Business context and reporting period
This is Trident Acquisitions Corp.’s Form 10-K for the fiscal year ended December 31, 2020, filed March 30, 2021. The filing identifies Trident as a blank-check company and shell company, not an operating business; it reports no operating revenue. The request metadata names Sports Entertainment Gaming Global Corp, which does not match the registrant in the filing.
On February 21, 2021, after year-end, Trident agreed to combine with AutoLotto, Inc. (Lottery.com). The transaction was pending at filing and remained subject to stockholder approvals, an effective Form S-4 registration statement, and other closing conditions.
Financial results and liquidity
| Metric | 2020 | 2019 |
|---|---|---|
| Revenue | None | None |
| Operating costs / operating loss | $1.386 million | $1.100 million |
| Interest income from trust investments | $348,425 | $4.324 million |
| Net income (loss) | $(809,047) | $2.533 million |
| Cash used in operating activities | $1.849 million | $1.525 million |
Revenue-based margins are not applicable. The 2020 result also included $11,180 in tender-bid refund income and a $217,086 income-tax benefit. 2019 income reflected substantially higher trust interest.
At December 31, 2020, cash outside the trust was $972,787; trust investments were $63.405 million, down from $74.377 million a year earlier, primarily amid shareholder redemptions. Total assets were $64.661 million and total liabilities $10.432 million. Current liabilities included $5.075 million of non-interest-bearing related-party notes, generally payable on demand, and the company had a $5.031 million deferred underwriting fee payable upon a completed business combination. Stockholders’ equity was $5.000 million; $49.228 million of redeemable shares was presented as temporary equity.
Management reported adjusted working capital of $738,956, excluding specified tax balances and notes due at a business-combination closing. Trident had no long-term debt or off-balance-sheet arrangements. Cash used in investing activities was $11.320 million, while financing activities used $8.554 million in 2020.
Material changes and transaction terms
- Net results shifted from $2.533 million income in 2019 to an $809,047 loss in 2020, as trust interest fell and operating costs rose.
- Shareholders redeemed shares in several extension votes during 2020. At year-end, 11,967,720 common shares were outstanding, excluding redeemable shares; 4,494,641 shares were classified as subject to possible redemption.
- The proposed Lottery.com transaction provides for 40 million Trident shares as base consideration, valued in the filing at approximately $444 million using $11 per share. The share consideration is subject to reduction if Lottery.com net indebtedness exceeds $10 million.
- Up to 6 million additional shares for Lottery.com sellers and up to 4 million shares for specified founder holders could be earned against post-closing share-price targets of $13 and $16. The filing describes the targets and periods; these shares are contingent, not guaranteed.
- After closing, the company was to be renamed Lottery.com, with four of five board seats designated by Lottery.com. The filing does not provide clear post-transaction pro forma financial metrics for the combined company.
Outlook, risks and unusual items
Trident’s business-combination deadline was extended to June 1, 2021. The company said it needed additional capital for working capital and transaction costs; further loans from insiders or affiliates were possible but not committed. Management and the auditor stated that these conditions raised substantial doubt about the company’s ability to continue as a going concern through that deadline if no business combination closed. The financial statements contain no adjustments for a possible failure to continue as a going concern.
If no combination were completed by the deadline, Trident would cease operations and redeem public shares, subject to creditor claims and applicable law; warrants would expire worthless. Trust proceeds could be reduced by creditor or bankruptcy claims, and the filing notes possible stockholder exposure to certain claims following liquidation. COVID-19 could adversely affect the company’s financial position, operations, or target search, although its specific impact was not determinable.
Management reported effective disclosure controls and internal control over financial reporting at year-end. The auditor gave an unqualified opinion on the financial statements but included a going-concern explanatory paragraph; the auditor did not express an opinion on internal-control effectiveness. Trident was an emerging growth company and did not include an auditor attestation of internal controls.
Important facts for investors to verify
- Confirm whether the Lottery.com transaction closed, its final consideration, net-debt adjustment, financing, redemptions, and post-closing capitalization; the 10-K only describes a pending agreement.
- Review Lottery.com’s audited historical financial statements and the Form S-4 for operating performance, cash needs, liabilities, and pro forma results; these figures are not clearly provided here.
- Assess liquidity and repayment terms for the $5.075 million related-party notes, including which are payable on demand and whether additional financing is available.
- Check the June 1, 2021 deadline and subsequent company filings for extensions, transaction completion, or liquidation developments.
- Evaluate dilution from seller and founder earnouts, warrants, the underwriter’s unit option, and any securities issued to settle working-capital loans.
- Review the trust balance available after taxes, deferred underwriting fees, any further redemptions, and potential creditor claims.