Harmony Merger Corp. — 2016 Form 10-K Summary
Filing identity: The supplied filing is for Harmony Merger Corp., not NextDecade Corp. It covers the fiscal year ended December 31, 2016 and was signed March 10, 2017. Harmony was a blank-check company seeking a business combination, not an operating business.
Financial results and liquidity
| Metric | 2016 | 2015 |
|---|---|---|
| Revenue | None | None |
| Operating loss | $689,568 | $338,531 |
| Net loss | $434,698 | $263,187 |
| Basic and diluted loss per share | $0.10 | $0.06 |
| Net cash used in operating activities | $483,142 | $433,883 |
| Cash outside trust at year-end | $23,865 | $324,991 |
| Trust assets at year-end | $117,507,609 | $117,374,895 |
Interest income of $254,870 partly offset 2016 operating expenses; there are no meaningful operating revenue or margin measures. Loss widened year over year as general and administrative costs increased. Total assets were $117.6 million; liabilities were $4.5 million, including a $4.325 million deferred underwriting fee and a $60,000 stockholder note. Stockholders’ equity was $5.0 million, while $108.0 million of shares were classified as subject to possible conversion. The filing reports no off-balance-sheet arrangements.
Operating cash was critically limited: $12,514 of the $23,865 outside-trust cash was restricted for taxes. The trust held approximately $10.22 per public share at year-end. Management said available cash and working capital were insufficient to fund planned activity through the March 27, 2017 deadline; the auditor highlighted substantial doubt about the company’s ability to continue as a going concern.
Developments, outlook, and risks
- On January 7, 2017, Harmony signed a proposed business-combination agreement. The filing is inconsistent about the counterparty: its business discussion identifies Customer Acquisition Network (Canada) Inc., while the subsequent-events note identifies Mundo Media Ltd.
- The counterparty purported to terminate the agreement on February 23, 2017. Harmony disputed its right to terminate and said it intended to pursue claims and remedies.
- Because the transaction could not be completed by the existing March 27, 2017 deadline, the board intended to seek a shareholder-approved extension. If an extension was not approved, the company said it would cease operations, redeem public shares, and liquidate. No completed extension or business combination is reported in this filing.
- CEO Eric Rosenfeld provided working-capital financing: a $60,000 note outstanding at year-end and additional $60,000 notes in February and March 2017, plus a $25,000 January advance. The notes generally carry no interest and are payable at a business-combination closing; repayment is not assured if no combination occurs.
- Other notable risks include potential claims against trust assets, possible liquidation proceeds below $10.20 per share, warrants becoming worthless if no combination is completed, dilution or additional financing needs, and Nasdaq compliance. Nasdaq had notified Harmony that it failed to hold a required annual meeting; it submitted a compliance plan and sought to regain compliance by March 27, 2017.
The filing provides no operating-business guidance or forecast. Management’s stated plan was to pursue a business combination, subject to financing, shareholder approval, and the deadline extension. The auditor issued an unqualified opinion on the financial statements while emphasizing the going-concern uncertainty.
Most important facts to verify
- Confirm the intended issuer: the filing is for Harmony Merger Corp., despite the request naming NextDecade Corp.
- Resolve the filing’s conflicting identification of the proposed transaction counterparty and verify the termination dispute’s status and outcome.
- Verify whether shareholders approved an extension beyond March 27, 2017 and whether Harmony ultimately completed a business combination or liquidated.
- Check subsequent liquidity, stockholder advances, creditor claims against trust assets, and actual public-share redemption proceeds.
- Confirm the outcome of Nasdaq’s compliance process and the status of the $4.325 million deferred underwriting fee.