Filing summary
Entity mismatch: The supplied filing is Hydra Industries Acquisition Corp.’s Form 10-Q, not an Inspired Entertainment, Inc. filing. It covers the quarter ended September 30, 2015 and was signed November 12, 2015.
Business context and reporting period
Hydra was a shell company formed to pursue a business combination and had not commenced operating-business activities by September 30, 2015. Its activity consisted of formation, its October 2014 IPO, and identifying and evaluating potential targets. The company reported 10,000,000 common shares issued and outstanding as of November 6, 2015; its balance sheet separately presents redeemable shares as temporary equity.
Financial results and position
- Revenue: No operating revenue. Interest income was $1,372 for the third quarter and $14,520 for the first nine months of 2015.
- Net loss: $720,771 for Q3 2015 and $2,797,680 for the nine months ended September 30, 2015, versus $3,144 and $3,547, respectively, in the comparable 2014 periods. Q3 2015 included a $6,280 unrealized loss on trust securities.
- Cash flow: Operating activities used $717,421 in the first nine months of 2015. Cash outside the trust fell to $405,748 from $1,123,278 at December 31, 2014.
- Assets and liquidity: Total assets were $80,515,838, including $80,013,480 in the trust account. Current liabilities were $2,103,343 and working capital deficit was $1,602,935. Trust funds were generally unavailable for operating liabilities before a business combination.
- Liabilities and equity: Total liabilities were $4,903,343, including $2,800,000 of deferred underwriting fees payable only if a business combination closes. The filing reports no long-term debt. Stockholders’ equity was $5,000,001; $70,612,494 of redeemable common stock was classified outside equity as temporary equity.
- Margins: Not meaningful because the company had no operating revenue.
Material changes, outlook, and risks
- On October 26, 2015, efforts on a potential business combination were terminated. Approximately $2.1 million of previously incurred contingent advisor fees consequently ceased to be payable. The filing does not identify the potential target in the supplied text.
- Management stated that it had no assurance of completing a business combination and that limited operating cash, accrued liabilities, and uncertainty about additional financing raised substantial doubt about the company’s ability to continue as a going concern. Sponsors had committed up to $500,000 in aggregate, but other sponsor or insider funding was not obligatory.
- The company had 24 months from its October 29, 2014 IPO closing to complete a business combination; otherwise it would wind up and distribute trust funds to public shareholders, subject to specified deductions and claims. Public warrants and rights could expire worthless upon liquidation.
- A contingent forward purchase contract contemplated approximately $20 million of additional funding at a business-combination closing, but was conditional on Macquarie Sponsor approval, which could be withheld.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during the quarter. No legal proceedings were reported. The company cited no material change to previously disclosed risk factors apart from the added liquidity and going-concern concerns.
- No operating guidance was provided. Management noted that trust investments were short-term U.S. government securities or qualifying money-market funds and assessed material interest-rate exposure as limited.
Important facts for investors to verify
- Confirm the intended issuer: this filing is for Hydra Industries Acquisition Corp., not Inspired Entertainment, Inc.
- Verify the status and outcome of any later business-combination transaction following termination of the potential deal on October 26, 2015.
- Check subsequent filings for liquidity, accrued advisor and other liabilities, and whether committed or additional sponsor financing was obtained.
- Review trust-account redemption terms, the business-combination deadline, and the effect of liquidation on public shares, rights, and warrants.