UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
For
the quarterly period ended
For the transition period from to
Commission
File No.
| (Exact name of registrant as specified in its charter) |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
| (Address of Principal Executive Offices, including zip code) |
| (Registrant’s telephone number, including area code) |
| N/A |
| (Former name, former address and former fiscal year, if changed since last report) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Units, each consisting of one share of common stock and one-half of one redeemable warrant | THCAU | The Nasdaq Stock Market LLC | ||
| The | ||||
| Redeemable warrants, exercisable for shares of common stock at an exercise price of $11.50 per share | THCAW | The Nasdaq Stock Market LLC |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☐ Large accelerated filer | ☐ Accelerated filer | |
| ☒ | ||
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act): Yes
As
of November 14, 2022, there were
TABLE OF CONTENTS
i
PART 1 – FINANCIAL INFORMATION
Item 1. CONDENSED FINANCIAL STATEMENTS
TUSCAN HOLDINGS CORP. II
CONDENSED BALANCE SHEETS
September 30, 2022 | December 31, 2021 | |||||||
| (Unaudited) | (Audited) | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash | $ | $ | ||||||
| Other receivable | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total Current Assets | ||||||||
| Marketable securities held in Trust Account | ||||||||
| Total Assets | $ | $ | ||||||
| LIABILITIES, COMMON STOCK SUBJECT TO POSSIBLE REDEMPTION, AND STOCKHOLDERS’ DEFICIT | ||||||||
| Current liabilities | ||||||||
| Accounts payable and accrued expenses | $ | $ | ||||||
| Promissory notes – related parties | ||||||||
| Redemption liability | ||||||||
| Total Current Liabilities | ||||||||
| Warrant liabilities | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies (Note 4) | ||||||||
| Common stock subject to possible redemption, | ||||||||
| Stockholders’ Deficit | ||||||||
| Preference stock, $ | ||||||||
| Common stock, $ | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Deficit | ( | ) | ( | ) | ||||
| Total Liabilities and Stockholders’ Deficit | $ | $ | ||||||
The accompanying notes are an integral part of the unaudited condensed financial statements.
1
TUSCAN HOLDINGS CORP. II
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
| For the Three Months Ended September 30, | For the Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Operating and formation costs | $ | $ | $ | $ | ||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income: | ||||||||||||||||
| Change in fair value of warrant liability | ||||||||||||||||
| Interest earned on marketable securities held in Trust Account | ||||||||||||||||
| Unrealized gains on marketable securities held in Trust Account | ( | ) | ||||||||||||||
| Total other income, net | ||||||||||||||||
| Income (loss) before provision for income taxes | ( | ) | ( | ) | ||||||||||||
| Provision for income taxes | ( | ) | ||||||||||||||
| Net income (loss) | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| $ | ( | ) | $ | $ | ( | ) | $ | |||||||||
The accompanying notes are an integral part of the unaudited condensed financial statements.
2
TUSCAN HOLDINGS CORP. II
CONDENSED STATEMENTS OF CHANGES IN STOCKHOLDERS’ DEFICIT
(UNAUDITED)
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2022
| Common Stock | Additional Paid-in | Accumulated | Total Stockholders’ | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||
| Balance – January 1, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Remeasurement adjustment to amount subject to redemption | — | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance – March 31, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Remeasurement adjustment to amount subject to redemption | — | ( | ) | ( | ) | |||||||||||||||
| Net income | — | |||||||||||||||||||
| Balance – June 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Remeasurement adjustment to amount subject to redemption | — | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance – September 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2021
| Common Stock | Additional Paid-in | Accumulated | Total Stockholders’ | |||||||||||||||||
| Shares | Amount | Capital | Deficit | Deficit | ||||||||||||||||
| Balance – January 1, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Remeasurement adjustment to amount subject to redemption | — | ( | ) | ( | ) | |||||||||||||||
| Net income | — | |||||||||||||||||||
| Balance – March 31, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Remeasurement adjustment to amount subject to redemption | — | |||||||||||||||||||
| Net loss | — | ( | ) | ( | ) | |||||||||||||||
| Balance – June 30, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
| Remeasurement adjustment to amount subject to redemption | — | ( | ) | ( | ) | |||||||||||||||
| Net income | — | |||||||||||||||||||
| Balance – September 30, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
The accompanying notes are an integral part of the unaudited condensed financial statements.
3
TUSCAN HOLDINGS CORP. II
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
| For The Nine Months Ended September 30, | ||||||||
| 2022 | 2021 | |||||||
| Cash Flows from Operating Activities: | ||||||||
| Net (loss) income | $ | ( | ) | $ | ||||
| Adjustments to reconcile net (loss) income to net cash used in operating activities: | ||||||||
| Change in fair value of warrant liability | ( | ) | ( | ) | ||||
| Interest earned on marketable securities held in Trust Account | ( | ) | ( | ) | ||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expenses and other current assets | ( | ) | ||||||
| Other receivable | ||||||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Income tax payable | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash Flows from Investing Activities: | ||||||||
| Cash withdrawn from Trust Account for working capital purposes | ||||||||
| Cash withdrawn from Trust Account to pay franchise and income taxes | ||||||||
| Cash withdrawn from Trust Account to redeeming stockholders | ||||||||
| Extension contribution | ( | ) | ( | ) | ||||
| Net cash provided by investing activities | ||||||||
| Cash Flows from Financing Activities: | ||||||||
| Proceeds from promissory notes - related parties | ||||||||
| Redemption of common stock | ( | ) | ( | ) | ||||
| Net cash used in financing activities | ( | ) | ( | ) | ||||
| Net Change in Cash | ( | ) | ( | ) | ||||
| Cash – Beginning | ||||||||
| Cash – Ending | $ | $ | ||||||
| Non-cash investing and financing activities: | ||||||||
| Remeasurement adjustment to amount subject to redemption | $ | $ | ||||||
The accompanying notes are an integral part of the unaudited condensed financial statements.
4
TUSCAN HOLDINGS CORP. II
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(Unaudited)
NOTE 1. DESCRIPTION OF ORGANIZATION AND BUSINESS OPERATIONS
Tuscan Holdings Corp. II (the “Company”) is a blank check company incorporated in Delaware on March 5, 2019. 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”).
