Business Context and Reporting Period
This unaudited Form 10-Q covers the three and nine months ended September 30, 2020. The filing is by Mountain Crest Acquisition Corp., a special purpose acquisition company (SPAC), not Playboy, Inc. The company had not commenced operating activities or generated revenue and was formed to pursue a business combination.
On September 30, 2020, Mountain Crest entered into a merger agreement to acquire Playboy Enterprises, Inc. (PEI). The proposed transaction contemplated approximately $381.3 million of consideration, consisting primarily of 23.92 million Mountain Crest shares valued at $10.00 per share and the assumption of up to $142.1 million of PEI net debt, subject to adjustment.
Financial Results and Key Metrics
| Metric | Three Months Ended September 30, 2020 | Nine Months Ended September 30, 2020 |
|---|---|---|
| Operating and formation costs | $153.6 million | $176.6 million |
| Interest income | $19.0 thousand | $23.0 thousand |
| Net loss | $134.5 thousand | $154.4 thousand |
| Basic and diluted loss per share | $0.06 | $0.09 |
| Net cash used in operating activities | Not provided | $194.0 thousand |
- The company had no operating revenue, operating margin, or EBITDA. Its results primarily reflected SPAC formation, public-company, and transaction-related expenses.
- At September 30, 2020, cash outside the Trust Account was $235.3 thousand, while marketable securities in the Trust Account totaled $58.7 million.
- Working capital was $283.9 thousand, excluding $31.3 thousand of franchise taxes payable expected to be paid from Trust Account interest.
- Liabilities totaled $2.1 million, including a $2.0 million deferred underwriting fee payable. The filing reports no long-term debt, capital leases, operating leases, or other long-term liabilities.
- Common stock subject to possible redemption was $51.9 million, representing 5,090,066 shares.
- Cash provided by financing activities was $59.1 million, principally from the IPO, private placements, and collection of the founder-share subscription receivable. Cash used in investing activities was $58.6 million, reflecting deposits into the Trust Account.
Material Changes Versus the Prior Comparable Period
Meaningful year-over-year comparisons are not available because the company was incorporated on November 12, 2019 and had no operating activity at December 31, 2019. Compared with December 31, 2019, the company completed its IPO and private placements, established the Trust Account, increased total assets from $0.1 million to $59.0 million, and increased stockholders’ equity from a deficit of $0.5 thousand to $5.0 million.
During June 2020, the company sold 5,749,800 public units and 355,241 private units, generating aggregate gross proceeds of approximately $60.7 million before offering costs. The underwriters partially exercised their over-allotment option, and $58.6 million was deposited into the Trust Account.
Guidance, Outlook, Risks, Contingencies, and Unusual Items
- The company intended to use substantially all Trust Account funds to complete the PEI business combination. Completion remained subject to customary closing conditions and other terms in the merger agreement.
- The company had until June 9, 2021 to complete a business combination, with up to three three-month extensions available if the Sponsor or its designees deposited $500,000 per extension, or $575,000 if the over-allotment option had been exercised in full.
- If no business combination was completed within the permitted period, the company would cease operations, redeem the public shares using Trust Account proceeds, and liquidate. Public rights could expire worthless.
- Management stated that substantial doubt existed about the company’s ability to continue as a going concern through June 9, 2021 because its cash outside the Trust Account was limited and additional Sponsor or insider funding was not committed.
- The $2.0 million deferred underwriting fee would become payable from Trust Account funds only if a business combination were completed.
- COVID-19 could negatively affect the company’s financial position, operations, or ability to identify and complete a transaction, but the specific impact was not determinable at the reporting date.
- The Trust Account was invested primarily in short-term U.S. Treasury securities. The filing identified potential negative-interest-rate risk that could reduce the per-share redemption amount below $10.20.
- The company reported effective disclosure controls and no material change in internal control over financial reporting. No legal proceedings were reported.
Important Facts for Investors to Verify
- Verify that the relevant issuer is Mountain Crest Acquisition Corp. and confirm the status, closing conditions, required approvals, and final consideration of the proposed PEI transaction.
- Reconcile the Trust Account balance, redemption shares, deferred underwriting fee, and the amount available to public shareholders if the transaction fails.
- Assess the dilution from the proposed 23.92 million closing shares, public rights, private units, founder shares, and the underwriter’s unit purchase option.
- Review PEI’s separate financial statements, debt balance, operating performance, and the final net-debt adjustment under the merger agreement.
- Confirm the company’s liquidity needs outside the Trust Account and whether Sponsor or insider financing was subsequently obtained.
- Review the June 9, 2021 liquidation deadline, any extension funding, and the consequences for public shares, rights, and private securities.