Business context and reporting period
The submitted Form 10-Q is for KBL Merger Corp. IV, not Forum Markets Inc. It covers the three months ended March 31, 2018; the interim financial statements are unaudited. KBL was a blank-check company seeking a business combination, with an intended focus on healthcare and wellness. It had not commenced operations and reported no operating revenue.
Financial results and position
| Metric | Q1 2018 | Q1 2017 or comparison |
|---|---|---|
| Operating revenue | None | None |
| General and administrative expenses | $137,873 | $31,260 |
| Interest income | $387,484 | None |
| Net income (loss) | $173,458 | $(31,260) |
| Basic / diluted EPS | $0.04 / $0.01 | $(0.01) / $(0.01) |
| Cash used in operating activities | $181,076 | None |
At March 31, cash outside the Trust Account was $340,087, versus $428,393 at year-end. Trust Account cash and marketable securities were $116,916,716, up from $116,588,017. Total assets were $117,307,526; total liabilities were $4,308,845, including $4,025,000 in deferred underwriting fees payable upon a completed business combination. The company reported no long-term debt. Current liabilities were $283,845.
Operating cash outflow was partly offset by $58,785 of Trust Account interest released for taxes and $33,985 of sponsor advances. The Trust Account held primarily U.S. Treasury bills. No operating margin is meaningful because the company had no operating revenue.
Material changes versus prior period
Compared with Q1 2017, the company moved from a $31,260 net loss to $173,458 net income, principally because of Trust Account interest income; general and administrative expenses also increased from $31,260 to $137,873. The 2017 comparative period had no operating cash flow activity reported, while Q1 2018 used $181,076 in operating activities. Cash outside the Trust Account declined by $88,306 from December 31, 2017.
Outlook, risks and unusual items
Management said it expected available working capital to meet needs through the scheduled liquidation date of December 7, 2018. The company had to complete a business combination within its applicable combination period or redeem public shares and liquidate; the notes refer to an 18-month period, or 21 months as applicable. Management disclosed substantial doubt about the company’s ability to continue as a going concern because of mandatory liquidation if no combination is completed. There was no assurance a transaction would be completed.
The sponsor or certain insiders could, but were not obligated to, provide working-capital loans; up to $1 million could be convertible into post-combination units. Public shareholders had redemption rights, subject to stated limits. Warrants and rights would expire worthless if no combination occurred. The company had a $10,000 monthly administrative-services fee payable to its sponsor and $4,025,000 of deferred underwriting fees. Management identified potential dilution and debt-related risks if equity or debt were used to finance a transaction. It reported no material change to risk factors previously disclosed in its 2017 Form 10-K, no legal proceedings, and effective disclosure controls.
Key facts for investors to verify
- Confirm the issuer identity: this filing names KBL Merger Corp. IV, not Forum Markets Inc.
- Verify the applicable business-combination deadline and any subsequent transaction or extension; the filing states a scheduled liquidation date of December 7, 2018.
- Assess the going-concern warning, limited cash outside the Trust Account, and dependence on completing a business combination or obtaining optional sponsor financing.
- Review redemption rights, the $4.025 million deferred underwriting fee, and potential dilution from warrants, rights, or convertible loans.
- Note that management reported no subsequent events requiring adjustment or disclosure through the financial-statement issuance review.