The Company is not limited to a particular industry or sector for purposes of consummating a Business Combination. 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.
As of September 30, 2022, the Company had not commenced any operations. All activity through September 30, 2022 relates to the Company’s formation, its initial public offering (“Initial Public Offering”), which is described below, and, after the Initial Public Offering, identifying a target company for a Business Combination and in connection therewith entering into the Merger Agreement (defined below) with the Surf Entities (defined below), which is described below. 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 July 11, 2019. On July 16, 2019, the Company consummated the Initial Public Offering
of
Simultaneously with the closing of the Initial
Public Offering, the Company consummated the sale of
Following the closing of the Initial Public Offering on July 16, 2019, an amount of $150,000,000 ($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 Securities was placed in a trust account (the “Trust Account”) which were 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 selected by the Company meeting the conditions of Rule 2a-7 of the Investment Company Act, as determined by the Company, until the earlier of: (i) the completion of a Business Combination and (ii) the distribution of the Trust Account, as described below.
On July 18, 2019, the underwriters exercised their over-allotment option in full, resulting in an additional 2,250,000 Units issued on July 19, 2019 for $22,500,000, less the underwriters’ discount of $450,000. In connection with the underwriters’ exercise of their over-allotment option, the Company also consummated the sale of an additional 22,500 Private Units at $10.00 per Private Unit and the sale of an additional 225,000 Private Warrants at $1.00 per Private Warrant, generating total proceeds of $450,000. A total of $22,500,000 was deposited into the Trust Account, bringing the aggregate proceeds held in the Trust Account to $172,500,000.
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 Securities, although
substantially all of the net proceeds are intended to be applied generally toward completing a Business Combination. The Company must
complete a Business Combination having an aggregate fair market value of at least
The Company will provide its 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.
5
TUSCAN HOLDINGS CORP. II
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(Unaudited)
The Company will proceed with a Business Combination
if the Company has net tangible assets of at least $
If the Company seeks stockholder approval in connection with a Business Combination, the Company’s Sponsor and EarlyBirdCapital (and its designes) have agreed to vote their Founder Shares, Representative Shares, Private Shares and any Public Shares purchased during or 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, without voting, and if they do vote, irrespective of whether they vote for or against the proposed Business Combination.
The Sponsor and EarlyBirdCapital (and its designees)
have agreed (a) to waive their redemption rights with respect to their Founder Shares, Private Shares and Public Shares held by them in
connection with the completion of a Business Combination, (b) to waive their rights to liquidating distributions from the Trust Account
with respect to the Founder Shares, Representative Shares and Private Shares if the Company fails to consummate a Business Combination,
and (c) 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
The Company has until December 31, 2022 to consummate a Business Combination (the “Combination Period”). If the Company is unable to complete a Business Combination within the Combination Period and such date is not otherwise extended by stockholder vote, 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 $
6
TUSCAN HOLDINGS CORP. II
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(Unaudited)
On April 14, 2021, the Company held a stockholder
meeting to extend the date by which the Company has to consummate a Business Combination from April 16, 2021 to September 30, 2021. As
part of the meeting, stockholders redeemed
On September 28, 2021, the Company held
a stockholder meeting to further extend the date by which the Company has to consummate a Business Combination from September 30, 2021
to December 31, 2021. As part of the meeting, stockholders redeemed
On December 27, 2021, the Company held a stockholder
meeting to further extend the date by which the Company has to consummate a Business Combination from December 31, 2021 to March 31, 2022.
As part of the meeting, stockholders redeemed
On March 29, 2022, the Company held a stockholder
meeting to further extend the date by which the Company has to consummate a Business Combination from March 31, 2022 to June 30, 2022.
As part of the meeting, stockholders redeemed
On June 21, 2022, the Company held a stockholder meeting to further
extend the date by which the Company has to consummate a Business Combination from June 30, 2022 to December 31, 2022. As part of the
meeting, stockholders redeemed
7
TUSCAN HOLDINGS CORP. II
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(Unaudited)
Going Concern Consideration
As of September 30, 2022, the Company had $
The Company will need to raise additional capital through loans or additional investments from our initial stockholders, officers or directors. If the Company is unable to raise additional capital, obtain approval for an extension of the deadline or complete a Business Combination by December 31, 2022, then the Company will cease all operations except for the purpose of liquidating. The Company has until December 31, 2022 to consummate a Business Combination. It is uncertain that the Company will be able to consummate a Business Combination by the specified period. If a Business Combination is not consummated by December 31, 2022, there will be a mandatory liquidation and subsequent dissolution. The liquidity condition and date for mandatory liquidation and subsequent dissolution raise substantial doubt about the Company’s ability to continue as a going concern one year from the date that these financial statements are issued. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Risks and Uncertainties
Management continues to evaluate the impact of the COVID-19 pandemic 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.
In February 2022, the Russian Federation and Belarus commenced a military action with the country of Ukraine. As a result of this action, various nations, including the United States, have instituted economic sanctions against the Russian Federation and Belarus. Further, the impact of this action and related sanctions on the world economy are not determinable as of the date of these financial statements. The specific impact on the Company’s financial condition, results of operations, and cash flows is also not determinable as of the date of these financial statements.
Inflation Reduction Act of 2022
On August 16, 2022, the Inflation Reduction Act
of 2022 (the “IR Act”) was signed into federal law. The IR Act provides for, among other things, a new U.S. federal
Any redemption or other repurchase that occurs after December 31, 2022, in connection with a Business Combination, extension vote or otherwise, may be subject to the excise tax. Whether and to what extent the Company would be subject to the excise tax in connection with a Business Combination, extension vote or otherwise would depend on a number of factors, including (i) the fair market value of the redemptions and repurchases in connection with the Business Combination, extension or otherwise, (ii) the structure of a Business Combination, (iii) the nature and amount of any “PIPE” or other equity issuances in connection with a Business Combination (or otherwise issued not in connection with a Business Combination but issued within the same taxable year of a Business Combination) and (iv) the content of regulations and other guidance from the Treasury. In addition, because the excise tax would be payable by the Company and not by the redeeming holder, the mechanics of any required payment of the excise tax have not been determined. The foregoing could cause a reduction in the cash available on hand to complete a Business Combination and in the Company’s ability to complete a Business Combination.
