Filing summary
Entity and period: The supplied filing is M I Acquisitions, Inc.’s Form 10-K for the fiscal year ended December 31, 2016—not a filing for Priority Technology Holdings, Inc. It covers the full fiscal year, not a standalone fourth quarter. M I Acquisitions was a blank-check company seeking a business combination, with a stated focus on technology, media and telecommunications. It had not selected a target or held substantive target discussions by the filing date.
Financial results and position
- Revenue and profitability: No operating revenue. Net loss was $107,995 for 2016, or $0.06 per share, versus a $10,226 loss from inception on April 23, 2015 through December 31, 2015; the comparison periods differ in length. 2016 expenses included $137,529 in formation and operating costs and $35,667 in related-party administrative fees. Other income included $37,701 of interest and a $27,500 gain from debt extinguishment.
- Cash flow: Net cash used in operating activities was $150,272. Cash and cash equivalents outside the trust account were $362,535 at year-end. Trust assets were $54,731,828, restricted for a business combination or liquidation, subject to specified exceptions.
- Liquidity and balance sheet: Total assets were $55.15 million and total liabilities were $1.21 million. Working capital was approximately $269,000. Stock subject to possible conversion was classified as temporary equity at $48.94 million; reported stockholders’ equity was approximately $5.00 million.
- Debt and obligations: The company reported no long-term debt. Current liabilities included a $27,500 note payable, accounts payable and accrued expenses, and offering costs payable. A $1.06 million deferred underwriting fee was payable upon a completed business combination. The company also owed an affiliate $10,000 per month for administrative services while pursuing a combination.
- Margins and dividends: Operating margins are not meaningful because the company had no revenue. No cash dividends had been paid, and none were anticipated before a business combination.
Material changes and financing
- The company completed its IPO in September 2016: 5.0 million units at $10 each, raising $50.0 million gross. Partial exercise of the over-allotment option added 310,109 units and $3.10 million gross proceeds. Private placements generated a further $4.21 million.
- At year-end, the trust account held $54.73 million, compared with no trust balance in 2015. Outside-trust cash increased from $5,000 to $362,535.
- The company’s net loss increased from $10,226 in its 2015 inception period to $107,995 in 2016, while its activities shifted from formation and offering preparation to evaluating acquisition candidates.
Outlook, risks and unusual items
- Management expected to use most trust funds toward a business combination and projected that outside-trust cash would support operations until June 19, 2018, assuming no earlier combination. It estimated remaining search, diligence, reporting, administrative and working-capital costs, but warned actual costs or trust interest could differ.
- The auditor and management stated that conditions raised substantial doubt about the company’s ability to continue as a going concern. The filing says available cash and working capital may not fund planned activities for the following year; additional financing might be needed and might not be available on acceptable terms or at all.
- The company had 18 months from the IPO to complete a combination, with up to three one-month extensions if insiders or their designees deposited $132,753 per extension. Failure to complete a transaction would trigger redemption of public shares; warrants would expire worthless. The filing gives differing date references in places, so the precise deadline should be verified.
- Public-share conversions could reduce funds available for a transaction, and the company had to retain at least $5,000,001 in net tangible assets at closing. A proposed combination also had to meet Nasdaq’s 80% trust-value test. No third-party financing had been arranged.
- Trust funds could face creditor or bankruptcy claims despite planned vendor waivers and insider indemnification. The filing cautions that insiders may be unable to satisfy indemnification obligations. Insider ownership, related-party service fees, management time-allocation conflicts, and possible post-combination compensation are additional governance considerations.
- The company reported effective disclosure controls. The 10-K did not include management’s internal-control assessment or an auditor attestation, citing the transition period for newly public companies.
Important facts to verify
- Confirm the issuer: this filing is for M I Acquisitions, Inc., not Priority Technology Holdings, Inc.
- Confirm the applicable reporting period and the business-combination deadline; the filing is for fiscal 2016 and contains inconsistent deadline references.
- Review the audited financial statements and going-concern disclosure, especially the sufficiency of outside-trust cash and the assumptions behind management’s operating runway.
- Verify trust-account restrictions, conversion limits, deferred underwriting fees, and any subsequent withdrawals or extensions.
- Assess the terms and potential dilution from warrants, the underwriter’s unit purchase option, insider securities, and any future financing.