Business context and reporting period
The filing is a Form 10-Q for the quarter ended September 30, 2019, filed by KBL Merger Corp. IV—not Forum Markets Inc. KBL was a blank-check company focused on a business combination; it had no operating business or revenue. It had agreed to acquire CannBioRx Life Science Corp. and related entities under a July 25, 2019 business combination agreement. The proposed transaction remained subject to closing conditions.
Financial performance and position
| Metric | Q3 2019 / September 30, 2019 | Comparable period / prior year-end |
|---|---|---|
| Revenue | None | None |
| General and administrative expense | $225,699 for Q3; $786,980 for nine months | $140,271 for Q3 2018; $426,120 for nine months 2018 |
| Net income (loss) | $(21,790) for Q3; $198,975 for nine months | $319,613 for Q3 2018; $704,247 for nine months 2018 |
| Trust investment interest income | $255,254 for Q3; $1,203,538 for nine months | $547,270 for Q3 2018; $1,420,186 for nine months 2018 |
| Cash outside Trust Account | $836,034 | $270,884 at December 31, 2018 |
| Trust Account assets | $50,671,661 | $118,165,948 at December 31, 2018 |
| Total liabilities | $6,813,459, including $4,025,000 deferred underwriting fees | $4,571,067 at December 31, 2018 |
| Current liabilities | $2,788,459 | $546,067 at December 31, 2018 |
| Operating cash flow | $(1,160,205) for nine months | $(596,430) for nine months 2018 |
Q3 pretax income was $29,555, but a $51,345 income-tax provision resulted in a net loss. Nine-month net income declined from 2018, primarily alongside lower Trust Account interest income and higher operating expenses. Margins are not meaningful because the company had no operating revenue.
At September 30, 2019, current assets were $901,001, below current liabilities. Recorded current borrowings and advances included $412,301 under a related-party convertible note, $942,870 owed to CannBioRx parties, $650,000 under the Tyche note, and $696,926 in related-party advances. These balances are included in current liabilities; the company reported no long-term debt.
Material changes versus prior periods
- Trust Account assets fell by about $67.5 million from year-end 2018, largely following redemptions of 5,128,523 shares for $52.8 million in March and 1,580,762 shares for $16.5 million in June.
- Q3 general and administrative expense rose about 61% year over year; nine-month expense rose about 85%.
- Q3 net income of $319,613 in 2018 turned to a $21,790 loss in 2019. Nine-month net income fell to $198,975 from $704,247.
- The company formed a wholly owned merger subsidiary in July 2019 and entered into the CannBioRx business combination agreement that month. It received additional CannBioRx-party loans during August and September.
Outlook, risks, and unusual items
- The company reported substantial doubt about its ability to continue as a going concern, citing limited liquidity and the December 9, 2019 deadline to complete a business combination. It said additional financing might not be available and could be needed to continue pursuing a transaction.
- If no transaction closed by the deadline, the company would cease operations, redeem public shares from the Trust Account, and liquidate. It stated it intended to seek an extension.
- The CannBioRx deal contemplated $175 million of shares, subject to adjustment, including a reduction for CannBioRx liabilities above $5 million. Tyche had agreed to provide equity financing intended to help satisfy the $5,000,001 net tangible assets requirement; closing was not assured.
- Trust funds were primarily invested in short-term U.S. Treasury securities. Management said interest-rate exposure was not material. The filing reported no off-balance-sheet financing arrangements or legal proceedings.
- Related-party funding, transaction contingencies, possible public-share redemptions, and the deferred underwriting fee are material to assessing the proposed transaction and liquidation outcomes.
Most important facts for investors to verify
- Confirm the registrant identity: this filing is for KBL Merger Corp. IV, notwithstanding the request metadata naming Forum Markets Inc.
- Check subsequent filings for whether the CannBioRx transaction closed, was amended or terminated, and whether the December 9, 2019 deadline was extended.
- Review available closing financing, redemption levels, and the actual amount of cash and net tangible assets at any transaction closing.
- Reconcile the Trust Account figures: the balance sheet reports $50.672 million at September 30, while one MD&A passage gives $49.933 million after the June redemptions; the filing does not clearly reconcile that figure with the later balance.
- Verify repayment, conversion, or other treatment of related-party and CannBioRx/Tyche obligations, as well as the deferred underwriting fee and escrowed founder shares.