General Legal Matters
A purported stockholder of the Company sent a demand letter (the “Demand”) alleging deficiencies and/or omissions in the Registration Statement on Form S-4 filed by Parentco with the SEC on October 24, 2022. The Demand seeks additional disclosures to remedy these purported deficiencies. The Company believes that the allegations in the Demand are meritless.
8
TUSCAN HOLDINGS CORP. II
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(Unaudited)
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, 2021 as filed with the SEC on April 22, 2022, which contains the audited financial statements and notes thereto. The interim results for the three and nine months ended September 30, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022 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, 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 statement 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.
Use of Estimates
The preparation of the condensed financial statements in conformity with GAAP requires the Company’s 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 confirming events. One of the more significant accounting estimates included in these financial statements is the determination of the fair value of the warrant liability. Such estimates may be subject to change as more current information becomes available and, 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, 2022 and December 31, 2021.
9
TUSCAN HOLDINGS CORP. II
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(Unaudited)
Cash and Marketable Securities Held in Trust Account
At September 30, 2022 and December 31, 2021, substantially all of the assets held in the Trust Account were held in U.S Treasury Bills or as cash. All of the Company’s investments held in the Trust Account are classified as trading securities. Trading securities are presented on the balance sheet at fair value at the end of each reporting period. Gains and losses resulting from the change in fair value of investments held in Trust Account are included in interest earned on marketable securities held in Trust Account in the accompanying condensed statements of operations. The estimated fair values of investments held in Trust Account are determined using available market information.
Warrant Liabilities
The Company accounts for warrants in accordance with the guidance contained in ASC 815-40 under which the warrants do not meet the criteria for equity treatment and must be recorded as liabilities. As the Private Warrants meet the definition of a derivative as contemplated in ASC 815, the Company classifies the Private Warrants as liabilities at their fair value and adjusts the Private Warrants to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in the condensed statements of operations. The Private Warrants for periods where no observable traded price was available are valued using a binomial lattice simulation model.
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’ deficit section of the Company’s condensed balance sheets.
The Company recognizes changes in redemption value immediately as they occur and adjusts the carrying value of redeemable common stock to equal the redemption value at the end of each reporting period. Increases or decreases in the carrying amount of redeemable common stock are affected by charges against additional paid in capital and accumulated deficit.
At September 30, 2022, the Common stock reflected in the condensed balance sheets are reconciled in the following table:
| Common stock subject to possible redemption as of December 31, 2020 | ||||
| Less: | ||||
| Public Shares Redeemed | ( | ) | ||
| Add: | ||||
| Remeasurement adjustment to amount subject to redemption | ||||
| Common stock subject to possible redemption as of December 31, 2021 | ||||
| Less: | ||||
| Public Shares Redeemed | ( | ) | ||
| Add: | ||||
| Remeasurement adjustment to amount subject to redemption | ||||
| Common stock subject to possible redemption as of September 30, 2022 | $ |
10
TUSCAN HOLDINGS CORP. II
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(Unaudited)
Income Taxes
The Company accounts for income taxes under ASC 740, “Income Taxes.” ASC 740, Income Taxes, requires the recognition of deferred tax assets and liabilities for both the expected impact of differences between the unaudited condensed financial statements and tax basis of assets and liabilities and for the expected future tax benefit to be derived from tax loss and tax credit carry forwards. ASC 740 additionally requires a valuation allowance to be established when it is more likely than not that all or a portion of deferred tax assets will not be realized. As of September 30, 2022 and December 31, 2021, the Company’s deferred tax asset had a full valuation allowance recorded against it.
Our effective tax rate was
ASC 740 also clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements and prescribes a recognition threshold and measurement process for financial statement recognition and measurement of a tax position 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. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim period, disclosure and transition.
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, 2022 and December 31, 2021. 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 has identified the United States as its only “major” tax jurisdiction. The Company is subject to income taxation by major taxing authorities since inception. These examinations may include questioning the timing and amount of deductions, the nexus of income among various tax jurisdictions and compliance with federal and state tax laws. The Company’s management does not expect that the total amount of unrecognized tax benefits will materially change over the next twelve months.
Net (Loss) Income Per Common Share
The Company complies with accounting and disclosure requirements of FASB ASC Topic 260, “Earnings Per Share”. Net (loss) income per common stock is computed by dividing net (loss) income by the weighted average number of common stock outstanding for the period. The Company calculates earnings per share by allocating net (loss) income to a single class of common stock. Accretion associated with the redeemable common stock is excluded from earnings per share as the redemption value approximates fair value.
The
calculation of diluted (loss) income per share does not consider the effect of the warrants issued in connection with the (i) Initial
Public Offering, and (ii) the private placement since the exercise of the warrants is contingent upon the occurrence of future events.
The warrants are exercisable to purchase
11
TUSCAN HOLDINGS CORP. II
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(Unaudited)
The following table reflects the calculation of basic and diluted net (loss) income per common stock (in dollars, except per share amounts):
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2022 | 2021 | 2022 | 2021 | |||||||||||||
| Basic and diluted net (loss) income per common stock | ||||||||||||||||
| Numerator: | ||||||||||||||||
| Allocation of net (loss) income | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Denominator: | ||||||||||||||||
| $ | ( | ) | $ | $ | ( | ) | $ | |||||||||
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 $
Fair Value of Financial Instruments
Derivative Financial Instruments
The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives in accordance with ASC Topic 815, “Derivatives and Hedging”. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value on the grant date and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be required within 12 months of the balance sheet date.
Recent Accounting Standards
Management does not believe there are any recently issued, but not yet effective, accounting standards, if currently adopted, that would have a material effect on the Company’s condensed financial statements.
12
TUSCAN HOLDINGS CORP. II
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(Unaudited)
NOTE 3. RELATED PARTY TRANSACTIONS
Founder Shares
The Sponsor has 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.
