Business context and reporting period
Entity mismatch: The supplied filing is for Hydra Industries Acquisition Corp., not Inspired Entertainment, Inc. Investors should verify that this is the intended filing. It is an unaudited Form 10-Q for the quarter ended September 30, 2014; the company was a newly formed blank-check company established to pursue a business combination and had not commenced operating activities.
Financial results and position
- Revenue: None. Management said the company had not generated revenue and did not expect operating revenue until after a business combination.
- Loss: Net loss was $3,144 for the three months ended September 30, 2014 and $3,547 from inception on May 30 through September 30. Loss per share was reported as $(0.00) for both periods.
- Cash flow: Inception-to-date operating cash use was $44,344; financing provided $91,494, producing a $47,150 net increase in cash. Ending cash was $47,150.
- Balance sheet at September 30: Total assets were $256,427, including $165,732 of deferred offering costs. Total liabilities were $234,974, including $169,499 of related-party promissory notes and $57,500 of accrued offering costs. Stockholders’ equity was $21,453.
- Margins, debt and liquidity: Margins are not meaningful because there was no revenue. The company had no long-term debt or off-balance-sheet financing arrangements; short-term related-party notes and advances were outstanding at quarter-end. The filing does not provide a conventional operating-business liquidity or working-capital outlook.
Changes and subsequent events
There is no prior-year comparable period because the company was incorporated on May 30, 2014. After quarter-end, on October 29, 2014, it completed an IPO of 8,000,000 units at $10 each, raising $80 million gross, and a private placement of warrants raising $3.75 million gross. It placed $80 million in a trust account and reported $1,326,704 of cash outside the trust after offering costs. IPO-related costs totaled $5,223,296, including $2.8 million of deferred underwriting fees payable upon a completed business combination. The related-party promissory notes were repaid at the IPO closing.
Outlook, risks and contingencies
- The company had 24 months from the IPO closing to complete a business combination; otherwise it would wind up and redeem public shares using trust assets, subject to the filing’s stated terms. No target or transaction was identified in this filing.
- Management stated it believed available funds were sufficient to pursue a business combination within that period. This was forward-looking and not a guarantee of completion.
- A target generally must have fair market value of at least 80% of the trust balance when a definitive agreement is signed. The Macquarie sponsor’s consent is also a condition under its contingent forward purchase contract.
- Public stockholders may have redemption rights in connection with a transaction, subject to stated limitations; the company must maintain at least $5,000,001 in net tangible assets after redemptions.
- Post-IPO commitments included a $10,000 monthly administrative-services fee to an affiliate and a contingent $20 million forward purchase by the Macquarie sponsor at a business-combination closing. The filing also describes potential sponsor loans and an underwriter deferred fee.
- Management expected higher public-company compliance and transaction due-diligence costs. It described trust-asset protection arrangements against certain creditor claims, with stated exceptions and limitations.
- No legal proceedings or material changes to prospectus risk factors were reported. Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting during the quarter.
Important facts to verify
- Confirm whether this Hydra Industries filing, rather than an Inspired Entertainment filing, is the intended document.
- Verify the October 29 IPO closing proceeds, trust balance, outside-trust cash and repayment of related-party notes against subsequent filings.
- Check subsequent filings for any business-combination target, transaction terms, redemptions, sponsor financing or changes to the 24-month deadline.
- Review the prospectus and later disclosures for the full redemption, liquidation, sponsor-consent and creditor-indemnity terms.