Filing summary: Hydra Industries Acquisition Corp. — Q2 2015 Form 10-Q
Important identity mismatch: The request identifies Inspired Entertainment, Inc., but the supplied filing is for Hydra Industries Acquisition Corp., a Delaware blank-check company. This summary reflects the supplied filing, not an Inspired Entertainment filing.
Business context and reporting period
The unaudited quarter and six months ended June 30, 2015 cover a special-purpose acquisition company formed to pursue a business combination. Hydra reported that it had not commenced operating-business operations and had generated no operating revenue. The filing was signed August 7, 2015; the company identified itself as a shell company.
Financial results and position
- Revenue and margins: No operating revenue; margins are not meaningful. Operating costs were $1.895 million for Q2 and $2.090 million for the first half.
- Net loss: $1.891 million for Q2 and $2.077 million for the first half; basic and diluted loss per share were $0.71 and $0.78, respectively.
- Cash flow: First-half cash used in operations was $426,509; cash declined from $1.123 million at year-end 2014 to $696,660. No comparative 2014 results were presented because the company had no activity in that period.
- Liquidity: At June 30, cash outside the trust was $696,660, while $80.018 million was held in the trust account and restricted for a business combination or related redemptions. Working-capital deficit was $887,522.
- Liabilities and debt: Current liabilities were $1.714 million, primarily accrued legal, accounting, and consulting costs; deferred underwriting fees were $2.8 million. The company reported no long-term debt.
- Equity: Stockholders’ equity was $5.000 million; 7.132 million shares, valued at $71.333 million, were classified as subject to possible redemption.
Material changes and unusual items
- Compared with December 31, 2014, cash outside the trust fell by $426,618, current liabilities rose from $85,794 to $1.714 million, and redeemable shares declined from 7.341 million to 7.132 million. The filing does not provide a comparable prior-year operating period.
- Approximately $1.6 million of advisor and service-provider fees were contingent on completing a potential business combination and would not be payable if it did not close. The company anticipated additional transaction costs if it closed.
- The Macquarie Sponsor had committed to a contingent purchase of approximately $20 million of units and shares at a business-combination closing, subject in part to its approval of the transaction.
Outlook, liquidity risks, and contingencies
Management stated that the company expected to continue incurring acquisition-search costs and that available operating cash might be insufficient. The sponsors had committed an aggregate $500,000 for expenses if outside-trust funds proved insufficient, but no other sponsor, officer, director, or third party was generally obligated to provide financing. Management disclosed substantial doubt about the company’s ability to continue as a going concern. Trust funds were unavailable for ordinary expenses before a business combination.
The company had 24 months from its October 29, 2014 IPO closing to complete a business combination; otherwise it was required to wind up and distribute trust assets to public shareholders, subject to stated terms. In that event, public shareholders could receive approximately $10 per share, while rights and warrants would expire worthless. The filing said no definitive agreement had been entered into for the potential transaction referenced in its May 2015 letter agreement. Legal proceedings: none reported. Management said disclosure controls were effective and reported no material change in internal control over financial reporting.
Important facts for investors to verify
- Whether this is the intended filing: the registrant in the supplied text is Hydra Industries Acquisition Corp., not Inspired Entertainment, Inc.
- The status and terms of any potential business combination, including whether a definitive agreement was subsequently signed and whether Macquarie approval was obtained.
- Whether accrued transaction expenses were deferred or paid, and whether the $500,000 sponsor commitment or other financing became available.
- The company’s remaining cash runway, the business-combination deadline, and any subsequent trust-account redemptions or other material events.