Other Receivable – Related Party
During the year ended December 31, 2021, the Company paid expenses on behalf of an affiliate that were mainly settled during the year ended December 31, 2021. No amount was due or outstanding from this affiliate as of September 30, 2022 and December 31, 2021.
Administrative Support Agreement
The Company entered into an agreement whereby,
commencing on July 11, 2019, through the earlier of the Company’s consummation of a Business Combination and its liquidation, the
Company will pay an affiliate of the Sponsor a total of $
Promissory Notes — Related Parties
On September 28, 2021, as part of the extension
meeting to extend the liquidation date to December 31, 2021, the Sponsor agreed that if the Extension Amendment Proposal was approved,
it or its affiliates would lend to the Company $
On December 27, 2021, as part of the extension
meeting to extend the liquidation date to March 31, 2022, the Sponsor agreed that if the Extension Amendment Proposal was approved, it
or its affiliates would lend to the Company $
On March 29, 2022, as part of the extension meeting
to extend the liquidation date to June 30, 2022, the Sponsor agreed that if the Extension Amendment Proposal was approved, it or its affiliates
would lend to the Company $
On June 21, 2022, as part of the extension meeting
to extend the liquidation date to December 31, 2022, the Sponsor agreed that if the Extension Amendment Proposal was approved, it or its
affiliates would lend to the Company $
On September 1, 2022, the Company issued
a promissory note to Surf evidencing a loan in an aggregate amount of $
On October 14, 2022, the sponsor lent an aggregate
of $
On October 31, 2022, the sponsor lent an aggregate
of $
13
TUSCAN HOLDINGS CORP. II
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(Unaudited)
Related Party Loans
In addition, in order to finance transaction costs
in connection with a Business Combination, the Insiders, 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. 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. Except for the foregoing, the terms of such Working Capital
Loans, if any, have not been determined and no written agreements exist with respect to such loans.
NOTE 4. COMMITMENTS AND CONTINGENCIES
Registration Rights
Pursuant to a registration rights agreement entered into on July 11, 2019, the holders of the Founder Shares, Representative Shares, Private Securities, and any units and warrants that may be issued upon conversion of Working Capital Loans (and all underlying securities) will be 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 Securities or units and warrants 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 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 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 stockholders 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 and assist the Company with its press releases and public filings
in connection with the Business Combination.
Extension Meetings
On April 24, 2021, the Company held a stockholder
meeting to extend the date by which the Company has to consummate a Business Combination from April 16, 2021 to September 30, 2021. As
part of the meeting, stockholders redeemed
On September 28, 2021, the Company held a stockholder
meeting to further extend the date by which the Company has to consummate a Business Combination from September 30, 2021 to December 31,
2021. As part of the meeting, stockholders redeemed
On September 28, 2021, as part of the extension
meeting to extend the liquidation date to December 31, 2021, the Sponsor agreed that if the Extension Amendment Proposal was approved,
it or its affiliates would lend to the Company $
14
TUSCAN HOLDINGS CORP. II
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(Unaudited)
On December 27, 2021, as part of the extension
meeting to extend the liquidation date to March 31, 2022, the Sponsor agreed that if the Extension Amendment Proposal was approved, it
or its affiliates would lend to the Company $
On March 29, 2022, the Company held a stockholder
meeting to further extend the date by which the Company has to consummate a Business Combination from March 31, 2022 to June 30, 2022.
As part of the meeting, stockholders redeemed
On June 21, 2022, the Company held a stockholder
meeting to further extend the date by which the Company has to consummate a Business Combination from June 30, 2022 to December 31, 2022.
As part of the meeting, stockholders redeemed
On October 14, 2022, the sponsor lent an aggregate
of $
On October 31, 2022, the sponsor lent an aggregate
of $
Redemption Liability
On December 27, 2021, as part of the extension
meeting to extend the liquidation date to March 31, 2022, where stockholders redeemed
Business Combination Agreement
On May 17, 2022, the Company, Surf, Parentco, Merger Sub I and Merger Sub II entered into the Merger Agreement.
Pursuant to the Merger Agreement, upon the closing of the transactions contemplated by the Merger Agreement (the “Transactions”), Merger Sub I will merge with and into the Company, with the Company surviving, and, simultaneously therewith, Merger Sub II will merge with and into Surf, with Surf surviving (collectively, the “Mergers”). The Merger Agreement contemplates a related Business Combination transaction pursuant to which on the closing date a wholly-owned subsidiary of Parentco will be merged with and into Southern Airways Corporation (“Southern”), with Southern surviving (the “Southern Acquisition”). Following the Mergers and the Southern Acquisition, (i) Surf, Southern and the Company will be wholly-owned subsidiaries of Parentco, (ii) the security holders of the Company, Surf and Southern will be security holders of Parentco, (iii) Parentco will be the publicly traded company and (iv) Parentco’s business will be the business of Surf and Southern.
15
TUSCAN HOLDINGS CORP. II
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(Unaudited)
NOTE 5. STOCKHOLDERS’ DEFICIT
Preferred Stock — The Company is
authorized to issue
Common Stock — The Company is authorized
to issue
Representative Shares
On March 5, 2019, the Company issued to the designees
of EarlyBirdCapital
NOTE 6. WARRANTS
Warrants — The Public Warrants will
become exercisable on the later of (a) 30 days after the completion of a Business Combination or (b) 12 months from the closing of the
Initial Public Offering. 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 a specified period 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
Once the warrants become exercisable, the Company may redeem the Public Warrants:
| ● | If, and only if, there is a current registration statement in effect with respect to the shares of common stock underlying the warrants. |
If the Company calls the Public Warrants for redemption, management will have the option to require all holders that wish to exercise the Public Warrants to do so on a “cashless basis,” as described in the warrant agreement.
16
TUSCAN HOLDINGS CORP. II
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(Unaudited)
The Private Warrants are identical to the Public Warrants underlying the Units sold in the Initial Public Offering, except that the Private Warrants and the shares of common stock issuable upon the exercise of the Private Warrants will not be transferable, assignable or salable until after the completion of a Business Combination, subject to certain limited exceptions. Additionally, 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.
