Business Context and Reporting Period
This unaudited Form 10-Q covers the quarter and six months ended June 30, 2019, and was filed July 9, 2019, by Thunder Bridge Acquisition, Ltd., a Cayman Islands blank-check company. The filing is not yet under the Repay Holdings Corp. name; Thunder Bridge proposed to domesticate, merge with Repay, and change its name to Repay Holdings Corporation.
The company had not completed its initial business combination and had generated no operating revenue. Its activities consisted primarily of evaluating and pursuing a target business combination.
Key Financial Metrics
| Metric | Three months ended June 30, 2019 | Six months ended June 30, 2019 |
|---|---|---|
| Operating revenue | None | None |
| Loss from operations | $(1.1) million | $(2.1) million |
| Interest income | $1.6 million | $1.8 million |
| Unrealized gains on marketable securities | $89,000 | $1.4 million |
| Net income | $561,700 | $1.1 million |
| Net loss available to ordinary shares | $(999,643) | $(1.9) million |
| Basic and diluted loss per share | $(0.13) | $(0.24) |
| Net cash used in operating activities | $(666,679) for the six months |
At June 30, 2019, total assets were $266.5 million, including $266.4 million held in the Trust Account. Cash and cash equivalents on the balance sheet were $4,005, while current liabilities were $2.2 million, including a $561,866 promissory note payable. Deferred underwriting fees were $9.7 million and ordinary shares subject to possible redemption were recorded at $249.6 million. Shareholders’ equity was approximately $5.0 million.
The filing reports no long-term debt, capital leases, operating lease obligations, or off-balance-sheet financing arrangements. The Trust Account was restricted for the business combination or shareholder redemptions and was not available for ordinary operating expenses.
Material Changes Versus the Prior Comparable Period
- Net income increased from a $4,588 quarterly loss and a $4,648 six-month loss in 2018 to $561,700 and $1.1 million of net income, respectively, in 2019.
- The improvement was driven by substantially higher interest income and unrealized gains on Trust Account securities, partially offset by significantly higher formation, transaction, and other operating expenses.
- Six-month operating cash use increased to $666,679 from $3,058 in the prior-year period.
- Cash and cash equivalents declined from $108,818 at December 31, 2018, to $4,005 at June 30, 2019.
- Accounts payable and accrued expenses increased to $1.7 million from $320,747 at December 31, 2018, and the company incurred $561,866 under a sponsor promissory note.
- Shares subject to possible redemption decreased to 24,159,018 from 24,361,111, while the redemption value increased to $249.6 million from $248.5 million.
Transaction, Outlook, Risks, and Unusual Items
Thunder Bridge entered into a merger agreement with Repay on January 21, 2019, as amended through June 19, 2019. The proposed transaction contemplated merger consideration of $580.65 million, subject to adjustments, paid in cash and exchangeable Repay units, plus potential earn-out units of up to 7.5 million. The parties extended the transaction termination date to July 31, 2019.
The transaction included a proposed $135 million PIPE investment at $10.00 per share and approximately $170.4 million of committed debt financing. Completion remained subject to shareholder approval, warrant-holder approval, financing and other closing conditions.
A proposed warrant amendment required approval by holders of at least 65% of the outstanding public warrants. It would reduce each warrant’s share entitlement to one-quarter of a share, retain an effective exercise price of $11.50 per whole share, and provide a $1.50 cash payment per warrant. Private warrant holders waived the cash payment.
The company disclosed substantial doubt about its ability to continue as a going concern because it had only $4,005 of reported cash, a working-capital deficit of $2.2 million, continuing transaction expenses, and no assurance that sponsor financing or other funding would be available. If the business combination was not completed within the required period, the company would cease operations, redeem public shares from the Trust Account, and liquidate; founder shares and warrants could expire worthless.
The company was required to complete a business combination by December 21, 2019 under its original combination period, while the Repay merger agreement separately permitted termination if closing had not occurred by July 31, 2019. The filing states that no material changes were identified in previously disclosed risk factors. A Nasdaq inquiry regarding certain persons and entities remained outstanding, although Nasdaq had not requested additional information as of the filing.
Management concluded that disclosure controls and procedures were effective as of June 30, 2019 and reported no material change in internal control over financial reporting.
Important Facts for Investors to Verify
- Confirm whether the Repay business combination, domestication, PIPE financing, debt financing, warrant amendment, and shareholder approvals were completed after the June 30, 2019 reporting date.
- Reconcile the filing’s conflicting liquidity disclosures: the balance sheet and cash flow statement report $4,005 of cash, while the MD&A refers to $159,379 of cash outside the Trust Account and $316,866 of sponsor advances.
- Verify the final redemption amount, number of public shares redeemed, post-transaction capitalization, dilution from exchangeable units, earn-out units, warrants, PIPE shares, and the 10% management incentive plan.
- Confirm the final amount and terms of debt financing and whether the $9.7 million deferred underwriting fee was paid.
- Assess the consequences of the proposed warrant amendment, including the $1.50 cash payment, reduced share entitlement, and required 65% warrant-holder approval.
- Review the Trust Account restrictions, liquidation protections, sponsor loans, redemption rights, and the going-concern disclosure.