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"). 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 June 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.
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On May 17, 2022, Tuscan Holdings Corp. II ("Tuscan"), Surf Air Global Limited
(the "Company"), Surf Air Mobility Inc., a wholly-owned subsidiary of the
Company ("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 the Company, Parentco
and Merger Sub I, the "Surf Entities"), entered into a Business Combination
Agreement ("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 Tuscan, with Tuscan surviving, and, simultaneously
therewith, Merger Sub II will merge with and into the Company, with the Company
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 Tuscan will be wholly-owned subsidiaries of Parentco, (ii)
the security holders of Tuscan, the Company 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 the Company and Southern.
Results of Operations
We have neither engaged in any operations nor generated any revenues to date.
Our only activities from inception through June 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 June 30, 2022, we had a net income of $578,625, which
consisted of the change in fair value of warrant liability of $922,688 and
interest income on marketable securities held in the Trust Account of $38,456,
offset by formation and operating costs of $382,519.
For the six months ended June 30, 2022, we had a net income of $30,725, which
consisted of the change in fair value of warrant liability of $ 630,919 and
interest income on marketable securities held in the Trust Account of $ 48,059,
offset by formation and operating costs of $648,253.
For the three months ended June 30, 2021, we had a net loss of $405,234, which
consisted of the change in fair value of warrant liability of $172,068,
formation and operating costs of $234,792 and provision for income taxes $2,239,
offset by interest income on marketable securities held in the Trust Account of
$3,865.
For the six months ended June 30, 2021, we had a net income of $549,460, which
consisted of the change in fair value of warrant liability of $975,057,
unrealized gain on marketable securities held in the Trust Account of $15,769
and interest income on marketable securities held in the Trust Account of
$38,639, offset by formation and operating costs of $477,766 and provision for
income taxes $2,239.
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Liquidity and Capital Resources
For the six months ended June 30, 2022, cash used in operating activities was
$877,977. Net income of $30,725 was affected by change in fair value of warrant
liability of $630,919 and interest income on marketable securities held in the
Trust Account of $48,059. Changes in operating assets and liabilities used
$229,724 of cash for operating activities.
For the six months ended June 30, 2021, cash used in operating activities was
$434,143. Net income of $549,460 was affected by change in fair value of warrant
liability of $975,057, interest income on marketable securities held in the
Trust Account of $38,639 and an unrealized gain on marketable securities held in
the trust account of $15,769. Changes in operating assets and liabilities
provided $45,862 of cash for operating activities.
As of June 30, 2022, we had cash and marketable securities held in the Trust
Account of $27,332,896 (including $38,456 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 June 30, 2022, we had cash of $61,865. We intend to use the funds held
outside the Trust Account for identifying and evaluating prospective acquisition
candidates, performing business due diligence on prospective target businesses,
traveling to and from the offices, plants or similar locations of prospective
target businesses, reviewing corporate documents and material agreements of
prospective target businesses, selecting the target business to acquire and
structuring, negotiating and 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 June 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, 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 June 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 Income (Loss) Per Common Share
Net income (loss) per common stock is computed by dividing net income (loss) by
the weighted average number of common stock outstanding for the period. The
Company calculates earnings per share by allocating net 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.
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