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 the Sponsor, initial stockholders or their affiliates, without taking into account any Founder 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.
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) of FINRA’s NASD Conduct Rules. Pursuant to FINRA Rule 5110(g), 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 the effective date of the registration statements related to the Initial Public Offering, nor may they be sold, transferred, assigned, pledged or hypothecated for a period of 180 days immediately following the effective date of the registration statements related to the Initial Public Offering except to any underwriter and selected dealer participating in the Initial Public Offering and their bona fide officers or partners.
NOTE 7. 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.
17
TUSCAN HOLDINGS CORP. II
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(Unaudited)
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:
| Level 1: | 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. | |
| Level 2: | 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. | |
| Level 3: | Unobservable inputs based on our assessment of the assumptions that market participants would use in pricing the asset or liability. |
At September 30, 2022, the Company had a total
of $
At December 31, 2021, the Company had a total
of $
The following table presents information about the Company’s assets and liabilities that are measured at fair value on a recurring basis at September 30, 2022 and December 31, 2021, and indicates the fair value hierarchy of the valuation inputs the Company utilized to determine such fair value:
| Description | Level | September 30, 2022 | December 31, 2021 |
||||||
| Assets: | |||||||||
| Marketable securities held in Trust Account | 1 | $ | $ | ||||||
| Liabilities: | |||||||||
| Warrant Liability – Private Placement Warrants | 3 | $ | $ | ||||||
The Private Warrants were accounted for as liabilities in accordance with ASC 815-40 and are presented within warrant liabilities on our accompanying September 30, 2022 and December 31, 2021 condensed balance sheets. The warrant liabilities are measured at fair value at inception and on a recurring basis, with changes in fair value presented within change in fair value of warrant liabilities in the condensed statements of operations.
The Private Warrants were valued using a binomial lattice simulation model, which is considered to be a Level 3 fair value measurement.
The binomial lattice model’s primary unobservable input utilized in determining the fair value of the Private Warrants is the expected volatility of the common stock. The expected volatility as of the Initial Public Offering date was derived from observable public warrant pricing on comparable ‘blank-check’ companies without an identified target. The expected volatility as of subsequent valuation dates was implied from the Company’s own public warrant pricing. The detachment of the common stock and warrants from the units occurred 52-days after the units were issued.
18
TUSCAN HOLDINGS CORP. II
NOTES TO CONDENSED FINANCIAL STATEMENTS
SEPTEMBER 30, 2022
(Unaudited)
The key inputs into the Binomial Lattice Model for the Private Placement Warrants were as follows:
| September 30, 2022 | December 31, 2021 |
||||||
| Risk-free interest rate | % | % | |||||
| Time to maturity (years) | |||||||
| Dividend yield | % | % | |||||
| Expected volatility | % | % | |||||
| Probability of Acquisition | % | % | |||||
| Exercise price | $ | $ | |||||
| Unit Price | $ | $ | |||||
As of September 30, 2022 and December 31, 2021,
the aggregate fair values of the Private Placement Warrants were $
The following table presents the changes in the fair value of warrant liabilities for the three and nine months ended September 30, 2022:
| Private Placement |
||||
| Fair value as of December 31, 2021 | $ | |||
| Change in fair value | ||||
| Fair value as of March 31, 2022 | ||||
| Change in fair value | ( | ) | ||
| Fair value as of June 30, 2022 | ||||
| Change in fair value | ( | ) | ||
| Fair value as of September 30, 2022 | $ | |||
The following table presents the changes in the fair value of warrant liabilities for the three and nine months ended September 30, 2021:
| Private Placement |
||||
| Fair value as of December 31, 2020 | $ | |||
| Change in fair value | ( | ) | ||
| Fair value as of March 31, 2021 | ||||
| Change in fair value | ||||
| Fair value as of June 30, 2021 | ||||
| Change in fair value | ( | ) | ||
| Fair value as of September 30, 2021 | ||||
There were no transfers in or out of Level 3 from other levels in the fair value hierarchy during the three and nine months ended September 30, 2022 and 2021.
NOTE 8. SUBSEQUENT EVENTS
The Company evaluated subsequent events and transactions that occurred after the balance sheet date up to the date that the condensed financial statements were issued. Based upon this review, except as noted below, the Company did not identify any subsequent events that would have required adjustment or disclosure in the condensed financial statements.
On October 14, 2022, the Sponsor lent an aggregate
of $
On October
31, 2022, the Sponsor lent an aggregate of $
19
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
References in this report (the “Quarterly Report”) to “we,” “us” or the “Company” refer to Tuscan Holdings Corp. II. References to our “management” or our “management team” refer to our officers and directors, and references to the “Sponsor” refer to Tuscan Holdings Acquisition II LLC. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the financial statements and the notes thereto contained elsewhere in this Quarterly Report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Special Note Regarding Forward-Looking Statements
This Quarterly Report includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Exchange Act that are not historical facts and involve risks and uncertainties that could cause actual results to differ materially from those expected and projected. All statements, other than statements of historical fact included in this Form 10-Q including, without limitation, statements in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” regarding the Company’s financial position, business strategy and the plans and objectives of management for future operations, are forward-looking statements. Words such as “expect,” “believe,” “anticipate,” “intend,” “estimate,” “seek” and variations and similar words and expressions are intended to identify such forward-looking statements. Such forward-looking statements relate to future events or future performance, but reflect management’s current beliefs, based on information currently available. A number of factors could cause actual events, performance or results to differ materially from the events, performance and results discussed in the forward-looking statements. For information identifying important factors that could cause actual results to differ materially from those anticipated in the forward-looking statements, please refer to the Risk Factors section of the Company’s Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the “SEC”) on April 25, 2022. The Company’s securities filings can be accessed on the EDGAR section of the SEC’s website at www.sec.gov. Except as expressly required by applicable securities law, the Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise.
Overview
We are a blank check company formed under the laws of the State of Delaware on March 5, 2019 for the purpose of effecting a merger, capital stock exchange, asset acquisition, stock purchase, reorganization or other similar Business Combination with one or more businesses. We intend to effectuate our Business Combination using cash from the proceeds of the Initial Public Offering and the sale of the Private Securities, our capital stock, debt or a combination of cash, stock and debt.
