Business context and reporting period
Important entity distinction: This September 30, 2017 Form 10-Q is filed by Global Partner Acquisition Corp., a blank-check company—not by Purple Innovation, Inc. It contains no financial results for Purple. It reports the three and nine months ended September 30, 2017.
On November 2, 2017, after quarter-end, Global Partner entered into a merger agreement to acquire Purple Innovation, LLC, a comfort-technology company selling mattresses, bedding, and cushioning through direct-to-consumer and retail channels. The agreement extended the business-combination deadline to February 5, 2018.
Financial results and liquidity
- Revenue: None in the three- or nine-month periods. The company had not commenced operations and expected no operating revenue before a business combination.
- Net income (loss): Third-quarter net income was $1.710 million, versus a $134,000 loss in Q3 2016. Nine-month net income was $1.451 million, versus a $228,000 loss in the prior-year period.
- Key income items: Results included $2.5 million of transaction-fee income received in September for releasing a third party from a non-circumvention agreement related to the terminated Sequel transaction. Interest income was $294,000 for Q3 and $735,000 for the nine months, compared with $93,000 and $258,000, respectively, in 2016. General and administrative expense was $937,000 for Q3 and $1.421 million year to date, up from $227,000 and $486,000.
- Margins: Not meaningful for this pre-combination shell company with no revenue.
- Cash flow: Nine-month operating cash flow was positive $137,000, compared with negative $403,000 in 2016. Cash outside the trust account was $374,000 at September 30, 2017, versus $645,000 at September 30, 2016.
- Assets and liquidity: The trust account held $121.749 million at September 30, 2017, primarily in U.S. Treasury bills. Current assets were $393,000 and current liabilities were $1.015 million, implying negative working capital of approximately $622,000. Trust funds were generally unavailable for operating expenses before a business combination.
- Debt: No long-term debt was outstanding at quarter-end. A $1.2 million interest-bearing Sponsor note was repaid in September, along with approximately $57,000 of interest.
Material changes and unusual items
- Stockholders approved an extension on August 3, 2017; holders of 3,416,480 public shares redeemed them for approximately $34.269 million, or about $10.03 per share. The trust balance declined from $155.543 million at December 31, 2016 to $121.749 million at September 30, 2017.
- The proposed Sequel business combination was terminated in May 2017. The subsequent $2.5 million release fee contributed to reported profit and should not be viewed as recurring operating income.
- On November 1, 2017, the Sponsor agreed to provide up to $1.0 million under a non-interest-bearing note; $600,000 was drawn on November 2. The unpaid balance may be converted into common shares at $10 per share, and a $50,000 commitment fee is payable to the Sponsor.
Outlook, risks, and contingencies
Management said the company expected to have sufficient resources to pursue a combination through the applicable deadline assuming additional Sponsor financing; that financing was not yet in place as of quarter-end. The November Sponsor note and Purple merger agreement were subsequent events. Completion of the Purple transaction was not assured. Failure to complete a business combination by February 5, 2018 would require the company to cease operations and redeem public shares, subject to the charter terms. The filing states that this mandatory-liquidation possibility raised substantial doubt about the company’s ability to continue as a going concern.
Potential transaction risks include further public-share redemptions, dilution from issuing equity, and financing or debt-related constraints. The company reported no material change to previously disclosed risk factors and no legal proceedings.
Important facts for investors to verify
- Whether the Purple merger closed, and its final consideration, financing, and ownership/dilution terms.
- Final trust-account funds and public-share redemptions at the transaction closing.
- Use, repayment, or conversion of the Sponsor note and any further Sponsor financing.
- Whether the one-time Sequel-related fee obscures the company’s recurring pre-combination costs and cash needs.
- The filing is Global Partner Acquisition Corp.’s SPAC report; it does not provide Purple’s operating financial statements or business outlook.