Business context and reporting period
Entity discrepancy: The supplied filing is TKK Symphony Acquisition Corporation’s Form 10-Q for the quarter ended June 30, 2019; it is not identified as a Cheer Holding, Inc. filing. TKK Symphony is a Cayman Islands blank-check company seeking a business combination, with a stated focus on consumer and lifestyle businesses potentially applicable to China. It had not begun operating activities or generated revenue by quarter-end.
Financial results and position
| Metric | Three months ended June 30, 2019 | Six months ended June 30, 2019 |
|---|---|---|
| Revenue | None | None |
| Operating costs | $482,837 | $743,586 |
| Trust-account interest and unrealized gain | $1,639,788 | $3,157,379 |
| Net income | $1,156,951 | $2,413,793 |
| Basic and diluted loss per ordinary share | $(0.06) | $(0.10) |
Per-share loss reflects the allocation of trust-account earnings to shares subject to possible redemption; it differs from reported company-wide net income. No operating margin is meaningful because the company had no revenue.
At June 30, 2019, total assets were $255.30 million, including $255.04 million in trust-account securities, principally U.S. Treasury bills. Cash outside the trust was $141,069; current liabilities were $493,851, including $350,000 in related-party advances, and working capital deficit was $240,490. Shareholders’ equity was $5.00 million; $249.80 million of redeemable shares was presented as temporary equity. The filing reports no long-term debt. Trust funds are intended for a business combination or shareholder redemptions, not ordinary working capital.
For the first six months, operating activities used $615,925 and financing activities provided $350,000, producing a $265,925 decrease in cash from the beginning of the year. The filing reports no material interest-rate exposure given the short-term nature of trust investments.
Changes versus prior comparable period
Compared with the three months ended June 30, 2018, operating costs rose from $9,344 to $482,837. The company reported net income of $1,156,951 in 2019 versus a $9,344 net loss in 2018, primarily because trust investments generated interest and unrealized gains in 2019. For the six-month comparison, 2019 net income was $2,413,793 versus a $39,859 loss for the 2018 period from inception through June 30; the periods are not fully comparable because the company began in February 2018 and completed its IPO in August 2018. Cash outside the trust fell from $406,994 at December 31, 2018 to $141,069 at June 30, 2019, while related-party advances increased from zero to $350,000.
Outlook, risks and contingencies
Management expected available cash and Sponsor financing to cover needs through the scheduled February 20, 2020 business-combination deadline. The company may extend the deadline by up to four months, subject to issuing warrants to public shareholders. Failure to complete a transaction within the permitted period would trigger liquidation; public shareholders would receive their pro rata share of trust assets, while warrants and rights could expire worthless.
The Sponsor committed to lend up to $600,000 in aggregate; $350,000 was outstanding at quarter-end. Such loans are generally repayable upon a completed business combination, and up to $1 million of eligible loans may be converted into warrants at the lender’s option. Other commitments include a $15,000 monthly administrative-services fee to a CEO-affiliated entity and a business-combination advisory fee of 3.5% of IPO gross proceeds, plus a possible 1.0% of transaction value if the advisor locates the target.
Key risks include failure to identify or complete a business combination before the deadline, limited working capital outside the trust, potential dilution or senior securities issued to finance a transaction, and creditor claims that could reduce trust assets. The filing says risk factors were unchanged from the 2018 Form 10-K, reports no legal proceedings, and states disclosure controls were effective with no material change in internal control over financial reporting.
Important facts for investors to verify
- Confirm the intended company: this filing names TKK Symphony Acquisition Corporation, not Cheer Holding, Inc.
- Check current business-combination status, applicable deadline or extension, and any subsequent filings.
- Verify trust-account balances, redemption terms, cash available outside the trust, and the terms and status of Sponsor loans.
- Assess potential transaction fees, warrant and rights dilution, and the possibility of liquidation or loss of warrant and rights value.
- Review the 2018 Form 10-K risk factors and subsequent disclosures for updates not included in this quarter’s filing.