All activity through September 30, 2022 relates to our formation, our Initial Public Offering, which was consummated on July 16, 2019, and searching for a target company for a Business Combination.
Recent Developments
On January 5, 2021, we received a notice from the staff of the Listing Qualifications Department of the Nasdaq Stock Market stating that we were no longer in compliance with Nasdaq Listing Rule 5620(a) for continued listing due to its failure to hold an annual meeting of stockholders within twelve months of the end of our fiscal year ended December 31, 2019. In accordance with Nasdaq Listing Rule 5810(c)(2)(G), we submitted a plan to regain compliance on February 17, 2021. Nasdaq accepted our plan and granted us an extension through June 29, 2021 to hold an annual meeting. We held the annual meeting on April 14, 2021, and extended the date by which the Company has to consummate a Business Combination from April 16, 2021 to September 30, 2021. On September 28, 2021, the Company held a stockholder meeting to further extend the date by which the Company has to consummate a Business Combination from September 30, 2021 to December 31, 2021. As part of the meeting, stockholders redeemed 2,284,305 shares of common stock for an aggregate cash balance of approximately $23,059,000. On December 27, 2021, the Company held a stockholder meeting to further extend the date by which the Company has to consummate a Business Combination from December 31, 2021 to March 31, 2022. As part of the meeting, stockholders redeemed 3,099,310 shares of common stock for an aggregate cash balance of approximately $31,596,000. On March 29, 2022, the Company held a stockholder meeting to further extend the date by which the Company has to consummate a Business Combination from March 31, 2022 to June 30, 2022. As part of the meeting, stockholders redeemed 6,650,144 shares of common stock for an aggregate cash balance of approximately $67,982,000. On June 21, 2022, the Company held a stockholder meeting to further extend the date by which the Company has to consummate a Business Combination from June 30, 2022 to December 31, 2022. As part of the meeting, stockholders redeemed 39,400 shares of common stock for an aggregate cash balance of approximately $407,192.
20
On May 17, 2022, we entered into a Business Combination Agreeement (“Merger Agreement) with Surf Air Global Limited (“Surf”), Surf Air Mobility Inc., a wholly-owned subsidiary of Surf (“Parentco”), THCA Merger Sub Inc., a wholly-owned subsidiary of Parentco (“Merger Sub I”), and SAGL Merger Sub Limited, a wholly-owned subsidiary of Parentco (“Merger Sub II” and together with Surf, Parentco and Merger Sub I, the “Surf Entities”).
Pursuant to the Merger Agreement, upon the closing of the transactions contemplated by the Merger Agreement (the “Transactions”), Merger Sub I will merge with and into our company, with our company surviving, and, simultaneously therewith, Merger Sub II will merge with and into Surf, with Surf surviving (collectively, the “Mergers”). The Merger Agreement contemplates a related Business Combination transaction pursuant to which on the closing date a wholly-owned subsidiary of Parentco will be merged with and into Southern Airways Corporation (“Southern”), with Southern surviving (the “Southern Acquisition”). Following the Mergers and the Southern Acquisition, (i) the Company, Southern and Surf will be wholly-owned subsidiaries of Parentco, (ii) the security holders of the Company, Surf and Southern will be security holders of Parentco, (iii) Parentco will be the publicly traded company and (iv) Parentco’s business will be the business of Surf and Southern.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date. Our only activities from inception through September 30, 2022 were organizational activities, those necessary to prepare for the Initial Public Offering, described below, and, after our Initial Public Offering, identifying a target company for a Business Combination. We do not expect to generate any operating revenues until after the completion of our Business Combination. We generate non-operating income in the form of interest income on marketable securities held after the Initial Public Offering. We incur expenses as a result of being a public company (for legal, financial reporting, accounting and auditing compliance), as well as for due diligence expenses.
For the three months ended September 30, 2022, we had a net loss of $91,604, which consisted of the formation and operating costs of $378,417 offset by change in fair value of warrant liability of $164,088 and interest income on marketable securities held in the Trust Account of $122,725.
For the nine months ended September 30, 2022, we had a net loss of $60,879, which consisted of the formation and operating costs of $1,026,671, offset by change in fair value of warrant liability of $795,007 and interest income on marketable securities held in the Trust Account of $170,785.
For the three months ended September 30, 2021, we had a net income of $936,143, which consisted of the change in fair value of warrant liability of $1,157,100 and interest income on marketable securities held in the Trust Account of $17,677, offset by formation and operating costs of $222,865 and unrealized loss on marketable securities held in the Trust Account of $15,769.
For the nine months ended September 30, 2021, we had a net income of $1,485,603, which consisted of the change in fair value of warrant liability of $2,132,157 and interest income on marketable securities held in the Trust Account of $56,316, offset by formation and operating costs of $700,631 and provision for income taxes of $2,239.
21
Liquidity and Capital Resources
For the nine months ended September 30, 2022, cash used in operating activities was $1,220,076. Net loss of $60,879 was affected by change in fair value of warrant liability of $795,007 and interest income on marketable securities held in the Trust Account of $170,785. Changes in operating assets and liabilities used $193,405 of cash for operating activities.
For the nine months ended September 30, 2021, cash used in operating activities was $584,033. Net income of $1,485,603 was affected by change in fair value of warrant liability of $2,132,157 and interest income on marketable securities held in the Trust Account of $56,316. Changes in operating assets and liabilities provided $118,837 of cash for operating activities.
As of September 30, 2022, we had cash and marketable securities held in the Trust Account of $27,253,121 (including $122,725 of interest income) consisting of funds invested primarily in U.S. treasury bills with a maturity of 180 days or less. Interest income on the balance in the Trust Account may be used by us to pay taxes.
