Business Context and Reporting Period
This Form 10-K is for Mudrick Capital Acquisition Corporation, a Delaware special purpose acquisition company, for the fiscal year ended December 31, 2019; it is not an operating-company filing for Hycroft Mining. The company had no operating business or revenue and was seeking an initial business combination, primarily with post-bankruptcy companies.
After year-end, the company entered into an agreement to acquire the Hycroft business. The transaction remained subject to stockholder approval, redemption elections, financing and other customary closing conditions. The company later extended its business-combination deadline to August 12, 2020.
Financial Metrics and Liquidity
| Metric | 2019 | 2018 | Change |
|---|---|---|---|
| Net income | $2.611 million | $1.680 million | Increased $0.931 million |
| Interest earned on trust investments | $4.380 million | $2.837 million | Increased $1.543 million |
| General and administrative expenses | $0.876 million | $0.610 million | Increased $0.266 million |
| Income tax provision | $0.900 million | $0.555 million | Increased $0.344 million |
| Net cash used in operating activities | $2.238 million | $0.453 million | Use increased $1.786 million |
| Trust account investments | $215.386 million | $212.917 million | Increased $2.469 million |
| Cash outside trust account | $0.209 million | $0.536 million | Decreased $0.327 million |
Results were driven by interest income rather than operating activity. Basic and diluted income per redeemable Class A share was $0.16 in 2019 versus $0.10 in 2018; non-redeemable Class B shares had a loss of $0.13 per share versus $0.08 in 2018.
Total assets were $215.694 million at December 31, 2019. Liabilities were $7.615 million, including $7.280 million of deferred underwriting fees payable only upon completion of a business combination. Stockholders’ equity was $5.000 million, and redeemable Class A shares were recorded as temporary equity at $203.079 million.
The company had no long-term debt, capital leases or operating leases. It paid approximately $1.911 million of trust-account interest for franchise and income taxes during 2019. Accounts payable and accrued expenses were $0.335 million at year-end.
Material Changes Versus the Prior Comparable Period
- Net income increased 55% primarily because trust-account interest income increased.
- General and administrative expenses increased 44%, while operating cash use increased substantially as the company continued transaction searches and related diligence.
- Trust-account investments increased modestly, while cash available outside the trust account declined to approximately $209,000.
- The company’s auditor reported substantial doubt about its ability to continue as a going concern absent completion of a business combination by August 12, 2020.
- Subsequent to year-end, stockholders redeemed 13,890,713 Class A shares for approximately $144.219 million, leaving approximately $71.7 million in the trust account according to the filing.
- The company issued a non-interest-bearing sponsor promissory note of up to $1.5 million in January 2020 to fund transaction costs.
Guidance, Outlook, Risks and Unusual Items
Management expected to use substantially all remaining trust-account funds, net of taxes and deferred underwriting fees, to complete the Hycroft business combination. Additional contemplated funding included a $25 million sponsor forward purchase, up to $65 million of PIPE or backstop financing, and financing under the Sprott arrangements.
The proposed Hycroft transaction contemplated an equity consideration base of $325 million, assumption or repayment of certain Hycroft liabilities, potential assumption of up to $80 million of subordinated notes, and Sprott financing with an original principal amount not exceeding $110 million plus a $30 million royalty-related funding arrangement. These terms were subject to the definitive agreements and closing conditions.
- If no business combination was completed by August 12, 2020, the company would cease operations, redeem public shares and liquidate; warrants would expire worthless.
- The trust account redemption value was approximately $10.36 per public share at December 31, 2019, but investors could receive less because of creditor claims, taxes, liquidation costs or other liabilities.
- The company had only approximately $209,000 outside the trust account and depended on transaction completion or sponsor financing to maintain liquidity.
- High redemption levels could prevent the Hycroft transaction from satisfying minimum cash or net tangible asset conditions and could force restructuring or abandonment of the transaction.
- Potential conflicts of interest existed because Mudrick-affiliated funds held Hycroft securities and debt and were expected to participate in transaction financing and related exchanges.
- A purported class action complaint filed in February 2020 sought, among other relief, to require assumption of Hycroft warrant obligations and to enjoin the business combination. The purchase agreement was later amended to include those warrant obligations as assumed liabilities.
Important Facts for Investors to Verify
- Confirm the final status, consideration, financing, debt assumptions and closing conditions of the Hycroft business combination.
- Reconcile the trust-account balance after the reported redemptions with the cash required at closing and the deferred underwriting fees.
- Review the final dilution from founder shares, PIPE or backstop shares, forward-purchase securities, warrants and equity issued to debt holders.
- Assess the going-concern disclosure and whether cash outside the trust account was sufficient through the applicable liquidation deadline.
- Review the litigation outcome and the final treatment of Hycroft warrant liabilities.
- Because this filing reports a SPAC rather than Hycroft operations, use the related registration statement and Hycroft financial statements to evaluate mining assets, production, debt, liquidity and operating risks.