Filing summary
Entity mismatch: The supplied filing is Global Partner Acquisition Corp. (a blank-check company), not Purple Innovation, Inc. It is a Form 10-Q for the quarter ended March 31, 2017, filed May 9, 2017. The figures below describe Global Partner Acquisition, not Purple Innovation.
Business context and reporting period
Global Partner Acquisition had no operating business or operating revenue as of quarter-end. Its activities were pursuing a business combination. In January 2017, it agreed to acquire Sequel Youth and Family Services, a behavioral healthcare provider. The proposed transaction was to be accounted for as a reverse merger, with Sequel treated as the accounting acquirer.
Financial performance and liquidity
| Metric | Q1 2017 | Q1 2016 / comparison |
|---|---|---|
| Revenue | $0 | $0 |
| General and administrative expenses | $314,000 | $138,000 |
| Operating loss | $(314,000) | $(138,000) |
| Trust account interest income | $179,000 | $100,000 |
| Interest expense on sponsor note | $(18,000) | $0 |
| Income tax provision | $(50,000) | $0 |
| Net loss | $(203,000) | $(38,000) |
| Basic and diluted loss per share | $(0.04) | $(0.01) |
| Net cash used in operating activities | $(1,207,000) | $(155,000) |
At March 31, 2017, cash available outside the trust was $230,000, versus $237,000 at year-end 2016. Trust assets were $155.722 million. Total assets were $156.017 million; current liabilities were $2.274 million, including $1.218 million owed under a sponsor note and $150,000 of accrued taxes. The company reported negative working capital of approximately $1.979 million and stockholders’ equity of $5.0 million. The sponsor note bears 7.5% annual interest, is repayable upon completion of a business combination, and may be converted at the company’s option at $10 per share. The filing reports no long-term debt or long-term contractual obligations.
Margins are not meaningful because the company had no revenue or operating business. Management said it believed available resources, including deferred professional fees, would fund operations through a business combination or, if necessary, through August 4, 2017.
Material changes and proposed transaction
Compared with Q1 2016, general and administrative expenses increased by $176,000 and net loss increased by $165,000. Operating cash use rose by approximately $1.052 million, primarily reflecting working-capital movements; the company borrowed $1.2 million from its sponsor in January 2017.
Under the proposed Sequel transaction, Sequel common holders were to receive units initially exchangeable for 4.5 million GPAC shares, $105 million cash, warrants to purchase approximately 3.266 million shares, and tax receivable agreement rights. Sequel’s preferred holder was to receive $30 million cash and approximately $62.2 million of preferred units, with an initial 9.9% annual distribution right subject to adjustment. Public shareholders could elect redemption; the estimated redemption price was approximately $10 per share at March 31, 2017.
Outlook, risks, and unusual items
- The company had until August 4, 2017—24 months after its IPO—to complete a business combination; otherwise, it was required to wind up and redeem public shares, subject to the charter and applicable law. The filing states this deadline and potential liquidation raised substantial doubt about the company’s ability to continue as a going concern.
- The merger agreement could be terminated if closing had not occurred by May 15, 2017, automatically extended to June 15 if specified proxy and meeting conditions were met. The company intended to seek an extension but gave no assurance the transaction would close.
- If no business combination were completed by the deadline, public warrants would expire worthless. Redemption or liquidation proceeds per share could be below the original IPO unit price.
- Management cited possible dilution, senior preferred rights, debt-service and covenant risks, and constraints on future financing as potential consequences of transaction financing.
- The trust was invested primarily in short-term U.S. Treasury bills; management did not consider current interest-rate risk material. No legal proceedings or off-balance-sheet financing arrangements were reported.
- Disclosure controls and procedures were assessed as effective, with no material change in internal control over financial reporting during the quarter.
Most important facts for investors to verify
- Confirm the intended company: this filing is for Global Partner Acquisition Corp., not Purple Innovation, Inc.
- Verify subsequent outcomes of the Sequel merger agreement, its termination-date extension, shareholder redemptions, and the August 4, 2017 business-combination deadline.
- Check the status and repayment or conversion of the $1.2 million sponsor note and the extent of deferred transaction-related fees.
- Review the final transaction terms, including cash consideration, warrants, preferred distributions, dilution, and tax receivable agreement obligations.