We intend to use substantially all of the funds held in the Trust Account, to acquire a target business and to pay our expenses relating thereto, including a fee payable to EarlyBirdCapital, upon consummation of our initial Business Combination for assisting us in connection with our initial Business Combination. To the extent that our capital stock is used in whole or in part as consideration to effect a Business Combination, the remaining funds held in the Trust Account will be used as working capital to finance the operations of the target business. Such working capital funds could be used in a variety of ways including continuing or expanding the target business’ operations, for strategic acquisitions and for marketing, research and development of existing or new products. Such funds could also be used to repay any operating expenses or finders’ fees which we had incurred prior to the completion of our Business Combination if the funds available to us outside of the Trust Account were insufficient to cover such expenses.
As of September 30, 2022, we had cash of $172,267. We intend to use the funds held outside the Trust Account for general operating expenses in connection with consummating the Business Combination.
In order to fund working capital deficiencies or finance transaction costs in connection with a Business Combination, the Insiders, or certain of our officers and directors or their affiliates may, but are not obligated to, loan us funds as may be required. If we complete a Business Combination, we would repay such loaned amounts. In the event that a Business Combination does not close, we may use a portion of the working capital held outside the Trust Account to repay such loaned amounts but no proceeds from our Trust Account would be used for such repayment. Up to $750,000 of such loans may be convertible into units and up to $750,000 of such loans may be convertible into warrants identical to the Private Units and Private Warrants, at a price of $10.00 per unit and $1.00 per warrant at the option of the lender, respectively. No working capital loans were issued or outstanding as of September 30, 2022 and December 31, 2021.
The Company will need to raise additional capital through loans or additional investments from our initial stockholders, officers or directors. If the Company is unable to raise additional capital, obtain approval for an extension of the deadline or complete a Business Combination by December 31, 2022, then the Company will cease all operations except for the purpose of liquidating. The Company has until December 31, 2022 to consummate a Business Combination. It is uncertain that the Company will be able to consummate a Business Combination by the specified period. If a Business Combination is not consummated by December 31, 2022 and such date is not extended by the Company’s stockholders, there will be a mandatory liquidation and subsequent dissolution. The liquidity condition and date for mandatory liquidation and subsequent dissolution raise substantial doubt about the Company’s ability to continue as a going concern one year from the date that these financial statements are issued. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
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Off-Balance Sheet Arrangements
We have no obligations, assets or liabilities, which would be considered off-balance sheet arrangements as of September 30, 2022. We do not participate in transactions that create relationships with un entities or financial partnerships, often referred to as variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements. We have not entered into any off-balance sheet financing arrangements, established any special purpose entities, guaranteed any debt or commitments of other entities, or purchased any non-financial assets.
Contractual Obligations
We do not have any long-term debt, capital lease obligations, operating lease obligations or long-term liabilities other than an agreement to pay an affiliate of our Sponsor a monthly fee of $10,000 for office space, utilities and secretarial and administrative support. We began incurring these fees on July 11, 2019 and will continue to incur these fees monthly until the earlier of the completion of the Business Combination and our liquidation.
We have engaged EarlyBirdCapital as an advisor in connection with a Business Combination to assist us in holding meetings with our stockholders to discuss the potential Business Combination and the target business’ attributes, introduce us to potential investors that are interested in purchasing our securities in connection with a Business Combination, assist us in obtaining stockholder approval for the Business Combination and assist us with our press releases and public filings in connection with the Business Combination. We will pay EarlyBirdCapital a cash fee for such services upon the consummation of a Business Combination in an amount equal to $6,037,500 (exclusive of any applicable finders’ fees which might become payable); provided that up to 30% of the fee may be allocated at our sole discretion to other FINRA members that assist us in identifying and consummating a Business Combination.
Critical Accounting Policies
The preparation of condensed financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and income and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified the following critical accounting policies:
Warrant Liabilities
We account for warrants in accordance with the guidance contained in ASC 815-40 under which the warrants do not meet the criteria for equity treatment and must be recorded as liabilities. As the Private Warrants meet the definition of a derivative as contemplated in ASC 815, we classify the Private Warrants as liabilities at their fair value and adjusts the Private Warrants to fair value at each reporting period. This liability is subject to re-measurement at each balance sheet date until exercised, and any change in fair value is recognized in our statements of operations. The Private Warrants for periods where no observable traded price was available were valued using a binomial lattice model.
Common Stock Subject to Possible Redemption
We account for 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 our control) is classified as temporary equity. At all other times, common stock is classified as stockholders’ equity. Our common stock features certain redemption rights that are considered to be outside of our 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’ deficit section of our condensed balance sheets.
Net (Loss) Income Per Common Share
Net (loss) income per common stock is computed by dividing net (loss) income by the weighted average number of common stock outstanding for the period. The Company calculates earnings per share by allocating net (loss) income to a single class of common stock. Accretion associated with the redeemable common stock is excluded from earnings per share as the redemption value approximates fair value.
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Recent Accounting Standards
We do not believe that any recently issued accounting standards, if currently adopted, would have a material effect on our condensed financial statements.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Disclosure controls are procedures that are designed with the objective of ensuring that information required to be disclosed in our reports filed under the Exchange Act is recorded, processed, summarized, and reported within the time period specified in the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that such information is accumulated and communicated to our management, including the chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required disclosure.
As required by Rules 13a-15 and 15d-15 under the Exchange Act, our Chief Executive Officer and Chief Financial Officer carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2022. Based upon their evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) were not effective, due to the material weaknesses in our internal control over financial reporting related to the Company’s accounting for complex financial instruments as well as incomplete accounting for the Company’s accrued liabilities. As a result, we performed additional analysis as deemed necessary to ensure that our financial statements were prepared in accordance with GAAP. Accordingly, management believes that the financial statements included in this Quarterly Report present fairly in all material respects our financial position, results of operations and cash flows for the period presented.
Management has identified material weaknesses in internal controls related to the accounting for complex financial instruments as well as incomplete accounting for the Company’s accrued liabilities. While we have processes to identify and appropriately apply applicable accounting requirements, we plan to continue to enhance our system of evaluating and implementing the accounting standards that apply to our financial statements, including through enhanced analyses by our personnel and third-party professionals with whom we consult regarding complex accounting applications. The elements of our remediation plan can only be accomplished over time, and we can offer no assurance that these initiatives will ultimately have the intended effects. Material weaknesses identified above have not been remediated as of September 30, 2022.
