Business Context and Reporting Period
This Form 10-Q covers the quarter and six months ended June 30, 2016, and was filed August 15, 2016. The filing is for GP Investments Acquisition Corp., a Cayman Islands blank-check company, not Rimini Street, Inc. The company had not commenced operating activities and was pursuing a business combination.
The company had entered into an April 19, 2016 merger agreement to acquire WKI Holding Company, Inc., parent of World Kitchen, LLC, whose brands include Corelle, Pyrex, CorningWare and Snapware. The proposed transaction contemplated a $500 million purchase price, subject to adjustment, funded 75% with cash and 25% with newly issued shares.
Financial Highlights
| Metric | Three Months Ended June 30, 2016 | Six Months Ended June 30, 2016 | Comparable Period |
|---|---|---|---|
| Operating costs | $821,564 | $1,888,476 | $33,251 and $42,602, respectively |
| Interest income | $177,112 | $338,339 | $35,231 for each comparable period shown |
| Unrealized loss on Trust Account securities | $103,291 | None reported | None reported |
| Net income/(loss) | $(747,743) | $(1,550,137) | $1,980 and $(7,371), respectively |
| Basic and diluted loss per share | $(0.14) | $(0.29) | $0.00 and $(0.00), respectively |
| Net cash used in operating activities | Not separately reported | $(1,223,172) | $(54,347) |
The company generated no operating revenue. Results primarily reflected target-identification, transaction and public-company costs, partially offset by interest earned on Trust Account investments.
- Cash and cash equivalents outside the Trust Account were $132,324 at June 30, 2016, compared with $967,449 at December 31, 2015.
- Cash and marketable securities in the restricted Trust Account were $172,916,591, compared with $172,578,252 at December 31, 2015.
- Accounts payable and accrued expenses were $941,238, compared with $19,968 at December 31, 2015.
- Deferred underwriting fees were $6,037,500 and payable only if a business combination is completed.
- A related-party promissory note of $388,047 was outstanding at June 30, 2016.
- Shares subject to possible redemption totaled 16,055,829 at a redemption value of $160,946,046.
- Total shareholders’ equity was $5,000,001; no preferred shares were issued.
Material Changes Versus Prior Comparable Period
- Operating costs increased substantially to $821,564 for the quarter and $1,888,476 for the six-month period, compared with $33,251 and $42,602, respectively, in the prior comparable periods.
- The company moved from quarterly net income of $1,980 to a quarterly net loss of $747,743, and from a six-month net loss of $7,371 to a six-month net loss of $1,550,137.
- Operating cash use increased to $1,223,172 from $54,347 for the comparable six-month period.
- Cash outside the Trust Account declined by $835,125 during the first six months, while related-party borrowings increased to $388,047.
- Accounts payable and accrued expenses increased materially, primarily because of amounts owed to service providers and advisors involved in evaluating the potential business combination.
Guidance, Outlook, Risks and Unusual Items
Management stated that it expected sufficient capital to meet operating needs through the earlier of completion of a business combination or May 26, 2017, the date liquidation would be triggered if no combination were completed. The Sponsor subsequently increased its loan commitment from $500,000 to $1.4 million; $388,047 was outstanding at June 30, 2016. The loans were non-interest-bearing, unsecured and repayable only upon completion of a business combination.
- The proposed WKI merger remained subject to shareholder and regulatory approvals, effectiveness of an S-4 registration statement, NASDAQ approval, expiration of the HSR waiting period, financing conditions and redemption limits.
- Closing required net redemptions not to exceed 30% of outstanding common shares and at least $122 million to remain in the Trust Account after redemptions.
- Debt commitment letters contemplated a $100 million senior secured asset-based revolving facility and a $250 million senior secured first-lien term facility, subject to customary closing conditions.
- The Sponsor committed up to $58 million of equity financing, including $50 million dedicated to merger financing and up to $8 million for specified circumstances.
- Contingent transaction fees were approximately $3.894 million and would become payable only if the potential transaction occurred. Additional committed merger-related fees were approximately $26.270 million and likewise depended on closing.
- On July 28, 2016, after quarter-end, the parties amended the merger agreement to permit certain incremental equity issuances, waive specified closing conditions and address WKI restructuring matters.
- If no business combination was completed within the permitted period, the company would liquidate, redeem public shares from the Trust Account, and the warrants would expire worthless. The merger agreement could be terminated if not completed by September 20, 2016, subject to a possible extension to November 19, 2016.
- The filing reported no legal proceedings, no material changes to previously disclosed risk factors and no off-balance-sheet financing arrangements.
Important Facts for Investors to Verify
- Verify the issuer identity: the supplied filing is for GP Investments Acquisition Corp., not Rimini Street, Inc.
- Confirm the status and final terms of the proposed WKI/World Kitchen merger, including the July 28, 2016 amendment and any subsequent closing or termination.
- Assess redemption levels and whether the $122 million minimum Trust Account condition was satisfied.
- Review the definitive terms and availability of the proposed $350 million credit facilities and up to $58 million of Sponsor equity financing.
- Evaluate the company’s limited working capital outside the Trust Account, increasing accrued expenses and reliance on related-party loans.
- Review the approximately $3.894 million of contingent fees, approximately $26.270 million of committed merger fees and the $6.0375 million deferred underwriting fee.
- Confirm the liquidation deadline and the treatment of public shares, founder shares and warrants if the business combination failed.