Business context and reporting period
This is M I Acquisitions, Inc.’s unaudited Form 10-Q for the quarter and six months ended June 30, 2018—not an operating-period filing for a standalone Priority Technology Holdings business. M I Acquisitions was a blank-check company and had not commenced operating activities or generated revenue. It was pursuing a business combination to acquire Priority Holdings, LLC, a payment-processing provider; upon closing, M I Acquisitions planned to change its name to Priority Technology Holdings, Inc.
Financial results and liquidity
| Metric | Three months ended June 30, 2018 | Six months ended June 30, 2018 |
|---|---|---|
| Revenue | None | None |
| Expenses | $381,372 | $702,600 |
| Interest income | $218,837 | $393,315 |
| Net loss | $162,535 | $309,285 |
| Basic and diluted loss per share | $0.15 | $0.28 |
There is no operating revenue or operating margin to assess. At June 30, 2018, total assets were $51.93 million, including $51.90 million held in trust; cash outside the trust was only $887. Current liabilities were $1.33 million, total liabilities were $2.39 million, and the filing reported a $1.30 million working-capital deficit. Outstanding notes payable totaled approximately $502,529, including $132,753 owed to related parties; a further $1.06 million deferred underwriting fee was payable upon a business combination.
Six-month operating cash use was $176,568. Investing activities provided $3.57 million, principally reflecting $3.96 million withdrawn from trust for shareholder redemptions, while financing activities used $3.57 million, principally for those redemptions. Cash outside the trust declined by $171,309 to $887. The trust held U.S. Treasury bills; management said short-term investments limited material interest-rate exposure. No off-balance-sheet arrangements were reported.
Changes versus the prior comparable period
For the quarter, net loss increased from $75,024 in 2017 to $162,535 in 2018 as operating costs rose to $351,372 from $132,035; interest income increased to $218,837 from $87,011. For the six months, net loss rose to $309,285 from $263,869, with expenses increasing to $702,600 from $407,501 and interest income increasing to $393,315 from $143,632. In June 2018, shareholders redeemed 377,231 shares for $3.96 million in connection with an extension of the business-combination deadline. The trust balance was $51.90 million at quarter-end, versus $55.08 million at December 31, 2017.
Transaction, outlook, and risks
The amended transaction agreement contemplated acquiring all of Priority for stock, using a stated $947.8 million enterprise value less Priority’s net debt, subject to adjustments. Up to 9.8 million additional shares could be issued under two earn-outs tied to combined-company adjusted EBITDA and share-price thresholds. A shareholder vote was scheduled for July 19, 2018; the filing does not establish that the transaction subsequently closed.
The amended deadline to complete a business combination was September 17, 2018. If no transaction closed by then, the company was required to redeem public shares and wind up, and warrants would expire worthless. Management stated that $887 of unrestricted cash was expected to be insufficient to fund operations to that deadline, that additional financing might not be available, and that these conditions raised substantial doubt about the company’s ability to continue as a going concern. The financial statements included no adjustments for a possible failure to continue as a going concern. Other identified risks included transaction approval or closing conditions, integration, financing, customer and employee retention, and failure to realize expected synergies. Management reported disclosure controls were effective and no material change in internal control over financial reporting during the quarter.
Important facts for investors to verify
- Whether the July 19, 2018 shareholder vote approved the Priority transaction and whether all closing conditions were met.
- The final transaction consideration, Priority net debt and any adjustments to the stated enterprise value.
- How the company funded expenses through the September 17, 2018 deadline and whether the going-concern uncertainty was resolved.
- The final effects of redemptions, financing, earn-out provisions, and potential dilution on post-transaction ownership.
- The filing describes M I Acquisitions as the reporting entity; its results do not represent Priority’s standalone operating performance. Verify Priority’s financial results in the relevant transaction and subsequent filings.