Business context and reporting period
This filing is Hydra Industries Acquisition Corp.’s unaudited Form 10-Q for the quarter ended March 31, 2016. It describes a blank-check company seeking a business combination, not an operating entertainment company. The request metadata names Inspired Entertainment, Inc.; that does not match the registrant identified in the filing and should be verified.
Financial results and position
- Revenue: None; the company had not begun operations.
- Net loss: $246,360, or $0.08 per share, compared with a $186,287 loss, or $0.07 per share, in Q1 2015. Operating costs were $281,231 versus $195,089. Q1 2016 results included $21,174 of interest income and a $13,697 unrealized gain on trust investments.
- Cash flow: Operating cash use was $236,263, versus $255,747 in Q1 2015. Cash outside the trust account ended at $519,976, up from $256,239 at year-end 2015, including $500,000 in sponsor loans.
- Assets and liquidity: Total assets were $80.7 million, including $80.0 million in restricted trust assets intended for a business combination or related redemptions. Working capital deficit was $2.6 million; current liabilities were $3.3 million.
- Debt and obligations: The company had $500,000 of non-interest-bearing convertible notes from sponsors, due upon a business combination, and $2.8 million of deferred underwriting fees payable only if a business combination closes. Stock subject to possible redemption was presented as $69.6 million of temporary equity.
- Margins: Not meaningful because the company had no operating revenue.
Material changes versus the prior comparable period
Net loss increased by $60,073 year over year, while operating costs rose by $86,142. Operating cash use improved by $19,484. The company drew $500,000 of sponsor financing in March 2016; no such proceeds were reported in Q1 2015.
Outlook, risks and unusual items
- The company said it had terminated efforts on a prior potential business combination effective October 26, 2015; related contingent advisor fees were no longer payable.
- The 24-month business-combination period ran from the October 29, 2014 IPO closing. The filing warns that failure to complete a transaction within that period would trigger winding up and redemption of public shares.
- Management reported substantial doubt about the company’s ability to continue as a going concern: unrestricted cash was limited, liabilities exceeded current assets, trust funds generally could not pay operating liabilities before a transaction, and additional sponsor or third-party financing was not assured.
- A sponsor had committed, subject to conditions including its approval, to provide approximately $20 million in a private placement concurrent with a business combination. The filing provides no assurance that a transaction or this financing would occur.
- Management stated disclosure controls were effective and reported no material change in internal control over financial reporting. No legal proceedings or material changes to the prior annual report’s risk factors were reported.
Important facts to verify
- Confirm whether this Hydra Industries Acquisition Corp. filing is the intended filing for Inspired Entertainment, Inc.
- Verify the company’s business-combination status and deadline, and whether any transaction or liquidation subsequently occurred.
- Assess the availability of operating cash, payment status of accrued liabilities, and any further sponsor financing.
- Confirm the conditions and status of the approximately $20 million contingent forward purchase commitment and the $2.8 million deferred underwriting fee.