fair value on a recurring basis at
September 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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September 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
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Assets:
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Marketable securities held in Trust Account
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1
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$
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282,180,433
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$
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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.