Business context and reporting period
This is M I Acquisitions, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2018, filed May 14, 2018. Despite the requested company label, the filer was a pre-business-combination special purpose acquisition company (SPAC), not yet Priority Technology Holdings, Inc. M I had no operating business or revenue and was evaluating acquisition candidates.
In February 2018, M I agreed to acquire all of Priority Holdings, LLC, a payment-processing provider, in a stock transaction. The agreement set Priority’s enterprise value at $947.8 million, less net debt and subject to adjustments; the filing does not state a final equity value or share count. The proposed combined company would take the Priority Technology Holdings, Inc. name.
Financial results and liquidity
| Metric | Q1 2018 | Q1 2017 / comparison |
|---|---|---|
| Operating revenue | None | None |
| Expenses | $321,228 | $245,466 |
| Interest income | $174,478 | $56,621 |
| Net loss | $146,750 | $188,845 |
| Basic and diluted loss per share | $0.13 | $0.09 |
| Net cash used in operating activities | $138,342 | $306,166 |
Expenses rose 31% year over year, while higher trust-account interest income contributed to a 22% reduction in net loss. Margins are not meaningful because the SPAC had no operating revenue.
At March 31, 2018, cash outside the trust was $39,114; trust assets were $55.384 million, principally U.S. Treasury bills. Total liabilities were $1.798 million, including $27,500 of notes payable, $132,753 of related-party notes, and a $1.062 million deferred underwriting fee payable at a business-combination closing. Working capital deficit was $654,997. The filing reports no off-balance-sheet arrangements and no material market or interest-rate risk.
Material changes, outlook and risks
- M I’s quarterly activity remained limited to pursuing a business combination; management expected no operating revenue until one closed.
- The company had deposited $265,504 in the trust to extend its combination deadline. A further $132,753 related-party note funded a one-month extension to May 19, 2018. After quarter-end, Priority provided another $132,753 for that extension and issued a separate $76,771 note. An April 26 preliminary proxy proposed extending the deadline to September 17, 2018; shareholder approval was pending.
- Management stated that approximately $39,000 of outside-trust cash was not expected to fund operations through June 19, 2018, and that additional financing might be needed. The filing says these conditions raise substantial doubt about the company’s ability to continue as a going concern. Insiders and other potential lenders were not obligated to provide further funds.
- The agreement permits up to 9.8 million additional earn-out shares, subject to specified EBITDA and share-price targets. The filing also describes founder share purchases and potential forfeitures and reissuance.
- Key transaction risks include failure to obtain shareholder or regulatory approvals, termination or delay, financing needs, integration challenges, retention of customers and employees, and failure to realize projected synergies. These are forward-looking risks, not assured outcomes.
- Nasdaq had notified M I that it was out of compliance for not holding a required annual meeting. Nasdaq granted an extension to June 19, 2018; failure to regain compliance could lead to delisting.
- The financial statements state that M I had not yet begun operations and identify substantial doubt about going concern; no forecast or revenue guidance for Priority is provided in this 10-Q.
Important facts for investors to verify
- Whether shareholders approved the proposed business-combination deadline extension and the Priority transaction, and whether all closing conditions were met.
- Final consideration and dilution, including Priority net debt adjustments, any additional acquisitions, earn-out shares, founder arrangements, and redemptions of public shares.
- Priority’s standalone financial performance, cash flows, debt, and assumptions supporting the transaction valuation; those operating-company results are not presented in this filing.
- Availability of cash to fund M I through closing or liquidation, repayment terms and funding sources for related-party notes, and any subsequent financing.
- Resolution of Nasdaq listing compliance and the status of the proposed annual meeting.