Management has implemented steps to improve our internal control over financial reporting. Specifically, we expanded and improved our review process for complex securities and related accounting standards. We plan to further improve this process by enhancing access to accounting literature, identification of third-party professionals with whom to consult regarding complex accounting applications and consideration of additional staff with the requisite experience and training to supplement existing accounting professionals.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II - OTHER INFORMATION
Item 1A. Risk Factors.
As of the date of this Quarterly Report on Form 10-Q, except as described below, there have been no material changes to the risk factors disclosed in our annual report on Form 10-K filed with the SEC on April 22, 2022 and our forms 10-Q for the quarterly periods ended March 31, 2022 and June 30, 2022 filed with the SEC on June 9, 2022 and August 15, 2022, respectively.
The excise tax included in the Inflation Reduction Act of 2022 may decrease the value of our securities following a Business Combination, hinder our ability to consummate a Business Combination, and decrease the amount of funds available for distribution in connection with a liquidation.
On August 16, 2022, the Inflation Reduction Act of 2022 (the “IR Act”) was signed into federal law. The IR Act provides for, among other things, a new U.S. federal 1% excise tax on certain repurchases of stock by publicly traded U.S. domestic corporations and certain U.S. domestic subsidiaries of publicly traded foreign corporations occurring on or after January 1, 2023. The excise tax is imposed on the repurchasing corporation itself, not its shareholders from which shares are repurchased. The amount of the excise tax is generally 1% of the fair market value of the shares repurchased at the time of the repurchase. However, for purposes of calculating the excise tax, repurchasing corporations are permitted to net the fair market value of certain new stock issuances against the fair market value of stock repurchases during the same taxable year. In addition, certain exceptions apply to the excise tax. The U.S. Department of the Treasury (the “Treasury”) has been given authority to provide regulations and other guidance to carry out and prevent the abuse or avoidance of the excise tax. Any share redemption or other share repurchase that occurs after December 31, 2022, in connection with a Business Combination, extension vote or otherwise, may be subject to the excise tax. Whether and to what extent the Company would be subject to the excise tax in connection with a Business Combination, extension vote or otherwise will depend on a number of factors, including (i) the fair market value of the redemptions and repurchases in connection with the Business Combination, extension or otherwise, (ii) the structure of a Business Combination, (iii) the nature and amount of any “PIPE” or other equity issuances in connection with a Business Combination (or otherwise issued not in connection with a Business Combination but issued within the same taxable year of a Business Combination) and (iv) the content of regulations and other guidance from the Treasury. In addition, because the excise tax would be payable by the Company and not by the redeeming holder, the mechanics of any required payment of the excise tax have not been determined. The foregoing could cause a reduction in the cash available on hand to complete a Business Combination and in the Company’s ability to complete a Business Combination.
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Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
In March 2019, the Sponsor purchased 3,593,750 shares (the “Founder Shares”) of the Company’s common stock for an aggregate price of $25,000. On July 11, 2019, we effected a stock dividend of 0.2 share for each outstanding share, resulting in our initial stockholders holding an aggregate of 4,312,500 founder shares. The foregoing issuance was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act of 1933, as amended (“Securities Act”).
On July 16, 2019, we consummated the Initial Public Offering of 15,000,000 Units. The Units sold in the Initial Public Offering were sold at an offering price of $10.00 per unit, generating total gross proceeds of $150,000,000. EarlyBirdCapital, Inc. acted as sole book-running manager and I-Bankers Securities, Inc acted as co-manager, of the Initial Public Offering. The securities in the offering were registered under the Securities Act on a registration statement on Form S-1 (No. 333-232205). The Securities and Exchange Commission declared the registration statement effective on July 11, 2019.
Simultaneous with the consummation of the Initial Public Offering, the Sponsor and EarlyBirdCapital consummated the private placement of an aggregate of 215,000 Units at a price of $10.00 per Private Unit, and 2,150,000 warrants at a price of $1.00 per Private Warrant, generating total proceed of $4,300,000. Each Private Unit consists of one share of common stock (“Private Share”) and one-half of one warrant (“Private Warrant”). Each whole Private Warrant is exercisable to purchase one share of common stock at an exercise price of $11.50 per share. The issuance was made pursuant to the exemption from registration contained in Section 4(a)(2) of the Securities Act.
The Private Warrants are identical to the warrants underlying the Units sold in the Initial Public Offering, except that the Private Warrants are not transferable, assignable or salable until after the completion of a Business Combination, subject to certain limited exceptions.
On July 18, 2019, the underwriters exercised their over-allotment option in full, resulting in an additional 2,250,000 Units issued on July 19, 2019 for $22,500,000, less the underwriters’ discount of $450,000. In connection with the underwriters’ exercise of their over-allotment option, the Company also consummated the sale of an additional 22,500 Private Units at $10.00 per Private Unit and the sale of an additional 225,000 Private Warrants at $1.00 per Private Warrant, generating total proceeds of $450,000. A total of $22,500,000 was deposited into the Trust Account.
Of the gross proceeds received from the Initial Public Offering, the exercise of the over-allotment option and the Private Securities, $172,500,000 was placed in the Trust Account.
We paid a total of $3,450,000 in underwriting discounts and commissions and $504,190 for other costs and expenses related to the Initial Public Offering.
For a description of the use of the proceeds generated in our Initial Public Offering, see Part I, Item 2 of this Form 10-Q.
Item 6. Exhibits
The following exhibits are filed as part of, or incorporated by reference into, this Quarterly Report on Form 10-Q.
| * | Filed herewith. |
| ** | Furnished |
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SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| TUSCAN HOLDINGS CORP. II | ||
| Date: November 14, 2022 | By: | /s/ Stephen A. Vogel |
| Name: | Stephen A. Vogel | |
| Title: | Chief Executive Officer | |
| (Principal Executive Officer) | ||
| Date: November 14, 2022 | By: | /s/ Richard O. Rieger |
| Name: | Richard O. Rieger | |
| Title: | Chief Financial Officer | |
| (Principal Financial and Accounting Officer) | ||
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