Business Context and Reporting Period
The filing is a Form 10-Q for the quarter and nine months ended September 30, 2019, filed by Mudrick Capital Acquisition Corporation, not Hycroft Mining Holding Corp. The company was a blank-check company formed to pursue a business combination, with a stated focus on companies emerging from bankruptcy. It had not commenced operating activities or generated operating revenue as of September 30, 2019.
The company remained a shell company and emerging growth company. Its activities consisted primarily of maintaining the trust account, evaluating potential acquisition targets, and incurring public-company and due-diligence expenses.
Key Financial Metrics
| Metric | Three Months Ended September 30, 2019 | Nine Months Ended September 30, 2019 | Comparable Prior Period |
|---|---|---|---|
| Operating revenue | None | None | None |
| Interest income from trust account | $1.114 million | $3.476 million | $0.913 million and $1.804 million, respectively |
| General and administrative expenses | $0.151 million | $0.453 million | $0.137 million and $0.408 million, respectively |
| Income before taxes | $0.964 million | $3.028 million | $0.779 million and $1.402 million, respectively |
| Income tax provision | $0.224 million | $0.720 million | $0.182 million and $0.349 million, respectively |
| Net income | $0.741 million | $2.308 million | $0.598 million and $1.054 million, respectively |
| Class A earnings per share | $0.04 | $0.13 | $0.03 and $0.06, respectively |
| Cash used in operating activities | Not separately provided | $1.920 million | $0.310 million |
- Cash outside the trust account was $267,248 at September 30, 2019, compared with $535,946 at December 31, 2018.
- Investments held in the trust account were $214.742 million, compared with $212.917 million at December 31, 2018.
- Total liabilities were $7.317 million, including $7.280 million of deferred underwriting fees contingent on completing a business combination.
- Common stock subject to possible redemption was $202.776 million, representing 20,076,817 shares at a redemption value of $10.10 per share.
- Stockholders’ equity was approximately $5.000 million. The filing reports no long-term debt, capital leases, or operating leases.
- The company withdrew approximately $1.651 million of trust-account interest during the nine-month period to pay franchise and income taxes.
Material Changes Versus the Prior Comparable Period
- Net income increased 24% for the quarter and 119% for the nine-month period, primarily because trust-account interest income increased to $1.114 million and $3.476 million from $0.913 million and $1.804 million, respectively.
- General and administrative expenses increased approximately 10% for the quarter and 11% for the nine-month period.
- Operating cash outflow increased to $1.920 million from $0.310 million for the comparable nine-month period, reflecting higher taxes and working-capital uses.
- Trust-account investments increased by approximately $1.825 million from year-end 2018, principally from retained investment income after tax withdrawals.
- Cash outside the trust account declined by approximately $269,000 from December 31, 2018.
- Shares subject to possible redemption increased to 20,076,817 from 19,848,325, while non-redeemable Class A shares declined to 723,183 from 951,675.
Guidance, Outlook, Risks, and Unusual Items
- Management provided no operating revenue or earnings guidance. The company expected to generate no operating revenue until after completing a business combination.
- The company was required to complete a business combination by February 12, 2020. If unsuccessful, it was required to cease operations, redeem the public shares using trust-account funds, and liquidate.
- Management stated that the liquidity condition and scheduled liquidation date raised substantial doubt about the company’s ability to continue as a going concern through February 12, 2020.
- Approximately $214.742 million remained in the trust account, substantially invested in U.S. Treasury securities or qualifying government money-market funds. Trust-account funds were intended primarily for a business combination and were subject to shareholder redemption rights.
- The company had only $267,248 of cash available outside the trust account for operating needs. The sponsor and affiliates could, but were not obligated to, provide up to $1.5 million in working-capital loans.
- The sponsor had committed to a $25 million forward purchase transaction to occur concurrently with a business combination.
- Completion of a business combination was uncertain and depended on identifying a suitable target, satisfying the requirement to acquire at least 80% of the trust-account assets’ value, obtaining any required approvals, and managing shareholder redemptions.
- Potential future financing through equity or debt could dilute existing holders or increase financial risk. The filing also describes risks related to warrant expiration, redemption rights, sponsor support, and possible claims against trust-account assets.
- The company reported no legal proceedings, no defaults on senior securities, and no material changes to the risk factors disclosed in its 2018 Form 10-K.
- Management concluded that disclosure controls and procedures were effective as of September 30, 2019, with no material change in internal control over financial reporting during the quarter.
Investor Verification Items
- Verify the registrant identity: the supplied filing is for Mudrick Capital Acquisition Corporation, while the request metadata identifies Hycroft Mining Holding Corp.
- Verify whether a business combination was completed by the February 12, 2020 deadline and whether the public shares were redeemed or the company liquidated.
- Review the trust-account balance, redemption amount per share, deferred underwriting fees, and any subsequent withdrawals or distributions.
- Assess the company’s ability to fund operations outside the trust account and whether sponsor working-capital loans were required.
- Review the terms and effects of any completed transaction, including shareholder redemptions, the $25 million forward purchase commitment, warrant dilution, and conversion of Class B founder shares.
- Confirm subsequent events after November 7, 2019, because the filing states that no reportable subsequent events had been identified through issuance of the financial statements.